Altus Consulting has released a whitepaper All Aboard for Modernisation: Next Stop Underwriting which discusses why the insurance industry is on the verge of the next phase of modernisation, with underwriting at the heart of this evolution. Despite an estimated £15bn spend over the past ten years in transformation programmes, insurance businesses have not really transformed – both the industry itself and services offered to its customers.
Indeed, in a recent survey only 20% of companies achieved more than 75% of the revenue gains they had anticipated and despite the expectation that digital transformation would result in significant cost savings, only 17% of businesses achieved more than 75% of expected savings.
This costly disappointment is not unique to insurance with estimates that 70-80% of digital transformation projects outside of insurance, also fail; nor is it unique to underwriting. Delivering transformative change is far from easy and as Altus has previously highlighted change in any sector requires a broad set of resources, a team that is committed to the principle of modernisation, and skill in enacting change processes. Such a combination is rare hence the high rate of failure.
So, what can be done about it? We discuss why modernisation is a more compelling answer to the challenges the sector faces particularly in underwriting.
Mark Andrews, Insurance Director at Altus Consulting explains: “Our whitepaper explores how modern underwriting practices across the insurance market can address the challenges of the future, offering practical insights on leveraging technology, understanding core capabilities and building new processes, to not only enhance operational efficiency but also deliver more accurate, tailored risk solutions in an increasingly complex risk environment.”
The chilling effect of outdated operating models
We argue in the whitepaper that this is not simply a matter of allowing the transformational approach time to bed in but the more fundamental point that these projects can only take a business so far while underlying process issues remain unaddressed.
As Mark explains: “transformation has disappointed because the technology is being used to update individual systems or products while ignoring the wider business architecture. Old processes and thinking resist, rather than support modernisation and have a chilling effect on the productivity of technology.”
And too often companies in the Insurance sector are resorting to a big bang approach which are disruptive rather than focusing on incremental change and breaking their operations down into their constituent parts. Rather than transformation we suggest modernisation is the way forward.
Transformation is often painful for an organisation while modernisation is almost always empowering
The need for a modernisation approach is most urgent in the underwriting function. It is the foundation of every insurance company and should be the ground zero of all modernisation plans. Its role is heavily impacted by adopting technological advancements and shifts in business models and appetite. True modernisation will offer more effective, efficient risk selection and pricing, the ability to manage greater volumes of submissions and it will finally remove the weight of manual processes that dull underwriting effectiveness.
It's not just theory. Recent research estimates that 70% of digital transformations fall short of their objectives. In contrast, businesses that invested in modernisation, productivity improvements, and better customer experiences-true digital transformation outcomes – outperformed their peers by achieving 1.8x times higher earnings growth.
The future of the sector and AI
As Mark Andrews explains recent developments have meant it is even more important that companies look at their processes: “The need to change track to reach modernisation is more urgent than ever with the ‘high speed rail’ effect of businesses scrambling to use Generative AI. The technology is sound, and a wide range of applications have been found, but many businesses will suffer from their lack of real transformative thinking. The lack of disruptive operational and technological design means they simply won’t get the return that their investment in Generative AI deserves.”
The success of any insurer is more dependent upon the risks it selects than the investments it makes or claims it pays out. Modernisation starts with underwriting but must be repeated across the whole business estate to realise the full benefits of the investment. It is only then that the true transformation of insurance will take place and not by means of disruptive technological change.
After all, as Mark concludes: “The insurance industry and underwriting in particular are great candidates for modernisation. Insurance is, culturally speaking, more conservative than many other sectors, and there can often be resistance to wholesale change. Which is why an incremental, methodical approach to modernisation offers the greatest chance of digital success to the insurance sector. Huge strides have been taken in digitising insurance but so far, the job is only half done. The task of modernisation is to fulfil the promises that transformation made.”
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