How Insurance Companies Are Coping with Digital Transformation

The insurance industry, no stranger to gauging risk, is facing one of its most profound disruptions in decades. Artificial intelligence, machine learning, Internet of Things, blockchain, data analytics and other emerging technologies are enabling many startups to nip at parts of their businesses. Incumbent insurers still have the advantage of institutional knowledge and regulatory expertise, as well as robust cash flows. But they can’t sit still.

Recognizing the technological winds of change, Reinsurance Group of America (RGA), one of the largest global reinsurers, created RGAX in 2015 to incubate and launch new products and services as its insurer clients seek to maintain their competitive advantages. RGAX CEO Dennis Barnes recently spoke to Knowledge@Wharton about the opportunities and roadblocks to digital transformation.

An edited transcript of the conversation follows.

Knowledge@Wharton: Can you give us a state of the industry report on how insurance companies are coping with digital transformation and disruption from startups or “insurtechs”?

Dennis Barnes: Coping is a good word. I would say that all organizations are in the middle of their own level of digital transformation. In comparison to other industries, insurance seems to be lagging a bit. As a subsidiary to a large reinsurer, we work with our carrier clients to help them along that journey.

While ultimately it’s their brands that are consumer-facing, as a reinsurer, we stand behind them and their products, but we also stand behind them in services. Whether they’re leveraging new data sources or thinking about machine learning and AI or focusing on a more seamless consumer experience, we’re helping them on that journey.

Regarding the second part of your question, insurance carriers are coping with startups and insurtechs by investing in and partnering with them. Many insurers have started venture investment funds for this very purpose.

Knowledge@Wharton: What insurance industry challenges do you hope to address with RGAX?

Barnes: There are so many possible challenges, so we’ve tried to narrow the focus. … One is truly around data and analytics. When I first joined RGAX in 2017, I traveled around the world talking with clients to understand what their big concerns were. And it wasn’t about the availability of data — it was about what data was the right data to focus on and how to leverage it, and in this world of talent wars, how to really have the right skill sets to fully leverage it. So, we have a strong emphasis on data and analytics.

On digital distribution, clients are focused on faster processes for the customer, giving them a better, more seamless experience. But they also recognize that no two customers are alike. You have to have a door [of engagement] for every customer. And that’s not always just a digital channel — it could be the call center, a retail location or other means. We’re working with clients to help them with distribution, in different ways, around the world. That goes from product development all the way through to helping accelerate the underwriting process, and into marketing and targeting.

“Last year alone, more than $4 billion was invested in insurtechs, and that’s continuing to increase.”

On the other end of that spectrum, when a prospect becomes a customer, carriers want to engage them in new ways. In the past, people would buy an insurance product, and they would just have an annual statement, and they would either pay a bill or make a claim. That was the extent of the consumer relationship with an insurance company.

Carriers today want to have a real relationship with consumers, and ultimately have tools to help engage consumers in healthier behaviors. RGAX is helping them address all three of those areas, as well as providing a few different technologies and services related to needs across the value chain such as underwriting, administration and claims.

Knowledge@Wharton: Insurers are getting pressure from both ends — from startups and also from non-insurance companies getting into insurance. For example, Amazon’s supposedly getting into insurance in India, and Flipkart and Paytm are already selling life and health insurance. They’re backed by Walmart and Alibaba. And a lot of carmakers have insurance units. How will your clients, the insurers, handle pressure from these two sets of competitors?

Barnes: I think that, in some cases, they’re actually collaborating with some of those perceived competitors. So in some cases, it’s not just looking at them from afar, but it’s how do we approach them and work together because it is a very highly regulated space, very specialized. As some of these digital platforms recognize, they could be in a great place for distribution and product development, but they really do need a carrier partner or a reinsurance partner in order to be most effective.

Last year alone, more than $4 billion was invested in insurtechs, and that’s continuing to increase. But it’s oftentimes in partnership with and with the support of other carriers and reinsurers. Some of those who are focused on user-experience [at startups] got excited about trying to make it very simple and realized it’s actually a fairly complex process and sale. So, partnerships are really becoming the norm.

Knowledge@Wharton: Let’s talk a little bit about some of the corporate culture challenges as hurdles to innovation. What are you seeing among your clients? How do you change the mindset of a culture that may be used to doing things a certain way?

“Partnerships are really becoming the norm.”

Barnes: I have to, first of all, respect how they got where they are. As a result of many years of evolution, they oftentimes have large organizational silos that need to be broken down in order to facilitate collaboration. I think it truly takes a mandate from the top to help effect that kind of change and drive that kind of collaboration.

I’ve seen a few carriers lately that I’ve been particularly impressed by in terms of how they’re messaging around that. It starts with the CEO. They make a couple of key statements in terms of what they’re going to affect or be known for, and what they expect in terms of collaboration to get there. They’re changing the conversation internally. That gives teams a little bit more freedom, if you will, to operate across functions. The better leaders recognize it’s their responsibility to drive that change.

Knowledge@Wharton: Let’s talk about Big Data. Obviously, insurance companies have long held a lot of data of the end-consumer. But how do you help them narrow it down to the important data so they can derive some business intelligence out of that?

Barnes: In some cases, we actually work with the carriers to do an assessment of what data they have and what gaps they may still have, based on their objectives, and put forward a strategy to go acquire new data sources. But as electronic medical records and other sources enter into the mix, the role we see for us is helping them determine which data is important and how do we, in some cases, anonymize yet still leverage that data.

Part of the role of RGAX is to help create “scores” for faster decision-making. For example, they might say, “RGAX, you can bring multiple data sources together. We have an application [from a customer] for underwriting, score that for us.” They don’t necessarily need to know all of those different data points [behind the application]. They just need some information [from RGAX] that tells them, “This is a good [insurance] risk. We should accelerate this underwriting process.”

Or an application “may need a little more hand-holding, and we should move it to an underwriter to really take it through the process.” We’re trying to provide value there to make them more efficient at that. Their data sits in silos, like data at a lot of other organizations. If we can help them access the right data to get to that decision, that’s what we see as our role.

Knowledge@Wharton: Let’s talk about hybrid products. In the gig economy, for example, Uber drivers want an insurance policy that covers them both commercially when they drive and also personally when they’re not driving for Uber. How are you addressing, or helping your clients address, the gig economy, with innovative new products or hybrid products?

Barnes: As I came into the organization, we were already underway in acquiring what would be referred to as a licensed insurance company — licensed in over 30 states — that could be used for experimentation with our clients. Our objective is to help our carriers do product development more quickly and cost effectively. So in a matter of months, they can take a new product to market, and we can start to see if it will scale. Then they can take it on under their brand.

“In a matter of months, they can take a new product to market, and we can start to see if it will scale.”

An example of that in the last year was short-term disability [policies] aimed at gig economy workers, freelancers and others who need those coverages. There is an association we partnered with that was interested in bringing their members — freelancers — new products. We partnered with them and leveraged our Greenhouse platform to validate. Now they’re working with a carrier partner to scale up.

Knowledge@Wharton: Is that from your innovation-as-a-service product? Or something else?

Barnes: Actually, it is. On the carrier front, they’ll tell you it typically takes them 18 months to two years to launch a new product, and it will cost millions of dollars. By working with us, they can do it significantly more cost effectively and in a more timely manner. It’s our way of trying to accelerate the product development learning curve for the industry.

Knowledge@Wharton: How new is that venture?

Barnes: We acquired the licensed insurance company in spring of 2018 and launched our first product development initiative with an app [Cardiogram] that was focused on health and wellness. We identified a carrier partner, put them together, along with us, to create a new product specifically for those app users. Ultimately, the endgame [of the app] would be to measure the heart rate and other biometrics. And as they get closer to [measuring more] biometrics, that also will help with the insurance offer.

Knowledge@Wharton: Tell me more about other applications that you’re working on.

Barnes: When it comes to an acceleration of the underwriting process, some of the things that have been kind of fun for us to work on have been around machine learning and AI — things as simple as chatbots and virtual digital assistants.

On the chatbot front, if an agent is sitting across the table from a consumer asking questions about health, instead of having to jump on the phone with an underwriter or send information out and then get a lot of follow-up questions, the chatbot enables that agent to know what the right next question to ask is, based on the answer the consumer gave. That way, the underwriter gets all the right information, and it makes the process for the consumer significantly more efficient. For the salesperson, chatbots could help close the sale faster.

In a market in Asia, we’re focusing on the digitization of health checks. Every year the consumer gets a health check. Oftentimes, those are paper-based. We’re working to use OCR [Optical Character Recognition] on those records and then be able to run the data that sits in those records on machine learning algorithms to produce a health score that can then be leveraged in underwriting. So it really runs the spectrum. But those are some of the more exciting applications in the core of insurance.

When it comes to long-term care insurance, the consumer says they want to live in their home longer. We work with carriers, as well as some health and wellness-related organizations, on how to enable eldercare inside the home. In some cases, it’s very experimental. We’re working with Internet of Things companies, to find out, how do we leverage connected devices in the home so that, as the adult caregiver, I might know if mom left the oven on or the back door open, [so she can maintain her] independence and give me the comfort to keep her in the home?

Knowledge@Wharton: Are there any moon shots you’re working on?

Barnes: Moon shot is such a relative term. It’s not like SpaceX. But in our world, a moon shot would be closing the insurance coverage gap, really finding a way to get more products in the hands of consumers who need them, and in some cases, in emerging markets, like India and China where there’s this emerging middle class. So, closing the coverage gap is one of our big moon shots.

Also, we’re truly working on some things that we hope will affect human longevity. If we can have a role in helping people live longer and healthier lives, then we’ll have fulfilled another one of our moon shots. I think that’s what’s really inspiring our people.

When I joined the organization a few years ago, I traveled around and started talking first with the employees.  What I learned was their passion wasn’t for selling another insurance product, it was their impact on the consumer. That’s what we’re rallied around — getting the right protection in the hands of the right people, absolutely what they need, but only what they need, and then engaging them in healthier behaviors. Our people wake up inspired to try to effect that.

“In our world, a moon shot would be closing the insurance coverage gap.”

Knowledge@Wharton: One of the sticking points for consumers when it comes to health insurance is that sometimes their claims are denied or they’re not fully paid. How do you think data analytics or AI would help insurers better hone in on what’s a good claim, how much to pay, or just be sharper about their premiums and in profiling the consumer, to really deliver the right insurance product with the right coverage?

Barnes: There’s a claims component to what you just asked, and then there’s also targeting the right product for the right consumer. On the front end of that is getting the right products in the hands of the right consumers, i.e., bringing multiple data sources together to truly segment the customer base, the prospect base, and looking at what might be appropriate based on a variety of attributes.

The basic demographics — such as age, income — we can look at those things. But you can also look at behavioral, lifestyle and attitudinal data, and leverage that to say, “This pool of consumers would match up best with this kind of product or service.” That’s exciting for our data scientists on the front end to [determine] who are we going to communicate with and offer the product to?” Because it’s not necessarily right for everyone.

On the back end, on the claims experience front, similarly, we’re looking at ways to use automation to accelerate the claims experience for the consumer. But there are also advances in looking at historical call center data, utilizing AI to identify certain emotions that are expressed throughout a call. I think it’s kind of on both ends of the spectrum, that you can leverage technology to make the consumer experience better: The right product coupled with the right experience.

Knowledge@Wharton: Does that mean that, by matching the right product and the right experience to the right consumer, that you minimize, maybe, the rejection of claims?

Barnes: The lack of satisfaction, maybe. You know, if you look at historical remarks, insurance is sometimes up there with cable companies in terms of how consumers feel in their level of satisfaction with the brands they work with. The industry knows that and is working hard to change perceptions. That’s where these emerging technologies can come in and streamline that experience and make it better.

Knowledge@Wharton: Continuing on this topic of the back end of insurance companies, I know that some insurers have been banding together to form blockchains where they can do things such as share policy data and digital documents in real time, improve transparency, record commissions automatically and execute smart contracts — all in a very streamlined manner. Does RGAX work on blockchains?

Barnes: We do, yes. I would say that what you just described is more aspirational than actually operating as we ultimately hope it will. But within RGAX, across the macro trends we’re focused on is distributed ledger, blockchain. A lot of what we do within RGAX starts with an entrepreneurial partner. A lot of these capabilities we don’t have internally, and to accelerate our learning curve and our capability, we need to work with third parties.

“We’re truly working on some things that we hope will affect human longevity.”

We made a small investment in a company working on blockchain-related solutions with Ant Financial and others. We arrived at four proofs-of-concept to work with around a concept called Zero Proof Knowledge (ZPK), which was a new term for me. … Zero Proof Knowledge means you could ping our system and get the verification that you’re looking for, but you’re not going to get the actual data. That’s a distributed ledger-based capability. That would be one of the proofs-of-concept.

In another scenario, we partnered with one of our carrier clients where we have a blockchain proof-of-concept happening. It’s very limited to our two organizations trying to build something together. But then, if we have success, we might be able to take that out to other carrier partners and bring them in.

Knowledge@Wharton: With HIPAA, protecting patient privacy is the law. What are you doing to safeguard privacy and strengthen cybersecurity?

Barnes: Privacy and data security are critically important. Safeguards for medical information and other data have been robust and longstanding, and RGA is committed to upholding those safeguards. RGAX partners with startups that are trying to blend data of third-party aggregators with carrier data, so everything within RGAX goes through the exact same rigor as RGA overall in terms of how we govern that.

Knowledge@Wharton: What’s next for RGAX in the next 12 to 18 months?

Barnes: The last 12 to 18 months has really been getting RGAX to scale. We have grown through a combination of organic growth and acquisitions. Right now, it’s about integrating those various entities that we’ve brought together and continuing to focus on the culture of RGAX and alignment. We’ve brought multiple companies together, and they all have great foundations and cultures at their core. We need to find that common ground and bring that forward.

Some of the acquisitions we made had capabilities that are very North America-centric but that we believe could be taken global. So we’re looking to take some of those assets into South Africa, Europe and Asia. For the next 12 to 18 months, it’s a combination of bringing the acquired assets to other parts of the world, and building new and different capabilities off those assets because most of them are digital platforms backed by services. We can build other capabilities from those and co-create with customers.

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