Helping insurers cope with general and claims inflation, rising premiums, surging complaints, and adverse loss ratios

By Mike Daly
1 February 2024
Helping insurers cope with general and claims inflation, rising premiums, surging complaints, and adverse loss ratio

A surge in complaints

There is a worrying increase in complaints across many lines of business; for now, let’s focus on motor and home – the volume of business for general insurers where the high volume of complaints is evident.

Motor and home insurers are suffering a perfect storm:

  • Adverse loss ratios, despite increasing premiums and seeking to reduce indemnity and operational costs through automation and digitalisation.
  • A rising volume and intensity of complaints
 

“The Association of British Insurers said insurers were determined to ensure motor insurance was competitively priced but the rising costs of repairs, energy, labour and replacement parts had made this “increasingly challenging.” The trade body also said that it was “concerned” about the surge in complaints and it would work with its members to learn from upheld complaints.

Financial Times September 14th,2023

I firmly believe that at the heart of the problem lies the unsolved challenge of trying to knit together multiple and incompatible technology stacks Even for those carriers which have gone to the expense of deploying one of the “gorillas-in-the-market”core systems, still find they suffer from a lack of data and systems connectivity. So, instead of spending time improving performance, in this case, customer satisfaction, efficiency, and effectiveness, insurers are spending too much time on controls and trying to reconcile data in different systems and make the sums add up. For example:

  • A typical carrier spends too many days each month just trying to manually measure and report on work-in-progress across different systems and software upon which the business is dependent.
  • MGAs worry about trying to renew capacity because they cannot ingest bordereau data and present a credible report to insurers. Never mind predict ultimate loss ratios until it is too late.

I am sure that this is one key reason insurers have been unable to manage customer satisfaction and profitability effectively.

Why? Because data is spread across different systems, data sources, and technology stacks, from AS400s to newly released SaaS software.

Insurers are feeling the pinch and losing more in claims than they are charging through premiums. But customers are entitled to ask whether insurers were ever pricing products responsibly and not just selling cover as a loss leader. Shouldn’t insurers have predicted the impact of COVID-19, supply chain disruption, wars, and energy price increases?

This is the age of generative AI, analytics, big data, computers in a phone – so why couldn’t insurers predict inflation?  Let’s look at it through the eyes of a carrier.

“Skyrocketing inflation, rising interest rates, slow economic growth, an ever-worsening climate crisis, and severe geopolitical conflicts force general insurers to reimagine every part of their business.”

Sylvie Fischer Baloise Group

One short-term measure has been to increase premiums for home and motor insurance and this has resulted in a flood of complaints from customers already hit by ‘cost of living’ anxieties. To make matters worse complaints over delays in settling claims have escalated so insurers may feel unloved and uncared for.

Why haven’t technology partners protected insurers so that they can tackle the conflicting paradox of optimising customer satisfaction, minimising premium increases, and running profitable lines of business?

One key constraint to achieving that has been the challenge of connecting data across the insurance value chain. Not just connecting actuarial, underwriting, and claims data but also data across different lines of business. External data can remove the need to ask customers irksome and unnecessary questions. Too many technology partners tackle only a micro-part of the insurance value chain. That results in just solving one problem and shifting the issues elsewhere in the value-chain.

Karen Stanford CXO of Greenkite Associates sums up the challenge well.

The traditional approach of seeking a one-size-fits-all platform is no longer practical. Instead, we should focus on creating ecosystems composed of best-in-class solutions that seamlessly integrate. Thanks to open application programming interfaces (APIs) and integrations, we can choose specialised tools that cater to the insurer’s unique needs.

The question that many insurers face is whether they should build a single, comprehensive solution covering policy administration, claims management, and credit control, or whether we should construct an ecosystem of specialised components. The consensus leans toward the latter. The flexibility offered by an ecosystem allows us to build solid foundations and adapt quickly to evolving requirements and customer needs.

The answer is an ECOSYSTEM.

It’s easy to use a term like ‘ecosystem’ but what does that mean, why is it an answer to tackling the challenge of pricing, customer experience, and complaints, and how do you deploy one?

First,  Ditch the idea of one single platform to run the entire value-chain as no platform can provide everything a modern insurance business needs

Technology ecosystems, on the other hand, allow an insurer to choose an optimum mix of software, platforms, and services to transform all parts of the insurance value chain from Quote and Buy to Renewals, to Risk Prevention to settlement of claims by repair and replacement or cash settlement.

Insurers have generally got the sales and distribution part of the value chain right. It’s the rest that generally goes wrong.

Underwriters have historically had to spend too much time reconciling incomplete data rather than making better underwriting decisions – that was part of the pricing problem for motor and home insurance. But insurers and brokers can utilise solutions like Cytora and Hyperexponential to use external and internal data sources and advanced AI including GenAI.

Giroux.ai is doing the same thing for MGAs, letting underwriters do more underwriting by combining human intelligence and AI and extracting and transforming all the data required for underwriters and the C-Suite focus on performance and growth.

There are damage repair estimation solutions, digital payment, counter-fraud, and AI-powered digital claims platforms. What’s ideal for a motor insurer is almost certainly unsuitable for home and contents. Or travel, gadget, or specialty commercial. Life and Health insurance pose different challenges. The insurer must be able to choose the optimal choice of products, and be able to connect them plus the different data sources vital for transformational success.

How to get an ecosystem right?  Answer the Mach core platform!

To achieve that in a viable time-frame insurers require a MACH-architected core platform because that is the only way you can start and deploy quickly. Traditional core platforms, the gorillas in the market, can do anything an insurer wants if it has very deep pockets, long lead times to deploy new products, and an army of consultants, business architects, developers, etc to support new initiatives.

Genasys itself is one example of the new  adaptive  MACH platforms described below.

A MACH platform is the answer to fixing pricing, profitability, and complaints

But what is MACH?

  • Microservices
  • API first
  • Cloud native
  • Headless

Microservices architected means that you can build a software product as a set of independent components — microservices — where each component operates on its own and interacts with others through APIs. As a result, teams can deploy, change, and improve separate software components without disrupting the rest of the system.

API-first architectures are more flexible allowing teams to choose the most appropriate frontend technology to solve priority business problems. Developers can unify logic across touchpoints and avoid duplication of development work, as well as eliminate channel silos.

APIs allow for fast communication between components, meaning that businesses can reduce the time to implement new touchpoints and accelerate speed-to-market processes.

Cloud-native platforms use the public, private, and hybrid cloud as part of a cloud migration strategy to develop scalable and dynamic data solutions. Insurers will be more resilient to performance issues that often bug on-premises systems.

Headless – far from being clueless!  Insurers that employ headless architecture don’t have a default frontend system that defines how content is presented to end users. You will be able to deliver personalised products and services to your target audience using any channels, devices, and platforms.

To solve the conundrum of persistent inflation, rising costs, and resistance to increasing premiums a key strategy discussed here is to leverage API-driven ecosystems to connect all the platforms, software, and data to innovate and deliver world-class products cost-effectively.

What does an ecosystem look like in practice?

At the core of the ecosystem is that efficiently and effectively manages all aspects of the policy lifecycle. The Genasys PAS is one such option

  • Quoting
  • Underwriting
  • Issuing policies
  • Endorsements
  • Mid-term adjustments and renewals
  • Claims

The challenge is to do so across all lines of business and to enable faster innovation starting with the customer rather than with the policy. Customer-centricity is more than trying to make existing products easier to buy, renew and settle claims. It is the ability to anticipate unmet needs and personalise products and services to changing customer needs. This becomes even more important as successive generations have different motives and buying behavior.

Not just that but optimising the mix of effectiveness, efficiency, customer satisfaction, and profitability.  That requires greater data accuracy.

A PAS can ensure all data is on the same platform so that it interconnects across the insurance value chain and avoids the problems we have reviewed above. And is an enabler of other critical success factors to meet the paradoxical challenge of improving customer satisfaction, operational effectiveness, and profitability.

  • Focus on customer-centric innovation
  • Ensure you have predictive analytics and AI covered
  • Tackle innovation across underwriting, claims settlement, and growth.

Customer-centric innovation

I suggest that one reason customers complain about premium increases is that the products they buy and renew have not changed much. Why should they pay more for the same? Data from the whole insurance value chain is a key success factor for the personalisation of the product and the service. Why, for example, has the adoption of the IoT and telematics been so limited? Maybe it has been seen as a control device rather than offering a personalised cover. A MACH-architected PAS is a great starting point to leverage telematics for the home and motor insurance markets.

Predictive analytics and AI

The “Pathway to Analytics-driven Innovation” map is a process for integrating customer journey-centricity (Design Thinking) with advanced analytics (Data Science) to translate an idea into a product or service that creates distinct, differentiated value (Economics).

Bill Schmarzo Dean of Big Data in TechTarget Data Science Central January 2020.

A PAS is a first step to being able to surface the data to enable predictive analytics and AI. Don’t rely on GenerativeAI (‘GenAI’) and Large Language Models (‘LLMs’) for predictive analytics, forecasting, and decision-making. They are evolving fast but you need to be proficient in leveraging data and extractive AI first. You need the data from across the enterprise. Not to mention external sources

Tackling Innovation across underwriting claims settlement and growth

I rather like another quote from Bill Shmarzo.

“Analytics-driven Innovation…isn’t that some sort of oxymoron like jumbo shrimp or definitely-maybe? I mean, isn’t analytics about doing what the data tells you to do, while innovation is doing something that has never been done before? Not necessarily.”

Creative minds can leap from what the data says, to how relevant that is to the future and anticipate the future needs that customers will demand. The types of cover, the prevention rather than mitigation needs, the distribution channels, the personalised service. Across all the insurance value chain of course.

Back to freeing resources to focus on performance and growth

To achieve that effectively insurers must free themselves from spending most of the time on control to spending more on performance improvement and growth through innovation. They cannot do that if different parts of the value chain are managed on disparate and unconnected systems.

A PAS is not a panacea. It will not have the automated underwriting capabilities of new SaaS software like Cytora and Hyperexponential. Nor the counter-fraud capabilities of FRISS or SHIFT. Or the digital payment capabilities of Stripe, Mastercard, and Imburse. Nor the repair network coordination power of Entegral. The list goes on and on and will change as the relevant capabilities of each part of the ecosystem waxes and wanes.

What a MACH platform will allow you to accomplish is to integrate these into a complete and effective technology ecosystem. Cost-effectively, promptly, and pro-actively to allow insurers to anticipate threats and opportunities.

I suggest that with such a PAS, insurers might not have faced the flood of complaints nor the adverse loss ratios so many have suffered this year.

Finally, I am grateful to Genasys for inviting me to offer my thoughts on these topics.

Further Reading

Customer service is getting worse

UK car and home insurance complaints accelerate; is transformation working?

Is Analytics-driven Innovation the Ultimate Oxymoron?

Recent posts