There is a lot of excitement around InsurTech. According to CB Insights, the number of funding deals in InsurTech increased from 91 in 2014 to 173 in 2016. Investment in Q3 of 2017 was 35 percent higher than in Q3 of 2016. This high level of investment, support, and excitement is bound to bring innovation into the insurance industry in general and the technology related to insurance in particular.

At the same time, the insurance industry has not been on the forefront of technology innovation or adoption. Traditionally, insurance companies have been very risk-averse and conservative when it comes to experimenting with any new technology. They wait for other industries to adopt any disruptive or new technology and allow it to mature before they start adopting it. Even when a new technology is embraced, there are companies that adopt them quickly (the “early adopters”) and others that wait until they cannot live without it (the “laggards”).

InsurTech offerings can be categorized into two major groups— Evolutionary and Revolutionary. Evolutionary offerings are the “General Technology Trends” such as Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Artificial Intelligence (AI), Internet of Things (IoT), Cloud Computing, Big Data, Advanced Analytics, Machine Learning, etc. In addition, this category includes “Insurance Industry-Specific Technology Trends” such as Automated Underwriting Engines, Modern Policy Management Systems, New Claims and Billing Systems, etcetera.

Revolutionary InsurTech offerings present more “Disruptive Trends.” These include innovative insurance products such as Peer-to-Peer Insurance (Friendsurance), innovative metering (Trov), innovative processes (WeGoLook), and innovative hardware (Plumis), or innovative technology such as AI-based automobile damage assessment through analysis of photographs (NGRAIN).

As InsurTech companies bring in innovation to all spheres of the insurance industry, from new products to novel ways of distributing these products, there will also be innovation in all aspects of the insurance process chain, from marketing to fulfillment and from underwriting to claims processing. At the same time, a number of insurance companies are still using legacy systems to run their business. A few of them have roadmaps to modernize their technology and others are in the process of creating such plans. A key challenge these companies face is figure out how to leverage opportunities generated by InsurTech during and post modernization phase.

As InsurTech provides focused solutions for specific problems, integration could be a lot easier if there is an API Management layer in place

These technology modernization roadmaps must have a few key provisions that will position them to leverage current or future opportunities that InsurTech may offer. These provisions will position the insurance companies to not only survive but also thrive in the age of InsurTech. A legacy modernization strategy must have the following key aspects to leverage the opportunities presented by InsurTech companies

a. Robust API Management Framework with DevOps
b. Data Lake
c. Flexible Business Process Management (BPM) Layer

API Management and DevOps

A review of recent InsurTech startups reveals that most of them are working on a narrow niche. They are trying to solve a specific problem using cutting-edge technologies. As InsurTech provides focused solutions for specific problems, integration could be a lot easier if there is an API Management layer in place. Unless a legacy modernization strategy is based on the deployment of a large do-it-all system–which I recommend against–an API Management layer is critical to legacy modernization. It will not only make integration of best-of-breed (or best-fit-for-purpose) systems easier but will also add agility for the future. As any one of these systems becomes obsolete, a new one can be integrated with ease. In addition, DevOps will reduce the cycle time to implement new solutions in production. It should not take an 18-month project to adopt an InsurTech innovation. With time, not all startups will survive. If you were an early adopter of an InsurTech that could not “cross the chasm,” an API Management layer and DevOps will allow you to replace it quickly and inexpensively.

Data Lake

There are a significant number of InsurTech companies developing ways to leverage data to provide solutions. These include innovative ways to use data to underwrite risk, develop new products, rate risk, and identify fraud, among others. Such solutions, if reliant on your data, are only as good as the data itself. It is important to create a Data Lake of policy, billing, claims data and key transaction events as a part of legacy modernization with a somewhat defined approach to utilizing this data. Data Lakes are easy to build. InsurTech would help you leverage this data with ease and will avoid your Data Lakes from turning into “Data Swamps” (unused or unusable Data Lakes).

BPM and Digitization

The insurance industry has been paper heavy for decades. Regulatory requirements and processes that were developed years ago still rely on paper. Most insurance companies keep a lot of paper in their offices or at an archival facility. A legacy modernization strategy must include digitization along with the implementation of a Business Process Management (BPM) layer. If digitization of old records turns out to be expensive, it would make sense to move to the digitized world for only new business and renewals. As InsurTech develops new paradigms to conduct business, radically changing current business processes, a flexible BPM layer will allow insurance companies to adopt such solutions with ease. Backend digitization will allow companies to leverage new technology trends such as machine learning, artificial intelligence, IoT, and advanced analytics.

InsurTech is more than just hype—it provides real value to an industry segment that has traditionally lagged behind others in the adoption of technology and innovation. It is changing insurance dramatically. It is only a matter of time before today’s naysayers and laggards will be extinct from the marketplace as InsurTech companies evolve and enter the space. Companies with legacy technologies must act, and do so quickly. Legacy modernization will not only help them stay relevant in this new age but will also allow them to flourish and grow.