Covid-19 is encouraging MGAs to think long-term about their technology needs. Digitalisation is often listed as one of the goals – but how many management teams really understand what it means and how to achieve it? Covernet’s Jim Campbell explains.
Digitalisation is a term that conjures very different images in people’s heads. For some, it’s about clean, well-designed offices with lots of natural light and stylish staff chatting over their designer coffee. For others, it’s Twitterbots, mobile devices and algorithms learning how to pay claims. Arguably both have some degree of validity, but the key point is that no two businesses interpret digitalisation in the same way – and that can be a problem. Why? Because when a managing general agent (MGA) approaches a technology supplier with the objective of ‘going digital’, quite what that means is open for debate.
What’s making this issue more pressing is that the advent of Covid-19 has accelerated the insurance industry’s pace of technological change. The good news is that, within a few days or a week of lockdown, most MGAs had adapted to the world of remote working. People, who for years had resisted online video-chat, embraced Zoom and Microsoft Teams with almost evangelical fervour. Some even began to speculate whether a ‘return to the office’ would ever happen. The prospect of fewer desks, less office space, cheaper rent and no commute certainly has its attractions.
But the rapid adoption of new technology has encouraged many organisations including MGAs to look to the long-term. The question they are asking themselves is a simple one: if we can adopt video technology and remote working practices this quickly, should we take the opportunity to reach further into the future? Should we look to digitalise fully?
What digitalisation really means
There are many textbooks offering different definitions of digitalisation, the most valuable and succinct I have seen comes from US information technology company Gartner: the use of digital technologies to change a business model and provide new revenue and value-producing opportunities. This appeals to me, as at Covernet, we’ve always used technology to make improvements that will change a business model for the better. Ideally, this transformation will generate more value than the existing business model and will allow an organisation to explore opportunities from which it was previously excluded. That could mean new markets, new niches or even new products.
Seen from a pragmatic perspective, digitalisation should both improve the end customer’s journey through the insurance transaction – from inputting a quote to having a payment made on a claim – while at the same time making the MGA’s internal processes more efficient and enriching their understanding of their business. It’s about using technology to connect processes and enrich data, whether by the use of APIs (application programming interface), messaging, AI or other digital tools.
Digitalisation goes hand-in-hand with automation, and should start from the same point: identifying the manual processes in your workflow and asking whether these can be improved. For example, if collating data from brokers to write a report requires half a day’s time each month, or performing a credit check is a requirement for every new quote, why not use technology to perform that task?
First steps
Laid out in this way, digitalisation seems like a no-brainer – particularly in light of the systemic changes taking place in the insurance industry right now. As our American cousins say: what’s not to like? But it’s at a more granular level that the road to digitalisation begins to encounter obstacles. Indeed, before the course of that road can be planned, a piece of intellectual heavy lifting needs to be conducted. The concept of digitalisation must be unpacked and scrutinised. Questions need to be asked; objectives clarified. If the answer is a new website and a marked increase in social media followers, then you’re on the wrong track already. Those things are nice-to-haves but hardly core to the process at hand.
The problem is that all too often at board level, digitalisation is rather like the emperor’s new clothes. As long as everyone continues to buy into the notion of it as a panacea, everyone sees what they want to see. Too few directors are prepared to challenge the received wisdom and ask the important questions: how much will it cost? What will I get for my money? What benefits will I receive? Without this kind of basic due diligence, the road to digitalisation is prone to dead-ends and wrong turns.
Choosing the right route
So, having made the decision to transform its business model, how should an MGA’s management team proceed? At this early stage, it’s important to recognise that not all MGAs are the same. Some possess a high degree of technological know-how; others will be relying on emails and spreadsheets. That starting point is important because it will define the amount of help and support the MGA will need during its transition.
Defining your strategy is very important – but not just your digital strategy, your whole strategy. The digital element is just one piece in that puzzle. If you’re not clear about your overall strategy, how can you digitalise effectively?
Begin by talking to your people. Ask them what processes they’re operating that they really don’t need to be involved in. Do they need to review every quote before pricing, or only specific risks? Do they spend two hours a week collating that report? Find out how much time and money these processes add up to, then add in the cost of lost revenue of the potential business that had to be turned away while these tasks were being carried out. Finally, consider the penalties for making bad decisions if underwriters don’t have the data needed to clearly review a risk.
You are not looking to replace people; this transition is about increasing revenue rather than replacing people. Despite advances in AI, human decision-making and communication will always be key parts of the process. Digitalisation can help ensure that your people can focus on the essentials, and do them more effectively, while routine tasks are taken care of by technology.
Once you’ve got a clear vision of the end-result you’re seeking, it’s time to assess what options are available in the technology marketplace. Google is as good a place to start as any other. From its search results, you can contact suppliers to talk through your software requirements – but be aware that virtually every supplier will say they can solve your problems. The key is to ask questions and be sure to see the product doing what its vendor claims it can do. Ask to be put in touch with existing customers so you can speak to them.
Familiar pitfalls
Having supplied software for MGAs and the wider insurance industry for 25 years, we’re familiar with many of the problems MGAs encounter at this stage of the process. The first is purchasing what could be described as a ‘rebadged’ system – a system designed originally for brokers that has been re-marketed as an MGA system. These often won’t have many of the capabilities that an MGA needs, as they are essentially designed from the broker’s perspective.
The second is buying a system that’s competitively priced and fast to set up but lacks the capacity to be adapted or have new functionality added. It can be hugely frustrating for an MGA to develop a new product only to discover its technology system cannot accommodate it – at least not without considerable expenditure and time.
Another common problem area is support. Ask who will look after you once you have chosen a system. And how will the support be delivered? How secure will your data be, and how reliable is the system? Look for evidence of quality and security standards (ISO 9001 and 27001) and for performance metrics.
MGAs thrive on change
Pitfalls may be common but it’s vital not to give impression that digitalisation is fraught with difficulty. It doesn’t have to be. A combination of common sense, a clear vision, a willingness to ask questions and an eye on the budget will steer most MGAs in the right direction – and that’s a good thing right now.
The impact of Covid-19 is redrawing the insurance industry’s technology landscape. New norms are emerging daily. The MGA market has always been founded on the ability to innovate rapidly and that’s never been more true than today. When challenges arise, MGAs identify them and exploit them. The successful ones develop a water-tight business model, implement it and get ahead of the pack. Digitalisation is part of that process – and done well, it has the power to transform an MGA to one well equipped to deal with what right now is an uncertain future.