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Expert advice for investing in insurance innovation

Planning for Your Business and Tech Future: Investing Where it Counts

There is a universal conundrum in the business of professional sports. Whether you own a soccer, cricket, football or basketball team — you are constantly balancing areas of investment. Where will you place your funding in order to compete according to your strategy and the strategies of those in your league? If you aren’t the largest player on the block, how can you invest to compete?

This week, insurers might consider studying the Tampa Bay Rays. One of major league baseball’s most under-attended and under-valued baseball teams, the Tampa Bay Rays also had the third-lowest opening day payroll in Major League baseball. Yet, they are now in the World Series against one of the most well-funded teams, the Los Angeles Dodgers. No matter how the Rays fare against the Dodgers, you can be sure that even the “powerhouse” teams will be using the off-season to consider how the Rays have done so much with so little.

The complexity of technology and business investments in insurance may differ from sports franchises, but some of the same questions arise. Do we invest where we need to fill gaps in functional weak spots to align to the competition? Do we invest where we are already strong — our sweet spots — and we want to stay ahead? Is there a rationale for our investment? Is the investment focused on your current operation or the future business? And, of course, do we need to increase investment or “break the bank,” to get ahead in the game or are we just continuing the same investment strategy that may not be keeping us competitive, forward-looking or increasingly agile?

A business strategy is only as strong as the wisdom and courage of the investments that support it. So, in blog #3 of our series on Planning for Your Business and Tech Future, we’re going to seek some technology investment wisdom from two of the insurance industry’s most insightful voices, Rob Galbraith and Bryan Falchuk. Rob is the author of The End of Insurance as We Know It. Bryan wrote The Future of Insurance: From Disruption to Evolution.  They joined me for a conversation on our webinar, Planning and Preparing for Tomorrow — Today: What You Need to Focus on for the Future of Insurance.

We begin with a conversation on innovation and investment, asking,

How do insurers invest in their own businesses? How do they invest to build the level of innovation within the organization?

Bryan started with the idea of the innovation lab structure.

Bryan Falchuk

“Sometimes a lab is just a corporate venture capital unit. Other times the carrier is using the capital to ‘play’ and to test and to do proofs of concept, to try and simulate things. The carriers that I’ve seen doing this effectively look at their various legal entities and where the capital fits. This allows them to try things out and incubate the next tools for the business.

“However, it isn’t just an innovation question. It’s an investment question. There are tax advantages for that approach and capital protection because of how they have structured the ownership of capital entities. That can open the carrier up to capital flexibility. It lets you try things out with better economics than if you did this through the regular business budgeting process.”

Bryan then hit on an issue that deserves some serious consideration.

The politics of innovation: Does innovation and investment guarantee corporate commitment?

Shifting the investment out of the core organization and into another entity carries some risk. Is an innovation team given carte blanche to develop and implement their solutions? If they are a separate entity, are they then forced to come back and sell the now-viable idea into the rest of the business?

Bryan Falchuk

“The question is, do innovation teams have to sell this to the business and find an owner for it to actually move it forward when entrenched business unit leaders have their own priorities, problems and budget?

“Leaders can get blind-sided by an innovation team that is given the authority to say, ‘Hey, do this.’ You need to make sure that whether it is an outside entity or an inside team, it must be integrated into the decision-making process for the leadership in order for carriers to not waste time and energy developing ideas that become politically stymied.”

New perspectives on internal tech investing.

Investing in your company obviously doesn’t mean that you are always investing in your in-house solutions.  Tech investment decisions need to be made with an expanded set of options, criteria and variables taken into consideration such as speed, timing, expertise, costs and future capabilities and value.  Rob Galbraith gave us some food for investment thought regarding the new definition of internal investment.

Rob Galbraith

“I tell people the Build vs. Buy debate is settled. It should almost always be, Buy.

“It isn’t worth the money it takes for you to build something on your own, then to make the continual investment required to upgrade it and make it better and deploy it.

“When you compare it to all of these firms that are out there investing in a particular technology, it doesn’t make sense. With an outside partner…this may be their only product. They have a vested interest to grow it and make it better. When you are making a build decision, you need to be very clear on why you are making a build decision. I think there are only rare instances in which it actually makes strategic sense.”

What does this mean to the internal organization? Where does the talent shift so that insurers don’t lose their insurance and technology expertise? Rob made a great analogy.  

“IT departments were used to being members of the orchestra. They may have been in the woodwind section or the strings or the percussion. Each member of an IT organization played their different instruments and it created harmony. But I think IT organizations need to pivot to become conductors. Maybe the members of the orchestra aren’t necessarily employees. Vendors and strategic partners are playing the music. Your job is to be a conductor.

The beauty of the conductor example is the perspective. The conductor sees more of the orchestra and has the ability to make it all work together. 

“It is important that IT really understands what their business partners need. It is very easy to get siloed. Because you are used to your systems, it’s hard to look up and see that there may be a new and better way to do things. IT professionals can encourage the business, suggesting, “Let’s go find people we can partner with to do so quickly and economically.”

Placing the investment to gain new markets.

Technology is a crucial element of our ability to be successful for the future. Can insurers learn from big tech companies how to stand themselves up and rapidly move themselves into other markets? Many of these big tech companies have looked at their technology in light of the way it fits with the customer. So, with that filter in mind, is there a best way to invest for the future? How do carriers find the balance between building valuable capabilities and forging partnerships that add real value to the customer experience they are attempting to provide?

Bryan Falchuk

“What’s right to keep in house and what isn’t? I don’t think there is a blanket answer. It is perfectly okay and strategically imperative to make those decisions as you see each one of the options. Traditionally, companies built everything, but insurance companies aren’t software engineering companies.”

What Bryan pointed out is that almost no area of the business should be considered sacred for outsourcing, provided it fits the overall strategy.

“A carrier might say, ‘Outside partners are going to be the better underwriters in this niche and we’ll provide the capital. We’ve partnered with an MGA and outsourced the underwriting to them,’ which is one of the core features and functions of insurance companies.”

This finely-tuned mix of in-house and external capabilities and processes is going to look uniquely different at each insurer. Every portion of the value chain deserves a look. The questions are far-reaching. Investments could be in something as small (but important) as ledgers. CFOs may not think they need to spend money on it. Or, it may be as large as spinning off a whole portion of the business to an organization operating under the insurer’s name.

“If this company operated as us, using our name, would we really feel that we were being properly represented? The answer to me is never a plain yes or no. You really have to look at the strategy.”

An ecosystem approach to tech investing for the future

Reaching new markets, launching new products and creating new and improved customer experiences are a primary goal for growth and relevance within most insurer strategies. What Rob and Bryan have given us, then is a formula that contains some crucial necessities:

  • Analyze the “why’s” of investing
  • Shift from investing in development to orchestrating development investment
  • Stay customer-focused
  • Build partnerships and an ecosystem to provide new capabilities or portions of the value chain

Their formula also contains some wide-open variables regarding how and where to invest. The question then comes back to you and your organization.

What is your ecosystem of solution partners and internal teams going to look like? Who can add capabilities and services to your overall value proposition?  Will partnerships allow you to reallocate some resources into other areas that may be of a higher priority for investment? Your organization is unique. Your experience is one-of-a-kind. Your rule book is being written by you.

Rob closed the discussion by pointing out that an insurer can almost never go wrong if they keep their eyes on their agility.

Rob Galbraith

“Go over the budget and your project portfolio and ask, does this effort make me more agile and more flexible. Flag those projects that don’t. If you’re spending 80% or more just keeping the lights running and not investing in agility, you maybe need to rethink and reprioritize. Make sure that you are investing in people from the outside who have experience in these technologies. And, don’t get caught up in your siloes.”

That thought brings us back to the team approach that is needed for tech investments. How can your company’s teams take a difficult season and make the most of its pressures to perform?

Sports teams, like many other industries, are taking the opportunity to rethink the customer experience. They have had to “go digital.” They have built innovation around how to provide fans with an improved experience at home. They understand how ecosystem relationships and business partners can be used to fulfill customer needs while growing market share.

At Majesco, we believe you should invest where it counts not just for today but, more importantly, for tomorrow, now more than ever. Don’t wait to seek new markets, build new products, or create your future business model. Use partners to help build flexibility and agility into your future. Keep pushing forward with your innovation investments through the lens of the customer and the future and know that the size of your current investment isn’t an accurate gauge of your potential and your ability to achieve much more --- helping you achieve leadership position in the market.   

For more inspiration on building a future-focused insurance practice, be sure to listen to myself, Rob Galbraith and Bryan Falchuk in our discussion, Planning and Preparing for Tomorrow — Today: What You Need to Focus on for the Future of Insurance.

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