The never-ending story of insurance companies and their digital transformations continues.
“Technology transformation is the single biggest investment that we're making as a company,” said Insurance Australia Group (IAG) COO, Neil Morgan, during a recent interview with Insurance Business. Other giant insurers headquartered in Australia, including Suncorp and QBE, are also investing large amounts in ongoing digital makeovers.
But what about insurance companies that need a digital upgrade but don’t have the budget of an insurer juggernaut? When the purse strings are tight, what are the options for insurance bosses?
Ian Chisholm (pictured above) is a partner with Frazer Walker, a Sydney-based management and technology consultancy. Chisholm said when one client recently reached out to tech companies for tender requests on a core replacement for claims and billing. However, when the bids came in they “baulked at the cost”.
“Rather than go with major surgery they decided to use a hollow-out option instead and progressively replaced their system, starting with a product to improve user experience in assessing,” he said.
Chisholm said the firm eventually achieved their goal with a 40%-50% cost reduction on the quote for a full core replacement.
“They also reduced the payback period to 18 months instead of five years,” he said.
This hollow-out modernisation option, he said, progressively externalises functions from older monolithic core systems to standalone or cloud-based applications.
Chisholm also detailed other ways to achieve a digital transformation for an insurer, brokerage or agency at a lower cost than a full-blown digital upgrade.
Wrap-around technology, Chisholm said, is another option. This method involves hiding old core insurance technology behind newer user experiences and better workflow capabilities. He said this technology can also serve as a “customer contact engine”.
Composable technologies, he said, refers to ready-made elements of software that are brought together to compose a new application. The new application, Chisholm said, could be for an insurance policy or claims engine.
“This method has inherent advantages, such as easy integration, the ability to make rapid changes, and lower costs,” Chisholm said. He also said this technology is also designed for the cloud.
Core replacement, he said, is the higher-cost, higher-risk option. This is also a lengthier process, he said, that can deliver significant benefits but “almost certainly” requires specialist external expertise.
Chisholm said Frazer Walker has worked with two major Australian insurers and another client, which all took different approaches to replacing their ageing core systems.
“One implemented a big-budget core replacement program,” he said. “The other elected to chip off bits of functionality from the core system.”
These “bits” included the pricing engine, document management and digital channels. However, the core system was left to become a system of record for policies.
“That enabled the insurer to be faster to market and spread the spend,” he said. “They culled the core system back and created a cloud-enabled integration layer that effectively hid the core system.”
Chisholm said another client who was already using mobile phone apps to augment legacy systems used “data matching tools” to improve the customer experience and provide more accurate data.
“For example, instead of having to answer myriad questions to purchase a home and contents policy, address matching tools can autofill the app with data about, for example, the construction method or the home’s age,” Chisholm said.
This same approach, he said, was then applied internally to replace the core insurance system’s user interface for contact centre staff.
Chisholm said many organisations start a digital upgrade with their pricing engine and augment it with API tools so it sits outside the core system. “Others prioritise innovation for claims, then tackle pricing later,” he said.
One focus of IAG’s digital initiative, Morgan said, is the Enterprise Platform, which the firm describes as its core insurance platform.
“The Enterprise Platform and the work to date has prioritized personal lines,” Morgan said. “For our direct business and our partners, we are utilising that capability – you may have seen that we announced a partnership with ANZ, for example – and that’s leveraging the Enterprise Platform capability.”
He said the broker environment is “our next focus area.”
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