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Rob Galbraith: The 7 Fatal Flaws of Insurance, Part 1

Roland Alston, Appian
April 1, 2021

With the onslaught of hyperautomation, it’s easy to assume insurance is stodgy and boring. But don’t be fooled. Yes, the industry has its flaws—some of them fatal. 

But over the next decade, technology will revolutionize insurance more than it has in the past three decades combined.

So says insurance expert and best-selling author Rob Galbraith in his must-read chapter of HYPERAUTOMATION, a collection of expert essays on low-code development and the future of business process automation. It’s true that a remarkable 73% of large businesses have elevated intelligent automation to the top of their priority list according to Deloitte, a 58% jump from 2019.

But there’s a parallel trend happening in the insurance industry where the best insurers are going to school on intelligent automation and rapidly automating workflows with robotic process automation (RPA), artificial intelligence (AI), and intelligent document processing (IDP) to outmaneuver competitors and minimize risk.

So, what’s driving the remarkable growth of automation in insurance? Perhaps it’s the studies showing one in three customers dissatisfied with a bad claims experience will switch insurers within a year. Or maybe it’s the threat of customer attrition which, in the US alone, accounts for $5.8 billion a year in lost premiums according to Accenture.

But Galbraith argues another contributing factor is the rise of the low-code platform, a fast-moving trend that has accelerated the automation of workflows in insurance and other industries as well. 

“The convergence of low-code and business process management," says Galbraith, makes it easier for business users to collaborate with IT to design, build and test intelligent solutions that can have a huge impact on the value chain in any industry.”

“That’s already happening in insurance,” says Jake Sloan, Global Industry Leader, Insurance, Appian. “The best low-code platforms are offering intelligent automation options for use cases that haven’t typically been considered due to complexity,” says Sloan. “Enabling highly customized automation at scale is a core strength of a low-code platform which can deliver intelligent automation solutions previously thought to be unattainable.”

We now have a situation where over 53% of insurers are already investing in or piloting intelligent solutions, according to Accenture, with 65% of these companies scoring a remarkable 4x to 10x returns on investment. On top of that, major insurers expect intelligent solutions to create whole new categories of products and services to automatically process claims data, spot potential fraud and analyze fraudulent activity. 

“In one of our existing use cases,” says Jones, “a life and health client expects to accelerate handling time for illness and disability claims from 100 days to 5 seconds by using a combination of optical character recognition, text analytics and machine learning.” 

Which brings us back to Rob Galbraith, a recognized thought leader on Property & Casualty insurance. In HYPERAUTOMATION, Galbraith goes into detail on why the $5 trillion insurance industry is undergoing transformational change powered by low-code automation and other technologies. His commentary is an essential guide to turning innovation from a side-show into a functional discipline.

“I think that taking advantage of things like low-code automation allows you to leverage your legacy system investment,” says Galbraith. “Low-code is going to bridge technologies that can help make your organization more agile, and make you work at the speed of today's economy without having to wait five years for that full transformation journey to take off.

“So, companies that are embracing some of these enabling technologies like low-code, says Galbraith, “I think they're going to be in a much better position 10 years from now.”

This plain-spoken interview with Galbraith is an essential guide to minimizing risk and boosting profits for insurers or any other business. Now, let’s tune into the latest episode of Digital Masters with Fintech expert Rob Galbraith:

Appian: When I think of insurance I don’t think of revolutionary technology. But you argue technology will revolutionize insurance. 

Galbraith: Yes, we're going to see more change over the next decade than we have in the past three decades combined. And I want to help people understand the magnitude of this change and how to prepare for it and how to stay relevant and stay on top in this new world. For folks that are coming from outside the insurance industry, I want to explain that insurance is different than many other industries. 

It's a financial instrument and a legal contract all rolled into one, highly regulated, built on trust, kind of low interaction with consumers. So, there's a lot of things that make it a unique industry. It doesn't mean it can't be disrupted, but those are important things to understand for folks trying to converse with insurance leaders, to be on the same page in terms of how technology can benefit them.

Algorithms and Agility and Automation, oh My!


Appian: In your essay in the HYPERAUTOMATION book, you talk about the three A's that companies are competing on. What are the three A's and how they relate to low-code and automation?

Galbraith: Sure thing. So, first of all, the three A's are algorithms, agility and automation. Let's start with the algorithm. I believe that insurers are going to essentially compete on algorithms in the future. They already do to some extent today, but I think that's going to be even more the case in the future. Insurance, even though it has a long history in some ways, is the perfect product for our digital age, it doesn't require a massive investment in physical capital.

“I don't want to oversimplify it, but it's very much about data. It's about risk-pricing algorithms, underwriting algorithms, fraud detection, things like that. So, algorithms first and foremost are how companies are going to outcompete each other."

The second is agility and we've talked a little bit about that, but agility needs to be much more individualized, personalized. Everybody has a unique set of exposures, whether they're an individual or a business. But too often it's (insurance) been a bit of a one-size-fits-all type industry. So, having that agility, and then also being able to quickly incorporate new offerings and new value propositions from strategic partners—having that kind of agility is going to be more important than ever.

Appian: And what role does automation play in that? 

Galbraith: Automation is a huge factor. There are tons of back-office tasks in insurance. The industry expense ratio, meaning for every dollar that's spent on (insurance) premiums, about 30 cents of that is spent on expenses. That's about 10x more expensive than the credit card industry, which is highly regulated, has large entities like Visa, MasterCard and issuing banks, a lot of fraud, and also a lot of regulation. But, yet they're able to operate for exchange fees of about 3%. Insurance is a little bit more complicated than credit cards, but it shouldn't be 10x times more expensive.

Appian: So, why is that the case?

Galbraith: A lot of the problem has to do with manual processes and verification. There's a lot of third parties involved in insurance contracts—beyond just the agent, the carrier, and the policyholders. So, just trying to bring everybody into the insurance ecosystem is a challenge. 

“In 2020, we've still got people that are taking information in one screen and typing it into another screen. And that's where automation can really help drive efficiencies. Obviously, that leads to lower premiums and allows carriers to be ever more competitive.” 

So, with low-code (platforms), it kind of gives you all three, right? It gives business power users or IT staff the ability to deploy solutions and apps more quickly and to make changes basically in the environment to improve the customer experience, automate backend tasks to implement new products, new rating algorithms, things like that. Low-code enables you to do these things faster than the traditional way of coding projects, doing a lot of testing, et cetera. And traditional application development projects have a lot of costs, a lot of overhead and they take a lot more time. The old way of building applications just doesn't move at the speed of today's economy.

Starting the Automation Flywheel


Appian: So, one of the things that seems to be happening is that companies will invest in new technology. They'll experiment with it or do a pilot but in a lot of cases there’s no follow through in terms of expanding or scaling up the initial project. Do you see the same thing happening in insurance as it relates to intelligent automation?

Galbraith: I do. I think you're right. I think for lots of folks who have kicked the tires on different automation solutions. There may be one or two workflows that have high volumes where they really want to give relief to folks in the mailroom who are processing documents or in a similar environment. But I think there's just a lot of worry about scaling up in terms of how it would impact jobs where people may be doing manual work today. 

But I think organizations that lead in this space can gain a tremendous competitive advantage. I think certainly you're going to see a lot of fast followers once folks see early adopters bring down their cost structure and be able to offer lower rates and be more competitive.

“It’s about getting that flywheel started. Nobody wants to be the first one out of the gate, particularly in insurance, which is a very risk-averse industry.”

The 7 Fatal Flaws of Insurance


Appian: Speaking of risk, you've said in the past that you'd give insurance industry carriers or insurance carriers a B-minus or less at managing risk. Why is that the case, and how can legacy carriers leverage technology like low-code development for example, and automation to do a better job of managing risk?

Galbraith: Yeah, so the reason for such a low grade really ties into what I call the seven fatal flaws of insurance in my book. Those, very quickly, are:  

  1. It's too expensive.
  2. It's too confusing.
  3. It's very easy to game the system and so there's lots of checks and   balances against fraud.
  4. It's a cash drain which takes away from your liquidity.
  5. It doesn't fully cover every cause of loss.
  6. It doesn't cover everything that you would want insured.
  7. It doesn't cover everyone that we would want insured.

“So, for an industry as mature as insurance, for folks to bring solutions to help solve part of any one of those seven fatal flaws in a $5 trillion industry would make a pretty good business. There's a lot of room for improvement.”

Watch This Space


Read the final installment of this two-part conversation on the 7 fatal flaws of the insurance industry with InsurTech expert Rob Galbraith, also known as the most interesting man in insurance.