Insurance automation and changing culture

A political science professor that I had described how difficult it was for communist countries to convert to capitalism. He proposed that the longer the country was under communist rule, the harder and longer it was to change to capitalism; for every year a country was under communist rule, it would be at least as many years to convert to capitalism.

Obviously there are many reasons why this has a basis in fact, but the take away for the insurance industry is that embracing technology and automation from the current very manual/traditional way of doing things requires changing a culture. This is a culture that does not like change. Unfortunately for many, they won’t be able to make it in time. It is no longer a “directs or banks” vs. independent broker distribution battle. It is the now unknowns, like Google Inc. in the United States and likely Canada soon.

This is happening because there is a lot of opportunity for non-traditional insurance entities that aren’t bogged down with significant legacy issues. One cannot assume that the answer to competition lies only in the acquisition of new technology. Even small changes are resisted by a culture that has not had to change. Too many times I have heard the argument against implementing change as “because that is not the way it is done”.

The new entrants do not have the same limitation of breaking through embedded culture. They simply see this as an opportunity and I am very sure that we’ll see how things are currently done become quite obsolete much sooner than many in the industry would expect. It is both exciting, but also very frightening. While the Canadian insurance industry has had some success in lobbying to keep banks from gaining certain competitive advantages, they won’t be able to do anything about a new entrant, like Google. In fact, given the deep rooted culture of banks, they should not be the greatest worry. Some have already given up. However, an aggressive new entrant with money, a culture of embracing change and challenging status quo is going to be a far more formidable foe than a bank.

How will existing insurers; direct or broker based and independent brokers compete? Obviously, I think it is going to be harder than anyone expects. However, I think the challenge will be to understand that current culture is going to have to change and the sooner the better (the first point in this article is that cultural change is extremely difficult to implement). Some suggestions to compete:

1. Be aware of current advantages held by incumbents: current relationships with customers. Absolutely concentrate on building closer relationships and not creating any need for your current customers to seek alternatives.
2. Ask yourself “do we encourage new thinking?” and “do we challenge ourselves to seek better ways to improve our current work flows and improve our customer relationships?”. The culture required to compete has to ask the hard questions. Take a look around and see if you can identify some very significant cultural changes that have occurred in your organization in the last 10 years.
3. Understand that change will likely not come from incumbent personnel. It has to be championed from the top and will likely require a substantial investment in new personnel that may be younger, more educated and technologically savvy.

Too much emphasis is being placed on new technologies that will have varying effects on the insurance industry; telematics, big data, Internet of Things and even driverless cars! Time to focus on what will affect the insurance industry; changing culture to adapt to everything else that is happening. The sooner it starts the better.