Insurance Wholesalers: Don’t Become a Casualty of the
Widening Technology Chasm
Nicholas Free
Florida State University
Junior
Advisor Lynne McChristian, Teaching Faculty

The insurance industry is undergoing significant change based on an ever increasing set
of customer expectations and an outgrowth of nontraditional competitors. Insurance companies
deploying status quo strategies are being confronted with headwinds of change that threaten to
reshape the insurance business model.
To retain and grow market share, insurance companies need to evolve business processes
and underlying technologies. Those with a complacent attitude in the face of today’s
technological advances face a very real risk of becoming as obsolete as a record player.
Insurance CIO’s must make a decision: digitalize their legacy systems or become the Kodak of
the insurance industry.
Implications/Summary of problems
Gartner’s digital maturity assessment suggests that only 15% of insurance businesses
consider their company to be technologically progressive (Harris). The issue of technology has
become such an important topic in insurance that PWC listed innovation and technology as a top
issue in the industry (PWC).
In the insurance industry, there is a culture of avoiding risk that conflicts with changing
major systems and acquiring new technology. Ironically, the decision to stay safe and “stick with
what works” is creating more risk than would otherwise have been created if the industry had
taken a technological leap (Harris).
A critical element in the current technology divide lies in the generational gap present in
the insurance industry. According to Peter Miller, The Institutes president and CEO, “Almost
half of today’s insurance industry professionals are over the age 45, with 25% of the industry
expected to retire by 2018. There will be 400,000 open positions by 2020 some estimate”.
Although it is important to have an experienced workforce, baby boomers may not be
willing to implement new technology as quickly as the early adopting millennial generation. As
insurers formulate digital strategies that migrate away from their legacy systems they will need
to organize, educate and diversify their work force to effectively execute them. Carriers that
focus on these issues will develop a competitive advantage.
A worthwhile commercial insurance technology strategy must take into account all of the
important aspects of the process, from the issuance of a quote to the final binding (Hollner). One
of the challenges that insurance carriers face when they finally come around to updating
technology is the expensive and time intensive nature of implementation.
A survey conducted by Gartner found that two thirds of the technology engagements
have a budget of more than $500,000. Much of the software that commercial carriers utilize is
extremely complex such as claims adjudication that has to contend with a significant number of
inputs and variables. Because of this, the process of updating the integral systems that support
their business functions are so lengthy that they can often only be modified piece by piece.
Further, as regulatory requirements mount, this becomes a major hurdle that many insurance
executives must find a way around.

Given the disincentives to upgrade current insurance software systems - will wholesale
insurance companies be able or willing to adapt to technological advances before their market
share dwindles?
Customer’s expectations
There are now more web-connected devices than there are people in the world. Cars,
factories, and household appliances are churning out a nonstop flow of live data. As a result,
technology has transformed the expectations that clients have for their insurance providers.
Because a client’s world is filled with modern technology, they naturally expect the
companies that they do business with to adapt to the times. Velocify’s president and CEO
confirms that “technology has begun to transform the insurance industry for both buyers and
sellers”. There has even been the emergence of services such as Google’s compare service,
which allows customers the opportunity to compare insurance products from different providers
without ever having to leave their home (N.S.). Systems such as these pose a direct threat to
insurance companies who are on the losing end of the technology gap.
Customer’s expectations are also being groomed to expect instantaneous results. This is
often at odds with how insurers routinely process claims – a slow, highly manual and resource
intensive process. Since insurance companies tend to have very few opportunities to interact with
their customers, it’s critical that these interactions be efficient and value-driven.
Potential opportunities of updating technology
In an attempt to address this changing market, many insurers have begun cutting costs to
finance innovation and in increasing numbers, acquiring insurance technology start-ups. By
acquiring technology start-ups, the wholesaler has the potential to implement new technology
more quickly all while minimizing expenses. This strategy has become so popular that it is
estimated that insurers have invested more than $2.1 billion in start-ups (Weiss).
Although updating insurance technology can be expensive, there are tremendous
opportunities that it presents to the carrier - improving efficiency is one of these. According to
Figure 1, 20% of insurance executives ranked their number one strategic business priority as
improving efficiency. This result confirms the insurers’ urgency to resolve inefficiencies
plaguing their supporting technologies.
The second ranking priority, improving the customer experience (16%), relates to
insurance companies’ limited number of interactions with the customer - it is critical that they be
positive ones. If technology is improved to real time processing, it can contribute to increased
customer retention and higher growth in gross written premium (Jacks).
Leveraging tools like social media can be used to help a provider understand its client on
a more personal level. An insurer who takes the strategic risk of investing in technology channels
that improve efficiency and the customer experience is certain to see an increase in profitability
and customer base.

Figure 1 – Top Three Strategic Business Priorities
2%
2%
6%
4%
6%
2%
2%
4%
10%
14%
6%
6%
16%
20%
4%
2%
2%
2%
6%
6%
2%
8%
4%
8%
14%
18%
10%
14%
2%
2%
8%
4%
8%
14%
10%
8%
6%
12%
10%
8%
8%
Attract and retain workforce
Implement strategies around mobility
Introduce new revenue models
Expand into new markets or regions
Implement finance and
management controls
Improve governance, compliance, risk
or security
Create new products or services
(innovation)
Increase growth
Improve profitability (margins)
Deliver operational results
Attract and retain new customers
Reduce costs
Improve business processes
Improve customer experience
Improve efficiency
Ranked 1st Ranked 2nd Ranked 3rd
n = 50
Note: Survey results are from Gartner's 2013 Business Buyer Survey.
Source: Gartner (March 2014)
Another opportunity of updating technology is improvement in both the underwriting and
fraud management systems. A modernized fraud management system has the ability to predict
fraudulent behavior by identifying abnormal patterns and red-flagging suspicious claims. A
system such as this is invaluable to an insurer. Given that insurance premiums are positively
correlated with claims activity, a fraud management system not only has the ability to detect
fraud, but to help reduce premiums and give the carrier an advantage over its competitors.
An underwriting system improvement helps a wholesale insurer generate more business
by streamlining a largely inefficient system. Laird Rixford, president of ITC proclaims,
“Insurance companies who commit themselves to adopt and then actually use technology are
successful. Consumers have high expectations of the companies they do business with. For an
agency to have success today and continued success in the future, they need to invest in
technology throughout their organization”(Jacks).
Perhaps one of the fastest-growing technology opportunities in the insurance world is
mobile technology. Mobile technologies such as tablets are growing at an increasing rate due to
carriers equipping their agents and sales forces. These devices allow agents access to insurance
information more easily and consequently drives sales. These systems create rapid turn-around in
productivity and help to distinguish insurance companies through marketing and product
innovation.

There are two emerging technologies that have the potential to put an insurance
company’s growth front and center. One technology that insurers are beginning to deploy to
improve profitability and efficiency are smart machines.
Smart machines have the ability to interact, train, and learn from humans. They also
represent a platform that insurers use to digitize work. Its ability to sift through large amounts of
data quickly with more precision than is possible with humans is attractive to many insurance
companies. The capabilities of smart machines make way for better underwriting profitability,
risk assessment and marketing segmentation (Weiss). Smart machines also have an indispensible
use in claims management as it can automate tasks that had to be done manually in the past.
The Internet of Things (IoT) is another emerging and groundbreaking technology that
early adopting insurance companies are using to get ahead of their competition. Gartner defines
the Internet of Things as, "…the network of physical objects that contains embedded technology
to communicate and sense or interact with the objects' internal state or the external environment"
(Weiss). The technology that insurance firms have traditionally used only had access to a limited
amount of information that could be gathered by risk engineers. However, the Internet of Things
presents insurance companies with the ability to monitor objects and properties in real time, and
they are able to do it relatively cheaply.
Before IoT, wholesale insurers were forced to wait for a client to contact them to report a
claim. This results in slower claims processing. With the IoT, commercial insurers are able to
sense events that are happening in their clients’ environment, as well as respond to business
opportunities of which they were previously unaware. This technology is especially useful in the
property and casualty line of insurance. Insurers who specialize in this industry are able to
monitor buildings and let clients know when there are damages that need to be repaired.
Companies such as AIG have already begun leveraging the IoT technology to gain an edge on
their competition.
Threats
Insurance wholesalers who put off updating unproductive technology are subjecting
themselves to the threat of an increasingly competitive market. Competitors like Lemonade, the
first peer-to-peer insurance carrier, who doesn’t share current insurers’ complicated software
systems are able to stay on top of advancing technology and meet their customers’ ever-changing
expectations. Lemonade’s business model also threatens the insurance industry with a
characteristic that’s been lacking: consumer trust. This business model has a high potential of
taking market share away from the wholesale insurance market.
Another threat is that insurers severely underestimate the likelihood that consumers
would buy insurance policies from nontraditional competitors. In 2015 Gartner and ACORD
(Agent-Company Organization for Research and Development) surveys, consumers were nearly
as likely to purchase policies from auto clubs or membership organizations as they were from
traditional financial institutions (Harris).
Figure 2 – Consumer Point of View vs. Insurer Point of View on Nontraditional
Competitors

14%
17%
21%
18%
34%
36%
12%
13%
20%
17%
26%
38%
Real estate companies
Car manufacturers
Online companies (such
as Google or Amazon)
Retailers
Auto clubs or membership
organizations
Banks or other
financial institutions
Life P&C
In future buying decisions, which of the following
sources would you consider purchasing an
insurance policy from?
What level of threat does each of the
following types of competitors pose on
the success of your business?
Significant
Threat
16%
3%
2%
5%
4%
2%
Disruptive
0%
0%
0%
5%
0%
0%
Note: This data is not from the Gartner/ACORD survey, but material sourced from both companies.
Source: Gartner and ACORD (September 2015)
Online companies such as Google or Amazon were not far behind with at least 20% of
the consumers willing to purchase an insurance policy. The true threat is that these insurers are
not in tune with their customers and risk moving too slowly on the path to advanced technology.
The ultimate threat is that the wholesale insurance market faces obsolescence and is
completely unaware of the near term nature of this risk.
Insights
It’s critical to understand that technology is now a strategic asset for all companies, but
even more so for wholesale insurance companies that face significant market change.
Technology will be increasingly tied to the success of business growth and will never stop
evolving. Insurers must adopt business strategies that are tightly aligned with technology
innovation both in the present and in the future.
Standard technology is no longer viable for insurance companies to secure their future;
advanced technology is a necessity and differentiator. More succinctly and based on material
evidence, more than thirty percent of today’s insurance companies that ignore the call to advance
their technologies will cease to be relevant and will no longer exist by 2021.
Companies that fail to invest in advanced technology solutions risk falling into a
technology gap that will place them in an unrecoverable position. Intelligent strategies such as
developing a risk-based approach to legacy systems transformation will assist in justifying the
business case for technology renewal. Even though technology transformations are expensive
and surrounded by uncertainty, the benefits gained from advanced technology far outweigh the
risks taken to implement them.

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