Solving the Insurers’ Red Queen Dilemma

August 1, 2022 by

Well, in our country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else — if you ran very fast for a long time, as we’ve been doing.’ ‘A slow sort of country!’ said the Queen. ‘Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!'”

— Through the Looking Glass, by Lewis Carroll

A Looking Glass World Is the New Reality for Insurers

The staid, seemingly straightforward, terrestrial-based orderly insurance marketplaces of decades past are, indeed, decades past. Insurers are finding themselves now operating in their own Looking Glass world continually reshaped by a variety of interdependent customer, industry, and technology forces, including:

  • Customers shifting from a “have to” work from home during the pandemic to a “want to” work from home after the pandemic. This shift amplifies the digital divide problem of some customers not having access to wireless at all or some customers not having access to 4G or the emerging 5G wireless connections.
  • The expansion of voice technologies to fulfill a variety of searching, sharing, streaming, and shopping objectives across a widening number of industries. This accelerates insurance customers’ expectations to use their own voice to conduct different aspects of insurance commerce.
  • Insurance startups repeatably crying to the heavens they are not mere insurance companies but in fact that they are technology companies when the cold hard truth is that no technology transforms an insurance firm into any type of technology firm. (We’ll ignore the inconvenient truth that it is illegal for any person or company to purchase insurance from a non-insurance company.) However, this relentless screeching might cause incumbent insurers to accelerate deployment of new(er) technologies before the incumbent firms want or to partner with or acquire one or more of the startup insurers.
  • Emergence of new technologies such as the growing suite of immersion technologies (e.g., augmented reality, virtual reality, and most currently the Metaverse but where or where we ask are the holograms, Obi-Wan Kenobi?); the stream of AI applications including machine learning or facial/sound/visual recognition; or uses of edge computing for Internet of Things (including drones, automated vehicles, or other, robotics). This constant yammering for insurance firms’ limited attention and more limited budgets could strain incumbent insurers’ abilities to manage their current book of business or require existing personal or commercial lines customers to conduct insurance commerce in a manner they are not ready for or want.

What Exactly Is the Insurers’ Red Queen Dilemma?

The insurers’ Red Queen Dilemma has come about because they are living in this Looking Glass world. Specifically, the R.Q. Dilemma is that insurers are doing all the running they can to keep in the same place but that amount of running is insufficient to be successful in the new marketplace.

The content in this article is influenced by and excerpted from Rabkin’s recently published book, titled “From Stone Tablets to Satellites: The Continued Intimate but Awkward Relationship Between the Insurance Industry and Technology.” The book was published on June 28, 2022 by Wells Media Group.[/sidebar]

Realities and Hurdles Blocking Resolution of the Red Queen Dilemma

The answer to resolving the R.Q. Dilemma is obviously to “run at least twice as fast as that.” Obvious, but wrong. That course of action is as incorrect as advising an insurance company to invest in making existing processes that should no longer exist more effective or efficient.

Before discussing some possible solutions to resolving the Dilemma, I want to consider three realities and three hurdles that block insurers from any resolution.

The realities are baked into the property/casualty insurance industry while the hurdles can be managed by individual insurance companies.

The three realities which are bedrock P/C industry characteristics are: Regardless of how the marketplace changes, insurance companies must always strive to resolve their primary challenge: profitably managing or mitigating risk according to the metrics of the insurance lines of business the firm conducts commerce. P/C insurers do not want every prospect as a client. P/C insurers do not want to keep every existing client.

The three hurdles that are manageable (i.e., changed to some degree) are a property/casualty insurer’s:

  • Dynamically changing risk appetite, which shapes the insurance coverage the insurer is willing to offer (at a moment in time).
  • Underwriting procedures that drive the time, and other human and technology resources, it takes to complete a policy application process
  • Fraud algorithms, and an insurer’s philosophy of using them to trigger SIU involvement, which drives the time, and other human and technology resources, it takes to adjudicate and resolve a claim.

Resolving the Insurance Red Queen Dilemma

My advice for insurers to resolve the R.Q. Dilemma, taking the realities and hurdles into account, is: Make haste, but carefully and profitably.

Specifically, insurance carriers can start to resolve the Red Queen Dilemma by, in part, deploying technology applications to support the current marketplace and simultaneously prepare for the future marketplace (always keeping in mind that not every existing or target client will want to conduct commerce using whatever new shiny technology toy pops up).

This will require insurance firms to deploy applications that customers are familiar with but that simultaneously improve the effectiveness and efficiency of the insurance company’s operations.

In the Looking Glass world, this means insurance carriers should consider:

  • Creating and updating a risk landscape several times annually, as well as identifying and updating the risks (or types of risks) the firm will cover in some manner;
  • Creating and frequently updating a technology map with associated applications for each technology (e.g., AI is a technology but not an application itself, but actually an umbrella term for a growing portfolio of applications such as machine learning, voice recognition, and natural language processing);
  • Determining the skills, capabilities, and experience required of business and technology professionals to pilot, deploy, and maintain the stream of enhanced or new technologies and their associated applications;
  • Using a holistic framework of the customer journey initiatives to manage customer experience;
  • Using virtual assistants to service customers, agents, and insurance professionals in the home office and field offices;
  • Using video solutions to onboard and service customers and agents;
  • Using mobile, IP-enabled, cloud-accessible communications and collaboration solutions to strengthen product development;
  • Deploying new go-to-market solutions such as creating or participating in digital commerce platforms, whether used for internal purposes (i.e., product development), customer-facing purposes (i.e., helping producers find coverage for commercial lines clients more effectively), or decision-making-focused collaborative initiatives with risk managers of commercial P/C insurance clients.

These eight actions, at a minimum, should enable insurers to strengthen their ability to more quickly target and meet customer expectations, monitor the changing risk landscape, alter the firm’s risk appetite as desired, and develop new products on a timelier basis.

In effect, they enable an insurance company not to run faster but to be smarter as they run faster.

This content was originally published in Insurance Journal Magazine.