Investing in technology

If you had asked any (re)insurance industry CEO before this year what their top spend would be for 2021, it’s doubtful that many would have said IT systems.

Certainly, many larger firms have been upping their technology investment in terms of partnering with, acquiring or even launching their own InsurTech ventures. A number of firms were also ahead of the game in equipping their staff with laptops and virtual conferencing software to make their workforce more agile.

And there has been plenty of talk, particularly in the broker space, about investing more in the collection, processing and utilisation of client data.

But it can be hard for those people in charge of the tech functions of an organisation to persuade the top team that there is a sound business case for investing in things like back office software systems and data storage – even when they hold a C-suite position.

Jamie Althorp is the insurance lead for consulting firm Accenture UK, working across the life and pensions, retail/personal lines insurance and London market commercial insurance sectors.

His practice consults on technology outsourcing, implementation and strategy work across multiple clients in these sectors and he says attitudes towards technology investment from C-suite executives in client companies tends to be “a mixed bag”.

“There are some that absolutely see [technology] as an enabler and there are some that see it as a cost centre. I think there is a correlation between those that see and treat it as an enabler and those organisations that have the best business results.”

However, he concedes: “There are some terminally under-invested IT departments in the London market at the moment.”

Just as coronavirus has forced companies in the (re)insurance ecosystem to quickly adapt to remote working, there are likely to be other technological gear changes ahead, but will firms take this year’s lesson on tech-enabled agility to look at tech spending in other areas.

Corporate IT consultant Northdoor has been working with the insurance industry for over 30 years. And according to the firm’s chief commercial officer, AJ Thompson, one of its early projects was trying to modernise the insurance market towards widespread use of electronic messaging.

“So, 31 years later we’re almost there, in true insurance style,” he says.

In addition to developing its own suite of off-the-shelf applications and implementing and supporting these for clients, the firm has also worked on bespoke software solutions, such as a group administration system for life business, that it developed for Munich Re and has since sold on the firm’s behalf to other carriers.

According to Richard Jefferies, Northdoor’s client manager for insurance, the company provides both products and IT services to a client base of predominantly carriers. In the case of some smaller Lloyd’s syndicates, it also provides a significant proportion of the carrier’s IT capabilities.

“As they get bigger, that’s when our engagement with them changes. Some of [our clients] are large multinational carriers, so they’re not going to use Northdoor to do everything; we’ll be a part of their [supply] system and they might pull us in to troubleshoot, or as a provider of data platform and analytics solutions.”

In the case of Accenture, says Althorp, while the firm is probably best known for strategy and consulting work, the greatest part of what his division does is technology – whether implementation, running systems or migrating data and services to the cloud.

“We’ve also got a growing media and advertising practice - Accenture Interactive - and we have an operations group which looks at business outsourcing,” he says.

As well as the tech firms and the consultants, intermediaries also play an increasingly large part in the provision of technological services to the (re)insurance sector.

Dave Ovenden bears what is quite possibly the longest job title in the sector, as global director for pricing, product, claims and underwriting (PPCU) in the Insurance Consulting & Technology [ICT] division at Willis Towers Watson.

In some cases, that consultancy piece may involve supplying benchmarking analysis to a newly appointed C-suite executive on precisely what data and technology assets they have inherited with the role.

But increasingly, says Ovenden, clients engage the firm to map out their tech strategy ambitions.

“For example, if my business strategy is X, I need to understand what underlying infrastructural capability, capacity and process I need to change to get from where I am, to where I want to be. We do a lot of roadmap stuff around the technical functions,” he explains.

The broker also runs a number of software platforms and has a relationship with insurance systems and software supplier SSP to provide analytics as a service.

However, says Ovenden, when the unit is called in to talk to company boards “we often talk about pace and agility”.

Agility is a growing buzzword in the (re)insurance space, and not least in terms of companies’ technological capabilities.

“I’ve got a large carrier who [has] seven policy admin systems,” says Northdoor’s Jefferies. “They’ve got so much technology that been built up through mergers and acquisitions, and they are going through the issue of how to deal with the legacy and how to manoeuvre it into a more manageable shape.”

The issue for firms in this position is that, understandably, nobody wants to switch off software platforms that are processing transactions. Often, the solution for dealing with multiple legacy systems is to keep patching up the software, so long as it does more or less what it is supposed to.

However, as Accenture’s Althorp points out: “Legacy on its own isn’t a problem; it’s what it does to the business. It means you can’t be agile. Every change you want to make starts costing orders of magnitude more and takes you more time – and that kills agility.”

But before embarking on any kind of massive transformation project, firms have to consider whether this level of change is wholly necessary and cost-effective.

Althorp says that while the costs of IT implementation are often dwarfed by the wider operational costs of the business, the business case for upgrading tech can appear less tangible to management, particularly for smaller organisations.

“It can sometimes be quite marginal between staying on the old tech and keeping it running, and investing now and releasing some benefits later on,” he says. “The current environment doesn’t lend itself well to investments with potentially quite a long payback period. But those that don’t invest now may see problems further down the line.”

And indeed it can prove to be a source of needless expense. As Althorp suggests, where a company has, for example, two software platforms, ‘A’ and ‘B’, it’s not always the right answer to discard both and implement a new one, platform ‘C’.

He goes on: “Sometimes the answer is actually that [while] package A is not the newest platform, it’s more than capable of doing the job, and it’s fully depreciated on the balance sheet – so that’s actually the right one to consolidate onto. It’s about understanding how to leverage the technology.”

Ovenden agrees that the absolutist approach to upgrading software platforms is not always the answer.

“In the past you had a stark choice – you either lived with your legacy system or you ripped it out and replaced it with a next generation, one-size-fits-all giant machine. You don’t have to do that now, you have choices. So that might mean you choose a CRM [customer relationship management] platform, a workflow platform, or a decision engine. With those things, you can add life to your legacy platform and de-risk it.”

Possibly one of the biggest changes in the tech landscape over the last decade has been the move to cloud computing.

The cloud has its detractors, particularly around the security offered by external suppliers. However, says Althorp, cloud computing is a growth area for his consultancy team, “as clients start to recognise that the froth has disappeared from cloud and realise that it actually has tangible benefits for their business”.

Northdoor’s Thompson says that while there is a great deal more discussion in the industry about cloud orientation, “we’ve found that their actual move to the cloud is negligible”.

“Their business is risk, so anything that changes in their world they view as a risk, so they try to minimise that,” he says.

The key determinant for greater cloud use is similar to that for upgrading proprietary software platforms – it has to have a compelling business case, and one that isn’t purely about cost.

“Commodity cloud was where the bulk of the cloud work five years ago was coming from – ‘I’ve got this data centre, it cost me X, if I was to move to the cloud I could pay Y’ - that was a CIO agenda of cost saving,” says Althorp.

He says the conversation has now moved on, to clients realising that “there are some massive benefits of cloud, because you’ve got that resilience aspect”.

“I think now people are [also] comfortable with the security aspects,” he continues. “Most organisations and even the regulator would acknowledge these days that, frankly, some of the cloud providers provide a more secure infrastructure than you could do yourself.”

Data is the lifeblood of (re)insurance, so it comes as little surprise when Northdoor’s Jefferies notes: “Data is the one thing that everyone keeps talking about in the industry. Insurers are trying to incorporate more data into their decision-making process. And it’s not just the data they’ve got but also new data sources.”

He suggests that, if you go back a few years, many insurance carrier’s core data platforms were not fit for purpose, which is why the firm has been doing a great deal of work with clients on data platform modernisation.

“If you want to move from a descriptive analytics state, to a kind of predictive and prescriptive [state] you need have the core platform in working order. You’ve got to know what data you have, where it is, what the quality is, and who’s doing what with it,” he says.

“Things like GDPR enforced some of that. People had to know what data they had and where it was [to] clean it up and get rid of the stuff they didn’t need.”

With the London market and Lloyd’s becoming ever-more inter-connected, particularly with the explosion in digital working this year because of coronavirus, getting the right data format, standards and connectivity has been critical, he says.

Another key area of concern for the industry is the potential for firms to make use of novel data assets which, as Ovenden suggests, either only they possess (and haven’t yet made use of them) or that they hasn’t been fully aware of previously.

He cites the example of a mutual insurer that closes renewals and new business “at the fireside”, through their agents’ personal visits to clients.

“Those conversations are immensely valuable, because you’ve got a lot of personal insight about what are often family-run businesses. Good agents will feed that insight back into the centre, but if you could systematically capture that in the aggregate then, all of a sudden, it lifts the whole business.”

However, he notes, these data assets are often vast and unstructured, which is where a dedicated technological solution could help enormously. “That’s a proper challenge and the people who do it well will win,” he says.

Cyber may have been one of the fastest-growing classes of business in the past couple of years but that doesn’t mean every firm in the (re)insurance sector has a handle on their own cyber exposures.

As Northdoor’s Thompson puts it: “Cyber is the single biggest issue facing the IT world right now. We haven’t even started to see the volume of organisations that could be wiped out.”

The move to remote working has been a relatively seamless transition for some, and perhaps more of a shock for others, but it has heightened the level of exposure across the sector to risks like data breaches, phishing emails and ransomware attacks.

Thompson says Northdoor has been kept busy in recent times running webinars around insider risk and other cyber concerns for insurers. “It allows you to look at your own business and also at anyone in your downstream supply chain, because that’s typically where your exposures lie,” he says.

“People have not taken cyber at all seriously, and you can see that not only from the level of cyber [protection] people have themselves, but the rates that are charged for cyber by insurers,” he argues.

Accenture acquired a company called Context Information Security last year, precisely to deliver cyber security consulting services to its clients.

“[Cyber crime] is a real threat. It’s not something consultants have made up to try and generate business. And organisations have to do everything they can to mitigate that threat, and not just to avoid the GDPR fines – they’re bad, but not as bad as the reputational impact,” says Althorp.

The move to greater digitisation of the (re)insurance market may have moved technology further up the agenda in terms of company resilience and agility, but that doesn’t mean that IT departments are suddenly going to get all their Christmas wishes at once.

However, all of the tech consultants that Insider Engage spoke to agreed that a changing market dynamic, a shifting cyber risk landscape and a continuing emphasis on flexible working mean companies are going to have to take another look at their investment and approach to technology.

“There’s an acceptance that companies have got to modernise,” says Thompson. “A lot of organisations have changed their mentality and their attitude towards remote working, but that comes with an inherent cost – and that cost is increased risk.”

“Ironically, Covid was probably one of the best things ever for proving that, actually, business doesn’t need to be face-to-face,” says Althorp, who points out that Accenture was an early adopter of Microsoft Teams for virtual conferencing.

Jefferies similarly highlights the impact of coronavirus on digitisation. “The pandemic has been a massive proof of concept that’s been forced on people – and it’s proved that it does work, so [just] get on with it,” he says.

“What I’m seeing with the industry in general is pockets of innovation around digital, where the frontline business is looking at how they can engage better with their clients, and at technology that can support that.

“But there’s still the core requirement to get your house in order - because the operational costs of an insurer are still massively high.”

In terms of some immediate things to consider, sorting out the basics is a good place to start.

“There’s a lot of ‘sexy’ InsurTech stuff out there, but to really get the benefit from a lot of this you need some strong foundational things,” says Willis Towers Watson’s Ovenden.

“You need a good data strategy and infrastructure. If you can’t manage your own exposure and claims data assets well, then it’s really difficult to get the maximum benefit out of big data, analytics, and InsurTech.”

Althorp’s first piece of advice with regard to transforming your firm’s tech setup is “Don’t ignore it.” “If you’ve got old technology you should at least be looking at it on a regular basis to see if [upgrading it] is the right thing to do.”

He also urges companies to look as closely at their “ways of working” as at their technology platform. “You could have the newest platform ever, but if your ways of working are legacy ways of working, you’ll still get a legacy-like service.”

Ovenden also has some useful advice about incorporating data management into your tech strategy.

“A common thing that we see is that [companies] think about data at the end of the project, not at the beginning - but by the time you get to the end of the programme you could have run out of money.”

He also advocates making us of current technological innovations to improve underwriting performance.

“We dubbed 2020 ‘The year of portfolio management’ – and Covid is a fantastic reason why you absolutely must have portfolio management. Right now we are staring at an economy where everything you thought you knew about a trade could be completely wrong.”

Ovenden also recommends that, alongside getting the basic rights, firms should also consider dipping a toe into the innovation pool, with “a couple of things which are a little bit ‘sexy’”.

“Do a couple of meaningful projects that involve machine learning, so that you’ve got something to communicate to the market, to say “we are a forward-looking organisation,” he explains.

“For example - getting something out of your unstructured claims data. You might have a problem with data quality, historically. One way to resolve that is to machine-read the text file and then train a model to work out what the underlying claim is - rather having a database full of ‘other’ or ‘unknown’.

“Doing some of that stuff – it’s machine learning, it’s stuff you want to talk about, and it’s supporting your underlying business.”