Tag: insurtech

The Battle Unfolds: MGAs as the Next Frontier for InsurTechs, Services, and Technology Providers | Blog

November 28, 2023

The Managing General Agent (MGA) sector is a bright spot in a turbulent insurance market. Technology investments and strategic partnerships will be key to redefining risk and driving innovation for these specialized insurance agents/brokers. Read on to learn more about the opportunities that await MGAs, or contact us to discuss further.

Despite the economic turmoil, global instability, prevalent inflation, and a volatile year shaking the insurance industry, faith in the MGA sector has not wavered. In this challenging environment, MGAs need to demonstrate steadfast strategic underwriting prowess, build a solid business case heavily focused on cost optimization, and exhibit excellent data and engineering capabilities.

Increasing demand for specialized products, the need to underwrite newer business lines, and a push for efficiency are driving insurers to build relationships with MGAs – all suggesting the upcoming years could be a golden era for MGAs.

The data provides a compelling sense that MGAs have a bright future ahead. Conning’s analysis of statutory filings found that premiums generated by MGAs for US insurance companies grew at a startling rate of 27% in 2022. Interest in the MGA market also has significantly rekindled in Europe and the US, gradually garnering prominence and capturing interest among carriers. Everest Group’s research shows just about half of the major US-based property and casualty (P&C) insurers utilize MGAs to cover specialized risk.

Unleashing the potential of technology

In this era of expanding MGA channels and relations, forward-looking enterprises have already made significant strides toward capitalizing on technology solutions. By strategically investing, they are enhancing the overall experience for agents, brokers, and policyholders. Simultaneously, they are seeking to enhance operational efficiencies and carve out a larger market share. Nevertheless, this merely marks the inception of a far-reaching goal, as there remains a multitude of tasks to be undertaken to fulfill the above-stated aims.

To support their vision, MGAs need modern, flexible technology that enhances customer experience and increases new business and retention. Additionally, these agents require a well-integrated and comprehensive partner ecosystem that can provide support while augmenting technical capabilities.

The prevailing economic sentiment has accelerated the trend toward investing in technology and data in more impactful ways. Regardless of MGA type, technology serves as a driving force to propel growth and enable innovation.

Clyde & Co research highlights that MGAs’ willingness to invest in technology far surpasses their insurer counterparts, with 80% of MGAs investing in technology or InsurTech in the past year, compared to only 55% of carriers. Automation, digital platforms, and data and analytics are the most prominent areas that have garnered considerable investment attention during this transformation era.

Notably, a growing number of MGAs have harnessed the potential of Artificial Intelligence (AI) and Machine Learning (ML) to optimize operational performance. Specifically, they are using these technologies to streamline and advance capabilities and underwriting processes, assess risk, and handle claims.

Digital platforms have assumed a ubiquitous presence within the MGA community, facilitating seamless engagement with customers, brokers, and carriers. They also empower MGAs to extend online quoting capabilities, expedite policy issuance, and streamline claims handling digitally.

Data and analytics play a pivotal role in delivering insights that can potentially unlock boundless possibilities in MGA’s operations. This intelligence can help them track specialized and upcoming risks that need attention, identify business opportunities for carrier partners, and develop more responsive and accurate pricing models. Additionally, these solutions can allow carriers to underwrite risks at higher margins, as well as offer more personalized coverage for policyholders.

Some examples include:

  • ZestyAI, an AI-powered specialist provider of climate and risk analytics solutions, partnered with Coterie Insurance, a focused MGA, to provide instant quotes and issue small business insurance policies leveraging data and AI
  • Gallagher recently partnered with Novidea to transform its services for a specialty client base and execute and tailor its broking cloud-based data platform to automate processes. The platform will save time, create efficiency, and turn data into actionable insights

MGAs: a low-hanging opportunity for the ecosystem partners

Platform and technology partners, as well as various InsurTechs and low-code/no-code providers, are making strides toward building dedicated playbooks and products to assist MGAs. Service provider partners have heavily invested in developing broader capabilities and solutions to tap into the growing technology adoption demands from MGAs.

Various platform providers such as Socotra, Majesco, Novidea, Cogitate, Insurity, and Instanda are launching cloud and Application Programming Interface (API)-based dedicated core platforms for MGAs. These platforms will help MGAs strengthen relationships with insurers, expand distribution, leverage a vast collection of third-party data and microservices for underwriting and customer experience, as well as achieve scalability. The solutions also will quickly offer products for complex insurance lines such as general liability, physical damage, auto liability, cargo insurance, and insurance for complex terrain or hard-to-underwrite commercial property.

Let’s take a look at the key strategic priorities for MGAs and an illustrative provider landscape in the exhibit below:

w1

Emerging risks fuel further tech investments and partnerships to drive innovation and redefine risk management

The evolving risk landscape and uncertainty are major drivers for MGAs to invest in data-driven technology tools because the current models may be inadequate for the growing number, types, and complexity of risks.

While MGAs have the expertise and models to evaluate risk, the industry is failing to capture the full spectrum of potential losses, and simultaneously capture and analyze newer data sources. The historical loss data that these traditional models rely on is less useful for projecting future losses, giving rise to the need for fostering strategic collaborations with third-party data intelligence and analytics partners, as well as other technology players.

We are seeing increased traction from the MGA sector in the following product and risk segments:

  • Cyber risk: The lack of historical data and inability to accurately price cyber risks remain a key challenge for traditional MGAs, leading to increasing loss ratios and declining profitability
    • Many InsurTechs dedicatedly track this space such as Coinnect, helping loss adjusters, brokers, MGAs, insurers, and reinsurers handle cyber risk
    • They offer a cloud platform and APIs and leverage proprietary cyber intelligence data to assess, mitigate, and respond to cyber risks of prospects and insured clients
  • Excess & Surplus (E&S): The inherent uncertainty of a changing environment, which leads to extreme climate events, is a major driver of premium growth in excess & surplus (E&S) lines. According to an AM Best Market Segment Report, the direct premium for E&S lines grew by 25% to a record US$82 billion in 2021
  • Parametric insurance: Parametric insurance demand also is on the upswing, requiring MGAs to pay attention and substantially invest in cutting-edge technology to develop relevant and targeted solutions

Forward-looking MGAs are progressively seeking to embrace cloud-based solutions and develop niche and sophisticated underwriting expertise as they shift their focus toward streamlining operations, driving cost efficiencies, and improving their ability for advanced risk modeling and resilience.

The MGA market is undergoing substantial transformations fueled by the desire to invest in tech, data, and AI to build robust risk selection and underwriting capabilities and foster good carrier relationships. Elevating the emphasis on bolstering the partnership ecosystem will be important, fueled by prevailing market dynamics, including faster speed-to-market, higher profitability, and maximizing value.

At the same time, focusing on emerging risk categories, growth in E&S lines, and high parametric insurance demand has created an urgency for MGAs to build close relationships with InsurTechs, carriers, service providers, platform and technology providers. This strategy will help MGAs drive value creation, capitalize on new opportunities, innovate and launch newer products to the market, and, ultimately, deliver exceptional value.

To discuss this topic further, please reach out to [email protected] and [email protected].

Don’t miss our annual webinar, Key Issues 2024: Creating Accelerated Value in a Dynamic World, to learn the major concerns, expectations, and trends for 2024.

Future Insurance Technology Trends: A Closer Look at the Need for Building Humanized Insurance Experience, Data-driven Intelligent Operations, and SaaS Integration | Blog

May 31, 2023

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.

Contact us directly for more insights.

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.

Continue learning about insurance technology trends in this blog, Uncovering a Massive Insurance Industry Cloud Opportunity.

Reinventing the P&C Insurance Claims Value-Chain: Moving to the Claims of the Future Vision | Blog

April 4, 2023

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:

Future Enables Carriers
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:

Industry Frontrunners
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.

To discuss transforming digital claims, please reach out to [email protected], [email protected], and [email protected].

To learn more about technology-first, automated customer experiences, watch our webinar, Strategies for Customer Experience (CX) Success in an Uncertain World, for trends and recommendations on what to prioritize to deliver exceptional customer experience.

The Recessionary Conundrum: What Lies Ahead for Healthcare Payers?

March 13, 2023

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
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
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.

005
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.

004
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:

  1. 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
  2. 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
  3. 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
  4. 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.

To learn more about healthcare payer and provider trends, contact Lloyd Fernandes or Vivek Kumar.

To learn about the changes in the pharmacy benefits management (PBM) industry, such as increased regulatory scrutiny surrounding pricing transparency and rebate-sharing rules, watch our video, Pharmacy Benefits Management: The Next Big Healthcare Opportunity.

You can also learn more about How to Deliver Hyper-personalized Customer Experiences in Life Sciences in this LinkedIn Live session. 

Everest Group: Digital Rationalization Needed on SAAS | In the News

March 13, 2023

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.

Read more in Digital Insurance

Uncovering a Massive Insurance Industry Cloud Opportunity | Blog

March 10, 2023

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.

Picture1 2

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.

Picture2 2

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.

Picture3 2

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.

You can also watch our webinar to learn about software and cloud pricing and contract negotiations and to keep spend in check.

3Cs of Emerging Risks – How Insurers Can Capitalize on the Opportunity | Blog

February 24, 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:

Picture1 3
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.

Picture2
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.

Picture3
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.

It has never been more important to assess and address the 3Cs of insurance risks. To learn more about them in detail, check out our Insurance Solutions Specialist Trailblazers – 2023.

To discuss emerging risks in insurance, please reach out to [email protected], [email protected], [email protected], and [email protected].

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