Editor’s note: this is the fifth in our Solving For Tomorrow series, in which we offer our thoughts on the state of the insurance industry, the challenges carriers face now, and the opportunities they must take advantage of to remain competitive in an ever-changing future. Stay tuned in the coming months, as this will be a regularly published series. We hope you enjoy and learn, and we’re always happy to receive your questions and feedback. In case you missed it, you can read our last installment here.
In our last installment, we discussed implications for how carriers need to respond to forcing shaping the P&C insurance industry. In this installment, we delve into what carriers need to do now to prepare for a future defined by uncertainty and change, with a focus on product development.
What Carriers Need To Do
Imperatives for how to build for speed
Getting there is easier said than done. For many carriers, building for speed requires a 180-degree shift. It requires leadership to move away from thinking about “What can we do with what we have today?” toward “What would I do if I could build this company from scratch?”
This view of the future requires that Product, Sales, and Service talk to one another via a constant stream of data that is translated (by man or machine) into rich insights. It requires a nimble and insights-driven platform that is built for change – whether it be to ratings, to channels, or to scale.
There is also the issue of ROI. As we said earlier in the Big Data section, existing systems make it difficult for carriers to test and predict the financial outcome to products and services. Therefore, large-scale, system-level changes are an even harder sell for carriers who do not want to be guinea pigs for an unproven way of working. This new system must be able to isolate changes so carriers are able to test and refine concepts in a safe environment before full launch.
Freedom within a common framework
Historically, products have been built from thousands of lines of heavily customized code. As carriers have grown and evolved, code has remained scattered across channels and platforms, the result of hundreds or thousands of changes being written into every instance of the product. With no single source of change, updates are a time- and capital-intensive process.
Carriers must have a strong framework to build from, where core products share common definitions across the business. This way, if there is a change to a product or a rate, it can be made quickly and updated across all instances and iterations of the product. A seamless level of consistency ensures new products are customized from a common set of definitions, giving businesses room to grow their portfolio in a manageable way.
A test-and-learn environment
There is no room to experiment as launches are typically a one-shot deal. Mistakes are hard to fix and their impact is difficult to track or measure, making them costly and semi-permanent in the short term. Furthermore, today’s rigid structure creates and reinforces a risk-averse environment.
Carriers need to be able to test products in a controlled environment so they can track results, make refinements, and perform “what-if” analyses before launching new products to a broader market. This ensures both the quality and impact of new offerings and fosters internal innovation, allowing new ideas to be developed in a lower-risk environment.
Shifting contracts and relationships
Policies tend to be inflexible in the way they are written and structured—typically available for fixed lengths of time or degrees of coverage. Terms tend to be focused on future damages instead of accounting for present day behavior or environments. This has set up carriers as reactive agents, called on to respond only after an event has occurred.
Pockets of the industry have started to move to a more flexible product hierarchy that allows for usage- and behavior-based contracts. Partially a response to emerging ownership and usage models (e.g., the sharing economy), these contracts essentially treat insurance like a utility. While the use of credits is old news, new data coming from a proliferating range of connected devices (e.g., IoT) have given carriers better ways to calculate risk and monitor conditions in real time. Carriers need to use these sources to build products and services that incentivize good (risk-preventative) behavior while decreasing the likelihood and magnitude of loss—a win-win all around.
In our next installment, we will delve into how these concepts can be applied to sales. If you can't wait to read more, download The Future Playbook today.