Modernisation has the potential to be transformative in the insurance sector, yet many companies fail by viewing tech as a panacea for all problems.
McKinsey notes in its ‘’ that, although failed attempts may be discouraging, the benefits of a well-executed digital transformation can include a 40% reduction in IT costs and a 40% increase productivity.
Core activities such as underwriting, policy administration and claims handling can all be significantly improved. However, McKinsey’s insight shows that many insurance companies make three crucial flawed judgements:
- They don’t have a clear vision of what needs to be achieved.
- They opt for a superfluous ‘digital overlay’ of pre-existing systems, as opposed to modernising from the core outwards.
- They optimistically assume an unfocused modernisation programme will fix all of their efficiency problems.
Busting the myths of insurance modernisation
In an effort to curb insurance companies making the same mistakes, McKinsey outlines 10 of the most commonly subscribed myths of tech modernisation:
- Tech modernisation makes little difference: Often resulting from insurance providers not thinking ‘big enough’ or not factoring in enough relevant data into the new plan.
- Proper modernisation depends on replacing the core platform: Effecting this kind of change will be long, complicated and significantly more costly to execute.
- Vendor platforms guarantee access to cloud tech: Vendor platforms can often host prior generation tech, meaning an insurance company seeking cutting-edge cloud solutions would be better off focusing on its own R&D into such things.
- Modernisation can be prescriptive: All pre-existing vendor platforms were likely developed for a specific framework and do not represent a holistic template for all modernisation programmes.
- Simple tech can solve complicated problems: The fabled ‘silver bullet’ tech solution which will right all a systems flaws is often an ineffective oversimplification.
- Automation tools grant smooth data conversions: “Insurance data are notoriously messy, as the ways certain data fields are used often change over time. Undocumented data usage can also lead to surprises during the conversion process.”
- Industry-standard data schema are superior: Although insurers should align their portfolios in accordance with industry standards, these guidelines should ultimately be tailored to each company’s individual circumstances, products, etc.
- Cloud systems inherently cost less: Cloud systems are not without monthly associated costs and savings are often generated as a result of intelligent usage rather than simply costing less.
- Reducing mainframes improve productivity: Another instance of seeking a ‘silver bullet’ answer to complicated issues, companies will need to review mainframes on a case-by-case basis to determine whether this approach will yield positive results.
- Microservices make architecture more modern: This is a problematic supposition as it ignores the complexity of an insurance enterprises’ architecture, which cannot easily be broken down into microservices without causing further problems.
In summary, McKinsey’s points indicate that the problems of modernising insurance stem from over-simplifications, unfocused digital transformation plans and misunderstanding the core benefits of certain tech innovations.