Season 2, Episode 4 - 6

December 12, 2021

Season 2, Episode 6 | HSCM Ventures' Adrian Jones On All Things Insurtech—What's In, What's Out in 2022

Speaker 1 (00:04):

Welcome to InsurTalk, the podcast where we don't just talk about innovative ideas and P&C insurance, we talk with industry trailblazers about the big ideas they made happen and how they did it. This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently. Visit guidewire.com for more information. And now, let's make it happen.

Laura Drabik (00:30):

Welcome to InsurTalk. My name is Laura Drabik, and I'm the Chief Evangelist at Guidewire. In this episode, I have the privilege of interviewing Adrian Jones, partner at HSCM Ventures, a part of Hudson Structured Capital Management Limited. Adrian is an experienced leader with an impressive background in strategy, reinsurance ventures, and InsurTech. Today, we will be focusing our conversation on all things InsurTech.

Hello, Adrian. Thank you for joining my podcast.

Adrian Jones (01:00):

Good morning, Laura. Thank for having me.

Laura Drabik (01:02):

Tell our listeners about HSCM Ventures and your role here.

Adrian Jones (01:06):

HSCM is about five years old, manages a little north of three billion of AUM and committed capital. We have been very active investors in the InsurTech space for several years now. As a partner, I lead the activities of HSCM Ventures, along with two other partners and a total team of six.

Laura Drabik (01:28):

Why do you think insurance has attracted so many disruptors and disruptive value propositions as of late?

Adrian Jones (01:33):

It's the middle of winter right now, and if you think of freshly fallen snow, you think of where you can go skiing on the best powder. A lot of people saw insurance starting around 2015 as being some freshly fallen powder that hadn't been skied on in a long time. And they looked at an industry which was very large, anywhere between five and seven trillion [dollars of premium], depending on how you count it, that's very global. And it has a large number of companies which were founded in the 1800s, and in some cases, through personal experience, still act like they're in the 1800s.

So, you had a number of entrepreneurs who said, "Look at what's happening in FinTech, look at how banks are being disrupted, and where can we find other situations like that?" The powder that they found was in InsurTech. 2015 is when we suddenly started to see large numbers of people, capital, and technologies starting to be applied to insurance in a way that they hadn't been before. That was really the pivotal moment. They saw an industry that had not kept with the times in many ways, and that's why so many wannabe disruptors came to the business.

Laura Drabik (02:43):

Funding into an InsurTech startups totaled, I guess, 10.5 billion in the first nine months of 2021. However, two thirds of the total volume raise went into only 15 InsurTech deals. Adrian, what does this tell us about the industry?

Adrian Jones (02:58):

We see that in many parts of venture where there are a handful of companies, for whatever reasons, who attract a lion’s share of the capital. And what's interesting, is that there is also data which suggests that there is not a very strong correlation between a company's ultimate success and the amount of capital that it attracts as venture capital. If you look at where's capital going [in InsurTech], it is primarily going into MGAs (managing general agencies) or carriers, and it is primarily going into P&C. Within P&C, we have seen a lot of capital flowing into personal lines carriers and agencies, so think of traditional homeowners and auto. But we are, I believe, going to see an increasing amount going into commercial and into specialty lines, which are areas that have been more difficult to understand from the outside and that require more specialized expertise.

One of the really interesting things is that a decent amount of expertise is actually coming out of some of the incumbents. There have been several big moves this year by people who have 10, 20, 30 year careers in large incumbent insurers who are starting to join young startups. And that's something that we didn't see even two or three years ago, but I think is going to be very important for the future of this business.

Laura Drabik (04:12):

What do you think InsurTech funding will look like in 2022?

Adrian Jones (04:16):

The problem with making predictions is that they involve the future. This is a very hard question because we have seen a substantial run up [in funding volumes]. We have also seen in the public markets a correction in valuations.

We created an index called the HPIX. It's available on Bloomberg, Reuters, et cetera. It's the HSCM Public InsurTech Index. Currently, there are 22 components in the index. In full disclosure, Guidewire is one of them. These are companies which have gone public within the last 10 years that have novel business models differentiated by technology. The index peaked at 203 in early February of 2021, and has since traded as low as 110 [as of December 2021]. And obviously by the time this [podcast] comes out, the index will be in a different place than it is today.

What the index has shown is that public markets have liked some of the stocks which have come out recently and they have disliked others. Some have done reasonably well and some have sold off by more than 80% from their peaks. That, I think, is going to be something that private markets are going to be increasingly reckoning with in 2022. I think that there is a tremendous amount of capital that is still looking to be deployed. But, what are private markets going to do as they sit and look at what has happened in public markets? And I think that's going to be the real key question that's going to determine what funding looks like in 2022. I don't think InsurTech is going away. What the funding volume looks like in any given year is obviously hard to predict.

Laura Drabik (05:49):

I couldn't agree with you more, Adrian. I think InsurTech is here to stay. And if we look at a precursor to InsurTech, which is FinTech, and as you know, FinTech uses technology to improve activities in finance and banking, so how does investment in FinTech compare to investment in InsurTech? And why is there a difference in funding?

Adrian Jones (06:08):

This is something that a lot of people don't understand. Insurance is a massive business. Banking and other financial services activities are a larger business, but not that much larger. If you look at the US GDP statistics, insurance is approximately 3% of the economy, and other financial services, primarily banking and lending, is about 5%. However, in the first three quarters of 2021, approximately 20% of all venture capital dollars went into FinTech and less than 3% of venture capital dollars went into InsurTech. So FinTech relative to its size in the US economy has been far better penetrated by venture capital than InsurTech. And that is partly a function of the fact that FinTech has simply been around as a term for longer. There are many more customers today dealing with online banks and neobanks than there ever were.

I remember in 1999, I was sitting in a lecture hall in the basement of my college, and somebody from IBM got up and said, "The bank branch is dead. It's gone. Online banking is going to replace it." He was only 20 years early, but he was right. Insurance is a little bit further behind in this sense, and that's for a handful of reasons, including having a different regulatory regime. Insurance, for better or for worse, is regulated by the 50 states, and those 50 states all have different regulations. It's a little bit like masking for COVID: what's required in one state is not allowed in another state, and insurance companies simply have to live with that. That has slowed some of the innovation relative to broader FinTech.

Over time, as people realize that even complex capital intense regulated businesses like banking can be disrupted, we will see similar things happening in insurance. But I think if people get impatient and they expect overnight success, it's not the way the insurance industry works. Insurance is a get rich slowly business, but over time through the power of compounding and through the stickiness of insurance customers, great businesses can be created, but it takes time.

Laura Drabik (08:10):

So, which areas of InsurTech then are generating the most VC interests and why?

Adrian Jones (08:16):

We're seeing VC interest really across the board. One of the surprises, if I were to think back to five years ago, is the interest in carriers and businesses that are very similar to carriers, most notably managing general agencies. I think five years ago, people expected that it would've been very difficult for those businesses to attract large volumes of funding because you're often putting that money into regulatory capital, you're putting it into customer acquisition, and you're putting it into operations. Those three things are all capital intensive. They are all difficult, and the payoff is at some uncertain point in the future, because as I said, this is a get rich slowly business. So I've probably been surprised at the amount of activity that's gone in there, and I think it's great because that is the coal face of insurance. They're actually producing and selling policies and dealing with customers. That's where we are going to produce better products for consumers that work more effectively for them at covering their needs. And that hopefully are also lower costs with less overhead baked in. So I think that's really exciting.

The other areas of interest of course have been software companies. There are a number of venture investors out there that really love SaaS (software as a service) and have established that software is eating the world. And I'll make a prediction: vertical software will eat certain parts of insurance. Vertical means dealing with a particular industry, so they're dealing with construction or automotive retailing or whatever it is. And those companies are thinking, "How do I monetize the data that I have, and how do I translate that into an insurance offer which is better for the consumer because I know a lot of about them." That, of course, is not necessarily insurance venture, but it is people coming into the insurance sector from other parts of the business. And I just think that's worth mentioning.

Laura Drabik (10:10):

This is such great information. Before we continue, listeners, if you're enjoying this podcast, be sure to subscribe, to InsurTalk on Amazon, Apple Podcasts, Stitcher, or wherever you get your podcast. Now, this is Laura Drabik, and let's get back to our conversation. I'm talking with Adrian Jones, partner, HSCM Ventures.

So, Adrian, when InsurTech emerged a decade ago, I think insurers saw the industry as more of a competitive threat. From your perspective, how has this point of view matured over time?

Adrian Jones (10:37):

I think you're right that a number of large companies saw a competitive threat, but that didn't last for very long. You saw some kind of strange activity that happened in the business in the early days of InsurTech where people said, "Well, we all need to go out to Silicon Valley and hang out at Google and Facebook's offices, and then we'll come back and get some bean bag chairs, and we'll all be inspired. And suddenly, we're going to act like a startup." Fortunately, we're not hearing any of that anymore. I think what we're starting to see now, is carriers and others in the insurance business saying InsurTech could be a competitive threat to us, or they could be a partner and they're going to help us beat the incumbent down the street or in the next state over. And I think that is a much more mature view, and that is what's going to lead to substantial amounts of innovation coming, not just from InsurTechs, but also from the established carriers.

I think one of the areas of competitive threat that was overestimated was in some of the core personal lines businesses. I think people didn't give enough credit to some of the very successful companies that have been in those spaces for a hundred years or more that have actually been able to start taking on some innovation, that have been able to use their large customer bases and well known brand names, et cetera, in order to drive innovation and make customers happy and keep those customers. So, that's one area where I think the competitive threat was probably overestimated.

The companies that are not capable of adapting to the latest in technology, over time, those sort of companies are simply going to lose market share and slowly wither away. And it's one of those things like, “how did you go broke? Gradually then suddenly.” I think we're still in the gradual phase for a number of companies that need to adapt to the cloud for instance, or use better data sources that need to link up their core systems more effectively, that need to drive some of the cultural change. I think those are the companies that are really at risk in terms of competitive threat from InsurTech.

Laura Drabik (12:36):

So new forms of pay-as-you-drive usage based insurance leverage smartphone-based telematics data to help insurers deliver what we've been talking about, more personalized consumer coverage and pricing, but the key is real time access to and consumption of customer data. So, Adrian, any insight on this space?

Adrian Jones (12:57):

Yeah. Personal auto is obviously the largest of all the insurance lines in the US. If you look back 10 years ago at telematics or any device or smartphone app, that can measure when and how a car is driven. In 2011, according to the IOT Insurance Observatory, there were fewer than three million cars connected to an insurer. So, pretty experimental, led by a couple of large insurers. Today, there are more than 21 million cars connected to insurers in some way. There are 450 telematics programs globally. So basically, every large notable insurer in most parts of the world has some form of telematics program. But in many ways, we're also still trying to figure it out.

I think going forward, at the end of the day, data makes a difference. Data can produce better outcomes for everyone involved in the sharing of data. And that is going to produce a situation where consumers are incentivized to share data with insurers, and insurers are incentive to use that data in order to reward the best customers. So, an insurer who is not capable of handling large volumes of customer data is going to find themselves increasingly adversely selected against. Personal auto is where we've seen it first, but I think we're starting to see it in numerous other areas as well. There are certainly companies working on it in homeowners, as well as areas like marine, for example. So, I hate that saying data is the new oil. I don't necessarily think that it is, because oil is finite, data is not. The question is, how can we most effectively collect data, analyze it, use it, and ultimately reward good customers with better quality insurance products?

Laura Drabik (14:31):

So, let's talk about embedded insurance. And for our listeners, embedded insurance is coverage that's offered with the purchase of third party products or services. So, the Apple warranty with your iPhone or coverage with your new Tesla. And according to McKinsey, up to 25% of all person-aligned premiums could be generated through embedded insurance ecosystems by 2030. So, Adrian, what is your point of view on alternative distribution channels like embedded insurance?

Adrian Jones (15:00):

What the industry has realized within the last couple of years, is that there are a very large number of ways in which you can meet a consumer at a point when a consumer wishes to purchase insurance and provide them a better offering than they might have otherwise. Much of this, of course, is because of software-based solutions or the internet. We are also seeing a number of parties from outside the insurance business who are saying, "I can sell insurance to my consumers, and I can do that more effectively than a traditional agent can." Whether that's true or not, I don't know, but that's what they're saying. At the same time, carriers are saying, "How do I take advantage of all these new forms of distribution?" And that is a really big change.

            Go back to even a few years ago, and you heard insurance CEOs at conferences say, "We would never do anything which would even remotely compete with our existing independent or captive agencies. They are everything to us." That has changed fairly significantly in the last couple of years. Insurers are redefining the nature of the relationship with their agents and what other channels they can potentially pursue. This of course has precedent in all sorts of other parts of the economy. If you look at e-commerce, its percent of total retail sales, it's gone from 5% 10 years ago to close to 17 or 18% today. If you look at car sales, last year, the leading online car retailer sold 250,000 units.

So, if you can do all of that, why can't you buy insurance online? Why can't you buy it through other channels? I think there is value that independent agents bring, but that does not necessarily mean that we have to have the same set of distribution channels in the same way as we have always had. Embedded insurance is a term that refers to all these other things which are happening in order to bring insurance to consumers when they want it, how they want it, and in perhaps more efficient ways than have been done previously.

Laura Drabik (16:52):

Insurers want to leverage AI, artificial intelligence, to free up the human from manual redundant activities, so the adjuster, the underwriter, the agent can focus on delivering empathetic intelligence service that only a human can deliver. Adrian, any insight on the AI space? Which complex activities could AI be responsible before in the near future?

Adrian Jones (17:15):

Well, to start with, I think AI is very effective at simple activities, and so a number of companies are redesigning their systems and their processes such that simple activities simply go. And if they cannot be touched by human, then great.This could be simple underwriting activities, simple claims activities, even policy servicing sort of activities. The role of the human becomes, instead of processing 50 of these paper forms per hour or whatever their quota is, it becomes dealing with exceptions. When the system doesn't recognize something, it can't process it, that's when the human has a look at it. That is a much more value-added role for people. That's fundamentally better for people. It's also better for customers because products and services can be delivered to the customer more effectively and more quickly.

So, where is this happening? It's happening in personal lines underwriting, to be sure, in fact it already has happened. There's automatic underwriting for large volumes of personal lines, and that's been the case for a long time. We're starting to see it more in personal lines claims. We're starting to see more straight-through processing in small commercial underwriting as well. One of the challenges that people get into in small commercial for example is they say, "Well, I’m worried that the computer is just not going to be as good as the human." And at least one insurance company that I've looked at when they implemented a straight-through processing in small commercial, actually found that that book of business, a straight-through process, performed about five percentage points better on the loss ratio than the business which had been manually underwritten.

Now, of course, that's not like-for-like, but it does suggest that in fact machines can be very effective at 60, 70, 80% of the business that's thrown their way. [For the business that] goes through a slower, more manual path, you're really focusing underwriters or claims processors or whoever it is on the more complex, more tricky, highly value-added activities. This means that there are fewer people who are doing more value-added activities in the space. And I think ultimately that ends up being a win-win for everybody involved.

Laura Drabik (19:16):

We need to take another break. If you're enjoying this podcast and would like to review more of my thought leadership, please see evangelist.guidewire.com. Now, let's get back to our conversation with Adrian.

I really enjoyed your InsureTech Connect presentation from October 2021, and you spoke about what's in and what's out for startups. What are the most important ins and outs for 2022?

Adrian Jones (19:40):

So, ins and outs, I made a startup edition as well as an incumbent edition. This is all on my LinkedIn as well. http://www.linkedin.com/in/adrianjo  

So from a startup perspective, we're seeing startups that are engaging in more steady growth rather than blitzscaling. Blitzscaling is this idea that's popular in some corners of the venture and startup world that says you need to come into a market and take over that market as quickly as you possibly can. Uber is the classic example of this. Uber recognized that if they didn't attack all of the major markets quickly, they would leave markets open where competitors could replicate them so, therefore, they had to come in, they had to do it as quickly as they possibly could. And you look at their profitability and you can debate whether that's a successful strategy.

What I can tell you is, it has not worked particularly well in insurance. It has resulted in companies obtaining some of the lowest quality customers, and those customers then leaving win better offers come along, or when the company has to raise price in order to attain a level of profitability. So, we're seeing companies focus really more on steady growth, over time, compounding book value, get rich slowly, not get rich tomorrow. We're seeing them focus on higher value policies rather than cheap episodic micro policies, unless there is a real leverage source of distribution for that. We're seeing a lot more focus on customer segmentation.

We're seeing people recognize in startup world that insurance is a game of inches and a game of niches, meaning you don't need to attack an entire $7 trillion market, you need to just win in a couple of niches. And the way that you win, is by being a little bit better everywhere, so be better in inches, not better in miles. And if you can be better in inches everywhere, that is what produces these great insurance businesses over time. We're seeing startups recognize the value of experience and experienced people rather than just, "Hey, I'm a fresh MBA. I can sprinkle my pixie dust and y'all are going to love it." There's starting to hire gray-haired people, and combining that with the youthful exuberance. We're also seeing companies buying capabilities. So, engaging in M&A, rather than trying to build everything from scratch. And I think, again, this is all just signs of maturation of the sector, learning from early mistakes and preparing for the future.

Laura Drabik (21:44):

Why don't you give us a couple on the incumbents too?

Adrian Jones (21:47):

Yeah. So, the incumbents, we've gone from the Silicon Valley petting zoo, that I mentioned earlier, with going and looking at people's bean bag chairs and bringing a few back and saying, "Look how cool we are now. We're going to innovate." We're going instead towards deep partnerships with InsurTechs. We're going from POChell, as people called it, let's do a hundred proofs of concept and see what works, with kind of open-ended innovation budgets. Just go out and innovate, go out and figure something out. We're starting to see much more mature ROI analysis with real resources placed behind the things where the ROI actually works. We are seeing incumbents, instead of saying, "I want to be the first partner of the startups," starting to prefer more established solutions that are still in innovative. So, I call that being the fourth partner, rather than the first.

We are seeing incumbents focusing on relatively near-term business problems. There have been some spectacularly successful companies that actually aren't doing things that are all that complicated. They're just solving close-in problems. We're seeing incumbents being less focused on moonshot and shiny objects and long horizon sort of innovations. From a capacity perspective, meaning risk capacity, we're seeing more of an alignment between investment capacity and oversight, rather than just saying, "Oh, wow, look at what that cool startup can do. Let me go give them my [underwriting] pen. They can produce some business." That's largely done.

We're seeing more straight-through processing. So, elimination of tasks, including core underwriting tasks. We are seeing many fewer people who are saying what happened to travel agents is going to happen to insurance agents. There are 800,000 insurance agents in this country. There are 80,000 travel agents. I think you are still going to see very large numbers of insurance agents for a long time to come. However, we are seeing more focus on alternative distribution. We talked about embedded insurance earlier.

That's how the incumbents are maturing. And I think, ultimately, when you combine what the incumbents are doing as well as what the younger startups are doing, I think that it produces ultimately an industry that's going to serve customers much better than we are today.

Laura Drabik (23:45):

Now, you also spoke in your presentation about where today's Cuthbert Heath are winning. Can you provide some context on the term Cuthbert Heath and also the top areas where they are winning?

Adrian Jones (23:56):

So what is a Cuthbert Heath? It's kind of a strange term, right? Certain people in the London market would recognize the name, but many of us outside would not. Cuthbert Heath was actually a person. He was an underwriter at Lloyd's for 59 years, and he is largely credited with being the father of modern insurance. He created a number of products that we use today, including automobile insurance. This was just coming out when he was active in the late 1800s, early 1900s. [He also]created burglary insurance, jewelers' block insurance. He would insure you for smallpox, but only if you were vaccinated. He created air raid insurance during World War I. He also was a big claims and risk innovator as well.

When San Francisco was destroyed by the great earthquake in 1906, there were a number of insurers who were playing all sorts of games with the claims. They would say things like, "Well, the damage to this structure is because natural gas lines were disrupted and caught fire and burned it down." And Cuthbert Heath just said, "Pay all of our policyholders in full, irrespective of the terms of their policies." And that is why people today in the United States know the name Lloyd's of London -- because of Cuthbert Heath.

For today's Cuthbert Heaths, insurance companies are by their nature conservative, and that is a good thing. Insurers are supposed to be conservative. But it becomes a bad thing when it means that insurers are not fulfilling their obligations to society to cover new and emerging risks, and to drive down the cost of covering existing risks. InsurTech was a way of releasing some of that energy to innovate in this business. Some of different areas where the various Cuthbert Heaths are active today are cyber, secondary perils like wildfire, specialties like pet and flood; in data, telematics, which we talked about earlier, integrating predictive data, straight-through decisioning, image recognition; in distribution, embedded insurance like we talked about, comparison raters, and so being able to go online and get 10 different quotes with some degree of accuracy. It's actually pretty hard right now.

And of course, software and data. As Guidewire knows very well, there is an enormous software challenge in the insurance business. And I think that there is an enormous opportunity to reinvent the sort of systems that many insurance companies are using from the core outwards or inwards to the core.

Those are areas where I think a lot of innovation is happening and where the industry is really being redefined. So, if you think of yourself as an innovator and you think of yourself as, "I could be Cuthbert Heath. I could be someone who really drives the future of this business," those are some of the areas that I'd be looking if I were you.

Laura Drabik (26:29):

Based on your experience, Adrian, what is the most effective way for insurers to work with InsurTechs?

Adrian Jones (26:34):

The most effective way is, number one, to be very clear on the strategy. So, what are you trying to accomplish in your business? Are we trying to take out costs? Are we trying to grow? Are we trying to redefine our distribution? What's the key question that we're trying to address? And then, how do we think about whether we should build, buy, or partner, in those sort of situations? Having a clear answer to those two questions, what is our strategy and what is our approach to solving the strategic problem, then enables one to most effectively think through who are the right potential partners or vendors to engage in order to solve particular parts of that problem.

And then, instead of going through a million POCs, being much more focused on, "Here are the handful of companies which could potentially be beneficial for solving these particular problems," and then going through the process with them in a structured way, such that, it ultimately results in a long-term engagement rather than a short term. Company comes in for two months, tries to do something, and basically all they can do is find their way to the bathroom, and the project fails. I think we've largely gotten beyond that with the most successful partnerships, but of course it still happens. So, it just starts with knowing your strategy, knowing how to tackle that strategy, and then finding the right partners, engaging with them over the long term, and actually making it a partnership rather than just, "They're our vendor, and here they're going to come in and do something."

Laura Drabik (27:53):

Any last insight you would share with insurers looking to partner or invest InsurTech?

Adrian Jones (27:58):

There is a tremendous pent up demand among people in insurance companies to do things differently and better, and to serve ultimately the mission of this industry, which is to provide protection for people, for businesses, for governments and for society that is most effective and at the lowest possible price. And I know this because I talk with these people constantly. They call me up and they say, "How can I be more effective at driving innovation? And should I be working for an insurance company? Or should I go work for a software company? Should I go work for a startup, et cetera." But this industry is full of people that want to innovate. And I think it's incumbent upon everybody in this industry to think about how do we harness that collective power. How do we take all these Cuthbert Heaths that exist and ultimately direct them in the most effective way? I think if we do that, then our industry is going to more effectively serve its function in society, and that'll ultimately be good for everybody.

Laura Drabik (28:54):

Adrian, thank you very much for your time today. You've shown us it's not just about ideas; it's about making ideas happen.

Adrian Jones (29:01):

Thank you for having me.

Speaker 1 (29:04):

This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently. Visit guidewire.com for more information.

 

 

 

 

 

Season 2, Episode 5 | PwC's Imran Ilyas: Leveraging Change Management to Execute Transformation Successfully 

Speaker 1:

Welcome to InsurTalk, the podcast where we don't just talk about innovative ideas and P&C Insurance. We talk with industry trailblazers about the big ideas they made happen and how they did it. This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently. Visit guidewire.com for more information, and now, let's make it happen.

Laura Drabik:

Welcome to InsurTalk. My name is Laura Drabik, and I'm the Chief Evangelist at Guidewire. In this episode, I have the privilege of interviewing Imran Ilyas, PwC Financial Services Partner and Insurance Leader. Imran serves global, national, and regional carriers in P&C. He co-leads PwC's P&C core transformation practice and thought leadership for Core Systems Transformation, including change management, and that is the focus of our conversation today, how carriers can leverage change management to help them execute successfully on their transformation goals. Hello, Imran. Thank you for joining my podcast.

Imran Ilyas:

Thanks, Laura. Appreciate it.

Laura Drabik:

Tell our listeners about PwC and your role there.

Imran Ilyas:

So PwC is a leading professional services firm with offices in about 156 countries and approximately 300,000 people worldwide. Out of which, 8,500 are focused on insurance. I primarily focus on P&C transformation and lead our functional and industry alliance practice which oversees the growth of several of our alliances, including Guidewire.

Laura Drabik:

As a former change management consultant myself, to me, change management means helping people adapt to a new future state. So the practice, employees, people, processes, and tools to move people from their current state to their future state. How do you define change management?

Imran Ilyas:

Good question. So a lot of people consider change management as primarily communications and training, which are obviously a big part of it, but it's also much more than that. In order to move people to a future state, it is important to understand the current state, how people work, and how they consume information. Change management comes in to help fill the gap between current and future state, and resolving the gap through stakeholder engagement, and enabling the behaviors that drive adoption. Another big component of change management is culture. In order to drive sustainable adoption, you need to understand the behaviors that are needed to enable adoption. Basically, how are those behaviors enabled through day-to-day activities leveraging a new digital platform?

Laura Drabik:

So change management is often seen as a soft topic that can have a highly adverse impact on hard ROI because the failure to manage change undermines the success of the technology rollout. Based on your experience, are there any success metrics that you can share with us on how change management has positively affected a project's ROI?

Imran Ilyas:

Yeah, absolutely. So the obvious ROI metrics are improvement in combined ratio, expense ratio, speed to market, expansion of different geography and products, and operational efficiency. So those are, historically and traditionally, we have looked upon as we look at the business cases and ROI. We also typically monitor three key metrics outside of the traditional ROI metrics as it relates to change management. So the first one is user behavior metric. So are users spending a lot of time on a newly developed platform? Are there areas where they're confused? How many more users are on the platform based on the original baseline? So this covers the first area of... we are monitoring after the go-live. So that's the first metric.

Imran Ilyas:

The second one is around post-go-live incident. So in this one, what type of phone calls and emails are you getting after go-live? Is your production support team supporting questions or clarifications versus actual high-level system questions? So that's the secondary we monitor. The third one is production support versus expansion. So let me explain what that means. So the smoother the rollout, the better you can pivot your organization to work on advancing the platform. What that means is adding new states, adding new products, adding new futures, or supporting the platform itself. So those are the three areas we look outside of the traditional ROI metrics as it relates to change management.

Laura Drabik:

Excellent input, Imran. When it comes to change management for a technology implementation, most people think of user adoption once the technology is installed, but should they start that process sooner? Do carriers need to understand the motivation to change from the perspective of each stakeholder before a carrier even selects a new technology? Imran, what are your thoughts on when and how change management should be kick-started?

Imran Ilyas:

Yeah, I would say change management planning should be started very early in the pre-inception phase where you would align leaders on a common vision for the transformation and begin to identify impacted stakeholders. The case for change should be understood earlier. Whether it's quicker time to market, access real time data, or shift to the cloud to enable greater agility, those key points should remain front and center in messages to all key stakeholders throughout the life of the program. Another important point to keep in mind is that the core transformation are longer duration projects. In the age of immediate satisfaction, we need to manage stakeholder expectations, make sure to pace communication accordingly, and manage the lulls of the program. Also, don't forget to highlight and share the smallest wins because those projects are sometimes 18 to 24 months, and it's also good to articulate some of the earlier wins.

Laura Drabik:

You're absolutely spot on. So it is absolutely essential to manage those lulls. Excellent input. Thank you, Imran.

Laura Drabik:

Before we continue, listeners, if you're enjoying this podcast, be sure to subscribe to InsurTalk on Amazon, Apple Podcasts, Stitcher, or wherever you get your podcast. Now, this is Laura Drabik, and let's get back to our conversation. I'm talking with Imran Ilyas, PwC Financial Services partner.

Laura Drabik:

So speaking from experience, change management activities can vary from education in communication, like you mentioned earlier, role modeling, organizational restructuring, and of course, the list continues. Which change management activities do you recommend for carrier transformation projects and which are absolutely essential to the success of the initiative?

Imran Ilyas:

Yeah. I think you phrased the question very well. For PwC, there are six key activities that are very important to every program. So the first one is defining a transformation vision. The vision will serve as a North Star to the program. So it's important piece to get right upfront. So that's the first thing I would do. The second activity is building an approach to align and engage leaders. So get all key leaders together to understand the motivation and how the vision will come to life. Here's where you would also start to talk about the behaviors needed to enforce across the impacted teams so the leaders can walk the talk. The third activity is identify stakeholder and corresponding impacts. It is important to understand the gap between the current and future state for all impacted stakeholder groups so that you have a clear idea on how people will experience the change.

Imran Ilyas:

The fourth category is an obvious one, is building a change plan, which may include standing up a change ambassador network, deploying regular communication, holding road shows in that category. The fifth one is learning and training. Of course, learning and training is key. This usually includes a mix of job aids, videos, and instructor-led training. The last one I would say is measuring adoptions. The techniques we have used is leveraging surveys, focus groups to access change readiness, and post-go-live adoption. So those are the six activities we have seen over and over again to implement successful change programs.

Laura Drabik:

Encova is one of my favorite Guidewire transformation success stories. They won an innovation award from us recently at Connections. As a judge on our Innovation Awards Panel, I appreciated that they completely reinvented their personal lines operations. They enabled their agents to do business faster, more efficiently, and policy holders to access their policy information more easily than ever before. They increased their new policy counts, retention rates, went paperless, and their list of accomplishments continues. This project was executed by PwC. Congratulations. What role did change management play on this initiative, and how important was it to its success?

Imran Ilyas:

Thanks, Laura, for asking this question. Encova was one of my favorite projects. We've been working there for a long time. Encova and PwC won two innovation awards. One for commercial lines transformation and another one for personal lines reinvention program. So both were pretty big awards for us. We just learned yesterday that Encova won another IVANS Innovation Award, which was basically on top of... There were 400 carriers, and then they were number one in terms of digital transformation, which was a huge kudos to the team.

Imran Ilyas:

I would say change management was a critical component at Encova Insurance. We leverage all key techniques of creating a vision, aligning leaders to the vision, change ambassador program training, and hosted numerous agent town halls that directly interacted with the person line sponsors. It was also impressive to see the increase in straight-through processing as a result of this program implementation. So we were extremely excited in terms of what results it actually accomplished as a result of this transformation.

Laura Drabik:

Congratulations. I love the use of town halls. Imran, would you be able to describe for our listeners what a town hall is or looks like at a very high level?

Imran Ilyas:

Absolutely. So town hall is basically an opportunity where the sponsors can host a virtual or in-person event with all the agents or employee, where there is a set agenda initially of sharing where we are in the program or what goals we'll accomplish. But it also allows agents and employees to ask questions to the sponsors. So it creates a two-way dialogue between both parties of sharing the vision of the program, and then what that vision will accomplish for both the employees, and the agents, and the consumers. So it's a pretty effective tool, I would say, in our toolkit to do it for a successful transformation program.

Laura Drabik:

I couldn't agree more. How do you involve key stakeholders like the agent you just mentioned, underwriter, adjuster, et cetera in the entire change journey?

Imran Ilyas:

Yeah. I would say the technique we have leveraged at Encova is the first thing we did was we have to find the change champions, understand who are the influential players in each business unit and in each independent agencies, and then we brought them as ambassadors to the program. So we call them the change ambassadors. They were very key in actually taking the message from the program back to either the independent agency network or to the employee network.

Imran Ilyas:

Then, the second technique we used was ensure open two-way communication, have a clear person that can answer any and every question along the way, give stakeholder knowledge and updates, and also ask for questions in return. That was a pretty good technique, and that helped us a lot. The third technique we used was articulate the business value. It's always important to understand the broader organization objective and why the transformation is taking place, and then what the accomplishments will be post-transformation. So those were some of the key techniques we leveraged at Encova and worked out extremely well for us.

Laura Drabik:

Okay. So then, how do you handle pushback to change?

Imran Ilyas:

So pushback to change is normal. Every single programs we have done, we will see some resistors. The key here is to identify your resistance or resistors early in the program, bring them as part of the program either to a change ambassador network or they are very close to the program, understand why they are objecting to the change, and then put that message as part of the change messaging throughout your communication newsletter, message from the CIO, message from the CEO, to the team so it's constantly being front and center.

Laura Drabik:

We need to take another break. If you're enjoying this podcast and would like to review more of my thought leadership, please see evangelist.guidewire.com. Now, let's get back to our conversation with Imran.

Laura Drabik:

The brutal reality is that about 70% of all change initiatives fail. Imran, what is the top reason why change initiatives fail?

Imran Ilyas:

So change challenges can create barriers to adoption. So when organizations focus on the people element of change, projects are more likely to deliver on objectives and business outcomes. So four of the top challenges we have seen in our programs is one is the lack of leadership alignment. As we have discussed, if the leaders are not brought into an initiative and not able to evangelize with their teams, adoption will ultimately suffer because of it. So that's the first reason. The second reason we have seen is the failure to address change resistance. It is important to bring any potential resistors onto the project early on to get a sense of their feedback and how can we address their needs.

Imran Ilyas:

The third reason for challenges is unclear vision and success metrics. So lack of clear vision leads to confusion for employees in prioritizing various initiative, and the last one is an important one, is change fatigue. Change initiative must be taking on a time where organization can effectively absorb and digest change and the effort that goes with it. This is the key point because if you put too many things on the plate for everybody else, it's extremely hard to adopt. So the change fatigue element is also a key element of the change management.

Laura Drabik:

So in the era of COVID, how has change fatigue been affected? Has it increased? What are your thoughts on it for 2022 and whether it increases more or stays pretty level?

Imran Ilyas:

Yeah, very good point. Despite many challenges this year has presented, I would say technology emerged as a constant, providing solutions for productivity, collaboration, and employee connectivity. By combining people capabilities and right technologies, we can weave technologies throughout a transformation initiative to create something unique to drive growth and accelerate outcomes. So going back to your question, even though we have to work remotely, it has created its own challenges, but it also has created opportunities of leveraging technologies to actually make change management more effective.

Imran Ilyas:

Our most recent global workforce of the future survey, which PwC conducted, spoke directly to this, calling out the three most significant workforce challenges as we go into 2022. One is identifying the risk of replacing human work with technology. The second one is around identifying the skills workers that we will need in the future due to the technology changes, and the third one is communicating clearly about the effect of automation and AI on the future skills needs. So those are all three key reasons where we have to monitor. We at PwC have also taken our own advice. This is why we have invested billions in technology and upskilling for all of our people at every level.

Laura Drabik:

Really insightful, and thank you for sharing the results of that report. I had the privilege of having IAG, the largest general insurer in Australia on my podcast. IAG is another PwC-led transformation. I asked the Executive GM, Kylie Burtenshaw, what was critical to the success of the IAG initiative, and she said, and I quote, "I will say above absolutely everything, you must remain business-led." Imran, how important of a role does the business play on your technology implementations, and how does your team involve the business?

Imran Ilyas:

Thanks for asking this question. I got a chance to work with Kylie, and she is an amazing leader. I totally agree with her that change has to be business-led. Historically, business would articulate requirements and technology would disappear into a black hole for months before delivering something back to the business. So that was the traditional way of doing things. In business transformations, key decisions are jointly considered to understand impact on not just technology solution, but also the business. That means impact to customer experience, impact to operating models, alignment to vision, and strategy. All these things are critical to success. Business-led simply means considering the whole business and technology as single entity, two sides of the same coin where one cannot be successful without the other.

Laura Drabik:

Business and technology. One will not be successful without the other. Well said. Teresa Clauson, a PwC partner in Sydney, Australia, participated on my panel Boosting the Bottom Line: Gender Diversity in Tech. Listeners, you can watch the session on evangelist.guidewire.com under "Videos." Imran, I was so impressed with all of the initiatives that PwC is engaging in to create what Teresa called a culture of belonging. So how important is fostering diversity on transformation initiatives?

Imran Ilyas:

Yeah. The diversity in our firm is a significant resource for us. So PwC, for the last 10 years, is always on the top quadrant in terms of the diversity leader. We each have different experiences, thoughts, and perspective. Harnessing that through challenging approaches, finding new innovative ways of doing things, sharing insights and experiences are a real strength for us. Teresa and the work she's doing in Australia is a wonderful example of that. She has a diverse team of specialists and generalists pulled together from our global firm, the US, the UK, India, New Zealand, and of course, Australia with experiences ranging from technologists to actuaries, to graphic designers, all coming together to innovatively identify opportunities and solving challenges.

Laura Drabik:

Any last insight or one critical piece of advice you would share with carriers looking to transform their business?

Imran Ilyas:

Yeah. My advice will be to start planning for change management early. Build a change management program and embed change management activities throughout the program. Investing on the change management will be the best investment that you will make for the successful outcome. The last thing I would say is also select a trusted SI that knows how to navigate the digital and cloud-based transformation that can save time while creating a better user experience for agents, employers, and consumers.

Laura Drabik:

Sage advice. Imran, thank you very much for your time today and for being a wonderful Guidewire partner. You have shown us it's not just about ideas, it's about making ideas happen.

Imran Ilyas:

Thanks, Laura.

Speaker 1:

This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently. Visit guidewire.com for more information.

 

 

Season 2, Episode 4 | Special Year-End Episode—Expert Insights on Igniting Innovation

Speaker 1:

Welcome to InsurTalk, the podcast where we don't just talk about innovative ideas and P&C insurance. We talk with industry trailblazers about the big ideas they made happen and how they did it. This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently. Visit guidewire.com for more information, and now let's make it happen.

Laura Drabik:

Welcome to InsurTalk. My name is Laura Drabik, Chief Evangelist at Guidewire. In this special year end episode, I'm revisiting some of the insurance trailblazers who've appeared as guests on my show. It's expert insight on InsurTech innovation, digital transformation, artificial intelligence, and a host of other technology trends to get us inspired for the year ahead enjoy. I'm talking with Devi Mohanty, head of product innovation at USAA. USAA is renowned for fostering innovation in-house. Last time, I looked you have 800 patents and several hundred employees dedicated to innovation. Can you describe how your team generates viable new ideas?

Devi Mohanty:

The history of USAA is innovation. There is one of the things that you all probably nowadays use is when you get a physical check, you can deposit that by just taking a picture of it. That technology was developed by USAA. On the insurance side, another example. So we have this program today where your insurance policy pricing is tied to how you drive. And when you think about new product ideas, we do a lot of work around strategy and our future vision, so what we call disruption coming to the industry. What does the world look like a few years from today?

            Three years ago, if you remember, there was a lot of conversation around autonomous cars and how it might change auto insurance. And we presented a slide to the board where we said, as technology changes, number one, the auto insurance business, which is the main business that USAA has, is probably going to decline as a business in the long run. Second thing we said is that we need to launch some new products to future proof USAA from the potential decline in auto insurance, but also meet our member needs. We saw a lot of members starting their own businesses. We said, "Look, this is a great opportunity for us to get a new product into the market." And that's how basically we decided to bring a small business insurance product for our membership.

Laura Drabik:

With small business insurance, you took a greenfield approach. No legacy systems, no legacy code. Why did you take this strategic approach with this new line?

Devi Mohanty:

Number one, it was a new product, so we didn't have actually the technology to do the product the way we wanted it. So we knew that we needed a new way of thinking and a new technology platform. On top of that, we wanted to have as much of a digital experience as possible. We wanted more agility so we could change things and we wanted speed. My goal is to get to market as quickly as possible.

            I have a hunch that members will like something, but that hunch may be 80% right, it might be blown out by the research, but until I get to market, I have no clue if I have done it right. So the quicker you can make sure that a member is experiencing the product and is actually giving you real feedback, the better it is. So you want a platform that can be quickly adapted to take that feedback from the member and say, "Okay, I thought X, Y, Z was going to work. Member has given me feedback that X doesn't work and Y and Z works, but I want to add A." I want the agility of being able to change that quickly. It was important for us to have a greenfield approach so we could just have a technology platform, which is flexible, which can get to market quickly and meet our member needs and get feedback from the members as quickly as possible.

Laura Drabik:

So to get to market quickly, you took a minimum viable product approach, or MVP. It's a product with enough features to attract early adopter customers and validate a product idea. Can you talk about the benefits of taking this approach?

Devi Mohanty:

Number one, the simple product is the easy way to get out, so you don't add a lot of complexity and do a lot of programming. We want to get to a product which is actually unique for our membership, but we don't know what are the needs of our members from that uniqueness aspect. So we wanted to get to market with an MVP quickly.

            We used a ISO-based product, which meant that we basically took a product that is standard in the marketplace that can be easily approved by all of our states. As you know, insurance is regulated at a state level, so you have to get state by state approval. So again, going with the speed, and if you could get a product that was already approved in a state, that made it easy, but then get quick feedback from our members and are going forward approach would be to think about how do we modify this product to make it unique to our membership? Because maybe our members are over indexed in the photography business versus a real estate business.

            And then the type of things that they do within that business for us to create customizations that would be saying, "We are going to give you this extra feature that no other carrier in the insurance industry does." So the advantage of going with an MVP product was again, speed, lack of experience on our side, getting into markets as quickly as possible, easier to get our states approved. And then now the fun part begins, where we get that feedback, and then we go to a more robust, fully loaded product.

Laura Drabik:

I'm talking with Kylie Burtenshaw, executive general manager IAG. Help us to understand why you are becoming a digital insurer?

Kylie Burtenshaw:

I think Laura, we hear it all the time. Our customers now expect things to be faster. They want it to be easier. They expect us to preempt their needs. And so we need to at least strive to get to where they want us to be, and then ultimately try to eat that.

Laura Drabik:

You decided to that digitize the entire backbone of the organization. What does this require and what is the benefit from doing this?

Kylie Burtenshaw:

Big decision for the organization, but if I reflect on where we've been, we have multiple legacy platforms, all mainframes of different age ultimately just integrating policy and billing and ClaimCenter would definitely give us a step forward, but it wouldn't re-engineer us to a digital insurer. We'd still be tied to quite monolithic platforms. But ultimately we are re-engineering not only the core insurance platforms that are our systems of record. We are also replacing our systems of engagement and then also our systems of insights and then become a much more intuitive insurer to best meet our customer needs. Ultimately, we stepped back to the enterprise level and we actually said, "What are the core capabilities to be a digital insurer in five plus year’s time?" And it is that that has anchored us from both the people, a process and a platform perspective and it's underpinned by our tech strategy. We're fully API enabled in this solution so that the movement between systems is much more seamless than it is around hard wiring into core systems going forward.

Laura Drabik:

So what is critical to the success of your initiative and why?

Kylie Burtenshaw:

Look, I will say above absolutely everything, you must remain business led. I think so many times, we see programs start as tech programs. We focus on simplification, rationalization or replacement of core systems, but ultimately, let's face it, Guidewire is a highly configurable system. We can really make it do anything, but to configure a product, you need to know the customer market. To remove the pain points, you need to understand your customer experience. To grow, you need to know the market segments.

            Ultimately your technology needs to underpin your strategy, and it's not the actual strategy. And I think we lose sight in that so quickly. So stay business led, set your target operating model because that is your north star. Mitigate your delivery risk. Running large scale programs is not easy, so you need to make sure you've got buy-in across the end to end value chain. Make sure your accountabilities are clear. And then as a program team, ruthlessly manage your critical path. If anything slows programs down, it's slow decision making and blockers in your delivery. Thirdly, I would say modular design so that as technology accelerates and advances come, we're able to more easily decouple or replace or evolve component parts, rather than the whole end to end stack, and agile culture. You need to have the flexibility in your roadmap to respond to the changing needs of your customers and strategy, because over a five year horizon, nothing will stay the same.

Laura Drabik:

I'm talking with Thomas Erichsen, group EVP and group CTO at Topdanmark. Thomas, Denmark has one of the world's highest internet penetration rates, so your policy holders must have very high expectation when it comes to digital capabilities. Can you tell us what some of these expectations are and how you're addressing them?

Thomas Erichsen:

It's right that we have a high majority of digitalized services in Denmark. And for sure, the customer's experiences are likewise high. They are all super tech users in their private lives. They have iPhones in their hand. They simply expect seamless, fast, convenient services as they like to get from other industries from other companies. And we are doing all we can to close the gap there.

            Some of the areas where we will see some changes in the coming years is that we will see more and more of our business model moving into prevention. We are working with preventing leaks to happen in the pipes in the house. We are putting on smart sensor technology that can sense when the leak is just about to happen. Then we can send out a service person that can fix the problem before the water is streaming out in the house. Imagine now you can fly a drone and you can get a fast overview of a farm. What kind of buildings do they have? You can fly down and look. Is there anything in the roof that doesn't look healthy? There's a lot of technology coming up now that supports us that's say taking better risk given the customer, they have a service and setting the right price.

Laura Drabik:

For our listeners journey mapping is a visualization of the process that a person goes through in order to accomplish some type of goal. For example, obtain a quote or complete a first notice of loss. Customer journey mapping helps insurers gain insight into common customer pain points and helps you to improve the customer experience. So Thomas, how did you leverage journey mapping in your approach?

Thomas Erichsen:

We use journey mapping as an integrated part of the way we structure our development. So based upon the customer experience with our services both as is, and to be, we map out the pain points to understand how the customer perceive and experience our processes, both where we deliver pain to them and where we deliver value to them. And of course, if the pain points has no point legal compliance, or we have any other good arguments for having them, we remove them all with the purpose of giving the customer seamless and a fast and a convenient service. So if they're pain points and we can't argue why they should be there, we remove them.

Laura Drabik:

I really like how you phrased that. We look at areas where we're delivering pain to them, and if there's no logical reason for them remove it. Topdanmark offers a complete product offering to its policy holders. You have auto, home, health, life insurance and annuities. How are you creating a holistic view of your customers and their entire book of business?

Thomas Erichsen:

That's of course something we aim for to serve the customer as they are and not based upon products we have. So as of the big platform transformation we aim simplifying the structures and the platform forms and the system below the surface moving from seven to one legacy platforms that's what we use Guidewire for. And on top of that, we put Salesforce as our customer engagement platform. And we do that on top of our other systems, our platforms and our product lines. So it's actually combine all the data we have so we can look at the customer from one point of view and we can do a 360 service towards the customers.

Laura Drabik:

I'm talking with Val Labarba the head of digital transformation and change management at Farmers Insurance. So Val conversational AI consistently rises to the top as a key industry innovation theme. Conversational AI allows the carrier to extend omnichannel service to mobile devices. Provide digital assistance, deliver 24 by seven customer service. And 20 years ago when I worked for a large carrier, if I had conversational AI, I would've been able to spend my time focusing on serving the policy holder I believe better. What is your favorite industry trend and how does this trend better serve your customer?

Val Labarba:

One that I think is really big for me is all the virtual reality training that we've been doing. Think back when I was an adjuster, when I was doing an evaluation, I did it via recording of a video and I was interacting with you Laura and then I got critiqued. Well now adjusters pop on a helmet and they're virtually looking at a customer sitting across from them and they interweave emotions and really watch how they handle different situations. And that has really accelerated how fast we can actually get an adjuster out in the field.

Laura Drabik:

I distinctly remember walking into Farmers University where we held our vision sessions and was incredibly impressed with how every wall was utilized to the fullest potential to highlight Farmers mission, history and customer stories and quotes. Why change what appeared to be working? What was the overall strategy behind your claims transformation?

Val Labarba:

We introduced a new strategy called the single claim owner model. You have one adjuster assigned to your claim. If I'm involved in an accident, I don't have to deal with four to five different people. The single claim owner is the one who does all the interactions with the insured and it makes it a lot more seamless for the customer and not having to remember who I actually needed to meet with on which particular aspect of my claim. And we didn't have a system that allowed an adjuster to fully utilize that strategy. Looking at a new claim system was what we really needed to fully be able to utilize a single claim owner model. So when we did the evaluation of ClaimCenter, we were easily able to see that the system was able to flex enough for us to be able to roll out the step single claim owner model. We also did get claims adjuster feedback and brought them in to determine if that was the right strategy and approach. And it was confirmed that getting a new system was where we could really capitalize on the strategy.

Laura Drabik:

Was there any secret sauce to the approach that you just mentioned?

Val Labarba:

The secret sauce? I think really fundamentally was the relationship that we had with the Guidewire team as they were evaluating ClaimCenter for Farmers. And what I loved about that is they looked under the covers of our claims processes that side by side with our adjusters to really immerse themselves. And so when they spoke in front of a leadership team to help socialize what ClaimCenter could offer, they spoke with the authority because they actually sat side by side and reviewed our processes.

Laura Drabik:

We'll return to all these great insights from past episodes of InsurTalk in just a moment. But before we continue listeners, if you're enjoying this podcast, be sure to subscribe, to InsurTalk on Amazon, Apple podcast Stitcher, or wherever you get your podcast. And you can rate and review this show on Apple podcast. It helps others learn about and discover the show. Now this is Laura Drabik and let's get back to more expert insights from past episodes of InsurTalk. I'm talking with Steven Van Belleghem global thought leader in the field of customer experience. You believe there will be a shift from AI artificial intelligence to IA intelligence augmented, where we will use technology to boost the power of our employees. You use KLM as an excellent example of a company doing this well, could you elaborate?

Steven Van Belleghem:

Many people believe that because of automation, we're going to replace humans by robots and maybe we will, but I'm certain that the bigger benefit will be to augment the potential of humans thanks to AI. And that's what I call intelligence augmented. And what KLM does is in the field of customer service, they use behind the scenes software, that dives into the customer service data, and they translate that data into a mathematical model. And then a question from a customer comes in for instance, can you rebook my flight? And then the machine looks to the data from the past to suggest an answer for that human. But the answer doesn't go directly to the human. The answer goes to a service agent and someone who works in the contact center and they see what the computer is proposing, but then they can play with it.

            They can personalize it. They can change the tone of voice a little bit, add some human touch to it, and then they send it. But because of the computer aided system, KLM can now answer more questions per hour than any other European airline can in a more personalized way. And the cool thing is the competitor. They're like, "How does KLM do this? And then the customers they're like, "Wow, KLM must have better people than Lufthansa. This is wonderful." But Lufthansa and KLM they have the same kind of people. They're both great, but the KLM people get the support from technology. And that's where we're going to see, I think the first real benefits of artificial intelligence, where you use it to a boost power of humans. It's like when you go to a hotel, I travel a lot. And very often I go to the same hotels over and over again.

            Then I check in and then they ask me, "Hey, Mr. Van Belleghem, is this your first time here?" It's a very kind question, but it's a question you should never ask. You should know that. Especially if you've been there six times, you're like, "No, this is not my first time. It's actually my seventh time here." And you cannot expect that human to know that. I mean, they see so many new faces or they just started in the job, but you can expect a hotel to make sure that they at least have that piece of data available so that they can say, "Steven great to have you back welcome." Or, "Hey Steven, this is your first time. How can we help you to get to know the hotel?" There's so many situations that I can imagine where a human could get support by a machine, that it would be a pity not to look into this in your organization.

Laura Drabik:

So Steven, what is one thing organization should never do because it erodes the customer experience?

Steven Van Belleghem:

Laura there's so many things, but mainly to summarize, it's an overfocus on internal procedures. It's an overfocus on, on statistics. I mean, I'm a fan of measuring customer satisfaction and that promoter scores, but there are too many organizations that only focus on that. And then you're dehumanizing your customer. And I think that's the most dangerous thing you can do. I think the challenge is for most organizations to get as close as possible to your customer, the real human and make sure that as many of your employees of your coworkers as possible get direct feedback from customers because it increases the empathy. And if you only rely on statistics, then you are decreasing your empathy level in your organization. And I think empathy is going to be the most important skill to win in the next decade.

Laura Drabik:

On the flip side, how about one thing that is mandatory for delivering a differentiating customer experience?

Steven Van Belleghem:

The most important thing here is to make sure that all your employees know how they can contribute to the success of customer happiness. There's still too many organizations that believe that it's only the frontline staff that can make customers happy. It's not, it's a team effort. Everyone plays a role. People who pick up the phone, people who do the invoicing, everyone who's working behind the scenes eventually has a contribution to customer happiness. And I think as a leader, you need to look your coworkers and your team in the eyes and really tell them how they contribute. And the moment that they understand that they're going to look completely different to their company and their business. I don't believe in the concept of internal clients. It doesn't work. There's only one client and it's the end client. And if you keep everyone focused on that end client and make sure they are part of that journey then your success rate will be higher.

Laura Drabik:

I'm talking with Irene Bianchi, president and CEO Peel Mutual Insurance Company. Irene, so pricing claims automation and fraud detection are all current use cases for AI looking five years into the future. How do you think insurers will be leveraging AI in their enterprise?

Irene Bianchi:

The key to AI is using it to deal with the mundane issues. Deal with the process so that you can then free up the time of your adjusters, your underwriters to really concentrate on the business and letting the AI get through the stuff that is just every day. I don't see AI as a complete solution. I think it's complimentary to the business. I think you always need to have people and knowledge base because not every situation is going to fit an algorithm, but I think there are enough processes and procedures that can be automated, that we really need to start looking at that in a big way so that we can keep up with customer demand. People want things very quickly and they want it right. And they want it done the first time. And I look at AI as being part and parcel of helping with that. So that the super quality time that you need to spend with insureds or customers, you've got the time to do that because all the mundane stuff is already being taken care of.

Laura Drabik:

Customer journey mapping, role observations and surveys help insurers identify areas for improvement in the insurance life cycle. How did Peel identify the appropriate areas for improvement where AI could help streamline processes?

Irene Bianchi:

Well, first of all, we went to our employees. So where are there real pain points for them? We then survey our brokers, who we sell all of our products through. We have broker councils twice a year where we invite our biggest and most supportive brokers and say, "Tell us where the pain points are. How can we help solve some of your issues?" And then we also go to the competition. What are people doing that seems to resonate with customers? We can't sit here and think of everything by ourselves. So we take a look around, look at the industry and see what the competition is doing. And then also with different partners in the insure tech space, we're open-minded so what's new out there what can we try? Because we want to try different things that are going to help our customer and the best to look for is where are those pain points? What's driving people crazy and where are the solutions to resolve that?

Laura Drabik:

So where do you plan on leveraging AI next in the enterprise?

Irene Bianchi:

I think probably our next view would be to look at loss control. We write a variety of different types of risks within the province and loss control really helps you understand the risk helps you see it helps you really look at what are you insuring? So I think to look at the next phase is, what can we find that will help us with truly understanding a risk better so that we can manage our overall risk portfolio more appropriate.

Laura Drabik:

Talking with Roby Shay CIO at Grinnell Mutual. You achieve significant improvement in straight through processing. 80% of all auto policies are now processed without human involvement. How did leveraging Guidewire cloud help you to better achieve your imperatives over let's say on-premise or private cloud implementation.

Roby Shay:

I'd say it allowed us to focus more so on adding business value versus running infrastructure. Upgrades are always a challenge. They're always hard. There's never a good time to do them, but I will say with the Guidewire cloud platform, we were able to do this faster than at least in my experience that I have been able to do on premises and over the long term, having that ability to stay current on software, take advantage of new features and functions, and be able to run your technology on the devices that people want. A key driver for us. And we believe over the long term that will help us differentiate and again, continue to allow us to focus on adding new capabilities, new products, new services, versus having to deal with all of the upgrade process and the underlying infrastructure. Those are near the big things and some of them are obvious and more apparent, but a lot of them are actually behind the scenes and relate to our IT capability and how we deploy our scarce resources.

Laura Drabik:

So migrating to the cloud can be a profound transformation of your company's technology and talent. Roby, how did you ensure you had the right people in place to support your transition to cloud?

Roby Shay:

This' been a focus of ours since we started our journey to move to Guidewire cloud. First, I'd say we are extremely lucky with our team. They are super engaged and very focused on driving business value. So the buy-in in terms of a technology platform that could help us do more of that was really not that hard of a sell. We did spend a lot of time investing in training, not only technology, but some process training around agile. The other thing we did and reasonably well is when we decided to partner with a system integrator and Guidewire, we used Guidewire a fair amount for our initial implementation. We made sure we thought about of a mentoring model. And we actually had capacity specifically set aside to make sure that we were getting cross training, getting that mentoring. And I think that helped us and not only helped the short term, because it built some confidence of our own internal people around the technology, but it's going to pay us dividends longer term as we run this entirely ourselves.

Laura Drabik:

In this episode, I have a privilege of interviewing Shane Cassidy, EVP global insurance at Capgemini. Shane focuses on the enablement of transformational strategies through technology and operations for leading insurers to measure success of a transformation initiative. I have seen carriers use financial metrics, such as DWP and stakeholder measurements, such as agent, employee, and consumer satisfaction ratings. How do you recommend carriers measure the success of their transformation initiatives?

Shane Cassidy:

The standard measurements are good, but it's more about the processes. What happens is you get into these programs. These programs can be 1, 2, 3 years of transformation and unfortunately, after a certain out of time, you get so focused on the technical execution and you lose track of what you were measuring from the beginning, because it's all about budget and deployment or what you plan to measure in the beginning may not have as much business relevance as what you're looking for in the end. We've created a solution called VRO value realization office, whose job is to work with the customer and actually build that capability into the organization so that they are constantly looking at what is important to the business and how is this platform going to deliver against our business needs?

            How do you extract the value out of the investment we're making? Because you can make the investments and not necessarily extract the value. Have you changed your business? Are you driving different metrics into your organization? Are you setting expectations around roles and responsibilities so that you're getting the benefit of the changes that you're making. And I think customers are really starting to focus here on measurement and the benefits of the investment. And again, I think it can change obviously you can measure combined ratio and the agility of the product pricing accuracy. I think you start to look at different measurement opportunities based on the technology you've actually implemented.

Laura Drabik:

According to [Oxpa's 00:26:19] latest report on glacial shifts in P&C value, independent agents will steadily increase in value up until the year 2030. This makes sense due to economic reasons, as well as growth opportunities by providing carriers with access to existing distribution channels that independent agents have. How are you seeing carriers address independent agents in their transformation strategies?

Shane Cassidy:

It's a great spot for the insurers. I don't think there's a consolidated view of how to do it just yet. I know it's going to wrap around data service simplification for them. How can we provide more enterprise level data for the independent agent and really help them provide the services that allow them to focus on what they want to focus on, which is selling and making commissions while still driving customer sentiment through the roof. Everybody also wants to have a direct channel as well, but the independent agent market and capability is not going anywhere soon. And the insurers are largely focused on figuring out how to bring them a better, simpler, more effective service in very much in a predictable way.

            I think these folks are spending their time in the market, but they want to do it with more data than they actually have internally. Yes, they have information in the marketplaces, but the insurers have far more and they have the ability to enable them to be much smarter about what they do and almost bring business to them. And I think that's what a lot of the insurers are focused on figuring out how do they do that more effectively than they are today.

Laura Drabik:

Working or a tech company, I see cloud as important to our industry because it provides carriers with access to leading edge infrastructure without the operational overhead or capital expense and cloud software provides carriers the flexibility to rapidly prototype and deploy new lines of business as well as services. Shane, why do you think cloud is important to a carrier and also to our industry?

Shane Cassidy:

I talk about this all the time, internally, the focus on cloud and its importance. I almost feel it's the purest truth is that the future will be data driven and agile in every way. The products will evolve faster and faster, pricing more individualized, sense of data will become ubiquitous to lower the risk and embedded insurance is inevitable. And I personally don't see a path toward achieving that without cloud at the center. Cloud is the enablement underneath that allows all of these things to happen at speed. I'm not seeing many customers who haven't fully bought into cloud is our future. It is about converting, not just your current strategic applications into the cloud, but you have to actually convert your legacy applications into cloud enabled so that you can get access to that data. You got to move your data into the cloud to allow for far better usage and complete use of that data. So to me, cloud is a done deal. It is core to what the future of insurance will be.

Laura Drabik:

So much good stuff there. I hope you've enjoyed this special episode of InsurTalk and if you haven't already done so I hope you'll subscribe to InsurTalk on Amazon, Apple podcast Stitcher or wherever you get your podcast. Until next time, this is Laura Drabik saying thank you for listening. In the year ahead, I look forward to bringing you more expert insights that show us why insurance industry innovation isn't just about ideas. It's about making ideas happen.

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This podcast is brought to you by Guidewire, the platform P&C insurers trust to engage, innovate, and grow efficiently, visit guidewire.com for more information.