As INN celebrates its 15th anniversary, Novarica Partner Chad Hersh looks 15 years back and 15 years ahead at technology and its impact on insurers.
Republicans turned on Newt Gingrich. There was a great debate over universal health care. Millions viewed photos on NASA's website as a spacecraft sent to Mars beamed back photos. Gridlock gripped Washington as a Democratic president grappled with a Republican congress and an overhaul of Medicare.
Sound familiar? Apparently, some things haven't changed much in the last 15 years, as these were some of the big headlines from 1997. During that same period, technology has changed far more dramatically, and with it-to a lesser extent-insurance technology. And the next 15 years of technology promises to be, in a word, remarkable.
In 1997, the first real smartphone—the Nokia 9000 Communicator—was featured as a spy gadget in the movie The Saint. BlackBerry was still a year away from reality, and most business people still used pagers and pay phones or in-car phones, as the first truly pocket-sized phone (the Motorola StarTAC, introduced in 1996) would have cost nearly $1,000.
Texting didn't exist, nor did mobile data or camera phones. Only 17 percent of Americans owned a car phone or cell phone and a typical plan included 60 minutes of talk time. Wi-fi as we know it didn't yet exist. Mobility for insurers was limited to bulky laptops with disconnected applications that agents would sync via dial-up at the end of the day, though to be fair, a number of insurers were using custom tablets in this manner.
Digital cameras were incredibly expensive and produced small, grainy images, and satellite photos were something used primarily by the government. Digital imagery certainly played little role in the industry. Even PCs—with their bulky monitors—were generally limited to Pentium II chips at 266MHz, while Apple's worldwide market share had fallen sharply to just 20 million users.
And for raw computing power, nothing came close to a mainframe. Client/server applications were dominant, and though cutting edge companies were starting to develop Web applications, Web commerce barely existed. For insurers, the vast majority of core systems were built on Cobol or Assembler, primarily on mainframes. A number of solutions were tailored to RPG on IBM's AS/400. However, a few progressive insurers were in the process of launching the first agent portals.
1997 was the leading edge of what would become a time of tremendous technological change. And while insurers at first looked poised to take advantage of the change-agent portals for example, regulatory concerns, risk aversion and deeply embedded and often siloed, legacy systems caused insurers to fall behind other industries.
Today, the majority of insurers lag behind those other industries in areas like mobility, web, architecture and self-service, still hobbled by legacy systems, risk aversion and regulatory concerns. But what will technology—and especially insurance technology—look like in another 15 years?
Well, Apple surpassed that 20 million user mark with the iPad alone in just 15 months, and in just over two years, consumers have snapped up more than 80 million of them, making Apple in August the most valuable company in history. Today, we have smartphones that far outperform PCs from 15 years ago but fit into our pockets. They are connected to the internet at speeds that in 1997 were typical of the bandwidth that was available to the entire campus of an insurer.
As for core systems, Novarica estimates fewer than 300 modern solutions, with a minimal requirement of "not primarily Cobol," have been implemented out of more than 3,000 core systems in place today. That makes it highly unlikely that, given the current pace of less than 100 replacements per year, the industry will have replaced its legacy systems in another 15 years.
What it does mean is that we can expect to see major differences in service levels as those that shed their pre-1997 systems begin to take advantage of today's capabilities and those available 15 years from now.
What will those capabilities look like in 2027? While it may seem like a cop-out, it's impossible to know. In addition to self-driving and electric cars, and mind-boggling internet speeds, processing power and storage, the solutions available to insurers will improve dramatically.
By combining a host of already-available but not-yet-tightly-integrated technologies such as modern core systems, business intelligence leveraging big data, predictive analytics, social media and mobility, those insurers that stay ahead of the curve will be much better than lagging competitors at every step of the insurance process, from product development and marketing to point of sale, underwriting, issuance, billing and claims.
The gap will almost certainly be too great for the slowest adopters to overcome as consumer expectations far outstrip their capabilities.
Until now, leading-edge insurers have maintained a competitive advantage. However, look for that advantage to extend significantly, if not drastically. As technology becomes more embedded in the lives of consumers and agents, a lack of technology capabilities at work becomes less and less acceptable.
With the pace of change continuing to accelerate, look for the next 15 years to make the shift from dial-up to where we are today look like the tip of the iceberg.
Chad Hersh is a partner at Novarica, a research and advisory firm focused on business and technology strategy for insurers. He can be reached directly at chersh@novarica.com.
