Embroker Team May 29, 2023 5 min read

Insurance Myths Part III: The Redemption in Data

claims made vs. occurrence insurance

If you listen to anyone in Silicon Valley, or in any other tech hub around the world, they’ll tell you that data is the future. How it’s changed the game for business, how it’s the future of management, and how it will be the playing field for future innovation and competition. You’ll even hear from insurance people that data is the future of the insurance business – and they’re 100 percent correct. The real question, however, isn’t about what role data will play in the future of insurance, but whether the industry as it currently exists is capable of the massive foundational innovation needed to compete in this future.

Over the last month, I’ve been taking a look at some of the most common myths held by the insurance industry. The latest one deals with data, and in particular, the perception that the dominant incumbents in the industry are best positioned to take advantage of the new era of data we live in, and, more importantly, thrive in the era that is about to begin. The reality is that the existing capabilities and infrastructure of the insurance industry are incapable of handling the data requirements of today, much less the exponentially rising need that lies ahead in a world in which anything that can be connected, will.

Large Insurance Incumbents Can’t Handle Today’s Data Requirements

The reality is that the existing capabilities and infrastructure of the insurance industry are incapable of handling the data requirements of today, much less the exponentially rising need that lies ahead in a world in which anything that can be connected, will.

It’s an inescapable fact that data will radically reshape the industry. It will affect how insurance is bought and sold, how companies assess and mitigate risk, and will enable a whole new set of companies to compete in the industry. Taking advantage of data – being able to glean meaningful insights from the vast warehouse of one and zeros insurance companies have access to – is really hard. It’s something that the top technology companies in the world are still trying to figure out, with varying and limited degrees of success.

If an industry that is built around data hasn’t fully grasped its breadth and complexity, how will insurance – an industry notable for spending massive sums to maintain legacy systems built in the 70s and 80s – come to grips with it? There is no easy or obvious answer to this, it’s at best an uncertain future for even the largest insurance companies. And that’s on the carrier side, which at least spends real money on technology. On the distribution side, the picture is even bleaker. I recently spoke about this with the CIO of a top-10 insurance broker and he said, “If you look at any other successful business of our size and scale, with as many data points to our customers as we have, they would have hundreds of people on the data side, we have zero. Our organization is a sales organization and all of our leadership comes from that background.”

Evolving In Today’s Digital Ecosystem and Thinking Like a Tech Company

In order to become a technology-driven business, insurance companies need to understand two big things: First, they have to both think and operate like an actual, modern day tech company; and second, they need to learn to seamlessly function as one part of a larger digital ecosystem, and choose partners that operate on the same level.

Thinking like a tech company won’t be easy. Insurance as a business is firmly entrenched in its ways and, with a few exceptions, largely averse to change. A change of perspective, however, won’t necessarily require a wholesale shift in company philosophy. Instead, it could be a radical change starting in one office: the CIO’s. A modern insurance CIO should treat their department less like the keepers of infrastructure and security (though those two components are still crucial), but rather as a sandbox or innovation lab. In its industry predictions for 2015, Deloitte had a great piece about the CIO becoming the “Chief Integration Officer” and recreating the position to encourage ideation and exploration.

“Given the proliferation and affordability of big-data environments and visualization tools, there is little excuse to not have a sandbox environment that nurtures the curious spirit —a place where ‘What if,’ ‘I wonder how,’ and ‘I wonder what’ are easily tested and vetted against the context of data that doesn’t lie. The insurance CIO as chief integration officer can create an environment where data, technology, and people become interactive, collaborative, and accretive.”

The CIO office can be a vehicle for insurance companies to build innovation into their culture with as little pain as possible, but some pain will be necessary. Legacy systems need to be updated rapidly and efficiently, and entire business units accustomed to working with the same partners for the last five decades will need to adapt to a rapidly changing landscape across the entire value chain. A culture accustomed to ‘moving at the speed of insurance’ will need to embrace change, learn to make decisions quickly, and move from having monthly meetings about innovation to living and breathing it every day.

The transition to functioning as part of a larger digital ecosystem will take a more substantial investment, but it’s just as crucial. As it stands now, there’s no common way for data to move around the industry. Data collection, storage and retrieval are foundational pieces that need to be in place before it can be used effectively. Even after industry leaders learn to manage their own data, before they can integrate with other parts of the digital economy they will need to build modern, open APIs and move from a world of daily batch downloads to real time data transfer.

How To Get Started

Although these are significant hurdles to meet, a good start would be to think about data from a customer-centric standpoint. These are fairly basic things that can be achieved in the near term such as:

  • Creating common schemas for data so customers actually own their data and can take a history with them when they switch carriers or brokerages
  • Building real, useful online experiences that offer customers more than just a place to download policies or invoices
  • Create a scoring system for risk that adds some measure of transparency into the costs associated with plans

The data revolution will change the insurance industry, there is no doubt about that. The real question is whether or not the incumbents in the industry can change quickly enough to stay out in front.

If you’re interested in learning how Embroker can help you mitigate risk and intelligently insure your business, you can reach out to our team of expert brokers. Or, if you prefer to get started on intelligent quotes, create your Embroker account today.

Other insurance myths I’ve covered:

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