By Chuck Johnston, Insurance Technology Strategist, Johnston Digital Ventures, LLC
Recently, I spoke at a PIMA conference about the current state of InsurTech. A recurring theme was the executive Fear of Missing Out (FOMO) on the strategic advantages AI and other new tech can bring to our industry. Insurance still has an undeserved reputation for being technically backward when there is a strong desire to embrace new tech as the next driver of strategic advantage. Despite the buzz surrounding artificial intelligence and the promise of open systems enabled by APIs, technology alone doesn’t guarantee a competitive edge. It must be paired with innovative business models and a readiness to overhaul operational processes
The Pitfalls of Mere Technology Updates
Many insurance companies undertake large projects like core system replacements or digital transformations aiming to become data-driven entities. However, these initiatives often falter because they fail to incorporate essential changes to business processes, leading to significant change management challenges. Most project veterans know that managing change is costly and time-consuming, with potential to cause significant disruption. Yet, without these changes, companies risk merely transplanting outdated processes into new technological environments, which rarely yields transformative results. To make positive transformation happen, there needs to be transparency and alignment of purpose from the CxOs office to IT leadership to the operational staff that run the day-to-day business. Senior leaders who are willing to invest millions in AI integrations but issue broad instructions to immediately reduce are not seeing the whole picture.
The Business Transformation Sunk Cost Conundrum
The difficulty of digital transformation projects often stems from the extensive business process changes required to achieve strategic goals. There is more willingness today to ignore the sunk cost of older technology to become digital, but it is more difficult to accept the need for further investment and the disruption required to retrain people and reinvent process companywide. Yet, that’s what it takes to become a data-driven, digital insurer.
There is often significant resistance at the operational level to changes that have not been well thought through by Business Transformation executives and outside consultants, especially if the ops team has not had real input into the “new world order.” Insurance is a business of making concept become concrete, with great attention to detail and accuracy. When selling an invisible product to people who hope to never use it, trust in the companies promise to deliver when needed is based on a history of delivering good service and accurate information to customers and partners.
The operational team uses standard processes, tested systems, and people with a wealth of industry and company knowledge to make this happen. Ironically, the processes that are zealously maintained are often those that were designed around the limitations of decades-old systems, now enshrined as best practices. Accepting that a lot of this process will become a sunk cost of change (like the technology that is being replaced) is hard for operational people. They can become the inadvertent saboteurs of digital transformation projects as they do their job in protecting business-as-usual if they do not see a clear path from how things work today to what the future brings and the transition plan that keeps the lights on in-between.
Technology for Technology’s Sake?
Insurers desire to let the technology do the heavy lifting of change assuming the business change will just follow the tech. This is mirrored by many InsurTech vendors who promote the use of cutting-edge technologies like low-code platforms, enhanced workflows, and AI to replicate existing system functionalities.
This spring, one vendor boasted that their product was just like the old system but on modern technology—a major red flag. Why adopt new technology if it doesn’t add real business value or operational improvement? Occasionally, technology shifts are necessary due to the obsolescence of old platforms, compliance requirements, or the shrinking pool of experts familiar with outdated systems.
AI’s Real Value in Insurance
AI exemplifies a technology that can genuinely enhance the insurance sector by allowing employees to focus on higher-value tasks. Effective AI implementations can provide support with data-driven advice and predictions based on historical outcomes. However, it is crucial to curb the FOMO. Most current AI applications in insurance are about enhancing rather than replacing human decision-making, such as in streamlined claims processing and rapid underwriting for simple products. As AI models and data collection improve, these decisions will become more refined and less risky.
Conclusion
Embracing new technology in insurance isn’t just about staying current. It is about critically evaluating and adopting tools that offer genuine improvements and align with long-term strategic goals. As we look forward, the successful integration of technology will hinge on our ability to re-envision and refine our processes, not just digitize them.
Published in the Fall 2024 issue of Insights Magazine.
PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the affinity market.
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