How P&C carriers can leverage technology to stay ahead
A recently published report from McKinsey & Company, Global Insurance Report 2023: Expanding commercial P&C’s market relevance, includes some interesting commentary on what it will take for P&C insurers to keep up with and benefit from the rapidly evolving new technology that’s revolutionising the world of work.
As the report notes early on, it’s not just technology that’s changing fast. The very nature of the risks the (re)insurance market exists to tackle is also changing at an unprecedented rate. Insurance carriers will need to address and overcome multiple challenges in the years ahead to meet the global demand for resilience in a volatile world by providing robust solutions to current and emerging protection gaps.
Among the many challenges the report picks out are high inflation, rate volatility, the transition to net zero, tightening capacity, and widespread skills shortages across multiple sectors. As well as managing some or all of these challenges, the report suggest, P&C carriers will need to create a distinctive value proposition to attract the clients, investors, business partners and employees they’ll need to compete and win in the decades ahead.
Towards the end of their twenty-page report, the authors turn to the need for (re)insurers to ‘build the capabilities and talent to manage the shift from art to science’. In what remains of this blog, it may be worth picking up on a few of the main points they make on this topic.
As P&C carriers increasingly recognise the need to invest in data and analytics to help their underwriters and claims people perform more effectively, they need to be clear about the underlying strategy for this investment. That strategy needs to encompass both attracting new talent with the data-native skills to put new tools to productive use and developing the capabilities of current employees with the real-life insight and skills that come with years of hands-on market experience.
Rather than simply wrapping technology like AI and machine learning around practices that evolved in a paper-based age, it’s important to recognise both the challenges and opportunities implicit in the need to reconcile established good practice with new ways of working that can take P&C carriers closer to fully leveraging the power of all available data. Process engineering is better tackled before than after digitalisation. This requires a major culture shift for many market participants – so enlightened leadership and clear communication are essential.
The report makes some interesting points about the issues bound up in the (re)insurance sector’s significantly more mature average employee age compared with many other sectors – not least technology. The authors note that ‘in 2020–21, roughly one in four employees of carriers in the United States was 54 years or older, and one in four in the United Kingdom was 50 years or older.’ Assuming that the average age of retirement is around 65, they conclude that ’25 percent of carriers’ workforce will retire within the next ten years.’
The flexible working patterns carried over from our collective response to the Covid-19 pandemic – and a much-reduced emphasis on teams working side by side with one another – potentially compound the challenges that come with an ageing workforce. Knowledge and skills acquired over decades risk being lost, just as opportunities to share them fall between the cracks of changing ways of working. At precisely this same moment, we are also seeing fiercer-than-ever competition to draft in new talent in everything from traditional skills like underwriting and claims to newer ones like computer science and data analytics. And this competition is coming not just from within the insurance ecosystem but also from other, potentially more glamorous, sectors looking for similar skill sets.
In the face of a rapidly evolving risk landscape, P&C carriers are increasingly bringing together teams that comprise a range of complementary skills such as claims, risk engineering, sales, and portfolio management. Against this backdrop, the report argues, employers in the P&C insurance sector should be looking to refine their ‘employee value proposition’ by emphasising opportunities for their people to pursue ‘cross-functional career paths’ that provide ‘exposure to a diverse set of roles, industries, geographies, and functional areas’.
In a sense, this is the easy part. P&C insurance careers may have to work rather harder on attracting new skills from outside the insurance and risk sector – for example, data science, cyber analytics and deep tech. As the insurance sector as a whole gravitates towards an increasingly data-driven, automated methodology, traditional ideas about what underwriters and claims people do will likely mutate towards something more strategic and data-analysis driven. Competing successfully, the report’s authors argue, will require strong change management and capability-building initiatives – such as the codification of knowledge, mentorship and coaching from senior employees, and training in the skills required to make effective use of new tools and capabilities.
While few would deny that a broader institutional perspective is likely to be helpful in navigating the uncharted rapids of future risk scenarios, the report’s prescriptions appear to sideline the question of whether every carrier needs every skill in house – or whether there are arguments around cost, practicality and adaptability over time that mitigate in favour of working, where appropriate, with external specialist providers, rather than trying to do everything in house. Having seen what often happens when even the best resourced insurance carriers try to develop complex technology solutions in house, DOCOsoft can testify to the perils attendant on such attempts.
The important thing is having enough knowledge in house to: understand what technology you need, how to recognise suitable providers, how to prepare your organisation for an efficient and effective implementation, and how to take full advantage once the new technology is in place. Of course, the real world doesn’t always match up to that ideal scenario. That’s why DOCOsoft has always believed in taking whatever time it takes to fully unpack and indeed challenge clients’ business case and aspirations for adopting any new solution, like AI, machine learning, STP or other forms of automation, to verify that they’ll be getting, not just what they want, but what they need.