Is Insurance Industry Falling in Love With Technology Again?

Back in the 2000s, shortly after the dot-com bubble, I remember being part of discussions where the role of technology within the insurance industry was being debated.

At the time, there was a strong drive to outsource in the interests of cost reduction, whether it was for applications, infrastructure, or a combined business process and technology package. I recall one executive clearly stating that, “Technology is not a core competence of an insurance company.”

Up until relatively recently, this sentiment was fairly common across the industry and has been behind much of the recent growth of the IT services industry and, perhaps, the retrenchment of internal IT teams. In a way, it felt like the industry had fallen out of love with technology and, instead, just saw it as a means to an end.

In interviews with executives over the past 18 months, it feels like the industry may have turned a corner, and technology is being positioned as a core competence once again. Well, at least the exploitation of technology is. IT investment is also growing, with a focus on supporting growth, underwriting profitability, and a digital customer experience.

In 2015, Celent estimates that IT investment in property/casualty in North America will reach $40.8 billion, up from $37.8 billion in 2014.

Globally, Celent estimates the total IT spending for P/C in 2015 to be $78.4 billion. North America is by far the largest market and, as a result, is one of the most important for the technology industry.

Whether through direct investment in technology startups, through partnerships, or through rebuilding internal capabilities, some insurers are accessing deep technology skills again; including hiring people with a digital skillset from outside of industry in order to pollinate the firm’s thinking and introduce new techniques, such as DevOps to improve agility and the rate of change.

Further evidence of this can be seen through the media. Not a week goes by without a story of how the industry is applying technology in new and interesting ways to evaluate risk, assess claims, weed out fraud, rethink the proposition, or enable new business models.

In the past few months, we have seen ADM, State Farm, USAA and AIG receive approval from the FAA to test drones for claim damage assessment, American Century Life accepting bitcoins, and a three-year-old tech-savvy health insurer, called Oscar, being valued at $1.5 billion. If you rolled the clock back just a few years, much of this would have sounded like science fiction.

So, is the industry falling in love with technology again? Some of the signs suggest a resounding yes, but it feels sensible to err on the side of caution.

Many of the more visible headlines, although exciting, are not yet representative of a wider industry movement. Furthermore, not all firms are approaching IT investment in the same way or progressing at the same pace; for some, this is out of choice, and for others it is a result of being shackled to their legacy infrastructure.

Consequently, many will choose to reflect first on what these newer technologies mean to the core business result, while watching and learning from those brave enough to experiment.

My view is that the industry is beginning to flirt with technology again, but still has some way to go before making a long-term commitment.

Topics InsurTech Tech Market