You are sitting on the deck of your friend’s home having a great conversation. At some point, you look at the large tree close to the home with large branches hitting the roof and windows. So, you say to the friend,

“Maybe you should have the tree trimmed or removed before the branches or tree breaks and causes damage to the home.”

The friend says, “I know, but I just don’t have the time or money to deal with it right now.”

Instead of dealing with the issue as a preventive measure, your friend has decided to deal with the results — a much more complicated and expensive way to do it. It seems strange and completely counterintuitive.

We see the same approach with some insurance companies that are standing still. They are grappling with making changes to their business models. They understand what’s coming. They see it in the financial and business results. However, they have somehow rationalized that dealing with the results and the fallout is preferable to investing in preventing the issue and building resilience against future challenges.

How do we, as insurance leaders, drive ourselves to change when we know that we’ve been operating the same way for too long? Do we let the economy and inflation and the new world of risk simply force us to react and hope we make the moves that will keep us in the game with products, business processes, and an operating model for scalable and agile growth? How do we know what these moves should be? How do we prioritize?

To assist with this conversation, I asked three insurance technology trend experts to share some insights on driving traction for change. You can watch the full webinar, 2024 Trends Reshaping the Insurance Business — Are You Ready?, or read portions of our conversation below.

Our panelists are:

Matteo Carbone, Founder and Director, IoT Insurance Observatory
Lisa Wardlaw, Founder and President, 360 Digital Immersion
Bryan Falchuk, Author of The Future of Insurance and President and CEO, PLRB
And myself, Denise Garth, Chief Strategy Officer, Majesco

Let’s hear some of their input.

Denise Garth

Many insurers are still grappling with business and technology transformation and the investments they need to make in their people, their technology, and their culture. Decisions are being made that will determine this priority and traction, setting up those that do as sought-after partners and employers due to their ability to achieve scalability, agility, and their pivotal role in leveraging digital insurance technology. Those who prioritize well will be ready for the next disruption.

How do we drive traction for the changes that are needed and the adoption of next-gen insurance business models? Why should insurers prioritize this and why should they step out of follow the leader roles?

Bryan Falchuk

At some point, organizations need to wake up and define their path. I’d compare it to driving toward a wall. If we don’t choose when, where, and how to turn the wheel, we smash into the wall.

If you follow the leader or someone else is telling you where and when to turn, that may be okay, but then you lose the ability to choose your own destiny. You end up wondering why your company’s economics look the way they do.

Here’s an opportunity, however, to make your own choices — to be bold as leaders, to be bold as an industry, and to pick areas where you can create a meaningful strategy. You don’t want to be one of those organizations that just uses the term GenAI and suddenly think that because you use the hashtag, that’s a strategy.

Denise Garth

Matteo, what are some offensive moves rather than defensive moves that people can take in 2024?

Matteo Carbone

Here is a concrete example that demonstrates why insurers should be proactive in what they are adopting, not waiting to follow the leader.

Some time ago, one of the top auto carriers in the US declined to adopt telematics. A few years after their decision, on an investor day, they acknowledged that they have a recognizable gap when compared against their main competitor.

Two years later, in the same context —investor day — they acknowledged that in two years time, they have been able to have a material penetration of telematics on their new business that is aligned today with the leader. Almost 50% of their new business uses telematics.

However, they also said that they haven’t been able to extract value from the data. So, this is the difference. They copied the product. They are obtaining the same level of data. But the competitor is using it to better price the risks.

It will take years for them to catch up. This kind of example should motivate carriers to really find what is necessary to them.

Take inspiration from a competitor or from a player that is working in another business line or even from a different market. There are Japanese auto insurers, for example, that are currently giving dashcams to their auto drivers. The carrier has measured a reduction of 13% in their frequency of claims. So, why hasn’t this been tried in the US yet?

Denise Garth

Lisa, we don’t know what the next disruption is going to be, but there will be one. Why is it that insurers need to be prepared by establishing a new operation model and technology? Can the idea that there will be disruption, drive traction for change?

Lisa Wardlaw

Yes. The problem with the herd mentality of adoption is that the herd hasn’t been here before. I’ll use one of Bryan’s analogies. It’s like the land has been scorched and there’s no more drinking water. Someone has to lead us to a new place. The herd mentality can resume when we get there, but someone has to lead us to this new place.

Spot solutions and instrumentalization are not going to work to get us through. Big Bang won’t work either. The insurance industry’s core business model that includes premiums, claims, reserves, and capital is not changing. But the operating model and how we think about the operating model needs to be reinvented.

Here is a call to action for driving change. If you do not have people in your organization that can see beyond the horizon, and translate that back into what is needed today (to help you deploy the models, the tools, the people, and the framing to get there), then you need to go hire some ambiguous conceptual thinkers.

Denise Garth

I call them the rabble-rousers! They think outside the box.

Lisa Wardlaw

Exactly! Yes, you better get some.

Denise Garth

So, where do you see the industry at the end of 2024? What is one big win that you see coming? And what is one big challenge that you see coming?

Matteo Carbone

Some of the details we discussed about the unprofitability of the property and casualty market are probably too pessimistic. Over the past couple of weeks, three larger US carriers have presented pretty good results. Not all of the market has turned the corner. But I believe that since more states have accepted an increase in rates, the level of combined ratio in personal lines, both in auto and homeowner for 2024, won’t look so bad.

Lisa Wardlaw

I think one big win that we will have by the end of this year will be a change in capacity. I think we will have external capital coming in. It will activate some of these marketplaces and extensions that we’ve all been working on. This will be a win for the ecosystem in its entirety.

The big loss that we are having right now is that insurers are choosing to exit certain markets.
I understand why. It is certainly within their right. But we are an industry that backs society. We buy so much of the financial market — we can’t forget that the other side of our balance sheet is the assets.

We have a duty to stop exiting markets and find a way to create profitable, bifurcated risk selection that doesn’t have people going uninsured. I think the combination of access to capital and ceasing to exit markets is what needs to happen in 2024.

Bryan Falchuk

I think the win is the loss.

The win that people will celebrate, as Matteo suggests, is that many of the struggling carriers, or those that were trending downward, have thrown enough short-term switches that their results will look okay.

But think about it this way. One of the most dangerous things a company can have is too much money. When your balance sheet is extremely strong, you tend to make decisions that are not ideal. Solving surface-level problems can cause us to stop driving to the root of the problem. That’s a real loss.

So, with our win, we’ve stemmed the bleeding. Fantastic. But we can’t live with tourniquets. We have to get to the root of why we keep bleeding. I worry that too many insurers will have lost the energy to do that hard work once they are back in the black.

It isn’t just about trimming some staff, automating a few things, or raising rates. There are more fundamental problems that I hope we begin to address.

Denise Garth

Here are some business model questions from our audience.

There is a lot of fear about how AI is going to replace the employee. How can you combat this attitude?

Lisa Wardlaw

By now, we are probably all hearing statements like, “It’s not AI that will replace the person. It is the person that is leveraging AI that will replace the person that isn’t.”

One thing that we do know is that all of these subjective decision-making tools are very complicated. We have an industry that is traditionally filled with a lot of rote processing work. I think that the fear should be calmed by the fact that we all need to know how to deploy tools. Cognitive thinking about these things is going to be critical. It’s the “thinking beyond” and the “asking of the why” that will lead to the right answers.

Denise Garth

How does the development of partner ecosystems factor into loss mitigation when we think about the shift from risk protection to prevention? How will this impact insurance business models?

Matteo Carbone

Clearly, insurance data analytics has been able to obtain results in risk prevention. Some examples that I made earlier are companies that have partnered with tech players that allow them to cut some corners. They can go to the market with a solution in a week’s time without designing a device or producing a device, managing all the connected processes.

However, if these solutions become the way that these carriers will ensure and transfer risks in the future, it is inevitable that some build or buy decisions will be made. When a carrier starts to pay $100 million a year for a partnering solution, at some point, even if the return on investment is positive, they will start to look at optimizing their spending. That check they are paying at the end of the year is too big to not consider alternatives.

Denise Garth

Wow! It seems to me that we have made a great case for making moves now to future-proof insurance and take advantage of next-gen insurance business models. I’d like to thank Lisa, Matteo, and Bryan for all of their insights.

When we talk about digital insurance business models and next-gen approaches to insurance, what we’re really doing is acknowledging how difficult it can be to make new moves at the same moment we recognize they are necessary. Driving traction for change is more than looking for ways we can implement AI and GenAI for greater efficiency. It begins with the idea that we need a business operating model and technology foundation for future-proofing the insurance business, drawing from the full spectrum of possibilities.

Majesco helps insurers design their next-gen businesses, create usable predictive analytics and data analytics in insurance, and tackle all of those areas where prevention and loss control will keep insurers in those markets they worked hard to establish. With Majesco Copilot, we have built GenAI into Majesco products for a holistic approach aimed at helping users every step of the way. For more information on how you can take your next steps, contact us today. To hear more of our panelists’ ideas and insights, watch the full webinar, 2024 Trends Reshaping the Insurance Business — Are You Ready?

By Denise Garth