Paul Ricard
Hi, everyone, and welcome to Oliver Wyman’s Reinventing Insurance podcast. I’m your host, Paul Ricard. Today, I’m excited to welcome two fellow colleagues, Alex Lyall and Justin Kahn. Welcome. Let’s start with a few quick intros. Alex, would you like to do the honor?
Alex Lyall
Hi, Paul, thank you. I’m Alex Lyall, and I’m a partner in our Oliver Wyman Insurance and Asset Management Practices. I focus primarily on life and retirement operations, technology, data and digital type issues. I work in tech strategy, operations strategy, and cost reduction, and more recently, setting up greenfield insurance companies and increasingly digital transformation-type items.
During the last six years I’ve been focused on creating Fulcrum, and Fulcrum is an innovative set of capabilities that leverages our vast product knowledge at Oliver Wyman, and the latest and greatest digital tools and techniques to tackle some of the most complex issues facing our clients, such as how to migrate from legacy systems, which is an issue that I think I hear from everybody.
Prior to joining Oliver Wyman, I worked in the investment banking industry across operations and technology for about 20 years, at firms such as UBS, Goldman Sachs, and Credit Suisse. And it’s my pleasure to join you today.
Paul
All right, awesome. Well, welcome. Justin, over to you, sir.
Justin Kahn
Hi, I’m Justin Kahn. I’m a partner in our Insurance and Asset Management Practice at Oliver Wyman. I focus on a range of topics, ranging from legacy technology to product and process redesign, across both life and P&C. Most recently, I’ve been working very closely with Alex on how we can increase the capabilities of our Fulcrum platform, enabling more solutions and problem-solving for our clients.
Paul
And we’re calling this flipping the switch because that’s often a significant departure from what’s happening in the industry today. We know there are a lot of challenges when it comes to technology, and you talked about this in your intro, so let’s start there.
Alex, can you share a little bit about how and why technology is often an obstacle rather than an enabler when it comes to insurance incumbents today?
Alex
I think, Paul, technology is obviously critically important to any large corporation and becoming more so in this new digital world that we are all living in and moving towards.
We’re seeing increased spending from the boards and from the management teams in the technology space, but CEOs are still unsure of whether they’re getting value for money. We’re trying to address that, and we do a bunch of technology strategy projects with different insurance companies across the life and property and casualty spectrum.
What we find is that the insurance companies are playing around the edges rather than addressing the root cause of the problem. I think that the root cause is that they have too much legacy technology. Every insurer can tell you of a bad migration experience they’ve had and how they’re looking for new approaches that leverage tools that make the chance of success higher, that make the speed faster, that make the process cheaper, and the whole thing less risky.
I use migrations as an example of the type of issue that people face, but the same could be said for accessing data and using data up and down the value chain, setting up new products, and a myriad of other important processes that just haven’t been optimized yet, but need to be.
Paul
Is that something we’re seeing happening the same way, or you’re seeing the same way, in P&C and life? Are there other nuances there that we should be mindful of going in?
Justin
We see similar issues on both sides. We definitely see more progress on P&C. Part of that is just the nature of the products being so much shorter-term. And the obligation that you have to the customer is already much more customized. It’s more of a data play. Even from an insurer tech perspective, we see a lot more activity on the P&C side of the spectrum.
Paul
Do you see these challenges being the same across all of financial services, or is insurance special in a few ways when it comes to technology and legacy challenges?
Alex
I think the challenges are similar, Paul. My perspective is that if you take the line from the retirement business, it’s the generation behind investment banking. If I think about my retirement, I think about the insurers having too many inaudible vertical stove pipes, and I always talk about vertical stove pipes. A vertical stove pipe for me is a system that does everything in the end-to-end life cycle for a policy.
If you think about a company that sells a block of life insurance policies, often they sell the policies, but along with the policies comes the technology, the people, and often the office building, the geographic footprint, because it’s too difficult to move the technology.
If you move the technology to a hub somewhere, it could be away from the people who are experienced on the platform. So, life retirement insurers gather a bunch of stovepipes. And the big objective now in the industry is to have fewer stovepipes.
But we all know migration is difficult, so fewer stove pipes is are tough. Ultimately, the way that insurers should start thinking about what they do is instead of thinking about the value chain as something that goes from A to F, and “I manage all of those different elements of the value chain,” they need to be thinking about a supply chain. They need to be thinking about, “Which elements of the value chain do I bring a differentiated view on?” It might be customer experience, customer interface, or something. “And which parts don’t I believe that I, as the insurer or the insurtech, add value in?” And then, “Where do I go and get those at the best quality, the best price?” and so on, and then plug them in.
I would suggest that, as people think about digital and greenfield, they also think about supply chain management.
Paul
Your point here is very much that there is a need to shift from, “I’m building all these things from scratch in a bespoke manner,” to “Here are the pieces that I’m going to own and I’m going to build, and for these are the parts I’m going to partner. And because I’m going to be using a modern tech stack, it’s going to be easy to swap in and swap out over time. But I need to be very conscious about what I build and own, versus what I’m renting or buying from somebody else.”
Alex
What Fulcrum is designed to do is to cut months, if not years, out of the process. We’ve had a lot of success with insurance companies, and now we’re working with a bunch of the TPAs with great success, to really speed up the way that they integrate client portfolios and migrate them onto their in-house policy admin systems.
Paul
Tell me more about this. Can you give me an example of where you’ve seen better leverage of systems or of data that led to better experiences or more sensible products when it came to the customer? Justin, maybe you want to share an example or two here?
Justin
One of the things that we’re starting to see insurance companies do is get better access to their data, and through access to their data, understand what policyholder behaviors are and what people are looking for. But we’re definitely seeing carriers who are looking to aggregate their data, look at the way that people use their products, and leverage that data to have improved customer centricity.
Paul
Alex, any other example you’d like to share?
Alex
I would just say we focus on data a lot when we talk about legacy, but there are modern-day things like data encryption at rest, cybersecurity, and limited field sizes. It’s just a whole bunch of different things.
And in addition to the fact that these systems were built back in the 60s, 70s, and 80s, if you’re lucky, they were built for products that were quite simple to start with. As the products evolved over time, they jammed them into these systems that already existed. And frankly, we haven’t found a system yet where there aren’t fairly significant systemic errors in terms of how the products and the processes were coded, and how values are being calculated, and the insurers are going through and trying to clean it up. But there’s a bunch of unknown unknowns until you go through a migration process and go onto a modern system.
Paul
Justin, anything you would add here?
Justin
Talking about the data, Alex mentioned the security implications, which are significant. I think two more things that I would bring in: one is all the business logic that’s deeply embedded in these systems, and the other is scalability.
But if you really wanted to move to a true cloud environment where you were horizontally scalable, you could get much better outcomes from moving to modern architectures where you have access to some of that cloud compute.
Paul
Am I now able, as an insurer, to run that modern stack and be somewhat future-proof? Or am I bound to face that issue again in a few years’ time?
Alex
I think you’re going through a period of consolidation in the life and retirement business that you’ve never seen before. You’ve seen a couple of waves of this 10 years ago and 10 years before that.
But you’re seeing a wave of consolidation now that you haven’t seen the scale of before. And I think that you’re going to find that even if you were in an ideal scenario today with the plug-and-play service to type architecture, that as you bring in the acquisitions of closed box, for example, you’re going to still have to migrate them onto your new architecture. And that’s going to take some time, some experience, and certain skill sets. So, I think we’re a number of years away from that.
Paul
We’re seeing a wave of huge valuations for insurtechs and especially the direct-to-consumer insurtechs, both on the life and P&C side. These are evidently players that are running the latest and greatest when it comes to tech stacks and have a huge amount of talent there. Do you see the incumbents catching up quickly enough to face off with insurtechs? What’s your take on that?
Alex
If you’re an incumbent insurer and you are having a greenfield discussion, it’s fantastic because it forces the incumbents to think like an insurtech, and then they get to implement some stuff, and things start to happen, and it’s a complete paradigm shift.
Even a small win can be very significant for an incumbent in terms of the digital space. Improving your customer experience, improving the claims process, any kind of win is a good win because it gives them a chance to understand and how what it’s like to be an insurtech. When you start from scratch, obviously, things are completely different.
What happens is, the incumbents design a greenfield, they build some stuff, they test it, they implement it, and they get some success. Then they start to wonder why they can’t just do this or leverage this environment across the rest of their business. And it starts to form the basis of a go-forward strategy.
There have been many insurers where we’ve done a greenfield strategy for them, and the choices and the selections they’ve made become the design for the future state. It’s interesting, because when you start to do the RFPs for the different components of service across the value chain, the sets of questions that we’re asking today are very different from those that we were asking a number of years ago.
So we’re talking about, are you cloud-enabled? Are you cloud-native? Can you handle APIs for connectivity? A whole bunch of different discussions. Do you store data in a way that I need to access it, and can I access it quickly? Do you have any analytics capabilities? They’re all questions that have just changed in the very nature of the question.
We’re in a very, very different space now. But of course, greenfield isn’t a new concept. If I think back over my career, and I’ll talk to you about wealth management, where there are some big names that you’ll recognize, such as Schwab, E-Trade and others – TD Ameritrade, for example – and these were all fintechs. These were all the equivalent of an insurtech that was created, and they dominated.
But from the incumbent perspective, these fintechs created massive businesses, but they were for certain segments of the market. So, the incumbents then had to say, we’re still going to retain some of that business because we are a full-service provider and we’re not just going after certain small product sets in small segments. They effectively had to provide the same services, and they ultimately upped their game. I see the same thing happening in insurance. The larger online companies or insurtechs are creating a path that the incumbents are going to have to follow and adapt what they do to suit the needs of the end customer.
We also need to remember that different insurers are focused on different client segments. If you are an online digital provider in the life or retirement space, your target audience, naturally, because you’re trying to do automated accelerated underwriting, is a much younger group of purchasers than if you are serving mid-market America. Not only are their customer segments different, but the risksof doing automated accelerated underwriting are different. You can understand how there’s a great deal of success from the insurtechs around certain customer segments, and the incumbents are struggling to keep up. But in some cases, they don’t want to be as digitally advanced as these insurtechs. They have to work out where they want to be and how to get there.
Paul
You’re saying insurtechs are showing the way of what great tech, great customer experience can look like. But it’s typically, any insurtech would be focused on a given part of the market or a given segment. And the insurer, the incumbents, have the scale advantage, and have the opportunity to modernize and are getting influenced obviously and encouraged by what’s happening in the insurtech space. But there’s very much an opportunity for incumbents to win many parts of the market.
Alex
Yes. I think that there are a lot of lessons to be learned, and we’re already seeing success. And I think that this is a very fluid market. People are moving between incumbents and insurtechs, insurtechs and incumbents, and the skills transfer has taken place.
If you spoke to anybody who’s been in management for any period of time in the incumbent space, they would tell you that they’re thinking differently and acting differently than they did in the past. And the speed and the pace of change is just dramatically different from what it was five years, 10 years ago and prior.
Paul
Justin?
Justin
If the incumbents can get on that train and start to think in that more digital way, that’s closer to an insurtech, they can leverage a number of strengths that they have. One is, they already have access to the customer. And a lot of the insurtechs that we talk to, that’s one of the struggles, they don’t have access to the information about what customers want, and that being connected to the customer is so valuable these days.
And the other is that one of the things we’ve seen is that people really appreciate the longevity and the stability of these companies, especially in the life and retirement space.
Paul
On this front, we’re talking about Fulcrum. What’s next for Fulcrum? What is the next frontier? What are the big challenges that you’re now after? Alex, maybe over to you?
Alex
Fulcrum was initially created to address the issue of migrations from legacy platforms. We built some really good tools and capabilities around that, and it’s had a great deal of success already.
But we realized that the tools could also address other needs, such as extracting data and putting unstructured data into a structured format that can be used both in the processing of client policies, but also downstream in finance, actuary, or risk management and so on. We realized that clients or insurance companies still struggle to get policies. Insurance companies struggle to get products to market quickly enough, it takes anywhere between six and nine months.
We built a set of capabilities to do new product testing. We realized that companies don’t want to migrate off their legacy platforms. They still may lie awake at night, worried about whether the platform is processing the policy correctly. We built a compliance capability so you can, on a standalone basis, take a product, a group of products, a whole policy admin system, or a group of policy admin systems, and go through and do a full compliance assessment and resolve all of the legacy issues in one hit so that you can go forward knowing that the unknown unknowns are now known.
We also recently pulled together under the Fulcrum umbrella some other capabilities that we have within Oliver Wyman, such as the ability to do hedging of VA transactions, to compress policy sets, to enable a faster delivery of financial reporting, that type of thing.
We have a whole bunch of things under the Fulcrum umbrella now, and our whole strategy is to try and address the core problems that insurers have in trying to free themselves from their legacy constraints. And we found that we are very cloud optimized, we’re super high efficiency in terms of processing volume and getting results quickly. Even if we only have six or eight services today, they’re completely transformational for our client base. And right now, we cover all of the life insurance products and all of the annuity products, but we’re looking to go into long-term care. And we’re looking to expand into the group side because we had a number of incoming inquiries around our capabilities in the group space.
Justin
Which is, we are constantly iterating on what we have. And you were talking earlier about what it would be, is this a one-time transformation? And the answer is no.
Technology moves extremely quickly. When these COBAL systems were put in place, it was transformational. People were doing this by hand, and they said. We’re going to move it to computers, and that will be it. And now we’re 40 years later, and we’re saying, oh, what an idea.
The life cycle of a piece of software just gets shorter and shorter all the time. And so just like we’re telling our clients to constantly be iterating, we’re always improving on our tools, we’re always trying new techniques. And sometimes it works and sometimes it doesn’t. But by being constantly iterative, we’re continuously improving.
Paul
That mindset shift is critical, the continuous improvement test-and-learn iteration to continuously be relevant. To wrap us up, maybe any major words of wisdom or recommendations you would have for our audience? Alex, I’ll start with you.
Alex
I’ll just repeat two or three of the things that I mentioned during the discussion we had with people, which, by the way, has been great fun. The first one is, I do think it’s important that incumbents try and get together and think about the greenfield scenario because it forces them to think like an insurtech. Even if you don’t want to pursue the greenfield path, have the discussions – talk about what it’s like to create a greenfield, and it’s the same, but for General Motors. They need to be thinking, what’s it like to be Tesla? How can we get to that point? I understand everyone’s starting at different places, but you have to be able to think like the leaders in the market, and the first thing is, I would be thinking about greenfield strategies. Even if I had no ambition to pursue it, I’d be thinking about it.
The second thing is, you've got to work out why you’re stuck today, why you’re stuck in this legacy situation. Is it because you’ve had horror stories in the past? Is it because the firm’s experienced some failed attempts and migrations? Is it because you just have too big an issue? You’ve got 25 or 30 policy admin systems and don’t know where to start. But you can get unstuck, not just with Oliver Wyman – there are other people out there that will help you get unstuck. You need to work out why you’re stuck and then figure out how to get unstuck.
And then the third thing is, you really do need to think in the world of supply chain management. I think everybody’s going to make a shift there. The traditional procurement department has to be much more integrated with the business and with the support organizations like operations and technology, because it’s going to get more and more important that you can bring on and off-board components of your infrastructure very, very quickly and smoothly. Those are the three things that I would mention.
Paul
Terrific. Justin, anything to add?
Justin
Somewhat related to the last one that Alex brought up, is that bringing all the right people together in a room is tremendously powerful. I think a lot of our clients have issues where somebody designs a product, it goes to the technology group, and they say, well, why would you ever design it this way? It’s going to be so expensive for us to do. If you can get the actuaries and the product design folks and your marketing folks and people from technology and from finance in a room, a lot of times one of the big powers of these insurtechs is just that they’re so small that all of the people are in the same room, often literally physically, and everyone’s connected. And by just forcing some of those conversations and being cognizant of what the implications are downstream and upstream of decisions that people are making, I think that insurance companies can really start to move towards this.
And then the second is that this is not a one-leap solution where you’re going to solve this problem. This is a problem that you chip away at. Even if you go for a greenfield and then you’re moving things towards it, it’s going to be an iterative process where you’re going to improve over time. And that kind of ethos of continuous improvement is what will really get you to the right place in the end.
Paul
Terrific. Well, thank you both for your time. That was really great fun talking to you both. That was Alex Lyall and Justin Kahn from our Insurance and Asset Management Practice, and leaders of our Fulcrum solution. Thank you both for making the time today. That was really a pleasure having you on.
For more information on Reinventing Insurance, please visit www.oliverwyman.com/reinventinginsurance. I am Paul Ricard, your host. Thanks for listening, and I will see you next time.
This transcript has been edited for clarity.
