Insurance and Digital Disruption: The Paradigm Shift

For more than 350 years, insurance as an industry has faced challenges to its existence from catastrophic loss, societal change and the need to innovate, all of which have presented themselves over time, but which the industry has (largely) taken in its stride, survived and often thrived from.

Yet today the industry faces the effects of the COVID-19 pandemic, which has created stresses and opportunities not seen before. This reshaped environment, commonly referred to as the “New Normal,” is one in which personal contact is greatly complicated, travel becomes harder and resiliency programs are rendered ineffective as a large proportion of a company’s physical real estate becomes unavailable to its workforce.

Right now, we see this threat delivering the potential for unprecedented, catastrophic loss in terms of geographic distribution, range of affected business lines and scale of disruption. It does this against a backdrop of societal change due to shifting demographics, where young, tech-savvy consumers are demanding policies that are highly customized to their needs, while also calling for more responsive customer service that resolves issues in hours, not weeks. These new expectations run contrary to the traditions of the insurance industry. Beyond these societal pressures, insurance is now facing forces that are driving a need for continuous technical innovation to address unique and unprecedented disruption, which create multiple, previously unimaginable barriers to sustainability in the industry’s long history.

How can technology help insurance overcome this latest barrier to a sustainable existence? 

Many articles have been published about how technology can help address the key issues of executing a business continuity plan when all premises are closed to most of the staff. Better bandwidth to accommodate remote working and the use of online collaboration tools to allow staff and customers to meet have kept the lights burning. However, the long-term viability of insurers requires a more comprehensive, integrated response that allows for short- to medium-term recovery, as well as a digitally driven strategy to thrive in the long haul.

For now, secure communications to and from office systems alongside the deployment of collaboration tools will keep companies operating and serving their customers and partners. What has changed here is that these tools are now being constantly used from remote locations. At Equinix, we have seen numerous examples of financial services companies substantially increasing their secure communications bandwidth capacity by leveraging private interconnection to join themselves and their partner ecosystems together.

A move to recovery and beyond

For the next phase, insurers must be certain that their current systems – legacy or otherwise – are effectively integrated so they can defend their brand and customer base, while adapting products, services and workflows to address the needs of the “new normal” situation. The adoption of flexible cloud infrastructure, including hybrid deployments as needed for integration and security, along with a strategic plan to incorporate vital, new Insurtech services, is imperative.

This strategic approach requires the implementation of an Interconnection Oriented Architecture® (IOA®), which will greatly facilitate the integration of production systems that can be distributed across regions or internationally as needed. IOA enables the creation of a phased design that can improve user experiences for employees, customers and partners by integrating workflows and data streams, and enhancing performance and security throughout the ecosystem.

What the insurance industry must also face is that the emerging digital economy in risk transfer will create a set of accelerating forces that will continue to evolve. This affects all types of customers (corporations, governments and individual consumers), and these forces will neither abate nor be slowed. The continuous application of integrated business and technology design decisions is critical to thriving in this new disruptive environment. IOA gives companies a competitive edge as they face these turbulent forces, by creating a framework to remediate legacy constraints while setting the stage for the company to disrupt instead of being disrupted. IOA provides the guidance to build a roadmap that will enable visionary companies to become fully digital insurers.

Insurance leaders will need to embrace and activate digital business scenarios

A digital insurer is one that can integrate data across the breadth of its operations, enabling the creation of highly efficient services that leverage the use of real-time analytics and creating the flexibility to deliver new, relevant products to customers. The biggest strategic advantage, however, is a significant paradigm shift for a 350-year-old industry: Change the assumption behind the current insurance business model from that of a service that mitigates the monetary consequences of an event (a largely financial, reactive response) to a more preventative, proactive service that uses data and experience to try to prevent loss in the first place.

Clearly prevention is not possible across all classes of business. Where it is not, a more nuanced or accurate assessment of risks gives those seeking insurance more realistic coverage options. Insurance models that speak to the true cost of an event, those that incorporate real-time collaboration (e.g., with engineers and climatologists), allows insurers to not only protect their own business models, but also become trusted advisors for those they insure. Importantly, this paradigm shift presents the opportunity to alter the perception and value proposition of what insurance does—and means.

From a technical standpoint, how can all of this be achieved?

The bottom line is that technology must become a strategic enabler of the business. This paradigm shift must be addressed by a new kind of collaboration between the insurance industry and its technology partners.

IOA enables insurance companies to incrementally achieve this paradigm shift – from passive and reactive, to engaged and proactive – in multiple ways:

• Achieve cost reduction through the consolidation of network and cloud connections with interconnections to the multiple options provided at Equinix facilities. The savings can be used to fund new projects.
• Deliver performance improvements as applications and data are moved adjacent to clouds, consumers and partners, thus reducing latency. This includes the ability to easily adjust the necessary bandwidth by location, ramping it up and down as required.
• Increase security to extend beyond legacy data center firewalls to enable the secure transit of all transactions, conference calls and workstreams between all clouds. National jurisdiction requirements can be tailored to each region, enabling updates as needed.
• Guarantee flexibility and reach as new services can be tested by region (even specific locations) with little capital outlay. Services can be integrated as needed from a rich set of technical and business ecosystems, while expansion into new markets can be explored by deploying secure virtual services through the Equinix Cloud Exchange Fabric™ (ECX Fabric™).

Digital transformation is no longer an option. It has become table stakes for any company that wishes to thrive and remain relevant. The path to change, even if painful, must be taken with eyes wide open.

To understand how IOA can help you achieve success in the current era, check out the insurance blueprint.

Don’t miss the Insurance, Digital Collaboration and the New Normal – Beyond Video Conferencing panel on June 25^th. Register at: https://bdionline.com/event/062520insurance/