(Bill Pieroni giving his keynote address at ACORD 2016 in Boca Raton. Photo by author.)

Insurers must embrace digitization or risk marginalization, warned Bill Pieroni, CEO of ACORD in his keynote at the ACORD 2016 conference in Boca Raton, Fla. “Digitization is the glue that holds the value chain together. Without that you can’t address consumerization,” he said. “Without digitizing the value chain, how will you truly reflect what consumers want? How will you ever use data and analytics to drive it?”

During his address, Pieroni delivered the results of a study examining the digital capabilities of the top 100 global life and non-life insurance companies. His analysis measured the correlation between key financial performance metrics and digital maturity.

Zero-Sum Market Situation

Pieroni reviewed strategic issues driving the need for digitization. The world has become accustomed to low GDP growth, and insurers face a challenging investment environment, with insurable values somewhat flat and relatively low interest rates, he noted. The insurance industry itself is “hyper-mature,” resulting in a zero-sum situation in terms of business growth, he added.

“My customer is your customer: I borrow and then give back,” Pieroni remarked. “There is not a lot of organic growth in most lines of business.”

Digitalization will be vital to address customers’ tendency to be more cost-focused in this environment, Pieroni asserted. “We’re at an important inflection point,” he said. “We as an industry need to engage in much more meaningful differentiation.”

Emerging technology and market realities have made the current business environment an “era of operations and technology,” where CIOs and COOs come together to position an insurance business for success, Pieroni suggested. Not everybody will have that mindset, but the winners will embrace the development of fundamentally different operating models. What we are observing in today’s market is the emergence of an “era of capabilities,” according to Pieroni.

“Digitization is the glue that holds the value chain together. Without that you can’t address consumerization,” he said. “Without digitizing the value chain, how will you truly reflect what consumers want? How will you ever use data and analytics to drive it?”

Pieroni insisted that there are only four strategies that work in the insurance industry today:

• Operational excellence—involving efficiency and price competition;
• Customer intimacy—leveraging real knowledge to anticipate customer needs;
• Product leadership—innovative approaches to developing new products; and
• Disruptive innovation—embrace of an ethos of continuous change.

Digitization plays an important role in at least three of these, which means that for most insurance segments, digitization is imperative. “By and large, mainstream carriers ignoring this will find that they will shrink or be absorbed,” Pieroni predicted.

Culture will be key for insurers adapting to a business environment demanding digitization. “Culture eats strategy for breakfast,” remarked Pieroni, quoting Peter Drucker. There is no right or wrong culture per se, he qualified, but there was no doubt as to the digital component either. “You’ll suffer as you’re going through this [adaptation],” he said, “but you’ll be on a journey and will be the better for it.”

The Power of Thoughtful Investments in Digitalization

Contrasting performance statistics from laggard companies to those fully digitized for competitive advantage, Pieroni commented, “There is a weakness in our industry that some of us lack the ability to tell between actually accomplishing something and appearing to.”

Insurers need to get past that tendency and avoid merely “throwing money” at their problems. “You can’t just say you want to save money, and it can’t just be about revenue either,” he cautioned. “You can’t ignore what thoughtful investments in digital can do in the long run.’

“It’s going to take real talent to get this done,” Pieroni added. “We as an industry don’t attract our share of high-skill/high-will talent.”

That tendency must be reversed to address the imperative to change that most insurance organizations now face, Pieroni said. Behavioral change is the root challenge, and the most difficult, so insurers must create an environment where people are encouraged to learn. The problem, Pieroni noted, is that insurance culture loves consistency. Insurance professionals are prone to ask, “Who told you to do that?” he said. “The whole industry is predicated on looking to the past.”

How ACORD Can Help

Pieroni concluded with remarks on how ACORD can assist insurance organizations during this time of change. ACORD will of course continue to help the industry in its central technology standards role, he affirmed. It would also help through relevant research, such as the study whose results Pieroni shared. “Tell us what you want,” he said. “We’ve assembled a team—we can do this stuff and really serve the industry.”

Pieroni also highlighted the ACORD Solution Providers group. “ACORD standards have been difficult,” he acknowledged. “What can we do from a vendor standpoint to make it easy to use these standards?”

“For agents, brokers and carriers,” he added, “how can we make it easier for you to deal with the legacy environment—that’s the point: to help out.”

ACORD as Insurance Innovation Partner: A Conversation with CEO Bill Pieroni