Size Matters

In the last century, there was a popular saying in technology circles that went like this or some variation of it: “No one ever got fired for buying IBM.” In hindsight, it’s apparent that saying cut two ways:

In an earlier part of the century, it referred to IBM’s tried-and-true technology. Later in the century, even as IBM’s quality was eroding, it reflected the fact that IBM’s reputation for tried-and-true technology made it a safe, established choice, the fulfillment of an expectation, a hedge against taking a risk and failing.

We’re seeing similar things in the insurance industry.

In an earlier post about the evolution of insurance technology, particularly after Y2K, we wrote this:

Around 2015 … the term, insurtech, was coined to describe startups and technologies that aimed to enter the insurance industry with digital tools like big data, AI, and mobile apps to make processing and acquiring insurance faster, cheaper, and more user-friendly … it’s easy enough to imagine some point in the future at which today’s core-processing systems and insurtechs might be seen as so many chickens and eggs. And we won’t care what came first.

 

Larger insurers may still choose to work with larger tech vendors that are still considered to be safe choices. But given the evolution of insurance technology, smaller vendors are getting more opportunities to play up, so to speak.

Performance Counts

Smaller vendors have higher degrees of agility, responsiveness, adaptability, and personalization than larger vendors; that is, their customer focus can yield higher satisfaction rates than the more impersonal service models of larger vendors. They also have lower degrees of bureaucracy and lower costs. That means they can respond more quickly to market trends, regulatory changes, and emerging risks than larger vendors that may be hindered by legacy systems and longer development cycles.

Generally speaking, the more standardization, the better. But if insurers require customization, smaller vendors provide more flexible, client-driven opportunities that enhance the satisfaction of the insurer and enable insurers to satisfy and retain policyholders. They also help streamline processes like underwriting, claims processing, and policy administration through automation and predictive analytics that reduce manual work, errors, and overhead. Those benefits are particularly important to cost-sensitive insurers, as are the lean structures, lower implementation costs, and faster ROI of smaller vendors.

Smaller vendors may help insurers reach niche markets and underserved segments like millennials, gig workers, or small businesses by broadening distribution channels like mobile apps or embedded insurance, letting insurers create new revenue streams more nimbly. And they often integrate advanced tools for precise risk grouping, fraud prevention, and secure record-keeping for more accurate pricing and better risk mitigation, compared to larger vendors that may rely on outdated data practices.

What’s Your Play?

Obviously, decisions are subjective things. Business decisions must be carefully considered and fully informed. But we’re not talking about IBM anymore. And yesterday’s risk may be today’s safe bet.

What’s your play? Please let us know if we can help you decide.