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More room for innovative business models

Bringing new business models to customers via innovative sales channels: This top trend in the insurance industry is also having a massive impact on its associated IT organizations. And vice versa. Flexibility at the customer interface enables new business models and multi-partner approaches. New business models can present challenges, but there are clear opportunities for action.

Reduced profit expectations in the market, pricing pressure and the ambivalent desire to pass on costs to customers are encouraging many insurers to focus their economic expansion plans entirely on their customers - with the exception of urgent IT consolidation. For example, with low-code or even no-code tools, which numerous departments are now embracing. This enables insurers to arrive at automated decisions and offer customers not only better, but also new, scalable services in the extended expansion stage. Automation - an enormous lever for economies of scale - is of varying complexity in each insurance segment: In the vehicle claims area, case evaluation is based on image recognition. Artificial intelligence can already reliably decide on a settlement. The AI error rate for simple business transactions is currently around one to three percent. In the business liability insurance segment, the error rate is even in the double-digit percentage range due to the far more complex data situation. However, the trend is downward.
Ali Rahimi ist Chief Product Owner bei IKOR Finsure

Insurers are expanding into new markets and adjacent industries via new customer journeys and effective customer interfaces. Comparison and broker portals with industry, banking and financial service partners need to be connected - for example Check24, Klarna or Paypal."

Automated, sophisticated processes and the complete integration of diverse platforms successively improve the processing capability of unstructured information. Smart process and system architectures also identify different customer groups with different types of risks. Based on data, they ensure that these groups are addressed in a way that is appropriate to their target group and that they are successfully introduced to the brand and the contract.

Achieving economies of scale requires flexible systems

What is exciting for insurers is the possibility of leveraging IT-side concepts as well: duplicating complete systems for a similar approach and transferring them to other areas and lines of business not only helps IT, but also marketing. Software packages dynamically assembled with containers include all the necessary components and dependencies, so infrastructure including software can be fully automated with Kubernetes, an open-source management and orchestration of containers. Containers orchestrated in a "cloudified" and therefore highly scalable infrastructure add tremendous flexibility to businesses and their processes. On the one hand, compliance benefits from the fact that it is quicker and easier to spin off inventories and manage systems autonomously and thus in a regulatory-friendly manner. Systemic changes - as a result of full platform integration - are adaptable at the click of a mouse. On the other hand, by automatically collecting, processing, and using internal and external data, systems allow companies to address target group clusters individually and via appropriate customer journeys.

Customer interfaces enable new business models

New customer journeys and an effective customer interface are the most productive ways for insurers to expand into new markets and related industries. Comparison and brokerage portals or industry, banking and financial service partners need to be connected - from Check24 to Klarna to Paypal and many more. This opens up new opportunities for strategic sales. However, acquisitions are often limited by monolithic IT architectures: For future diversification, insurers need to free them from basic structures at the software and organizational levels. Solution scenarios include inventory transfer into existing core systems.

New sales channels from partners and third-party providers such as automobile manufacturers, pet food producers or banks can also be included in line with the open-insurance concept: It is not only possible to integrate new lines of business into existing portals. Interfaces for direct customer inquiries can also be integrated via new platforms such as Flink or Gorillas. Insurers can locate their portfolios in a new system, while Finance remains in the existing SAP system.

Norbert Wolff, open-insurance expert at IKOR:

"You could call OPIN the integration of integration".

S@PPORT: Open Insurance stands for the provision of insurance data for partners, communities and start-ups. What is important about "OPIN"? And what are the benefits for those involved?

Norbert Wolff: Open Insurance creates new services, applications, and business models in an innovative ecosystem - for example, emergency support in the event of breakdowns and theft, services for making medical appointments, or energy-saving programs for the digitalized home. Such services counteract creeping price desensitization and strengthen customer loyalty. Relevant marketplaces bring together not only brokers, but also service providers from other business areas; they benefit from rapid market access. At the public, professional and technical level, national and international standards take into account Bafin or international EIOPA regulatory requirements. These standards make participation in open-insurance models investment-proof, because participants do not have to repetitively reinvent the wheel in terms of compatibility and compliance.

S@PPORT: The first case studies already exist. Why is today ripe for Open Insurance - for example, with regard to interface management?

Wolff: Implementing individual interfaces - both "Distributed API" and "Consumable API" - is simply too expensive. Especially because bilateral negotiation of data and process standards takes a very long time. Additionally, the associated functionalities are often not yet digitalized end-to-end; the risk of media disruptions is enormous. Therefore, the order of the day is to rely on professional system integration for open-insurance processes and associated standards.

S@PPORT: What technologies are OPIN platform implementations based on?

Wolff: Java and more modern event-based systems like Kafka are typically used. For interface technologies like REST, these tend to be standard. For dynamic interfaces, where consumers themselves define what they need in each case, platforms prefer to use GraphQL. Here, filters can be set and read for specific fields. If several interfaces support GraphQL, serious database queries are possible. And the data objects that are actually needed are created. You could call it the integration of integration. Another component of Open Insurance is artificial intelligence. This technology makes autonomous decisions based on the information provided at the interfaces.

Even though many insurers use other core systems, the standard software SAP FS-CD is often used in the financial area of local insurance companies. It represents the industry-specific version of SAP FI-CA. The module for collections and disbursements (and the insurance-related sub-ledger SAP FS-CD) is located at the heart of the financial systems. It organizes payment transactions and the general ledger aggregation of posting data. As with the partner modules or customer relationship management systems, administrators receive a consistent overview of the centrally managed individual customers - across all insurance lines.

New business models promote multi-partner approaches

An insurance company that sells products as a platform and via an open-insurance approach quickly and automatically becomes an IT provider itself. However, code and platform should not be controlled by a single party. If, on the other hand, everyone uses the platform - and regularly returns updates and fixes to the community - all partners participate technically and commercially in successful transactions. The business autonomy of individuals is not jeopardized. However, there are exceptions. For example, when a company is solely focused on this model or if it cannibalizes its original core business with the platform business. Although technical operations ensure value creation, traditional IT is often not prepared for such agile IT transformations. To minimize operational risk, insurers are increasingly shifting their third-party and partner business to platforms.

There, only one maintenance is required; one hosting technology is used; scaling is done with the help of hyperscalers or in hybrid clouds. Subtle differences, such as divergent market regulations, can be managed technically and in terms of integration agnosticism. Customized systems simplify the processes behind them - ideally system integration platforms such as the open source solution SIP.

Interfaces to heterogeneous systems such as SAP, msg, Guidewire and other infrastructure can be set up efficiently and smoothly. This enables both self-sufficient, polycentric and cross-functional systems. Their decoupled structures improve agility through one end-to-end responsible person per process - in this way, the organization is verticalized. (ch)


The article was published in December 2022 in "Sapport Magazin" (PDF in German language only).

To the following part 2

Insurance Transformation Strategies – Part 2

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