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Death Star vs. Small Insurers

Approaching The Death Star by SkyDude79

Death Star vs. Small Insurers

I was intrigued by a recent article written by Pat Speer and published by Digital Insurance that included a quote from Rich Karlgaard, publisher at Forbes Media, who compared the digital evolution to the Death Star from Star Wars. “First it pulls your industry, company and career into its orbit. Then it wipes out your old, tired (but alas, nicely profitable) business model. Then it imposes its own laws on how you must run your business. Transform or you die. Play by the digital rules, or you die. Not just one time, but again and again.”

 

And while this sounds like a dreadful way to view business strategy, it doesn’t mean he’s not right. Positioning the digital evolution of our industry against your company’s survival can be a frightening proposition, especially for smaller insurance companies, self-insured groups and government risk pools that are still working with spreadsheets or disparate systems. These small insurers often believe they have little access to, or control over, digital innovation or other transformative efforts. Universally, they are working within a strict budget that for the most part may change very little from year to year. And for many of the smaller insurers, their IT departments may be comprised of one person who has to support the organization, both by maintaining existing systems, and by accommodating the organization’s growth-needs with the same disparate software or systems they’ve been using for the last 10 – 15 years. In some ways this plays to the definition of insanity (doing things the same way yet expecting a different outcome) because, as we are all finding out, it is getting tougher to sustain old business models in a time of transition with antiquated, inefficient technologies. Just look at what has happened to the taxi, retail, and travel industries to name a few. Having been a SIG Administrator for a large group of Taxis and Limos in Las Vegas, and having been a Risk Manager in the traditional big-box retail industry for many years, I can say with certainty that these industries never imagined how quickly their worlds would be threatened because of technology.

 

The Digital Insurance article also points to “culture” as another reason why it’s tough for some smaller carriers to cross the chasm to newer cloud-based technologies. Namely, that the more seasoned (read: older) workers in these small insurance organizations believe that by using computers and spreadsheets to “manage information” they are already working in a digital environment. Hard to argue with that one, believe me I’ve tried. So, yes, cultural comfort is real, and a consideration for any company making a change to digital technologies.

 

Putting Death Star challenges aside, there is plenty of evidence to support the fact that small insurers have already begun addressing the “transform or you die” issue by enlisting new digital solutions of every sort. In fact, an article published by Digital Insurance entitled “PAS Replacements Hitting Critical Mass,” by Elliot Kass, details how small insurers are making the move to digital solutions for no other reason than it makes good business sense. One example is the Montana Association of Counties (MACo): Prior to 2014, MACo didn’t have a formal policy management system, notes Shannon Shanholtzer, Trust Administrator, “and everything, including payroll reporting and property schedules, was done on spreadsheets….” When it became obvious that MACo’s technology disadvantages were overshadowing the organization’s advantages in servicing their statewide members, the group opted for cloud-based policy management modules for both Workers’ Compensation and P&C.

 

But, getting back to Rich Karlgaard’s comment (or threat, depending on your view), my advice is: Whether your challenges are budgetary and/or resource constraints or an organizational culture, don’t make your business decisions out of fear. Rather, focus on the business fundamentals and ask the good questions. Are your current employee workflows delivering value to your customers and your organization? Are your employees spending more time on data entry and fixing mistakes than they are on customer service? Are your underwriters efficient in achieving the results you want? Do you have the ability or capacity to do more with less? Is your current method of operation financially sustainable for the foreseeable future? Do your systems support transparency from a regulatory perspective? What would happen to your organization in times of economic drought? Are you able to meet the needs of your distribution network to their satisfaction and success? Finally, are you accommodating growth?

 

You may find answers to these questions by determining your current output of value, and then uncovering the soft and hard costs associated with the results. Next, compare your existing costs to the value of the efficiencies that are inherent in digital, cloud-based operations. In my estimation, this is a good exercise because the results will prove to your leadership that you are aware of the requirements being placed on you and your team, and that your entire organization (including your distribution network and your customers) will benefit from the efficiencies and opportunities for innovation that a digital platform will provide.

 

If you look beyond “what is” to “what could be” in this systematic way, you will already be on the digital evolution path.

Jim Leftwich

Jim Leftwich has more than 30 years of leadership experience in risk management and insurance. In 2010, he founded CHSI Technologies, which offers SaaS enterprise management software for small insurance operations and government risk pools.