Should I have a Technology Expert on my Insurance Company Board? - Larson And Company

By Andrew Wan, CPA, CFE

Yes! The answer is simply yes. There are currently key forces that are already disrupting the insurance industry, including new technology to minimize the cost of underwriting while providing customers with the ease of access through online and mobile purchasing, data analysis to provide even more competitive pricing, increased modularity in the insurance value chain with new combinations of players, and development of new insurance products for ever-changing technology risks. Carriers must plan carefully to address these disruptors in order to remain competitive in the market place. As such, it is essentially for carriers to have key technology experts on their Board of Directors to help guide them through this ever-changing landscape. The following are three factors of technology in an insurance company that make the need of a technology expert more essential on the board of an insurance company.

Ready for Change

Change is everywhere in the insurance industry. The local agent model is waning as carriers are interacting more directly with customers, at lower cost and often with more consistent service levels. Additionally, with the introductions of millennials into the workforce, the importance of mobile consumer experience vs. in-person or over-the-phone contact becomes a greater differentiating factor for these new consumers.  According to a 2013 report issued by McKinsey & Company, a management consulting company, within 5 to 10 years, they foresee the following trends in the insurance industry.

  • Most personal lines and small commercial customers will interact with their agents and carriers across the full range of channels: in-person, through mobile devices, and by phone, Internet and video conference.
  • Carriers will continue to use technology to increase their direct interaction with the primary customer, delivering more consistent service at a lower cost.
  • Agents will be compensated only for the unique value they deliver to the customer and the carrier.
  • Carrier agent management models in both the independent (IA) and exclusive (EA) channels will focus resources on those agents that deliver profitable business.
  • Winning agents will deliver tailored and relevant expertise and excel at multichannel marketing, while increasing their scale and operational efficiency.

It is now 2018 and we are seeing most of these come into fruition, especially in the auto-insurance industry. What was once an industry where one files their car claims to their friendly neighborhood agent is now replaced with mobile apps that helps you gather pictures and information for direct filing of claims with the carrier. Companies need to have board members that recognize these disruptions, monitor these technologies, and advise the company on how to adapt to these changes in order to remain competitive in this market.

Understanding the Importance of Data

While understanding the disruptive technology is one thing, an expert must also understand the importance of data to an insurance industry. Many insurers use a variety of legacy systems that are difficult to integrate. Often times, the first step and the hardest one for many insurance carriers to take is to determine how to best normalize and digitize their data that would be easy for integration. Without appropriately planning this important step, issues could plague many system enhancements for years to come. For example, if not designed appropriately, key information used for price determination may be lost, thus, potentially attracting adverse risk to the company. Therefore, the expert identified must understand the importance of the underlying accuracy of the data, its format, type of information maintained, and their correlation in order to know how to best advise the company on determining best criteria to establish for technology selections.

Cybersecurity Minded

Besides the government, what industry can you think of that has information on you and your family members’ social security number, age, sex, annual income, driving habits, medical issues, credit card and bank account information, address, work address, etc.? They can even predict when you will die! It is no wonder insurance companies are always a prime target for many cyber criminals. Additionally, much of the information stored by insurance carriers are regulated by HIPAA, PCI, and other regulatory standards. Carriers must be more vigilant in maintain a secure environment for such information. Any security breach could become detrimental for an insurance carrier. The technology expert must make a special effort to provide guidance to the company on industry best practices to mitigate any cybersecurity vulnerabilities. They should also guide the company in implementing an annual IT Risk Assessment analysis and help the Board of Directors interpret and understand these findings. Having an expert that is cybersecurity minded will be essential in ensuring the company is compliant to all regulations and protect against cyberattacks.

Conclusion:

If you are still wondering whether a technology expert is essential to the Board of Directors of an insurance company, we hope these 3 factors have convinced you otherwise. As we see it, in order for insurance carriers to stay relevant in comparison to other competitors, they need to continue to innovate without sacrificing on their security commitments. Having a technology expert will be key in helping the company achieve their future goals.

For more consulting advice for insurance companies regarding IT safety and security risks, contact Andrew Wan at awan@larsco.com.