From the many thought-provoking conversations that Everest Group analysts engaged in at Formation ’23, three main themes emerged about the future of insurance technology. These priorities are: integrating a humanized and people-centric approach, leveraging data to make intelligent decisions, and strongly emphasizing the Software-as-a-Service (SaaS) ecosystem. In this blog, we will take a closer look at these growing trends and explore their potential impact on the insurance industry.
Formation ’23 on May 8-10, hosted by Duck Creek Technologies (DCT), provided an excellent opportunity for Everest Group analysts to engage in exciting conversations with the community of insurance enterprise leaders, technology providers (from DCT and its solution partners), system integrators, consulting firms, and other analysts, about what will drive the next era in insurance.
Based on the dialogue we heard, the following three themes stood out to our team:
Building humanized and consistent experience will be the key to success
Delivering high-quality personalized customer experience is taking center stage in the insurance industry’s current transformation as carriers move from their traditional role as loss payors to becoming empathetic insurers and guardians for customers.
Digital experience platforms, distribution management systems, and smart communication platforms are becoming increasingly relevant to streamline operations, provide seamless and consistent digital experiences, and engage customers more effectively.
Data will play an important role here by equipping insurers with the right information that they can use to personalize and humanize the experience for individual customers. Interestingly, DCT also gave us a preview teaser of its new product – Elea, an AI-powered and empathy-driven chatbot slated for release later this year.
Infusing data and intelligence into insurance operations is the industry’s top priority
Data-driven intelligent decisions are a key priority for the industry. As the insurance industry moves toward AI-powered workflows, infusing data and having standard data models at a value chain and workflow level will be a major demand.
We found it interesting to see various point solutions offered by technology providers, such as CogniSure’s AI platform, which helps automate the underwriting process by converting structured and unstructured data to improve efficiency and effectiveness.
We also heard many discussions about early use cases of Generative AI (GAI) for operational tasks (emails, presentations, etc.), GAI-powered chatbots, and writing codes. But concerns remain about using this fast-growing technology in core operations.
SaaS sprawl requires attention
SaaS sprawl was another theme that dominated conversations. While the point solutions across the value chain come with the benefit of speed to market and bridge the capability gap on the top of core systems, integration across these remains a concern as these solutions often don’t talk with each other.
Enterprises leveraging a wide number of these point solutions now see the need for digital rationalization. Most of these software platforms have evolved and added new functionalities. But enterprises are not taking advantage of the latest features because they are either unaware of these benefits or because they are paying for other software with the same purpose. This leads to duplicate costs and less value.
These conversation themes and focus areas resonate well with what we expect from the industry in this environment, but we felt some upcoming trends did not get enough attention from the community – low code/no code technology being the most prominent one.
As always, Formation ’23 was a great experience for Everest Group to interact, learn and exchange thoughts and points of view with industry leaders about the future. The fun atmosphere in Orlando, Florida, complete with country music, delicious food, and drinks, added to the interesting conversations, resulting in lasting memories.
To discuss these insurance technology trends in more depth, please contact Ronak Doshi and Roma Juneja, who attended this insightful event.
Heightened momentum for technology-first and automated operations is elevating customers’ need for greater convenience, instant gratification, faster turnaround time, and more self-service options. Today’s digitally-immersed consumers have grown accustomed to doing business anywhere, at any time, and with any device, and this is shaping up the new normal of the insurance industry; transforming the insurance claims journey becomes a pivotal priority for Property and Casualty (P&C) carriers to meet demands for a customer-centric hyper-personalized experience driven by digital technologies. Read on to learn more about the zero-touch claims of the future vision and how to achieve it.
Leading InsurTechs with pure-play digital models are heating up the competitive landscape, making it imperative for traditional insurers to optimize their claims functions. An insurer can achieve future goals by accelerating the adoption of next-generation capabilities.
Amid the digital shake-up and rising demand for delivering an “Amazon-like” experience, insurance operations are plagued with workflow complexities caused by multiple intermediaries and legacy systems. Digital and emerging technology solutions can help insurers reshape the customer claims journey and improve turnaround time while reducing information leakages and fraud and delivering a superior customer experience.
Foundational pillars of a digital-claims future
To embark on a transformational claims journey, insurers need to go beyond traditional after-the-fact claims management, tap into the plethora of available data to unlock immense value, and focus on offering omnichannel experiences powered by intuitive digital technologies. P&C carriers will need to excel at the 3Es: experience, efficiency, and effectiveness.
Winning P&C digital claims offer a compelling digital experience and strengthen customer loyalty. Insurers can differentiate themselves by supporting each touchpoint in the claims journey – starting even before an incident occurs – with data, artificial intelligence (AI), analytics, and other emerging technologies—all while retaining the human touch.
By offering seamless omnichannel customer experiences across claims registration, disputes, timely process updates, final settlements, insurers can improve customer satisfaction and retention rates. This is crucial given that Everest Group’s research shows ~35% of P&C insurers’ priorities across claims management are focused on enhancing customer experience (based on an analysis of 60+ case studies involving claims modernization/transformation).
Insurers also need to drive superior efficiency by enabling data-driven and analytics-driven claims processing. This ensures focus on effective service delivery to reduce claims expenses, while improving claims handling accuracy and ensuring greater customer satisfaction.
Bridging the gap between current and future digital claims-processing
With innovation growing throughout the P&C insurance industry value chain, AI/Machine Learning (ML)-enabled tools eventually will help insurers redefine their roles from claim handlers to claims preventers. P&C carriers flourish when they embrace this mindset shift from a risk transfer to a risk mitigation model.
Insurers can unlock value in the claims industry by employing the internet of things (IoT) and telematics capabilities combined with the connected devices ecosystem and third-party data to identify red flags and alert customers of risks before any loss occurs.
Insurers need to look beyond mere cost-savings, accurately utilize the wealth of data they possess, and transform claims from a necessary back-office function into a source of competitive advantage and market differentiation. Below is a look at the key steps to reach a seamless claims settlement:
Exhibit 1:
Source: Everest Group
Rigid legacy systems for claims processing can present challenges for insurers and prohibit them from adapting to the evolving customer requirements and optimizing their operations. Legacy IT processes slow progress and innovation, eventually affecting the end-user experience that holds the potential to make or break insurers’ reputations. Taking a one-size-fits-all solution approach for different business lines, failing to adopt modular design principles, and having limited advanced systems skills add to the overall complexity and further weaken the ability of insurers to thrive in today’s competitive environment.
To attain a competitive edge, insurers require instant resolutions and digital experiences on the go. Leading insurers are harnessing the power of unified and custom low-code/no-code platforms with advanced AI and analytics tools to streamline claims processes, modernize systems, and build modern layers on top of existing legacy systems or other core platforms without involving time-intensive and expensive upgrades. This allows insurers to build reusable codes and design “plug and play” environments to deliver enterprise-grade solutions at speed and scale. Low code makes it easy for carriers to simultaneously focus on profitability, enhance customer experience, and fulfill the vision of balancing quick wins with strategic initiatives.
The need for digitalization of workflows and customer interfaces, convenient user journeys, reusability of components and faster configurations, cost optimization, and skill management are the top drivers fueling the demand for low-code/no-code technology for insurers in modernizing the claims process.
For instance, a leading global insurer used a low-code platform to create an intuitive and dynamic first notice of loss (FNOL) prototype application in just 90 minutes and transformed it into a fully functional mobile application for 2,000-plus users in four weeks, delighting customers.
Where do the opportunities lie?
A combination of agile insurance claims process/operating model transformation, adoption of advanced technologies and telematics, a skilled workforce with technical and domain expertise, and a connected partner ecosystem are the fundamental facilitators for the probable future of zero-touch claims.
In the future of claims processing, P&C insurers will be able to facilitate touchless claims decisions, accelerate payment settlements, assess indemnity obligations accurately, prevent fraud, and mitigate claims litigation losses.
Exhibit 2:
Source: Everest Group
Below are the key elements needed to move from the current state to claims of the future:
Acting quickly and flexibly: The rapidly changing environment is compelling insurers to keep up with the pace. Incumbents need to act fast, develop and launch new products, accelerate FNOL processing, and streamline claims management quickly to stay relevant. The need for agility is greater than ever. Adopting the latest technologies and processes will propel P&C carriers to move faster and separate leaders from laggards
Adopting advanced analytics and AI: Real-time sensor and IoT data coupled with AI and ML-backed algorithms will enable insurers to process claims efficiently and manage fraud without any human intervention. For instance, leading insurers are using an AI model embedded within the claims workflow to assign a complexity score to each claim based on multiple parameters and process all low-risk claims under a certain threshold. Low-complexity claims are routed for straight-through processing while high-complexity claims are sent to the right team depending on the claims adjuster’s specialization and availability, thus ensuring speed and accuracy
Transforming talent management strategy: Modernizing the claims journey requires relying on advanced technologies and a skilled workforce to manage emerging risks. Insurers need to enhance their long-term value proposition to attract skilled workers with technical and domain expertise
Partnering with digital claims solution providers: Building partnerships with solution providers can support carriers in extracting maximum value by utilizing the provider’s end-to-end digital claims solutions portfolio. Advanced capabilities across core functions include claims notification, adjudication, and settlement to fulfill P&C carriers’ needs across the claims value chain
To achieve the zero-touch claims of the future vision and keep up with leading competitors, insurers will need to invest in advanced technologies and drive value creation by taking a more proactive and customer-centric approach.
Successful insurers who can deliver a hyper-personalized experience will generate superior efficiency and leverage data and ecosystem insights to proactively detect fraud. Above all, this transformation improves the claims ratio by building predictive and preventive capabilities. Insurers who take these steps will emerge as industry frontrunners.
A looming global recession may finally take its toll on payers who have escaped prior economic challenges. Let’s take a look at the healthcare trends influencing decision-making by payers, the markets most likely to be affected, and the actions payers can take with the uncertain outlook.
Wall Street predicts that the probability of a global recession in 2023 is 61%, well above the stable benchmarks. Although inflation has eased up marginally since the last quarter, tighter financial conditions and weaker global growth still indicate a potential downturn.
The healthcare industry historically has weathered economic collapses better than core industries that are generally more severely impacted. A Forbes assessment shows that while the US economy (as measured by GDP growth) plunged into recession eight times over a 60-year period from 1960-2020, healthcare expenditure growth never shrunk, often outgrowing gross domestic product (GDP) as illustrated in Exhibit 1.
This stability is primarily because impacted employees either opt for subsidized government programs or forego medical care, as applicable, pushing the healthcare cost to the future. As a result, health plans tend to be relatively less affected due to recessionary headwinds. In fact, reports suggest that earnings for healthcare payers declined only by 27% compared to a 77% decrease for the overall S&P 500.
Exhibit 1: Real GDP growth and national health expenditure growth 1960-2020
Although many healthcare payers posted strong growth rates at the end of fiscal year 2022 as shown below (Exhibit 2), the results may not be as positive in 2023, particularly for employer-sponsored or provider-owned health plans.
Exhibit 2: Year-over-year growth rate by revenue for healthcare payers
The overall impact on the payers in the fiscal year 2023, however, will be determined by several upcoming trends. Let’s look at some of these influencing factors in detail below.
Exhibit 3: Major healthcare trends defining the decision-making process of payers in 2023
Medicaid redetermination: As states kickstart Medicaid redetermination in April 2023, over 15 million Medicaid members are expected to lose their enrollment after the renewal process. Several payers, such as Centene, expect to lose about 2.2 million members over the next 18 months. On the other hand, payers like Humana and Molina Healthcare project their Medicaid membership to be largely stable due to new Medicaid contracts offsetting redetermination losses
Prior authorization rule: The CMS Interoperability and Prior Authorization rule requires regulated payers (Medicaid, Medicare, CHIP, and QHP) to utilize Application Programming Interfaces (APIs) that give healthcare providers more streamlined access to data. Payers will be required to maintain these APIs using the Fast Healthcare Interoperability Resources (FHIR) standard. This regulation is expected to bring effective workforce utilization, improved data exchange, reduced appeals, and, in turn, more timely claims disbursal
Inflation reduction act: Starting this year, Medicare will be allowed to negotiate prices for prescription drugs with pharmaceutical companies. Apprehensions are high that this will lead to cost-shifting to privately funded and employer-sponsored health plans. Or, the reverse also could be true, and privately-funded plans may demand similar negotiations along the lines of Medicare to avoid overpaying for healthcare. Moreover, the Part D plans will have to bear higher responsibility in the catastrophic phase as the law puts a spending and inflationary cap on out-of-pocket expenditure beginning in 2025
Focus on alternative care market: Payers are striving to strengthen preventative care and ensure end-to-end offerings, as many big players (e.g., United HealthCare, CVS Health) have invested in home, virtual, and alternative care. The race to outcomes-based care is shifting from retrospective to proactive and comprehensive health management through multiple integrations
Member experience and STAR Ratings: With the Consumer Assessment of Healthcare Providers & Systems (CAHPS) member experience weights increasing to four times in 2023, ensuring top-of-the-class member experience will remain a priority for health plans
Impact of the potential downturn on the healthcare payer market
So, how specifically will payers be impacted? It’s hard to say, given the global inflation outlook improvement. But lessons from the past indicate that a sustained period of economic uncertainty will impact both the government and the private markets in the following key markets:
Privately-funded market: Markets such as employer-sponsored health plans could lose members due to layoffs and loss of employee-sponsored coverage. Payers such as Cigna, that have significantly high commercial membership (Exhibit 4), could feel the heat of the competition from the health insurance exchange (HIX) and Medicaid plans. However, these losses can be offset if payers can retain these members in other product lines. Alternatively, having a diversified business portfolio such as a pharmacy or data services also may provide a cushion against medical membership loss
Government market: While the Medicaid market would traditionally gain membership in a recession, instead it will see the combined effect of redetermination and a potential economic downturn. As some of the members who lose employer coverage join Medicaid, the drop in membership might be less than expected after the redetermination process. The impact on Medicare, however, is expected to be relatively insignificant. Overall, the payer mix might experience a shift toward government business
Lastly, the uninsured population may experience an uptick due to information asymmetry and administrative complexities. According to an assessment done from 2007-09, only some of the insurance loss from a lack of employer coverage was offset by added public coverage, leading to a 5.6 million rise in uninsured adults. While the Affordable Care Act (ACA) has lowered the uninsured population, an economic downturn potentially can add to the current uninsured coverage.
Exhibit.4: Percentage of membership in the commercial business
What should payers do in this uncertain market outlook?
With the market unpredictability, healthcare payers will have to take calculated measures to prevent business impact. Here are four actions they can take:
Focus on operational efficiencies: Healthcare providers are more likely to be impacted by a downturn, pushing them to negotiate for higher contract prices. Payers will have to explore ways to offset any price hikes. This can lead to increased outsourcing and offshoring of traditional processes, such as provider and claims management to ensure lower administrative spending and higher operational efficiencies
Invest in preventative care: Price-conscious members may move to higher deductible plans and avoid care, particularly preventive services, leading to lower utilization. This can have lingering long-term effects, particularly for members with multiple chronic diseases. To combat this, payers should identify susceptible members, invest in areas such as social determinants of health (SDoH), and devise strategies that prevent care gaps and discontinuity
Increase digital member engagement efforts: Millions of members lost their coverage in the last recession despite being eligible for other plan options, partly due to a failure in getting the right information and comprehensive engagement with their insurers. To avoid this from happening again, payers will have to ramp up investments in member engagement to avoid losing members. Regional health plans and the Blues will have to bring in digital-enabled solutions that help to understand member needs and provide forward-planning insights. Support from third-party services providers who offer customized, plug-and-play customer experience (CX) solutions can help meet this need
Upgrade systems: Several payers with strong capital support can undertake digital transformation efforts to replace legacy systems and move to interoperable, connected ecosystems that will help improve administrative as well as care outcomes. However, this might only be applicable for payers who experience limited utilization and payouts due to the downturn.
Outlook for service providers
These measures will require service providers to proactively engage with healthcare payers and focus on three levers – the right clients, the right capabilities, and the right value addition. This will enable service providers to aim for the right opportunities such as member engagement and preventive care and ensure sustainable growth in an uncertain economic environment. Finally, in a highly competitive market like payer services, service providers will have to offer targeted digital and traditional Business Process Outsourcing (BPO) services to serve the right client need and differentiate themselves with unique value propositions refined as per the prevailing market demand.
The property and casualty insurance industry has become a significant adopter of Software as a Solution (SaaS) technology and continues to see a massive influx of SaaS applications embedded across organizations’ business operations.
“If you stack all of these SaaS solutions together, the spend becomes quite sizable. And what we’re starting to see is it’s not just the spend that is becoming sizable. We are also seeing duplication of solutions because these solutions, over a period of time, have evolved to do more.” says Ronak Doshi, Partner at Everest Group.
Cloud computing presents a huge opportunity for insurers to drive growth, improve efficiency, and deliver innovation, among other benefits. Read on to learn about the coming phase of industry cloud and the key role system integrators (SIs) can play in advancing cloud adoption in insurance.
As insurance enterprises navigate the volatile and risky macroeconomic environment combined with recessionary market sentiment, increasing operational resiliency and agility and delivering superior speed becomes essential.
Insurers have to work effectively, efficiently, and, most importantly, smartly. The urgent demand to innovate and move beyond risk remediation to risk mitigation is making insurers realize the importance of leveraging cloud as a key enabler of growth and efficiency mandates. Let’s explore this opportunity further.
Cloud rises to the top of the business agenda for insurers
Most insurers currently rely on cloud for non-core operations while they explore stepping up to full production. While cloud’s massive potential is well known, insurance enterprises hold back from completely leveraging it for various reasons, including security concerns, integration issues, and the existing legacy stack. The inability to realize full value from cloud investments also becomes a massive roadblock.
Fortunately, the mindset regarding cloud adoption in insurance is taking a huge turn. A cloud-first approach is becoming important to insurance enterprise business leaders who find its benefits too irresistible to pass up.
In addition to helping meet cost and efficiency mandates, deriving full potential and optimizing cloud investments, and driving business-focused growth and experience are arousing interest in cloud adoption in insurance.
A recent Everest Group study on cloud initiatives with more than 75 insurance enterprises found that 70% of insurance leaders believe that cloud insurance initiatives make up more than 20% of their IT spend, as illustrated in the exhibit below.
Driving business agility and lowering the total cost of ownership has become the most important aspect of cloud transformation for insurers. Achieving data-centricity by seamlessly integrating external data with internal datasets, facilitating real-time analysis of large data volumes, and enabling data-driven decision-making across the value chain are other desires gaining prominence among insurers.
The near future is industry cloud
Slowly and gradually, innovation is taking a front seat in managing the IT estate for the insurance industry. As insurers embark on their next growth phase, they increasingly need to run industry-specific workloads on cloud, such as premium payment processing, policy administration, loss notification, multi-channel sales and distribution management, and claims management and fraud detection.
With insurers moving away from a one-size-fits-all approach, industry cloud is expected to drive the cloud spend going forward to future-proof the technology estate, monetize data to generate alternate revenue streams, and re-think value delivery to end customers. Insurance leaders have started realizing that industry cloud can be a catalyst for transforming and automating industry-specific business processes.
Industry cloud allows industry leaders to get all the assets organized in one place which are specific to the use cases of the industries they operate in. This platform is becoming the next big thing in cloud computing and insurance as it easily allows enterprises to customize processes based on usage, differentiate faster, and innovate in a better way.
SIs need to support hyperscalers and carriers to shape industry cloud
As the need to develop the industry cloud story gains prominence, the concept of co-creating also is booming. Generally, hyperscalers provide the building blocks for cloud, and SI partners assist insurers in creating and customizing specific applications and business processes on top of that foundation.
Insurers increasingly expect cloud providers to create customized and insurance-specific core solutions that address their unique needs and enable modular business processes. However, industry cloud is the missing piece in full-stack capability for hyperscalers.
As a result, they need support from SIs to realize their vision of catering to the entire enterprise IT stack. SIs need to support hyperscalers in identifying high-potential insurance industry cloud use cases aligned with specific business segments, as shown below.
Cloud computing has moved beyond being ‘just a digital infrastructure’ to replace on-premise servers. The latest cloud services are more aligned towards integrating advanced technologies such as Artificial Intelligence/Machine Learning (AI/ML), the Internet of Things (IoT), and data analytics to transform the insurance value chain.
For example, cloud computing can take claims management to the next level by managing and automating claims handling and offering a superior claims experience. By combining cloud capabilities with data and AI, insurers can fundamentally change how they manage claims. Infusing AI/ML in claims processes can help insurers tap the plethora of data they possess and unlock immense value to come out on top.
Cloud enables insurers to reduce manual handling, lower error rates, and perform more straight-through processing, eventually leading to faster claims processing and a superior claims experience.
Everest Group research shows about 35% of P&C insurers’ priorities across claims management focused on enhancing customer experience (based on an analysis of 60-plus case studies involving claims modernization/transformation).
Cloud computing also allows insurers to drive superior efficiency by enabling data and analytics-driven claims processing and focusing on effective service delivery to reduce claims expenses and improve claims handling accuracy – all while ensuring greater customer satisfaction.
The time for insurers to go big on cloud has come
Cloud computing is no longer a choice but a mandate for insurance leaders. The insurance industry is finally catching up to the momentum of integrating SaaS into IT systems. As insurers replace outdated mainframe and on-premise infrastructure that has become harder to update and inefficient to scale and maintain, they must leverage the skills and experience SIs offer. Close partnerships between insurers and SIs also can help drive innovation and is where the future is leading.
Everest Group is launching an inaugural Cloud Services in Insurance PEAK Matrix® Assessment 2023. Please reach out to [email protected] and [email protected] for more information on cloud adoption in the insurance industry and to participate in the Cloud Services in Insurance PEAK Matrix® Assessment 2023.
Insurance carriers need to transform their risk function, become more agile, and proactively create new offerings that protect against the threats of 3Cs: climate risk, cyber risk, and crypto risk. Read on to learn how this environment can create opportunities for insurers.
In today’s evolving risk landscape, insurers need to seek new technologies to improve efficiency, streamline workflow, and fill coverage gaps. Insurers must carefully navigate the detrimental effects of these volatile threats and evolve from being risk insurers to risk guardians. But are insurers putting enough emphasis on exploring the lurking threat areas that can pose imminent risks? Let’s take a look at how this will reshape the insurance industry moving forward.
Hardly anyone could predict a global crisis such as COVID-19 leading to insured losses amounting to nearly US$44 billion, making it the third most costly catastrophe to the industry. After any such black swan event, insurers need better preparedness and foresight to manage their response. The impact of unforeseen risks is becoming increasingly evident. Insurers need to foresee, pre-empt, and prepare for future risks to reduce uncertainty, and underwrite risks in a better way.
Due to spiking losses caused by emerging risks in insurance, traditional rating models are losing relevance to advanced solutions developed by InsurTechs and niche solution providers that enable data-driven decision-making powered by next-generation technologies such as Artificial Intelligence (AI)/Machine Learning (ML) and internet of things (IoT).
With insurance products being largely commoditized, carriers need to differentiate their offerings by rapidly creating newer products for emerging risk segments. We have explored three key emerging risk segments that are complex to evaluate and increasingly gaining prominence, as illustrated below:
Exhibit 1
Market landscape and challenges faced by Insurers
The pandemic forced insurers to adopt newer technologies, scale up digital-first operations, and expand data estate leading to added risk and exposure. The average data breach costs jumped about 13% from 2020 to 2022, according to the IBM Cost of a Data Breach Report 2022
The increasing frequency and costs of extreme weather events is putting a greater burden on insurers. Traditional insurer risk models are not sufficient to face the challenge of accurately capturing and testing climate-related risks
Cryptocurrency presents a diverse risk landscape. Risky investments in digital assets and unexpected losses tied to cryptocurrency curtails their viability, triggering surety claims. Product development and coverage pricing become challenging because of the dynamic nature of these assets
In response to the challenges illustrated in Exhibit 2 below, insurers need to assess the risks and create personalized products and zero-touch claims processes.
Exhibit 2
Next steps in the right direction
With rising losses, insurers can no longer shut their eyes to the devastating impact of these emerging risks on pricing, underwriting, and investment decisions. Insurers need to strategically rethink their risk function.
Carriers must prioritize investment bets across the insurance value chain and evaluate InsurTechs and specialists that bring in niche talent, industry expertise, speed, and experience to help them meet their key business priorities.
According to Everest Group research, specialist providers (illustrated in exhibit 3) can act as catalysts for value realization by quantifying the financial impact of climate change, providing comprehensive cyber risk visibility, and offering innovative digital asset protection solutions.
Contextualized solutions from InsurTechs are gaining prominence to fill capability gaps, enhance value propositions, and streamline workflows across the insurance value chain.
Exhibit 3
Let’s explore some of the solutions providers offer for addressing the 3Cs of emerging risks in insurance.
Climate risk:
The quantitative consequences of risks must be appropriately assessed and addressed to minimize the impact. Real-time analytics providers use resiliency insights, risk engineering, probabilistic hazard maps, and historical catalogs to recognize the likely risk from natural disasters across the globe
Insights on possible hazards can be conveyed via geospatial web-based applications, reports, or application programming interfaces (APIs). Using asset and portfolio-level climate risk analytics, insurers can tap into these insights that affect crucial aspects of the value chain, starting from product development and portfolio planning to underwriting and pricing
Cyber risk:
Cyber risk analytics platform providers use telemetry and threat intelligence from across customer workloads, endpoints, identities, IT assets and configurations, DevOps, AI, and blockchain. Using this intelligence, they identify and map shifts in adversary tactics and create actionable data to automatically prevent real-time threats
As insurers navigate through uncertainty, they need to tap into the plethora of data they possess along with third-party data to unlock immense value. They must infuse data analytics at every step, starting with identifying, protecting, and detecting cyber-attack risk to proactively computing the cyber control performance. This will enable early identification of weaknesses and detect advanced attacks
Crypto risk:
Storing crypto assets is creating new risks. To quantify loss exposure, actuarial teams can draw on forecasting analysis of cryptocurrency crimes to build actuarial models around cold wallets (coverage against damages or theft of the physical storage device) and hot wallets (coverage against abuse of the private key that enables access to digital assets)
Insurers need to develop the tools to implement dynamic policy limits/pricing that increase or decrease based on the price changes of these assets, enabling insurers to respond and act upon real-time market changes and ensuring the policyholder is always protected even with innumerable value fluctuations during the policy period
Insurers have a critical role in leading society to navigate these looming threats. Carriers need to change their approach, become more agile, and proactively build products while safeguarding these risks.
As leading insurance organizations seek to be more data-driven in their business decisions, they are looking for solutions that can seamlessly integrate with their existing insurance technology stack. Technology providers have responded by building capabilities to offer plug-and-play solutions that align with carriers’ immediate priorities to extract more value from investments. With the industry landscape exploding with multiple solution providers offering carrier customization and commercial flexibility, we are witnessing a flood of SaaS solutions across the insurance value chain. Read on to explore the issue of SaaS sprawl which is quickly becoming one of the industry’s leading pain points.
At the turn of this century, the SaaS revolution shifted the paradigm of how technology could be deployed. The triad of quick deployment, timely upgrades with little/no inconvenience, and cost-effective solutions made SaaS solutions a force to be reckoned with.
A massive influx of point solutions – tools that aim to address a single use case within a business – followed over the years. Today, an insurance technology stack has multiple point solutions assembled atop core systems to bridge gaps in existing capabilities as illustrated below:
Exhibit 1 – Technology stack in the insurance value chain
We are now seeing a massive explosion of SaaS applications in the entire insurance value chain that likely will reach a point where businesses start to see diminishing returns. Estimates suggest that organizations (with more than 1,000 full-time equivalent employees) use more than 100 applications on average at any given time.
This rapid expansion without any/sufficient oversight has led to SaaS sprawl, the unchecked proliferation of third-party applications that can impact the entire organization. Let’s look at this challenge further.
What is causing SaaS sprawl?
The huge availability of new technology solutions tops the list of contributors to this issue. The willingness to adopt newer solutions has grown exponentially in recent years with the success of cloud-based applications and services. Shadow IT is another contributor.
While the freedom for employees to use applications without explicit approval from a centralized department can boost productivity and drive innovation, it also can have undesirable complications. The growing clout of low-code/no-code capabilities is pushing this trend further.
Infusing intelligence throughout the insurance value chain requires specific capabilities in the five core areas of product development, sales and distribution, underwriting, policy administration, and claims management (as shown in the exhibit above).
Specialized players that focus on one or a few areas are emerging, making choosing from the many solutions and managing multiple applications for end-to-end technology solutions extremely difficult.
As more and more insurance companies turn to SaaS solutions to streamline their operations, they can quickly find themselves in a tangled web of different tools and platforms.
Here are some other challenges that hinder organizations:
Each platform may have its own set of features and capabilities, making it difficult for insurance companies to keep track of the applications and potentially duplicate them
SaaS providers seeking to expand their presence in the value chain can potentially dictate the overall vision of an insurance technology stack through aggressive sales tactics pushing insurers to buy more tools (potentially causing more overlap). This can drive the total cost of ownership up and make getting the most out of the technology stack an aspirational goal
3. Issues integrating systems can cause data silos and inhibit the sharing of potentially crucial information, forcing carriers to incrementally spend on integration and custom builds to gather the single view of data and systems that is lacking
Being locked into contracts with providers makes it hard to modernize or move to alternate providers because migration would be costly
Put succinctly, dealing with compatibility issues among applications and the data interplay, and managing contract and upgrade cycles becomes a precarious juggling act. As a result, the great bundling of the entire insurance technology stack is needed!
Alternatively, it does not make sense to put the brakes on the development altogether. Restricting employees’ ability to build and buy applications may do more harm than it can potentially help.
Organizations need to provide the foundation for their teams to think about software applications strategically. Below are recommendations for enterprises to seize the multitude of opportunities:
Define a target state vision and align SaaS providers to this vision through a mix of service-level agreements and continuous collaboration
Invest in cloud economics capabilities to manage the cost of cloud spend and conduct exercises to rationalize the SaaS environment every year
Educate business and technology executives on how to avoid SaaS sprawl
IT service providers have an important role to play as solution orchestrators. Working with a core insurance technology provider can offer tight integration to third-party SaaS solutions to manage integration, risk, data access, and cost challenges.
