Digital Transformation in Insurance: Q&A with Jeffrey Sharer

Digital Transformation - May 13 2020

Jeffrey Sharer (JD, Elizabeth Haub School of Law at Pace University) is Principal of Sharer Consulting LLC. He is a proven Financial Services and Insurance leader with over 20 years of experience in managing multi-million-dollar operations, including profit-building, market penetration, new venture launches, risk management, services streamlining, and expense control. Before founding Sharer Consulting in 2019, Jeff was a senior manager at EY, where he consulted on digital transformation, customer engagement, claims, risk management, alliances and partnerships, and underwriting, including utilization of new technologies, such as blockchain. We sat down with Jeff to ask a few questions about digital transformation in the insurance industry, InsurTech partnerships, and the key trends impacting risk management today including AI and behavioral analytics.

Jeffrey, we recently curated a crowdsourced eBook Underwriting Priorities 2020: The Digital Evolution of Commercial Insurance Underwriting. What’s your take on which technologies and digital transformation initiatives carriers and brokers should focus on to make their underwriting processes more efficient, profitable, and responsive to customers?

Even when it is mandated by law or contract, insurance does not often make the priority list of most consumers or businesses. Yes, insurers have turned to digital connectivity and advanced analytics to narrow the application-to-closing process and launch digital initiatives introducing customer portals, digitizing individual services, and enhancing analytics capabilities. But, as many insurers have discovered, their new technology-driven services are just meeting general customer expectations to interact – not the priority list. To move onto the priority list, the insurer and the insurance broker must provide the customer with a personalized experience tailored to the customer’s needs and products that give the customer greater control. To effectuate this move, insurers will need products and services built from a new paradigm that combines predictive analytics (e.g., analysis of historical data as well as existing external data to find patterns and behaviors) with artificial intelligence (e.g., data processed by algorithms without a predetermined set of rules and regulations). 

Insurance carriers and brokers collect mountains of data, but they still struggle to gain the insights needed to accurately assess and price risk. If you had to give the industry a report card, how well do insurers manage risk today?

Based on financial ratings and regulatory assessments, most insurers manage capital very conservatively. If one reviews industry loss ratios  (e.g., total incurred losses divided by the total collected insurance premiums) and combined ratios (e.g., incurred losses and expenses divided by the total earned premium), it is clear that some insurers are much better than other insurers in assessing and pricing risk. But, if one has to provide an overall average, the industry grades out at a “C+.” 

If you look behind the curtain at the insurance back office, there is still an incredible amount of paper pushing and what Ryan Deeds, host of The Digital Broker podcast calls “soul-sucking” manual work. Why do digital transformation and workflow automation still seem so far off? 

Digital transformation and workflow automation are not far off. For some insurers, it is already occurring. For other insurers, they are still debating whether the transformation and automation are either required to retain the customer or to enable the attraction of new customers. To truly change the insurance “back office”, insurers need to rethink the current “front office" (e.g., underwriting). At present, underwriting places great attention on traditional data-hungry actuarial based modeling techniques that provide assessments of prior circumstances with limited prospective analysis. Likewise, too little emphasis is placed on forward-looking customer behavior analytics. By enhancing behavior analytics in concert with artificial intelligence, such as machine learning, one can reduce the workflow and transform the “soul-sucking” data gathering into prospective client analysis.

Established insurance carriers and brokers are increasingly partnering with small, nimble Insurtech startups to achieve their digital transformation goals. Based on your experience, what are the secrets to a successful technology partnership? 

  1. Commitment to your partner
  2. Innovative and agile approach
  3. Inspire through relentless and focused execution of initiatives
  4. Show empathy towards partners, employees, and society as a whole to ensure long-term stability

What do you see as the next big technology breakthrough or market trend that insurance carriers and brokers need to prepare for now?

I see two trends for insurance – integration of insurance into platform business models and remote work.  Platform business models aren’t new. In fact, they’re as old as human civilization itself – going all the way back to early marketplaces, bazaars and auction houses in ancient Rome.[1] What is new is the advent of connected technologies that enable platforms to scale in ways that traditional business cannot.  Insurance can provide additional trust and mitigate risk with these platforms facilitate the exchange of value.

As work migrates remotely and virtually, decentralized business will become more dependent upon platforms as ecosystems to conduct business. Insurers and insurance brokers will need to be able to “plug” into these ecosystems and “play” alongside all participants.

Take out your crystal ball: What do you think the insurance industry will look like in 10 years?

Without antitrust intrusion, the industry may become highly consolidated. The traditional roles of broker, insurer, and reinsurer will merge and vary depending upon client business platforms/ecosystems and specialty. For example, some insurance brokers will act as risk advisors rather than transaction/placement specialists. Some brokers may assume risk until transferred directly to risk capital providers. Meanwhile, insurers may act as either direct writers competing with brokers or as intermediaries to risk capital providers. Business will seek out insurers willing to interconnect their coverage (e.g., risk capital) directly into platforms to facilitate exchanges and trust. Then, insurance will truly be perceived as a frictionless and required added value activity.

 

[1] Platform Business Model – Definition | What is it .... https://www.applicoinc.com/blog/what-is-a-platform-business-model/


Jeffrey Sharer

Jeffrey Sharer (JD, Elizabeth Haub School of Law at Pace University) is Principal of Sharer Consulting LLC. He is a proven Financial Services and Insurance leader with over 20 years of experience in managing multi-million-dollar operations, including profit-building, market penetration, new venture launches, risk management, services streamlining, and expense control. Before founding Sharer Consulting in 2019, Jeff was a senior manager at EY, where he consulted on digital transformation, customer engagement, claims, risk management, alliances and partnerships, and underwriting, including utilization of new technologies, such as blockchain.

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