Product Digitization in Industrial Insurance: “Many Issues Only Arise During Implementation”

Paper-based processes and mountains of files are on the hit list of industrial insurers. Everybody is talking about digitization, but what will actually happen when insurance products are mapped in IT systems? We discuss the challenges with business analyst Karoline Büdel.

mgm live: What are the preconditions for digitizing an insurance product? And what task does business analysis have to play in a project of this kind?

Karoline Büdel: From the insurer’s viewpoint the product’s wording and its underwriting model must first be fixed. As a business analyst I support the process of making the product digital on this basis. That involves designing a suitable data model and arranging fields sensibly in online forms. Ideally, the insurer will know exactly what is to be standardized. In practice, however, many issues only arise during implementation. That is why, in digitization projects, we recommend taking on board at as early a date as possible the people who will later be writing the software.

mgm live: Why is standardization so important?

If cases are now to be assessed by machine, clear rules must be defined.

Karoline Büdel: Standards are decisive if processes are to be executed mechanically. There have to be certain rules on the basis of which the system makes decisions. For commercial insurance that requires a rethink. The underwriters are sure to have taken a look at each case individually and to have assessed the risks manually beforehand. That involved a great deal of experience and gut feeling. If cases are now to be assessed by machine, clear rules must be defined. It must be clear where sales partners are allowed some leeway and where the requirements are non-negotiable. One of my business analysis tasks is to sound out these rules and specify in detail together with the customer. For me that is one of the most exciting aspects of my work.

mgm live: Which approach to defining these rules jointly with the customer would you consider to be promising?

Karoline Büdel: You must ask the right questions. Our insurance contacts have an immense fund of knowledge about every conceivable kind of insurance claim. This knowledge must now be converted into structures that can be mapped in software. A good starting point is, for example, to consider parallels and boundaries between claims. If, say, the equity ratio is too low in the case of a D&O insurance the insurer will from a certain level automatically add an insolvency exclusion. Clearly defined boundaries of this kind that automatically trigger an additional clause can be mapped very well in IT systems.

mgm live: What changes are there for the underwriter?

Karoline Büdel: Distinctions must be drawn here. In principle we are dealing with two kinds of system. Some projects involve the digitization of complex products. The focus is then less on automation than on making the underwriter’s work easier. The system helps him to create documents and book premiums. The automation of selling standard products is another matter. In this context underwriters are as a rule very grateful for being relieved of the burden of repetitive standard tasks, which gives them more time for the exciting cases.

mgm live: Will digitization soon usher in automation of processes for more complex risks?

The limits to what is feasible are quite clearly shifting increasingly toward more complex risks.

Karoline Büdel: Yes, that is definitely the direction in which we are heading. We are already dealing with cases in which complex risk assessments are automated by means of scoring. Scoring is based on the latest Big Data systems. There will nonetheless continue in the long term to be complex risks for which a totally automated assessment is not possible. But the limits to what is feasible are quite clearly shifting increasingly toward more complex risks.

mgm live: What is important for good cooperation between the insurer and the IT service provider?

Karoline Büdel: The relationship must, of course, be based on openness and candor on both sides. As service providers we try to implement our customers’ ideas in as close a match as possible. In many cases, however, these ideas are only really put to the test during the implementation. Every detail must be right. All cases and exceptions must be clearly defined. If there are any gaps or loopholes, solution approaches must be sought jointly. That is a challenging process but one that leads to a better understanding of the insurance products in question in the digital context. Essentially the idea that everything can remain as it is, but digitized and automated to the hilt, is an illusion. Most customers are well aware of the fact, and a, if not the, central challenge that digitization faces in industrial insurance is that changes must be accepted.