By Niels Zijderveld, regional sales director, Europe at Guidewire
Understanding why Superman can fly and run faster than a speeding locomotive is something many European insurers might want to consider.
As every comic hero fan knows, Superman had superpowers on Earth because his physique was optimized for living on Krypton, a world of much more extreme environmental conditions.
Now, I am not suggesting insurers don tights and a cape. The lesson, rather, is how insurance companies, that have become so super-conditioned to survive and thrive in the especially aggressive market conditions of one national market, could leap into another less competitive national market and seize business there extremely fast and successfully.
In effect, what is a routine requirement of operating in one market, when transferred to another, appears to provide superpower advantage that knocks out the competition who may not be as competitively super-fit.
This is a factor of how insurance continues to be very parochial in many markets across Europe. Tradition and stability are historic strengths, but insurers can become very insular in some markets. This can even be the case amongst larger, multinational insurance brands. While these are huge businesses, they have tended to grow by acquiring local independent firms. Although part of an international brand, these local operations tend to retain an insular viewpoint on what they regard as best practice.
So, whether to a large or small degree, a parochial mindset affects how readily an insurer sees the opportunities or threats that loom.
At the root of this is a commendable belief held by many insurers that their business is special and unique. There is a great deal that can differentiate any insurer but, in our experience, this does not extend to the fundamental processes of the business, which are deeply uniform whether the insurer is in Austria, Britain, France or Greece. Of course, local rules and regulations can create variations and complications, but the majority – 80-90% – of the policy and claims core system functionality needed is the same, regardless of who or where the insurer is located.
The competitive differences lie in how streamlined given processes are, and how efficiently they work and achieve superior combined operating ratios (CORs).The prime driver to achieve this is through straight through processing, whether it is binding and issuing a policy or settling a claim. The challenge is in fine-tuning this process, so as to avoid adverse risk selection and to identify those cases where manual intervention is required. This is where local knowledge and AI techniques can help make the difference.
Such regional differences, could be the basis for some insurers to make bold moves into new markets. In the past, the cost of distribution has prevented this scenario taking place. However, this and other barriers for an outsider to break into a new market appear to be tumbling. Technology drops the cost and streamlines how products are brought to market, while regulatory controls are increasingly harmonized between countries. The standardization of software platforms also makes operating business models more easily transferable.
Insurers have become used to being told they must be prepared for the mega, digital customer service brands like Google, Über and Amazon to disrupt their markets. There is some truth, plus a lot of hyperbole, in this argument. What does seem more likely to be of threat is that smarter regional players could be the dreaded agents of change because they may be better conditioned to be agile and lean, and have developed digital platforms that allow them to operate more readily across borders.
While it is a cliché to say the industry is navigating through a period of dramatic change, the importance of being open to new ideas, and adopting an international mindset, will be what helps the industry reach safe and profitable shores. Insurers will not need a Superman to come and save their day; an open mind and approach will make the challenges from near and far easier to foresee, mitigate, and even repulse.