I love buzzwords. These days one can hardly have a conversation in a business context without using one: “FinTech”, “InsurTech”, “Big Data”, “Innovation”, “Disruption”, “Disruptive Innovation” … the list goes on. One can fill whole sentences with supposedly very important messages, yet without really saying much, especially when there is no clarity on what these terms refer to. For example, if I read “InsurTech can be the driver of innovation for your business”, I have to ask myself if that is really true. What does that mean for products or technologies in InsurTech? Is it because an idea is innovative or is it simply about efficiency? What if adoption doesn’t really work? Specifically on the last point, I see two main challenges when looking at “InsurTech adoption”. The first one is failure to implement the desired solution successfully. The second one is failure to actually achieve or realize the desired/planned benefits.

The drivers of these two challenges link back to organizational culture. Yet “culture” is such a generic term that can mean everything and nothing at the same time, unless you really break it down to practical issues, understand their nature, and identify how to address them.

When I speak at FinTech or InsurTech conferences, I always ask the audience what they are seeking to get out of the presentation. The answer is always the same: “to learn how InsurTech (or FinTech or big data, for example) can benefit our organization”. Yet my presentations provide a different angle. I like to look at how technology can help an organization if it is ready for it. Technology does not solve every problem.

The use of technology in financial institutions is not new. What has changed is the pace at which ideas are generated and built, such as the Internet, digital enablement, and API platforms, to name only a few. Some have made technological development easier, cheaper, and more widely accessible. A lot of these ideas may be innovative (or disruptive), but frankly, many are simply introducing efficiencies (equally valuable, but let’s not confuse efficiency with innovation). Thousands of startup companies have risen with new ideas or products. The trend we have seen until now in insurance is that these startups don’t compete with insurers but rather try to partner with them and introduce their ideas to the industry. So the challenge for insurers is not the lack of ideas. In fact, ideas are developed at a much faster pace than the market can actually absorb. The challenge for insurers is that they need to look internally and prepare in a number of ways in order to tackle the two main challenges of InsurTech adoption.

Looking at the first hurdle, successful implementation, the challenge is how to make new ideas work in an organization whose ways of operating haven’t really changed and neither has its ability to embrace change. The word “change” is probably the most important one to focus on when talking about InsurTech. Successful implementation of ideas (innovative or not) takes a lot more than simply partnering with startups or adopting their products. Proper integration in the organization requires effective change management across different functions including process, people, attitude, habits, and performance monitoring.

Many times I have seen companies referring to their “new ideas portfolios” as “fast lane projects”, trying to portray a sense of urgency, efficiency, and agility. However, the speed with which stakeholders take decisions and even the key performance indicators (KPIs) driving/guiding decisions, are far from being adequate to drive fast lane projects to successful implementation. The requirement for multiple individuals’ signatures (who evaluate decisions based on “silo objectives”) and multiple committees’ approvals points to a culture that lacks responsibility and accountability at the appropriate level. It naturally leads to slow decision-making processes and a tendency for inaction across the organization, which is conflicting with the “real-time” decision-making actions that “fast lane projects” require – especially when it comes to “pivoting” or “discontinuing” decisions during the development phase.

Obstacles to successful implementation exist in other ways. Risk aversion through activity that states “the more checks the better” might fail to recognize the source of problems in the end-to-end process. Resources capacity, lack of specialization or expert input, and the legacy of existing infrastructure are some of the additional challenges that can impose serious implementation risks, including internal departments being misaligned. Any new firm-wide implementation requires good communication across all levels and departments of the organization. If communication is insufficient (or inefficient) then implementation risk is likely to increase. These last examples might not link directly to “culture”, but the fact that large organizations struggle with this, as a constant, means this can add “risk” and delay to project signoff and execution.

As already mentioned, failure of successful implementation is only one side of the problem. Failure to actually achieve or realize the desired/planned benefits is the other issue. And this could point to the following reasons:

1. You might have chosen to implement a “weak” solution, and
2. You might have implemented a solution in an “unsuitable” way.

Implementing a weak solution may be the result of inappropriate KPIs. For example, I have seen large portfolios with project ideas, out of which the ones chosen for implementation were the least related to strategy or clients’ needs. There was a clear mandate from “the top” that successful implementation is measured by “timely delivery” of a project and “on budget”. It had nothing to do with “tracking benefits after implementation” or relevance to the Client Value Proposition (it was simply assumed that benefits or CVP would be achieved). The outcome was that stakeholders, whose bonuses were based on the above, were simply choosing the projects that were less difficult and less risky to implement (i.e. less probable to fail), regardless of their relevance to the business, the strategy, or the clients.

Remember that people manage their careers not their jobs. They try to promote the product (or action) that would get them to their bonus, regardless of whether this is the right one for the client, regardless of whether this increases client loyalty, whether it increases risk for the organization, or even if it is irrelevant to the overall strategy. This is an obvious misalignment between “InsurTech adoption objectives” and the way you have internally set individuals’ success criteria.

Misaligned KPIs might not only result in choosing “weak” projects. They may have a longer-term impact to your organization as they will affect product offering, client value proposition, client loyalty, and ultimately revenues. The culture of “inward looking targets” (own revenue) rather than “outward looking objectives” (clients’ needs) may incentivize wrong behaviour. For example, if we set KPIs that measure next quarter’s revenues instead of client attrition or satisfaction, we do not promote a culture that tries to understand clients in depth and identify specific needs. We take decisions based on a static segmentation that describes an economic class, but fail to recognize other important characteristics within the same segment that could influence insurance needs (e.g. individuals’ lifestyles). So, when the “InsurTech adoption objective” (client service) is measured and incentivized by the wrong drivers, there is a high risk of misalignment or failure to realize desired benefits.

A relevant example of this is the adoption of telematics solutions, and more specifically car tracking devices that record driving behaviour, which are failing to provide a sufficient answer to the question “are we really servicing our clients?” Failing to service clients will directly challenge the success of the initiative and the realized results. Early adoptions of telematics solutions are monitoring driving behaviour, reporting on ex-ante chosen risk parameters, and giving discounts to clients based on those. But where does this actually service clients? Does my InsurApp help me become a safer driver? Does my InsurApp assist me with active “driving protection” measures (which need 99.9% accuracy) or does it only report on passive “driving behaviour detection” (which needs 90% accuracy for underwriting purposes)? Analysing driving behaviour data 24/7 can certainly improve insights for risk underwriting, but from a client’s perspective “bigbrothering”, without active protection from distracted driving the moment I sit behind the steering wheel, is far from “servicing clients”. Also, let’s not neglect unintended behaviour from the client’s side. Personally, I have discontinued such a telematics service – I almost had an accident twice, because cognitively I was trying not to “harsh-brake” and lose my discount (I was actually becoming a worse driver).

Adopting a telematics solution by spending a few millions is the “easy part” (assuming you have managed to solve the challenges of installation, car replacement, and service discontinuation). The difficult part is how to use the solution in a way that adds value to clients as well as assisting them to manage road risks actively. This would eventually facilitate a comprehensive CVP, creating loyalty through real differentiation for existing customers and attracting new ones.

Before deciding on any new ideas from the InsurTech ecosystem, it is important to acknowledge that innovation (or change) is not something you can simply buy. It needs to be part of the company’s culture, a mindset that you need to understand and whose laws you need to harness. Clayton M. Christensen, in his book The Innovator’s Dilemma, makes the analogy of the early days where humans tried to fly. Yet flight only became possible when people understood the laws of gravity, Bernoulli’s principle, the concepts of drag, lift, resistance, etc. In a similar manner, do you understand all the potential stumbling blocks to innovation or change in your organization and are you prepared to understand them and address them in an effective way so as to mitigate similar “adoption risks” mentioned earlier?

The challenges of slow decision-making speed, and inappropriate KPIs, mentality, people, infrastructure, and other internal inefficiencies (by no means a comprehensive list) are not new, and none of them is the result of InsurTech penetration. They have all been around for many years. The reality is that InsurTech cannot solve any of these problems, but its successful adoption can be significantly undermined by them. It took the financial industry more than 10 years and not until the global financial crisis of 2008 to shift attention from “risk modelling” to the importance of “risk culture”. We are experiencing a similar situation whereby insurance companies are focusing on InsurTech adoption while neglecting the enabler, InsurTech culture.