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Where does the investment team at an insurance company sit on the construction and processes of a company’s technology roadmap?
This was the question put to a selection of senior investment figures for insurers at a recent Clear Path Analysis roundtable meeting, which has now been published as part of the new report, “Future-Proofing The Insurance Target Operating Model” - in conjunction with Clearwater Analytics.
“We have two strands at play, one where we are leveraging our
partners and one where we have outsourced."
In it, we discuss how the technology roadmaps that companies are on are managed- and importantly, how these plans are helping to future-proof the organisation, both in terms of where the main focus is on the technology side as well as what it means for investment departments.
“We have two strands at play, one where we are leveraging our partners and one where we have outsourced,” said Adam Ruddle, Chief Investment Officer at UK insurer LV=. “We are hoping that this allows us to scale as their costs will go up in a measurable way for us to scale.”
He explained that the company also has an in-house technology program, which he is “more nervous” about. “Because as soon as we have started building [the program] they are most likely getting out of date. There are also likely further costs to be coming in where you have in-housed your technology roadmaps.”
As part of this process, and similar to many other companies, they are doing this project with an outsourced asset manager for further expertise and resources. “Leveraging their capability in this space - we see [it as therefore] being an easy [process] to scale up and at low cost so that gives us a lot of help. It is the internal projects where you need to watch it.”
He added that for a lot of people, these internal projects will include “hygiene factors that just have to get done” – i.e., low-hanging fruit “where you bring things in easily and quickly”. “But instead, you can see them as this strategic thought around how you could structure building blocks to ensure that if someone does ask a different question that you don’t need to move the ship. I don’t feel that many people are there with this.”
Accenture warned in its “prediction for the insurance industry for 2025” report published in January that “kicking the can” for CIOs on technology implementation will be a false economy. This is even with, as Ruddle mentioned, the feeling that obsolescence is unavoidable when projects start due to rapid technological advancement.
“Carriers and CIOs hoping to get a few more years out of their legacy technology by delaying resource-intensive technology modernisation will find they are kicking that can down a toll road,” said Accenture’s paper. “The industry will see more of the dramatic price increases for legacy technology. The risk and economics of modernisation will fundamentally change in 2025, forcing the industry to take (much delayed) action.”
Others in the report mentioned that the technology roadmap has been far more collaborative, open, and transparent in terms of communication but that issues remained.
“The investment committee has been keen on understanding where we are going,” said Andrew Bailey, Director of Financial Risk, at Just Group. “It has been important to change the attitude [around this] otherwise, with a point solution, it is an incremental change but, because our growth has been so fast, there has been a desire to get the board to ask for the roadmap in detail.”
Bailey said the investment committee “take an enormous amount of responsibility in listed companies” and wanted to know whether the investment team’s operations were able to be scaled without encountering errors that often afflict this path of action.
In a report on the issues that insurers have with technological advancement, consultants Kearney said that it's important to break down the path and look at the different parts, which could help the issues of scale that Bailey discussed.
“To modernise their core business, insurers will need to build capabilities across all layers of the architecture, but their legacy architectures are not well-suited for the job,” said Kearney’s paper. “A technology transformation is the only way to gain a competitive advantage in a digital world. Insurers will need to visualise a digital twin of their architecture, conceptualising how they can do more with fewer moving parts. This can then help fund the reset of a digital capability.”
Bailey said, “you always have errors in something”. However, he added, some of those errors can prove to be interesting, which in his company’s case was an interesting problem to have and gave them a different perspective on structure.
“The investment committee wanted to know, from that experience, that the structure was going to work,” he said. “This doesn’t mean that we need to pick who we go with but rather to show the structure that we want to go with.”
Bailey said you “want to draw that big picture of your long-run strategy and how do we get there”. “We have gone through this process, and we had a paper on it that talked about the different capabilities and what we are getting paid for,” he said.
“This is the strongest challenge that the team has faced as you can
see lots of opportunities - but how do you stick it into a program?”
The challenge around this area, he added, was in understanding the technology environment that a company can access because there are so many vendors and different products and ways of working, which means it is hard for insurers to know how to construct a suite that will suit them. Once the structure of the project has been broken down into its core parts of what’s important and what it’s trying to achieve -then figuring out how the technology will have to work and what it needs becomes a different problem.
Therefore, the proliferation of choice becomes a different issue that needs attention to detail just as much as the previous steps.
“This is the strongest challenge that the team has faced as you can see lots of opportunities - but how do you stick it into a program?” said Bailey. “I am not sure we know the answer to that one.”
