Bill Pieroni has been president and CEO of the insurance industry nonprofit the Association for Cooperative Operations Research and Development, or ACORD, since 2016. Prior to joining the data standards and research organization, New York-based Mr. Pieroni was global chief operating officer of Marsh LLC, and he has held several other high-level roles at insurance industry and consulting firms. He recently spoke with Business Insurance Editor Gavin Souter about the industry’s technological progression, the use of big data and blockchain applications. Edited excerpts follow.
Q: The insurance industry comes under a lot of criticism internally and externally about the application of technology. Where do you see technological changes making the most difference in insurance?
A: The insurance industry was a first mover around technology. So whenever you’re a first mover, whether it’s laying copper wire or whether it’s building policy admin systems, at some point that technology is going to become obsolete, so countries that had no copper wire have all wireless technology and look far more advanced than the more mature markets around telecom. In looking at where the industry is, we need to understand where it came from, so it was a first mover and there’s lots of accumulated legacies.
When you think about technological investment, there’s incremental change and there’s transformational change. There’s also change that’s decision-based and change that’s behavior-based. So in this case we’re talking about decision-based — I’m going to spend money, I’m going to try to reallocate, I’m not getting someone to change their behavior.
The biggest success has been incremental decision-based. In other words, how can we, at the increments, marginally improve the customer experience, marginally improve our underwriting and rating, marginally improve policy admin. With most industries — and insurance isn’t the exception here — transformational change is very hard and very risky.
So we as an industry have a number of factors that I think make us very conservative in how we embrace technology. We’re risk averse, we’re very compliant, we’re built for stability and consistency, past is a predictor in terms of how we price, and we’re not necessarily incented to take huge risk as an industry around technology. So where are we being successful? Incremental decision-based types of things where we’re improving operational efficiency and effectiveness. While not earth-shattering, system upgrades bring success in that area.
Q: Does that make the industry vulnerable to outsiders who are looking to make transformational changes in the same way that Amazon transformed retail?
A: Here we are talking about new stakeholders with transformative investments and, historically, one out of 20, approximately, of those types of things have ultimately come to fruition and made a difference.
When I think of new stakeholders with transformative investments, I think ecosystems and platforms are going to be important. Aggregators, particularly in the personal lines property/casualty space, are very high in search engine optimization, very high with the average consumers. And then I think there will be some niche carriers/products, particularly in emerging lines of business, that make it through.
That being said, is that a real threat to our industry or is that part of the evolution of our industry? So does an incumbent carrier buy one of these carriers/products? Does a carrier or broker align themselves to an aggregator or platform? Clearly, all of these things could pose a threat, but I like to view them as an opportunity to look at our current business models and legacy to say these are new stakeholders who are transformative. I don’t think the transformations that are going to win during these efforts are going to ultimately be the demise of any carriers out there. I think if a carrier gets hurt, they did it to themselves because in the end you have to price the product, you have to sell the product, you have to manage loss cost, you have to get a decent investment return, you have to keep the customers you’ve got, and round and round you go. I don’t think these new stakeholders with transformative capabilities are going to eliminate the core of what we do as an industry.
Q: There’s a perception that insurers hold an awful lot of data in their systems, but they may not be making the best use of it. What do you see as the potential there?
A: Our research increasingly shows that those insurers who make purposeful investments in data and analytics and have the capabilities to use them, their share performance, premium growth, free cash flow are materially higher than industry average. However, you have to be purposeful. Less than 25% percent of carriers have a common data taxonomy. How can you ever hope to develop actionable insight and then drive it to the moment of value when a customer’s on the phone with you, or a claim has been acknowledged, or you’re trying to re-rate something without that? If you can’t drive it there, how can you ever hope to really use it?
In the total cost of owning a viable, impactful data warehouse or big data project, technology is the least amount of spend. If you do it correctly, the technology spend is less than 20% and 80% has to do with the process and the organization and the strategic intent. You can’t just throw money at the technology.
Q: There’s been a lot of talk about blockchain in insurance, but do insurance transactions need that level of privacy and security?
A: I absolutely can come up with use cases that do require it. But is it going to be across the entire value chain, all products, every geography, every channel? No. Sometimes there are overinflated expectations that something, anything is applicable to everything.
Q: Where would you see that use case?
A: Where you have a sharing of information between stakeholders where “coopetition” can be observed, meaning you need to cooperate sometimes but you’re a competitor at other times.
Sometimes we have to cooperate, and I don’t fully trust you, but I do need to share some information with you, and I’d like it to only be visible in a very discrete, limited way because it will create operational efficiency for improved effectiveness.
