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April 6, 2022

COVID-19 triggers digital transformation for insurance industry

Freddie Frith
Business Development Manager at Clausematch

As the COVID-19 pandemic took hold it soon became clear that, for the insurance industry, the crisis would not simply mean unprecedented payouts. It would also set in motion a fundamental shift in the structure and framework of the sector's working practices.

In this ever-changing environment, insurers — like many other businesses — have had to react quickly to government legislation, and have worked hard to establish new rules and etiquette for everyday social interaction. Close human contact has, however, always been at the heart of this historic industry, and fundamental to the negotiation process. For centuries, policies, deals and contracts were all hammered out in person. For now, however, the kind of face-to-face encounters once taken for granted are impossible, and insurance brokers and underwriters need to work out how best to connect with and serve both new and existing customers, and collaborate with their peers.

Shift to electronic PPL

It is now more than 300 years since Lloyd's of London's four-storey underwriting room was created, with brokers bringing risk propositions to underwriters' offices for discussion. Unique to the City of London, it remained, until recently, one of the last face-to-face trading rooms.

In 2016, however, a new PPL placing platform was set in place, allowing insurance policies to be created electronically rather than on paper. Crucially, the system can also be accessed remotely on standard PCs and laptops, and since the onset of COVID-19 new usage has reached record levels.

The depth of change is particularly telling because the insurance industry has tended to take longer than others to embrace breaking technologies, even compared with other areas of financial services.

Given the very human nature of insurance negotiation, however, the electronic revolution has proved less efficient in terms of time management.

The physical proximity of brokers and insurers has always allowed for a fast turnaround and quick development of complex or unusual policies. With remote working, that intensity and unpredictability is lost.

The logistics of online planning also make a difference. Every online meeting requires a minimum half-hour slot, where a face-to-face meeting could potentially be done and dusted within five minutes, or last much longer. Put simply, a digital queue is less effective.

Compliance in a new landscape

In the short term, the impact of COVID-19 on compliance has varied across the sector. For those employees already working predominantly on the cloud via their laptops, the transition to remote working was relatively straightforward.

Companies with the necessary tech in place to work electronically were generally able to continue as normal. Any firms loyal to more traditional working habits, such as using pen and paper and dealing in person, were severely challenged, however. Some have struggled with the sheer pace of change that the pandemic has instigated.

The insurance industry is not entirely wedded to the past, however, and has been moving in the direction of fully realised tech developments for some time. Even before the pandemic, many had recognised it as the future, and as a valuable opportunity, rather than a threat. Many organisations had plans in place to invest in their digital infrastructure. Awareness was growing but progress remained slow.

FRISS's Digital Transformation Insurance survey, for example, found in 2018 that only 69% of insurers had online distribution systems in place, while online account opening is now the norm in the banking sector. Using compliance tech in underwriting was similarly rare, with just more than a third using it as part of their fraud prevention process.

A fresh approach to internal communications, embracing the online alternatives to traditional paperwork, is now crucial. For example,
online platforms, quizzes and surveys are all efficient ways to deliver
e-learning but these new electronic formats also require close monitoring and strictly automated control, particularly with regard to messaging, to ensure that the information is fully understood by every recipient, at each stage.

Challenging the traditional hierarchy

Another obvious and profound change is the move to home working. Traditionally viewed with suspicion or rejected outright, the crisis has facilitated a remarkable shift in how working remotely is perceived. With everyone involved across the board, it has quickly become a proven, practical and efficient way of working.

The notion of a daily commute to and from the office is arguably now a little outmoded, with employees judged by the quality and value of their work, rather than the number of hours they put in. A mix of remote working and
commuting has become a desirable option for those who value face-to-face time with colleagues but do not relish the expenditure of time and money that full-time travel entails.

The time-honoured traditions and hierarchies are beginning to crumble, making way for a refreshing move toward decentralisation. This
shift demands a change in the decision-making process and a necessary acceptance of trust as part of that process. Potentially, this is the start of wider and more profound changes in employment practices within the industry, a fascinating facet of the "new normal".

It is important to remember, however, that insurance is a joint effort between insurer and broker. Working alone online is a very different
experience from meeting in person, and a lengthier, more challenging working process. Ideally, that one-to-one meeting has to stay as
an option, even if it is on a smaller and much more controlled scale.

As the pandemic begins to abate, there are ways to re-establish the traditional underwriting room, albeit with some significant changes. Insurers could work from their office while the brokers join them remotely.

Product lines could be grouped together for specific meetings. Anyone planning to use the building space could book in advance using an online reservation system. There are potential financial benefits, too. Reducing the use of office space means saving on property costs, particularly in London. Rearranging that space into a flexible, less formal layout to accommodate changing regulations would also be beneficial. The underwriting room might eventually disappear, but that will not happen overnight.

New mindset

The impact of COVID-19 has highlighted shortcomings in digital practice for insurers. In the face of ruthless change, they will need to look at their priorities. For them, digital transformation is now a necessity, not a choice. The immediacy of those traditional face-to-face meetings will always have a unique value, however, particularly in terms of complex or newly emerging areas of insurance.

With no "end date" to the pandemic, the industry is having to adapt quickly, and a spirit of experimentation and innovation has become