How to ensure high efficiency in a historically-geared industry
The insurance industry has existed for centuries, and remains very outdated in the way it processes data and transactions. There is so much that can change with the support of technology, but success depends on the cooperation of different teams and different companies, as well as on a forward thinking attitude.
The insurance industry can be characterised by a very inefficient series of handoffs. To complete any one transaction, there are so many stages, including the market's interaction with a broker, the broker with a client, and then potentially several stages of reinsurance. Each handoff of the data between one party and another tends to lead to great inefficiency, but there is also a clear opportunity to get each stage right and improve business.
The magnification of inefficient processes
Insurers have tried to automate the chaos that already exists. Rather than fixing a process, there has been the attitude of automating outdated ways of working, which has tended to end up increasing the ongoing cost burden.
When you think that between a quarter and a third of existing data has to be reworked between the different stages of the insurance process - because of a lack of proper processing and collaboration - the cost is immense to everyone involved. There are massive errors occurring in the infrastructure, much of which is old, and the cost of changing this has left many insurers avoiding taking action.
This is how the problem came about: in the 80s and 90s with the growth of PCs and software tools , there was an opportunity to do a lot with information. Having automated some of the poorly organised back-end processes, there was then a focus on understanding the dynamics of the client base, with great attention on capturing information at the front end. This created friction: better information was arriving at the front of each business, but there was a struggle to process transactions at the back.
The current state
In the last five to 10 years, the thinking has changed so that companies look to process transactions right from the start, through all of the stages, right up to the back end of the business.
It's true that the ability to capture and analyse information has become easier, and less expensive, as the technology has improved and become more widespread. But the business processes have remained poor and sloppy. Not enough is being done by many insurers, which still have the same hand-off, between various stages, that they had 100 years ago.
Getting things to work
I've always believed in insurers having a consolidated back office clearing house or shared service, so that consistent processing of data and analysing information does not have to be a constant struggle that brings increasing costs. Of course, given concerns among different teams over data ownership and cost control, it has been a complex concept to introduce in some companies. But it is an essential change: the industry needs business to be processed quickly and accurately, and cash to be booked and distributed efficiently.
One of the things that will really make this work is if different parts of the industry collaborate, in order to establish how things can be done and make the most of more efficient processing.
It is more difficult to standardise processing in complex and bespoke specialty insurance businesses, which rely on the daily judgement and expertise of underwriters and brokers. These companies are less dependent on technology alone, but getting the right process and data in the first place is vital.
What we're working on
At Ironshore we have developed an entity called Ironserve, in order to run end-to-end processes, data analytics in the most efficient manner possible. The dedicated operation enables us to be much more effective at our insurance work by focusing efforts on our day-to-day business. We have improved our expense ratio by three points through standard processing within IronServe.
The next step in this change is for us to develop the service further and work with our partners to offer it to other insurance companies that want to improve their processes. I think it will become more of a trend to operate using standard processes, as companies recognise their need to focus on core competencies, such as brokering and underwriting, instead of processing. Everyone needs the back-end processing but it must not end up becoming their core area of focus and effort when they are trying to write insurance.
So much is changing in the industry, but there is still a long way to go. Implementing highly efficient processing, supported by great technology and advanced insurance skills, is a smart way to do great business.