(Image source: ACORD.)
At ACORD2016 in November, Bill Pieroni delivered his first keynote at the conference as CEO. Pieroni—who was named the organization’s CEO in March 2016—advised insurers that digitizing the value chain has shown to have material benefits. The speech reviewed the results of a new ACORD study examining the digital capabilities of the top 100 global life and non-life insurance companies, measuring the correlation between key financial performance metrics and digital maturity. The keynote reinforced ACORD’s commitment to helping members adapt to the emerging digital environment. Pieroni’s appointment by ACORD’s Board of Directors reflected the increasing importance of digitization in the industry. To get a sense of Pieroni’s vision for ACORD, and to better understand the findings of the digital study, IIR recently spoke with him.
Insurance Innovation Reporter: Your keynote speech at ACORD2016 made a frank appraisal of a changing business environment and the options available to insurer to respond to it. What are some ways ACORD will be adapting?
Bill Pieroni, CEO, ACORD: Our members want a two-inch hole—not a drill. They need pragmatic standards to solve business problems in double-quick time. We need to streamline and enhance the standard development process to align more closely with the needs of our members with regard to timeframe and solution quality. Some people say that we can do one or the other, but we can deliver both a shortened timeframe and improved quality.
We also need to help the third-party marketplace better leverage ACORD standards. In doing so, industry vendors can work with our members to provide cost-effective solutions for insurers who lack the resources to build them in-house. To aid in these efforts, we have started ACORD Solutions Group, which will serve as a vendor’s vendor.
IIR: You also alluded to ACORD taking on a new role by serving its membership through more frequent and more in-depth research.
BP: Yes. We’re uniquely positioned with over 800 members globally, and I believe there’s an opportunity to do provocative, insightful, actionable research that has no agenda beyond helping them. That was the idea behind the digitization study, which includes a tremendous amount of actionable insight.
IIR: Let’s talk about the study. In your keynote you implied that insurers could create and capture material value for their stakeholders.
BP: Yes, as I said during the presentation, there are really three choices for the average carrier. You can ignore digitization and likely shrink your position or find it difficult to compete. Given the nature of the industry, you could languish and underperform for decades, but the direction would be clear. Second you may decline to embrace digitization but adapt by disaggregating your value chain. A carrier might be good at underwriting and not distribution, so they’ll white label. Others may be really good at claims management or managing a sales force. In that scenario, you could still do nicely. The last option is to really embrace digitization. So those are the options: ignore, disaggregate, or embrace digitization and transform.
IIR: Only one of those promises long-term growth. So how urgent is the imperative to digitize—how much time do insurers have?
BP: Well, even though a carrier may slowly shrink over time, I don’t think that embracing digitization should be deferred. There are two kinds of problems, those that money can solve and those it can’t. You can invest in technology, but you can’t recover the institutional knowledge and data you failed to accumulate. Consider the example of telematics, and suddenly trying to compete with an insurer with 10 years of data and experience in correlating risks to variables. You’ll never catch up.
IIR: Digitization seems most obviously urgent for personal lines of business. Is it a less urgent issue for others?
BP:Clearly, every carrier is unique and will need to develop tailored strategies. However, the insurer that doesn’t need to change is going to be the exception rather than the rule. For most major geographies around the world, our study indicates that 80% of insurance transactions – personal and commercial – will be conducted through a digital mechanism. Carriers will have to consider whether or not they can have a viable value proposition and operating model in order to compete in the remaining20% if they are not digitally enabled.
IIR: You’ve said that we’ve hit an “inflection point” in terms of where business culture is technologically.
BP: It comes down to the rate at which consumers take up technology today. If you were to look at, say, TVs or microwaves, the market had about 15 years to achieve 4 percent growth. Today it can take 24 months. When a disruptive technology is introduced, you might have a year to figure out how to succeed with it. Western Union had 20 years to figure out electronic banking. Kodak was shrinking for two or three decades. You just don’t have that kind of time any more. For insurers, it’s no longer a matter of operational scale but informational scale: not how big am I, but how much data do I have for underwriting, rating and pricing.
IIR: You suggested another kind of inflection point that you described as the emergence of an era of operations and technology.
BP: I think we’re beyond the point where it’s about technology, process, or organization as individual components. Today it’s about capability: your ability to execute. Process relies on inputs, tasks, outputs, and KPIs. In organizations, it’s about skills, structure, incentives, and most importantly, culture. IT is data, software, and infrastructure. I was on a panel and I was asked how IT gets a seat at the table. I said if you’re in an organization that forces you to fight for a seat at the table, you’re likely at an organization that doesn’t truly understand the impact IT can have. There’s no blending of operations and technology any more: you can’t tell one from the other. Moving forward, best in class insurers will aggregate both operations and technology into a holistic structure.
IIR: There’s obviously a deep cultural issue there, and your keynote you quoted Peter Drucker saying that “culture eats strategy for breakfast”. What’s the cultural challenge in this era of operations and technology?
BP: A material part of it is overcoming cultural factors unique to the industry. Who gets drawn to the insurance industry? We are risk-averse people by nature. That creates real challenges with change because change is fraught with risk. The business itself is built for stability and consistency—you don’t want wild swings in your loss ratios. Also, insurance is a highly regulated industry, and we, collectively, are compliant. Next, how do we price insurance? We price it by looking backwards and examining historical results. Digitization requires that insurers look forward and embrace change, not an easy task.
IIR: Is there a danger that senior leadership will fail to embrace change, thinking their mastery of past conditions is adequate to present challenges?
BP: There are some who absolutely get it, who have the skill and the will; then there’s the other end of the spectrum where they have neither. However, our industry is incredibly fortunate to have leaders that understand risk and how to persevere under change. The key to risk is not a lack of leadership but rather the resources to make it happen. As an advocate for the industry, we are positioning ACORD to help all of our members adapt to the digital imperative with standards, solution construction aids, and research.
Insurers Must Digitize or Be Marginalized—ACORD CEO Bill Pieroni