Legacy culture is the greatest impediment to insurance industry innovation, according to Capgemini’s Executive Vice President and P&C Insurance Leader, Seth Rachlin.
“It’s legacy systems and legacy culture,” says Rachlin in response to diagnosing the greatest hurdle to partnerships between insurers and insurtech. “Old ways of thinking and old environments in which that thinking is happening … so you’ve got to change the people and you have to change the tech.”
“I think that people are moving a little faster just because of the market dynamics. Tech obviously takes time and energy and dollars to change, more time, more energy, and more dollars than people. But they are equally important in this context.”
Rachlin’s statements arrive in wake of Capgemini and Efma’s 2019 World Insurtech Report, published earlier this month. The report highlights tensions between insurers and insurtechs, with 68 percent of insurers stating partnership with insurtechs were critical, but fewer than 40 percent of incumbent insurers reporting a desire to build tech infrastructure with insurtech firms. In contrast, 90 percent of insurtechs said partnerships with insurers were critical.
Concerns about legacy culture and technology were also cited in a report by MarkLogic Corporation in June. The report revealed that 55 percent of insurers surveyed believed that the complexity of their legacy systems was the key impediment to achieving a singular customer view.
The insurance sphere has long been mired in legacy mindsets and frameworks, making it slow to evolve compared to other fintech industries. But tides are turning: Fintech Global report that $3 bn was invested worldwide into insurtech in 2018, a significant increase from 2017’s $1.65 bn. Increased investment reflects an appetite for innovation in the insurance industry, but this desire to evolve has consistently been mitigated by traditional insurers and regulatory risk.
Rachlin suggests that regulatory challenges may impede insurers from pursuing partnerships with insurtechs, despite an otherwise present desire to do so. The National Association of Insurance Commissioners (NAIC), an organisation that sets standards for US regulators, has established an Innovation and Technology Task Force to monitor developments within insurtech. Such heightened pressure from regulators, and heightened awareness of innovation in the insurtech space, increases the risk associated with insurtechs.
“I think what the report really points to is that there is a debt on insurtech generally, as well as a level of hedging on any particular insurtech just given that they are relatively new companies and that the space is very competitive,” says Rachlin.
His suggestion for insurers is to develop architectures that leave them open for collaboration, with structures that support the ability to change partners as the market evolves.