Anthony O'Donnell: I'm Anthony O'Donnell, and this is Life Accelerated. A podcast for life insurers striving to achieve digital transformation. Keith Raymond is a principal analyst at Celent. In this conversation, we dive into some of his findings from his recent reports, such as the data tsunami in which he explores the benefits and challenges of data transformation in the life insurance industry.
Keith Raymond: They have to straighten out the house first before they can do all the bolt-ons and achieve the optimal value from the data in the other digital components that they plug in.
Anthony O'Donnell: Keith also shares his views on what role the cloud plays in digital acceleration efforts within major carriers and his take on the strategy around cloud implementations.
Keith Raymond: Most of the providers, at least on core systems, that's the primary offering is cloud.
Anthony O'Donnell: Here's my conversation with Keith. Well, Keith, it's a great pleasure to have you here on the Life Accelerated Podcast.
Keith Raymond: Thank you Anthony.
Anthony O'Donnell: Keith, as we reached the end of 2022, I'd like to get an assessment of where life insurers are in their digital transformation. Are we well down the road? Are we still kind of starting? Are we trying slowly along? How would you characterize the digital progress of the life insurance industry with perhaps a little bit of size of company, line of business, or whatever might make sense?
Keith Raymond:Yeah, I think you just kind of hit it on the head.
I think all of the three that you mentioned are probably in action depending on the size. The capital investments each organization is making. But the one thing that really shifted the industry is covid, and I think everybody understands that at this point in time, digital acceleration really exploded with covid.
We had polled carriers who had went through their budgeting process in 2019 for 2020, and of course hit in 2020. So they weren't prepared from a digital planning perspective for something like the Covid, if I recall my numbers correctly, had about 17% of their budget for 2020 dedicated to digital capabilities.
You fast forward another year, the following year, 2021 and that. Pretty much flipped right over to about 88% had digital capabilities as part of their planning in 2021, and the same for 2022. Just as pushed along because even in the budget planning process for 2022, which is generally Q4 of the previous year, We were still pretty much in the midst of Covid and the Omni Crown variant and all that kind of stuff.
So it really, forced insurers to stay focused on digital as they had been since the beginning of the Covid Pandemic and continue to focus on digital because of all of the benefits that are coming out of it, number one. But then number two, they gotta keep up. So digital's now becoming more of a must have or standard if you will.
Anthony O'Donnell: Okay, so the pandemic made a huge shift in the appreciation of the need to make digital progress in the life insurance industry. How is this manifested in insurer's investments that are customer facing, first of all? And then let's talk about the agents after that.
Keith Raymond: I'll include CSRs as well. So service side too, right?
So customers, agents, and CSRs, service specialists, they're all gaining the benefit from a standpoint of digitization. All the carriers are looking at how to improve their process, especially at the front end of this, when their agents could no longer meet face to face with their clients. So our virtualization became a key theme as far as the process.
Many pivoted quite successfully to digital capabilities, advancing their portal capabilities, so on and so forth, and doing most of the activity on the front end of the business virtually. And then they'd migrated from that into their back office capabilities and improving things like their policy administration systems and so forth.
And also, you know, from a standpoint of customer experience focusing on the long pole and the tent and the process of generally underwriting, they've done a lot with that as well from the standpoint of. I kind of generalize. Right? So the industry definitely did a pretty dramatic shift. However, when you talk from carrier to carrier, and depending on whether you're talking about the tier ones or the tier fives, there's some vast differences between the tiers just based on capital opportunity.
Anthony O'Donnell: Well, you mentioned the lack of the ability to meet face to face. We all experience that. We all live through that for quite a while. To what degree does an emphasis on digital with that in mind, equate to an increased focus on direct-to-consumer sales?
Keith Raymond: We didn't know what to really expect, but we thought it would increase.
And there were a number of carriers or disruptors, if you will, that were out there in the industry. Folks like Haven Life and Breathe Life and others that started from scratch. So started with a digital floor, but you got your traditional carriers that didn't do that, had to transform. A lot of the carriers were in that process of transformation.
And, significant amount of investments need to be made at all ends of it, right? So the back end, everything from your policy administration system, all the way out to your consumers of the data and the process, meaning your agents, your CSRs, your customers and prospects. So a pretty significant shift in focus, but focus is key, right?
So many of the more successful. In digital transformation, look at it as a whole ecosystem of transformation. You gotta change your culture, you gotta change your infrastructure, you gotta change your technology, you gotta change your business processes, right? Those kinds of things in order to achieve the optimal results, you know, between 2010 and 2020.
DTC distribution in life increased 50%. Sounds like a lot, but it went from, I think 2% of the whole industry to 4% of total direct written premium. And in the covid years, it increased again, but only slightly because a lot of the carriers weren't set up for it or they were dealing with a dilemma of I gotta have repercussions with my distribution system.
If I put in a digital component, right, and I'm taking away from my agents and so on and so forth. Everybody made a strategic decision there. Whether they were gonna either develop D to C capabilities, expand D to C capabilities, or just leave them off the plate. And I have talked to a number of carriers that have decided to, Hey, from a strategic standpoint, we're just not gonna go there.
Anthony O'Donnell: So we know that in property casualty insurance, there are big differences between say, large commercial and small personal lines. Products like auto and home. D to C has been used for the personal lines products, and increasingly it's been used for small business insurance. So I, I'm wondering what you would say about the breakdown of products within life insurance when it comes to approaching digital transformation.
Keith Raymond: It all started with term. It's the most simple product we have out there from a life plan standpoint. Pretty easy to simplify in a digital process. So many of the startups that were in that space too, the D to C space, it started with term. It's expanded a bit to whole life, but again, it's staying pretty focused on simplified products versus complex products like universal life and those kinds of things.
So, The automation continues to advance. We may see more and more products market D to C wise, but I think it'll be fairly slow and methodical to get there.
Anthony O'Donnell: Is there also kind of a friction that comes from the relationships the carriers have to their agents?
Keith Raymond: Yeah, absolutely. As I mentioned earlier, it's in talking to a number of the larger carriers anyway that have pretty broad distribution networks.
It's a little bit of a mix. They may have their toe in the water with D to C and a relatively small percentage of their sales going through that channel. But there are some, some very large ones that are saying, Hey, we're not even going there. At least not yet, because it really has improved itself out to be much more than term, for the most part in the area of success.
You can call it success, right? And the percentages are still really low when you look at industry wide of how much is really going through that D to C channel. But saying all that, I do expect it to continue to increase. I just don't think it's gonna be dramatic increase year over year.
Anthony O'Donnell: Yeah, and you also suggest that intelligent automation might have an effect there, and we'll discuss that a little later.
I'll invite you to come back to the back end and how intensified interest in digital has led to greater investment in core systems and why that is.
Keith Raymond: I'll go back to our recession of oh nine, right? 08, 09, and that's the time that the life and annuity world just put on the breaks when it came to capital investment and then there was a lot of transitions going on as far as books of business going from carrier to carrier and all that kind of stuff.
Some getting out of certain business, some adopting more. In their portfolio and then advance to a couple years before Covid, we started seeing that, hey, these low interest rates have been around for 10 years. We gotta do something. We can't sit on our laurels anymore. So we started seeing a pretty significant amount of investment in core systems, even before Covid.
And then since Covid, that's continued. It's like literally a tsunami of investment came all of a sudden because everybody was kind of waiting. Some the market movement that never happened from an economic perspective. And again, they just said, Hey, you know, we've gotta do something. Our systems are getting more antiquated, our processes are old. It takes us too much time to get products to market. It costs too much for us to get products to market. We need to invest in the newer technology. And the newer technology also brings digital capability along with it, speed to market flexibility, and as far as configurability and product development, those kinds of things, at least from a policy administration perspective.
And we've seen other core systems adopted as well, along with the policy admin. But the policy admin is really core from the standpoint of the business, and that's where we're seeing a lot of investments being made. And we continue to forecast, they will be made in the next couple years as well.
Anthony O'Donnell: Well, you mentioned an investment tsunami.
Actually earlier this year you published a report called Data Tsunami and one of my favorite topics across the insurance industry is that the insurance industry needed to catch up with the way business was done everywhere, and especially in the retail context. And so a great deal of the focus of digital transformation has been on the front end.
Now, we just talked about the back end too. Well, I think that it has to include data as well, and some of the most insurance specific innovation is gonna come in the form of data innovation. So let's talk a little bit about the data dimension of digital transformation. Maybe we could start with carriers, data, investment priorities, what they are and maybe what they should be.
Keith Raymond: Data threads through everything. So data is where it's gonna be. That's why you hear all the focus on data science, smart decision making based on data, all that kind of stuff. It's really gonna drive the world as we know it in the future and beyond, and it really is the jet fuel, if you will, for artificial intelligence, machine learning.
Natural language processing. It's all about data and how it's interpreted. So from a standpoint of investment priorities, we do an annual report. When we pull CIOs, we call it our pressures and priority report. And based on our report for 2022, data investments, keyword data management. Business intelligence, as you would imagine, right?
Chatbots, RPA, data platforms, fraud analytics, those kinds of things. Bringing up the rear would be cybersecurity because you have to analyze a lot of data in order to be able to perform cybersecurity diligently. The focus on data brings along a lot of complexities and a lot of challenges for insurers as well.
There may be a few that have their data strategies together. And there are others that are still dealing with data that's non-centralized, that brings more challenges from standpoint of integrated capabilities when the data's not centralized, so on and so forth. So when it comes to strategic focus, that's where that data management for our CIO, pressure and priority report comes in because they have to straighten out the house first before they can do all the the bolt ons and achieve the optimal value from the data in the other digital components they plug in.
Anthony O'Donnell: So here there's kind of a concept of enterprise data, not just in having an overall data strategy, but having transparency or accessibility to reliable data across the enterprise.
Keith Raymond: Yeah, absolutely. Having a strategy on enterprise data management and having all the underpinnings to successfully achieve that strategy is one thing. And next is, Okay, have all the data I need, I can access all that data. How do I get value out of this data now? Right. And that's where a lot of the focus now is on the data science side of the world.
We're bringing in the experts, if you will, that can really take that data and derive additional value that the organizations haven't been able to derive in the past.
Anthony O'Donnell: What are some of the ways insurers are finding it difficult to transform their approach to data? Right? So we're talking about some of the advantages they can get from this, but what are they running into?
Keith Raymond: One of the biggest challenges is a lot of the data is what we call unstructured, right? So structured data is pretty easy from the standpoint of access to that data. You know, however, even the structured data may be complicated by the fact that if I'm a large tier one insurer and I've been around for a hundred years and I have 15 legacy systems to deal with. And over those years I've used data fields in different way shapes and forms. Well, that adds new complexity, right? And for those that can really have that centralized data warehouse, that bring in the data that they need to support the new systems and new technology that they're bringing.
And that's great. But the others, like we mentioned, the others that have to deal with the complexities of multi-core system environments where there's no data integration and stuff, they have to take that. They have to look at it from an enterprise perspective and come out with that data strategy that gets 'em from point A to whatever point they need to in support digital capabilities and advanced decision making.
A lot of the carriers are really looking at deriving new value from the data they already have in house, and then they bolt on additional third-party data to drive additional values, but they have a lot of untapped stuff in house that they really need to take a look at in order to achieve optimum results.
Anthony O'Donnell: Data rich insight poor.
Keith Raymond: Yeah, exactly. The whole shift towards the data sciences is key. So bringing people that can understand and break down data in new ways that your leadership might not not have thought of before, is absolutely instrumental in the shift towards a data driven world. And that's what we're gonna end up being is really, if we're not already, is it data driven?
Anthony O'Donnell: So I wanna shift gears here a little bit. We've talked on some important topics that aren't necessarily the most top of mind, such as, you know, the back office or core systems, and what about the cloud? What role does the cloud play in digital transformation, and what do you see as the future of cloud for insurance?
Keith Raymond: It plays a significant role, obviously, and over the last several years, probably over the past decade, if you will, strategies have shifted to cloud first strategies because of the flexibility that Cloud brings to carriers that are especially digitally focused. I think that's accelerated again because of the pandemic, and it also does something that is a little different as all of the platform vendor and service providers shift over to the cloud. Most of them only have cloud offerings now as far as new sales go. Right? And what that does from a carrier perspective, it actually helps out from a planning process perspective. When it comes to investment, I shift over from a. CapEx model to an OPEX model because I'm not making that huge investment up front for a proprietary implementation on site.
I'm in the cloud now. I got a SaaS offering, and it's more of that. I have some implementations charges up front from a configurability perspective, but then it's an ongoing monthly fee. I think there's a lot of advantages to it, and then when it comes. Mobile capabilities and digital access, the cloud brings a bunch of other benefits there as well.
So we're seeing a pretty dramatic shift to the cloud over the last several years, even before covid. And we expect that because the whole world is digitally shifted, we expect that to continue. And as I mentioned, most of the providers, at least on core systems, that's the primary offering is cloud.
Anthony O'Donnell: There's certainly a big push in life in P and C, but it raises the question of at what pace should things go into the cloud, what should go into the cloud, what needs to go into the cloud and over what timeframe?
I mean, it sounds like a logical ultimate direction, but it's not without its challenges. And maybe we're thinking, Wow, we're just gonna go to the cloud now. Whereas it could actually take quite a bit of time.
Keith Raymond: Like any other strategy, it has to be well thought out, right? And you have to really look at your old portfolio and decide what makes sense to go to the cloud and what doesn't.
Even if I think about a number of carriers that I've worked with of late that have made significant investments in their policy administration systems that are cloud based, there's still a long tail there too, because a lot of are implementing what we call Greenfield. So they're doing new product launch first, and then it's kind of a slow movement from the standpoint of existing portfolio.
Over to that platform and then ultimately achieving some elimination of legacy technology, debt and all that kind of stuff. So, and that's just policy administration. You can think of any of the systems that are out there where you need digital capabilities, mobility, you know, those kinds of things. Those are usually the first choice to go to the cloud and it's like everything else.
If I look at my product portfolio, a new platform might be a great idea for new products and some existing products, but it might not be the best idea for all. I might BPO or tpa, some of my product portfolio, I might just let some of my products run off on the old legacy stuff just cuz it makes sense.
It's the same with the cloud. Not everything's gonna make sense and it's gonna all be part of a carrier strategy and where they're positioned from the standpoint of digitally to make those.
Anthony O'Donnell: Keith, in your research you've been very strong on the topic of process automation in the life insurance industry.
Why is process automation important, and how prevalent is it in the life insurance industry?
Keith Raymond: I'll take RPA as an example. I did a survey probably about a year ago now, but a survey with a substantial number of carriers in North America responded, and roughly 80% of them already had RPA in house, and RPA is taking care of the mundane task if you at least it started that way, right? So all of those menial transaction heavy tasks.
Anthony O'Donnell: Didn't it begin with what we called screen scraping quite a long time ago?
Keith Raymond: Yeah. Back in the, I think it was, geez, eighties. I think you're dating me now, but I think it was eighties, early nineties.
Anthony O'Donnell: I just wanna insist that these are my recollections from the early two thousands and so this may be dating both of us, but maybe not quite so much.
Keith Raymond: Many people refer to it like that. And yeah, it has some characteristics of that, but it's much more advanced. And from a capability perspective, it's so easy to use and administrate. But from there, the benefits you get out of there that are generally cost reduction and the ability to move your resources if you choose to, to other things that add more value.
So we take them out of the mundane. Take your human resources out of the mundane and put them somewhere where they add more value. So that gives you additional capability or it gives you the option of saying, Hey, I need to eliminate some costs in XYZ area. And you could potentially do that. So that's one thing, but that's kind of the ground floor.
Anthony O'Donnell: If I could just review it, what it does and what it's been doing for really quite a long time now, is eliminating manual processes that are necessitated by systems discontinuities. So we're achieving a higher degree of integration, and we're handing over some of these menial tasks to robots, and we're letting humans who are so much more complex and intuitive, et cetera, focus on higher value tasks.
Keith Raymond: That's one form of automation, RPA. There's other forms of automation that are being introduced into places like underwriting, right? So the long pole and the 10 of processing and a customer experience from the standpoint of getting a policy through an agent by a carrier is generally the underwriting process.
The world is changing. I think what used to be argued as an art is now becoming a science. It's being realized as a science, right? And that allows for significant improvement when it comes to using artificial intelligence, the likes of machine learning in that area. So the horizon is gonna continue to automate.
You're gonna see continued automation on the horizon. It's only gonna get more and more automated. So if the challenge for the carriers, if they're not into that space yet, and I actually just talked to one this past week talking about dipping their toe in the process automation, I said the same thing, You were not there yet. Boy, you better get there quick cuz everybody's gonna be ahead of you in the near future. Right? But slow and methodical is the way to go to make you comfortable. Okay? Do it.
Anthony O'Donnell: That give you a very simple and kind of, you might almost say, definition for kind of archaic sort of process automation.
What's the pinnacle of RPA as such, and how is that giving way to process automation? And by the way, the comment you made about art and science is echoing in my head and I feel like we're gonna get in trouble with some underwriters.
Keith Raymond: I've actually used it before.
Anthony O'Donnell: In defense of the underwriters, and without gain saying what you've said, maybe there's a process similar to what we discussed in RPA, where some of the more mechanical and purely mathematical tasks are being relegated to machines, and so the intuition can go to higher and less quantifiable areas of underwriting.
Keith Raymond: Yeah, but still it's like anything else, right? When you look at the world of artificial intelligence and you look at the capabilities that exist today versus what's coming, what it means is more and more of the underwriting process and other processes, not just underwriting, but claims, everything else will be able to be automated.
It's your choice whether you do so or not. And then from an automation perspective, if you're using something like an RPA bundled with intelligent automation, you may have what's called an unattended bot versus an attended bot, an attended. Automates things straight through. An unattended bot says, Hey, I'm gonna stop, I'm gonna introduce my findings to a human and I'm gonna have a human make a decision.
So a lot of that's in play now. But again, as machine learning advances and there more and more learnings from the standpoint of data that's introduced into the environment, there'll be more and more options to automate in the future. Not to say that the underwriter will ever go away, but the underwriter will now be positioned and many are now to look at more complex types of issues versus the easier end of underwriting, if you will.
Anthony O'Donnell: I think of some of these chat bots that we've seen at various insurance sites and how in the beginning they've been sort of charming to look at their cartoonish, and we know they're robots and they're actually vaunted as robots, and that's part of the engagement that they have with customers.
But as we go on, we're increasingly going to see, at least when it comes to chat bots, we're gonna see capabilities that start passing the touring test.
Keith Raymond: With chatbots too that rely heavily on natural language processing. The natural language processing is advancing as well. All these technologies are advancing in some degree where natural language processing is going is instead of just trying to process the word now, it's going at trying to process the semantics behind the words.
And once you get to that point, then there's a lot more things you could do. It becomes much more humanistic, those kinds of things from where it is today. And that'll make the chatbot experience improve over time. Right before it is. And there'll be less probability that I'll be actually yelling into my phone while dealing with an automation.
Anthony O'Donnell: Exactly. Let's bring back the spread and the utility of intelligent automation. What is intelligent automation good for in life insurance? Where's it currently being applied and what results are insurers enjoying from it?
Keith Raymond: It’s being applied in a lot of areas. Capabilities are also being infused in a lot of the platforms as well, right?
And here's another reason why you go for that cloud-based software as a service platform, because the vendors that are supporting these platforms are continuing to advance the platforms, and a lot of the advancement comes with. Automation and the automation is artificial intelligence. For the most part.
All of the bigger named RPA platform providers are including low-code, no code, artificial intelligence, all that stuff in their platform. So capabilities are continuing to be built out. So the more advanced these platforms become, the more opportunity for carriers to take advantage of that in the space of automation, and they can automate pretty much anything they want.
Really, when you talk about the process, you talk about from an underwriting perspective, just the simple task of assembling documents from multiple systems, bringing those in. Okay. Let an RPA bot do that from the standpoint of making decisions after information is, Okay. I could let a human do that. The claims process is another key area from the standpoint of automation and fueling speed and efficiency through that.
So the sky's the limit, if you will, from the standpoint of the functions and processes that can be automated. It's really just a continuous increase in the evolution of automation will continue to increase the automation that the carrier will build in their processes. And so again, that'll come with efficiencies from the standpoint of cost. It'll come with efficiencies from the standpoint of employee satisfaction. Hey, I don't have to work on these mundane things anymore. I could work on something of higher value. Those kinds of things. And when these carriers right now are dealing with all of the talent issues that we're dealing with in the industry, just getting skilled resources in this is key.
Having the automation capabilities is key because it takes a little bit of the risk and pressure off the carrier if they can do more with automation.
Anthony O'Donnell: What you're describing now is really a different world of processing, a different world of interaction that is both hugely more efficient, but also hugely better for all the parties I just mentioned.
Keith Raymond: Yeah, I think, you know, a few years back when the word artificial intelligence was coming up, people were scared. Hey, am I gonna lose my job over this? And what we're finding out is not really, you know, we're just gonna, there's so many other options that we have now when we introduce it and I follow a couple of futurists in the industry as well.
And one or two make great note of the fact that the impact to the employee, if I talk about my world of technology is not that there's gonna be a reduction per se, it's gonna be a shift in where they focus from a standpoint of learning and experience and capabilities. You know, the shift to data sciences, the shift to artificial intelligence, that kind of stuff. As far as gaining experience in those areas is where the industry's going.
Anthony O'Donnell: Well, you know, when we think of the human versus machine question, it's not as if these things can't be done better, right? It's not as if the human side of insurance is just exhausted in terms of its quality, right? Like my comment before about yelling at the phone when you interact with an automated CSR or whatever.
So I mean, I would think that there's really a lot of. Progress once you get these menial tasks out of the way, and once people are not as burdened, maybe they can work on a much better customer experience. And then maybe there are ways that this can serve to improve the reputation of the industry, which to be honest, in many regards, has nowhere to go but up.
Keith Raymond: The industry is, I think, continuously challenged. Now. It's not only the virtualization from the standpoint of trying to maintain a certain level of service, virtualization has made that a bit more challenging, right? But at the same time, when the talent pool is transitioning as much as it is right now, that also complicates your customer experience consistency. Automation you can have built in consistency there. And as it advances that consistency and opportunity from the standpoint of what you can do with it capability-wise improves. It's not to say that humans will go away. I don't think that's in our near future at all. But at the same time, skills will shift.
Skills will need to shift in order to stay in the game, if you will. Because as automation takes over some of the process capabilities, we're gonna need people to refocus on other area. That help continually improve the process capabilities and improve the technology that supports it as well.
Anthony O'Donnell: Keith May have courted controversy when he said that what used to be argued as an art is now becoming a science.
However, one might defend the continuing role of art in underwriting. Keith makes a valid point in two ways. First, his comment underscores the power of artificial intelligence, which is easy to underestimate and could bring great benefits to process automat. Secondly, as we've discussed in other episodes of Life accelerated, notably with Sissy Williams of Protective, the increasing role for technology liberates the human element to be applied to higher value tasks.
And let's face it, there's ample room for improvement in that regard. This is a benefit both to the customer and to insurance company personnel who will have far more interesting and satisfied work to do as their companies continue to progress in their digital transformation journeys. Thank you for joining us for the Life Accelerated Podcast.
For more relevant content to help you achieve digital transformation, visit equisoft.com/life accelerated.
