Exclusive: ‘The Great Enabler’ – Jeremy Marchant, Aptitude Software in “The Insurtech Magazine”

Jeremy Marchant of finance management software provider Aptitude cautions insurers not to ‘let technology take over’. Rather, it should be seen as part of a broader transformation journey – one that’s increasingly driven by the finance team

When it comes to innovation in the insurance sector, vision is everything. Technology will obviously help solve some of the biggest issues, but insurers need to be clear what the problems are that need fixing in the first place.

“Of all the industries in the world, insurance is the one where CFOs are most looking at technology-enabled innovation,” says Jeremy Marchant, head of international pre-sales at financial services software provider Aptitude Software.

Insurance CFOs are taking more ownership of the innovation agenda and data across their organisations than in any other sector, he adds. “That includes banking – a lot of experts think banking is at the cutting edge. Well, it turns out it’s not. It’s insurance.”

Insurers were particularly hit by the COVID-19 pandemic, which severely disrupted operations and put pressure on profits. However, this only exacerbated problems already facing the sector, most notably those relating to technology and productivity.

McKinsey’s Insurance Productivity 2030: Reimagining The Insurer For The Future report estimates that insurance carriers will have the chance to boost productivity and cut operational expenses by up to 40 per cent over the next decade, while also improving customer experience. But this transformation from traditional insurance models will likely require major technology investments, with clear implications for many CFOs. Radical improvements in productivity across the entire value chain – rather than piecemeal changes – will be needed for insurers to thrive in the post-pandemic world, the report observes.

McKinsey concludes that, by 2030, the most productive insurers will provide no more than five to 10 products – a stark contrast to the 50 to 100 products that many property and casualty (P&C) insurers currently offer, but many of which do not generate meaningful revenues or profitability, McKinsey said.

In fact, it estimates that it’s only the top 10 to 15 current products that generate more than 95 per cent of the total gross written premium (GWP). Marchant agrees, citing McKinsey analysis himself which says technology can have a disproportionate impact by focussing on a few processes,.

“What they mean by that is probably up to 40-45 per cent of an insurer’s cost base is determined by about 20 of their end-to-end processes. So, looking at a small number of processes and really prioritising where they’re applying the technology can have a disproportionate effect on the underlying cost base.”

Like many industries, insurers have been guilty of applying sticking-plaster fixes to regulatory requirements as leadership teams seek to strike a delicate balance between compliance and implementing changes in an efficient way.

This is understandable and there are times when such fixes are appropriate, says Marchant. “People don’t want to spend too much, they want to wait until the requirements are fully finalised. In particular, people wanted to wait until they could see what IFRS 17 looked like and the overlap or alignment with Solvency II,” he adds, referencing two of the biggest regulatory changes of recent years to fundamentally affect insurers across the EU. “But that has led to big, negative impacts on the finance functions,” he says. “Where you’ve got fragmented architecture, you’ve got lots of expensive people and processes to paper over the cracks.”

The problem with the sticking-plaster approach is that it creates a lack of agility and makes reacting to the market a problem, adds Marchant. Transparency is also an issue as the finance team spends so much time keeping the function together that they’re unable to provide valuable insights to the CFO and the rest of the C-suite.

“So, that means things like suboptimal pricing and new products take longer to come to market. Overall, it comes back to an organisation that is less reactive, less adaptable to the market and the competition it faces, and less competitive because companies have a high cost-to-income ratio.”

Marchant believes that enterprise-wide transformation needs a different approach. While achieving compliance in an efficient and cost-effective manner is undeniably important – as is a robust business case – it is not the most effective way for CFOs to inspire organisations to go on the journey.

“What we find works in helping the leadership to step out of their mindset is to use an approach that we call ‘I would like…’’,” he explains. “We ask ‘what would you like to do that you can’t do now?’, and that’s what gets people inspired about the change journey.”

“So, instead of telling them ‘you can reduce your manual journals by, say, 50 per cent’, we encourage them to talk about the vision: ‘I would like to decommission all of my claims systems that my team have been complaining about for 10 years’. Another example would be ‘I’d like my incredibly highly-qualified and expensive team to spend their time helping me with analysis, rather than doing complex manual processes’,” says Marchant.

“It’s more inspirational. Yes, you need those metrics, and a really robust business case, but that’s not going to take people on the journey. But focussing on what they would like is going to get the leadership team interested in change, those things they want to be able to do, but can’t do now.”

Marchant outlines a series of key trends of digital transformation in insurance, including a move towards digital analytics and decisionmaking, having a proper digital strategy, and the importance of customer-centricity in the digitising of business processes.

But he also emphasises the importance of a corporate culture change.

“Five or 10 years ago, insurers were not set up for this wave of digitisation and they have to now organise for digital, so that they have the right people to be able to adapt to the change,” Marchant explains.

The role technology plays in the transformation has also altered. Historically, the technology wave was primarily at the frontend – focussed on customer experience and the client journey, as well as the analytics around that – but now it’s extending to the back office and the enterprise-wide transformation.

“The C-suite and CFOs are looking at change much more positively and much more flexibly,” observes Marchant.

Aptitude itself has identified 10 drivers for change across the industry. The top five include antiquated legacy systems, the high cost base such systems create and the proven value of digital disruption. Increased regulatory burden is also a key driver for transformation right across the sector, Marchant adds, while the fifth is improved market competitiveness.

“There is huge competition in the industry. There are organisations that are acquirers, of either companies or books of business, that can generate more profit than legacy organisations.”

As for where to start any transformation, Marchant again stresses the importance of having a vision to work towards.

“If you try to be so tactical that something’s just not exciting, you won’t get people to buy into it,” he says. “On the other hand, that vision needs to be achievable and deliver the value you said it would, quickly. One thing I’ve learned from leading multi-year transformation programmes is that if you stop delivering, or lose momentum, the money starts to go away.”

He suggest transformation leaders should focus early project phases on initiatives that deliver the biggest bang for the buck. For example, automating manual allocation routines or other repeatable finance processes that deliver benefits very quickly.

“Things like capital allocations, apportioning of costs across business units or contracts – done manually in Excel or, at best, an Access database. Automate something like that and you have a return on investment (ROI) that pays back over four or five months. Then you’re off the blocks, building momentum. You’ve proven that what you said would work, has, and can start adding things with a longer ROI.”

His final piece of advice may surprise some: “Don’t let the technology take over. It is the enabler, not the whole project or the whole purpose of the transformation.”

That said, if there’s one thing 2020 taught insurers, it’s that the time to act is now. Plan a vision for the future and, as Marchant says: “Don’t be afraid to go on the journey.”

This article was published in The Insurtech Magazine #05, Page 36-37