Andy Crawford

6 October 2021

The Future of Insurance: How Cloud Native Is Changing the Game

The established insurance industry faces a multitude of challenges and in response, must find ways to innovate and evolve at an unprecedented pace.

These challenges come in many forms, but I have summarised some of the main categories as follows:

Changing Consumer Behaviour & Expectations
Increased Competition
A Shift to Services
A Changing Regulatory Landscape

In this blog, we look at each challenge in more detail as well as why and how established insurers are building significant capabilities with cloud native technology, data and agile ways of working as enablers of a major digital transformation in the sector.

4 Major Challenges Facing the Insurance Sector

1. Changing Consumer Behaviour & Expectations

Today’s consumers (people and businesses) have high expectations and the balance of power is shifting to them.

The pace at which technology has evolved leaves us all so used to having our needs and demands met immediately through a mobile device, this is now the default expectation.

Consumers want to transact and interact through an ever wider set of digital channels such as websites, video calling, mobile apps, chatbots, instant messaging platforms and social media.

When they engage, consumers expect the organisation to know them, and they want minimal friction in the transaction. They do not want to have to answer endless lists of questions, fill in forms, and repeat information they have shared previously. Better still, they want their needs to be anticipated and products priced and tailored accordingly.

Today’s consumers place a high value on their time and are even willing to pay a modest premium for convenience and ease of doing business and are increasingly willing to go elsewhere if their customer experience falls short.

There is also a growing expectation for more flexible policies with pricing tailored to usage and behaviour and consumers are becoming increasingly comfortable with giving up more of their personal data in exchange for these benefits.

2. Increased Competition

FCA Regulations

The insurance landscape is becoming increasingly competitive.

The FCA have announced new regulations PS21/5 and updated in PS21/11 in an attempt to stimulate more fairness, transparency and competition. Whilst these rules are primarily aimed at the motor and home insurance sector, some of these rules also apply to insurers and intermediaries of other general insurance and protection products.

Among these new regulations is the FCA’s move to stop firms from “price walking”. Insurers will be required to offer renewing customers a price that is no higher than they would pay as a new customer. It is likely to mean slightly higher premiums for new customers than previously which will undoubtedly invite a new wave of innovation and disruption to win sales in this space.

However, the FCA has also said that insurance companies must make it easier for customers to cancel auto-renewing policies and switch to better deals. Again, where there is disruption to the status quo, there is opportunity for the most innovative to capitalise on the situation.

This combination of market disruption, changing consumer expectation and behaviour, creates the perfect environment for new challengers to enter the market.

Cloud-Native Challengers

As we have seen in many other sectors ranging from news and media to banking, a wave of cloud-native challengers is also starting to take on the established players in the insurance sector.

Here are just a few examples:

Dinghy provides professional indemnity, public liability and business equipment insurance for freelancers and the self-employed. They provide a level of flexibility which mirrors the variable nature of this type of work. Policyholders can turn cover on or off or up or down instantly via an app. There are no up-front fees, no admin charges and policy holders simply get billed at the end of the month for what they have used.
Zego offers different types of policies for full-time, part time and corporate drivers and insurance for fleets and vehicles having partnered with the likes of Uber and Deliveroo. Addressing the payments based on flexible pay as you go models and serviceable by both personal apps and where partners are concerned, embedded within their drivers apps.
Laka provides cyclists with digital-based insurance policies that cover theft, damage, loss, health and wellbeing, recovery and liability issues relating to their bicycle with no annual contract or up-front premiums. At the end of each month, the claims from all users are totalled and a fee for the platform and customer service is added. This amount is then split across the members. In creating a community among fellow cyclists and policy holders, fraud and reckless claims are apparently also significantly lowered.

3. A Shift to Services and Product Innovation

Historically the insurance industry has just been providing products that help to protect customers from a loss resulting from an unexpected event. While this will always be a key part of the insurance industry's proposition, there is a technology driven shift towards a more proactive, preventative model.

Big data, Internet of Things (IoT), Machine Learning (ML) and Artificial Intelligence (AI) enable more accurate assessments of risk but also reveal insight that can help prevent losses from occurring in the first place.

A good example of this can be seen with the proliferation of wearable health monitoring devices which can record activity. This data can be used to spot potential issues and intervene early or simply to provide a “nudge” by way of motivating and rewarding healthy activity. Monitoring services for elderly relatives and alerting family members in the event of a fall, abnormal heart rate, high temperature or other similar indicators are other great examples of service add-ons to insurance products.

For property insurers, there are also increasing opportunities to grow revenue from added value services. For example, annual roof surveys by drones as well as leak or intruder monitoring and alerting services.

Partnering is therefore going to be an increasing part of the mix to deliver varied service offerings and secure additional service revenues. Insurance companies will need to become good at integrating and updating systems and data at pace, in a secure and compliant way with trusted third parties as well as innovating new products.

According to a recent survey by Deloitte, when asked how much of their premium volume comes from propositions that were not offered five years ago, the average response from life and annuity respondents and property and casualty insurers is nearly a quarter.

This suggests a reasonably significant shift already. Yet Deloitte also observed that insurers are expecting still more change over the next five years, with an average of a third of premium volumes coming from new propositions that are not offered today. In addition, nearly a quarter of respondents’ investment spend is allocated to new product development.

4. Responding To A Changing Regulatory Landscape

The insurance industry has had to comply with a swathe of regulatory change since the financial crash of 2008. Initiatives including Solvency II, MiFID II, GDPR and the Insurance Distribution Directive have all required significant effort on the part of insurers and distracted attention from growth efforts.

It would be naïve to think that the call to comply with new regulatory obligations is going to subside now though. In fact, the more recent introduction of IFRS 17 already requires further work on areas such as data management and risk processes.

As discussed in the previous section, we also see the migration of insurance companies to more service-based offerings and increasingly partnering with third parties to deliver these services. At present, these service offerings and the third parties responsible for supporting them are mostly unregulated but it would not be unexpected if the regulators turn their attention to this.

Compliance with these regulations has often required significant changes in the way data is managed and how systems operate. Legacy IT platforms and operating models do not lend themselves well to frequent changes and as such these initiatives are slow and costly.

Is Digital Transformation the Answer to Insurance Industry Challenges?

We have discussed how consumer expectations are increasing, how the market is becoming more competitive and the need for insurers to continually innovate products and diversify to secure new revenue opportunities with non-traditional services.

A significant motivator for digital transformation is survival.

A recent study by McKinsey found that the average life-span of companies listed in Standard & Poor's 500 was 61 years in 1958. Today, it is less than 18 years. McKinsey believes that, in 2027, 75% of the companies currently quoted on the S&P 500 will have disappeared.

What Does “Digital Transformation” Mean for Insurers?

Digital transformation is a phrase used liberally these days and to some extent that has become unhelpful. In reality, digital transformation will mean different things to different organisations but the core principals are the same:

Rethinking existing business operating models
Experiment more to drive innovation
Become more agile and responsive

Example: A great example of “rethinking existing business operating models” is Nexus Mutual’s aim to disrupt the large, traditional insurance companies with Blockchain technology. They strive to create smart, contract-driven mutual markets by enabling people to share risk across larger populations and thus lower insurance costs.

Other common opportunities for digital transformation in insurance include:

Automation of high volume manual tasks
Improved claim fraud detection using AI
Omnichannel customer engagement that extends traditional phone and mail to social media channels and video calls and adds self service through online portals, apps, chat bots, social media, video calls etc
Claims processing - faster, more efficient and improved customer experience using self service & automated processing
Risk reduction both through more accurate “data driven” pricing decisions and the use of technology to “nudge” better lifestyle choices or behaviour

What Is Cloud Native and How Is it Shaking Up Insurance?

Cloud Native is one of the biggest enablers of digital transformation in insurance (and beyond!) as it removes constraints that stop businesses focussing on creating business value through experimentation and innovation.

Traditionally, insurance companies would have had many complex layers of technology that required investment and attention but added no value to the business. These layers included the data centre, networks, servers, operating systems and orchestration.

Cloud native abstracts these layers away by automating them through code. In doing so, these companies can benefit from on demand, automated access to a highly scalable, flexible and cost effective digital innovation platform containing a vast range of state of the art digital capabilities.

For more reading on cloud native, why not check out our guide to cloud native architecture and development.

Insurers can therefore focus on creating or iterating valuable digital products and services at speeds that you could previously only dream about.

Cloud native also lends itself very well to modern, agile ways of working including DevOps—a set of best practices that enable substantially faster delivery of high-quality software.

When DevOps is adopted successfully, the organisation is empowered to deliver software better – giving them an enhanced ability to stave off competition, get to market faster and innovate more effectively. However, adopting DevOps is a broad proposition, requiring investment in technology, tooling, and automation, but also people process and change. All these things must come together to realise the full transformational benefits of DevOps.

Insurance companies face the challenge of attracting, recruiting, and retaining resources highly skilled in cloud native technologies and DevOps ways of working and therefore must invest in strategies to develop such capabilities.

These skills are in high demand and the insurance sector is having to compete in a skills marketplace alongside the technology giants such as Facebook, Google, Microsoft, Amazon and others which have built their businesses by making themselves attractive to this pool of talent.

Why Go Cloud Native?

Insurance companies who successfully adopt cloud-native enjoy the following benefits:

A more empowered, better tooled development team capable of delivering more innovation and business value through faster, more collaborative methods
A more flexible and agile business able to respond much faster to changes in market conditions or seize new opportunities
A platform for continuous operational improvement
Freedom from legacy monoliths resulting in a much more cost effective base for all enterprise technology

3 Contino Case Studies: How We’ve Helped Insurance Companies Become Cloud Native

The following section provides some real examples of the challenges and successes Contino have encountered whilst working with our clients in the insurance sector.

In each case we look at the outcomes that are being achieved having built a cloud native capability.

Example 1 - Implementing a successful cloud operating model at a large Australian insurance provider

When Contino were first introduced to this organisation, their digital transformation programme and adoption of cloud capabilities with which to ensure business value by way of innovation, time to market and end product excellence was stalling.

Progress was being hampered by a lack of clarity and understanding of what the end state looks like when operating in a cloud ecosystem. They also lacked a mature mechanism with which to align and translate long term strategic goals into day-to-day team deliverables.

Working with Contino’s support, the organisation developed a new operating model that aligned their strategy to autonomous, dedicated cross functional (business and engineering) squads with clear accountability across cloud governance, facilitation and engineering.

A new cloud adoption framework was also created that stewards new teams and their workloads through the challenges of onboarding to cloud in a heavily regulated arena.

What also really helped was the delivery of initial “lighthouse” projects. The success of these built confidence in the customers capabilities, by demonstrating that workloads could be transitioned and operated in the cloud while maintaining security and compliance.

The outcomes:

80% of surveyed stakeholders rated the confidence level 4 out of 5 when it came to understanding the value of cloud, where they fit in the new world and being clear on what they were accountable for in order to deliver value to the business.
Discovery activities, non build work (including legal, audit, security, architecture etc.) went from >3 months down to 1 week in the first minimum viable project.
A single source of truth was created in respect to progress and highlighting the bottlenecks of each team's journey into cloud thus allowing 4 hour turnaround of impediment removal.
Having put the necessary foundations in place, this organisation’s cloud programme has scaled up very successfully.

Example 2 - Helping Allianz become “digital by default” with cloud native and DevOps

As one of their first steps towards a “digital-first” goal, Allianz wanted to refresh their presence in the animal health market where they held a £300m share. They embarked on a full-scale DevOps and cloud transformation.

With Contino’s support, Allianz was able to establish a cloud centre of excellence and established a fundamental shift in their approach to software delivery. A new cross-functional organisation structure was devised along with a DevOps operating model.

The outcomes:

Moving to the cloud and introducing DevOps practices accelerated our software delivery capability
Established a scalable model for software delivery, improving quality, reliability and agility.
The DevOps Centre of Excellence is enabling our teams to build the skills and talent to improve their software delivery capability in the future

Get the full story here.

Example 3 - Green Flag creates a serverless cloud native platform to help break away from legacy and build a rapid, modern rescue service.

Green Flag has high ambitions for the speed and quality of its services. However, the organisation’s existing IT systems and processes were proving to be a limitation.

Contino devised a plan for Greenflag to deliver the foundation for the five-year digital transformation programme.

The technical foundation would be laid by a new cloud-native platform on AWS. This would be supported by starting to build out an in-house engineering function to maintain and iterate on a modern digital system. This would allow Green Flag to start delivering rapid digital innovation to meet their business challenges.

Contino trained up representatives from each team in AWS best practices, DevOps tools and cloud-native ways of working before reseeding them into their own teams, where they could propagate their new skills and knowledge.

In only five weeks, Contino helped Green Flag to build a resilient, scalable, serverless platform in the public cloud. At the same time, we have together scaled the internal capability to an 80-strong digital transformation team, including DevOps and Cloud experts.