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We spoke to Daniel Fogarty, Founder & CEO, Evari about opportunities and strategies for insurers to embrace tech disruption, drive collaboration and become more customer-led in the digital age.
Daniel was the former CEO of Zurich, ANZ, and has since co-founded the InsurTech start-up, Evari, as a new way of delivering general insurance cover to small businesses. Daniel is a Director of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF), and has worked in general insurance for over 15 years, preceded by 15 years in other areas of financial services. He has held executive positions at Zurich, Suncorp and Westpac, and is also a former Board Member of the Insurance Council of Australia. Daniel has a Masters from Stanford University Graduate School of Business and a Bachelor of Commerce from the University of NSW. He is a Chartered Accountant, a Fellow of ANZIIF, a Fellow of FINSIA and a member of the Australian Institute of Company Directors.
Innovation & disruption
Q: Collated data from the report indicates that innovation is overwhelmingly the top business priority for insurers, with 90 per cent of companies indicating this. What do you think companies should be doing to leverage innovation and drive business growth?
A: It’s not just about driving business growth – innovation is required across the value chain. Companies should be looking at how innovation can deliver a better customer service and drive cost management, as both of these elements are fuel for future growth.
Customer expectations are changing, so insurers have to meet these changing expectations head-on. These expectations aren’t being driven by insurers; they’re being driven outside of the industry. They’re being driven, for example, by the pace of delivery of other services and by interactions on mobile phones. People now expect to do everything on their mobile device, so why can’t they do their insurance here too? Customers also expect services to be delivered really quickly. The speed of delivery of other services has accelerated and therefore the speed of insurance has to accelerate. So, I’d say that innovation is going to touch every part of what we do in insurance. Innovation is being welcomed by insurers and by customers alike, and will be the fuel for future growth.
Q: With new market players like yourself (InsurTechs) shaking up the industry, why do established players need to innovate to remain cutting-edge, relevant and competitive? And are partnerships with InsurTechs the answer?
A: Insurance is different to other industries, in that the level of partnering is significant. We are seeing many large insurers investing in or looking to partner with InsurTechs. This is based on the core of the insurance business – that is, we take huge amounts of risk, and we share that risk with others. The very nature of our industry is about working in partnerships. This is also happening in the InsurTech space. There is a long list of insurers investing in InsurTechs.
Have InsurTechs actually threatened to shake-up the industry yet? The jury is still out on that. When you look at the proportion of customer business going through InsurTechs compared with business going through the more established players in the industry, the InsurTech’s share is minuscule.
So InsurTechs are not shaking up the industry yet, but there are huge opportunities to do so. When large insurers partner with InsurTechs, they learn more about what the InsurTechs are trying to do and that will create a competitive advantage.
I believe Australia has a great opportunity in the InsurTech space and the capability to lead the world. We have a well-developed insurance industry by international standards, as well as experienced and smart people; access to tech; increasing access to capital; and the appetite and marketplace that’s prepared to try new things.
We have all the ingredients for a booming InsurTech industry, and we’re seeing insurers and the broking industry actively exploring this space. In Australia, we have a growing InsurTech community, especially in Sydney and Melbourne, as well as meet-up groups and lots of start-up shared working spaces, like Stone & Chalk and Tyro, who are actively promoting the start-up culture.
But Australia is not yet a leader in FinTech, of which InsurTech is a sub-set. Interestingly, in a 2017 report published by Thomson Reuters from research by the Institute of Financial Services Zug about the best FinTech centres in world, Sydney ranked as number 12, behind three major Asian cities (Singapore at 1, Hong Kong at 5 and Tokyo at 11). So regionally, if we want to be the leader in both FinTech and InsurTech, we have much further to go.
Q: How can companies disrupt internally to drive business growth? I.e. Through customer-led products/services, collaboration, a strong innovation culture, etc?
A: Disrupting internally is really difficult to do. Think about a large company. There are usually several parts of the business that generate the profit to reward the shareholders. Often these are the parts of the business that need to change. Big insurers are today’s profit engine, but it’s hard for them to say “we should change” – and they may not be tomorrow’s profit engine.
There are a number of insurance businesses setting up innovation labs or managing innovation off to the side of the major business, as testing grounds. They aim to use the strength of the company, whether it be in areas of data or distribution, or their balance sheet, to help these innovation centres to create and drive new business growth.
When there are signs of success, they start to move the company in that direction.
Still, it’s a challenge for the big companies to do this, which is why I think there should be a bigger start-up community. That way, firms can invest in these start-ups and watch them grow outside their business. If they are successful, they can then be brought in-house.
If a company wants to disrupt internally, then the main thing they need to do is really immerse themselves in what the customer needs and try to not be constrained by the current environment in the business. That is, they shouldn’t be constrained by current systems, underwriting practices, focus areas etc, but immerse themselves in what the customer needs and then try to solve those problems, which will lead to more innovation.
Regulation & compliance
Q: In an environment of strict regulatory/compliance requirements, our report findings indicate that about half of companies are placing compliance at the forefront of their growth plans. How can companies drive innovation while also adhering to necessary regulatory/compliance standards?
A: Adhering to regulation and compliance frameworks is an absolute must; insurance is a highly-regulated industry and it will remain so.
As the ex-CEO of one of the larger insurers in Australia, I have a lot of experience in this area. One of my business partners was previously the head of risk in banking, so we have had regulation and compliance expertise at the very core of our founding team. And not surprisingly several of our early employees have significant expertise in this area as well. For me, it’s a must of doing business.
The challenge arises when regulation doesn’t keep pace with what’s happening in the market. ASIC/APRA are aware of this. ASIC have established their Digital Finance Advisory Committee to help inform their focus in the sector. APRA have a watching brief, which for me is a bit too reactive. I would prefer for them to be more proactive, because I’m worried about us losing our march against Asia/other regions and a watching brief is not proactive enough. The regulators should be thinking ahead in this space.
Q: Regulation is considered by many to be a burden and an overhead. What are some positive outcomes of meeting regulation head-on, rather than treating it as a burden?
A: Compliance and regulation should be a company-wide initiative. So, going back to what’s at the heart of regulation, look at the definition of what ASIC is there to do, which is to: “contribute to Australia’s economic reputation by ensuring the financial markets are fair and transparent, supported by confident and informed investors and consumers.”
ASIC are working to do the right thing by the Australian industry. APRA’s role is to: “promote financial stability by requiring institutions to manage risk prudently so as to minimise likely financial loss to policyholders” and others. Regulators are coming from the space of doing the right thing by the consumer; doing the right thing by the market.
The firms who do best are the ones who are embracing compliance and regulation as a core part of their culture. It should be a ‘come-to-work’ activity that means, “I’m going to do the right thing by my customers today and the right thing by the insurance providers.” Companies that embrace this head-on will get the better outcomes. Don’t treat regulation like a burden; treat it as a core part of doing business.
Talent acquisition & offshoring
Q: Collated data from the report indicates an industry-wide push towards offshoring to reduce financial overheads. How do you think moving offshore will impact talent acquisition and retention for established insurers?
A: It’s one of the reasons why I joined the board of ANZIIF. There are a couple of challenges going on in the industry and one of them is a shortage of very experienced insurers – that is, people who have 10-15 years+ of expertise. And if you look at how these people got to that level, many started in entry-level roles in the industry. One of my concerns is that all of those entry-level jobs are going offshore, so there are less of these jobs available for local people to come into.
It’s a well-known fact in the industry that many people ‘fall’ into the industry. I’ve done my own straw polls on this and invariably 90 per cent of people say they fell into insurance. I fell into insurance myself; I was in banking and was placed in the bank’s insurance division, almost by accident. Once people get into insurance, they realise it’s a great career as you’re servicing people’s needs and it’s intellectually challenging.
Given that many people start in those entry-level jobs almost by accident, if we don’t have these entry-level jobs available because they’re being offshored and outsourced, then we really need to push harder to make sure we get new people coming into the industry. Traditionally, not many people pick insurance as a career choice option and there’s a challenge for us to make this happen more often (see ANZIIF’s Careers in Insurance website: https://careersininsurance.com.au/).
On the InsurTech side, to give an example of our business, we are now at 11 people and the majority have recently entered the industry. We’re a technology company that have brought people with technology and customer experience design backgrounds, and then provided insurance training. Bringing people from outside insurance, helps us challenge established ways of doing business. I see more and more InsurTechs as the source of new talent for the industry.
Q: Many companies are uneasy about offshoring, perceiving the loss of local talent as a loss of internal knowledge and capabilities. Do you feel that offshoring is taking the industry in the right direction, and why?
A: Offshoring is happening, so it’s hard to say if it’s good or bad. Obviously, from an expense point of view it can be advantageous, as labour in Australia is expensive. So, getting less expensive labour is working well for some businesses. Getting the right support offshore, though, is a challenge. Some businesses have offshored services thinking it will work out really well, but they end up more problematic than first thought. I would be asking, is there an opportunity to automate, rather than go offshore? If processes can be done automatically, they can be done reliably and then serviced by people at the next level of competence.
In Australia, one of our biggest exports is education. Through offshoring, one byproduct is educating insurance industries elsewhere in the region, so there is an increasing number of people in Asian countries who understand insurance better. This is a talent pool for the global industry and maybe in the future, some of these people will bring their expertise back to Australia.
This is another reason why I see it’s so important to have a viable InsurTech hub in our country. If we develop a hub here and then export Australian ideas and talent to Asia, then we can leverage that talent to grow Australian business interests in the region.
Technology, data & the customer
Q: With Telematics and Big Data disrupting traditional ways of doing business, insurers are investing in these platforms to better track customer metrics. How can new technology and Big Data help insurers be more customer-led?
A: More access to information is critical for the insurance business. So, while we’ve got new technology and Big Data, it’s really about whether the data is actually usable from a business perspective.
The challenge is that there is so much data out there, and not all of it has the same level of accuracy. I definitely think technology and Big Data can help insurers become more customer-led. It really then flows into how businesses can manage their data, so that they can gain a competitive edge.
Q: There is rising uncertainty across the industry regarding how the IoT will impact the assets insurers are protecting for their customers. What impact do you feel the IoT will have on insurers? What strategies should companies be using to get future-ready?
A: It comes back to good data that can be used to better price and service customers, and with the IoT comes better information about activities and risks.
For example, an IoT device in a car provides telematics information which enables a better understanding of how people drive, and therefore a better understanding of the risk. Also monitoring itself can change behaviour. If people know they’re being watched, behaviour changes and then limits what people might do that’s not right.
So what impact will the IoT have on insurers? It can have a great impact. Companies need to consider how to use this data effectively, with the right products.
A potential challenge for the industry is customers who refuse to be monitored. So, does that mean only the good drivers or those with a good driving record will get a discount and all others get higher premiums? How do we deal with those people with higher premiums? Does that mean more people become uninsured? That may lead to other problems, because as the whole industry tries to determine better pricing, those at higher risk could become harder to price.
There are underlying issues here, which I’m sure regulators and governments are quite interested in. For example, there is an ongoing issue with Far North Queensland. As a potential high-risk area, how should this be dealt with?
A benefit for the IoT data and more useful data in general, is that it can help governments, communities, businesses and consumers manage risk to protect themselves; and to manage risk upfront. With customers managing themselves, this can lead to less claims, and flow into lower pricing.
Q: The report findings indicate that the majority of insurers believe increasing technology take-up will boost productivity and ROI going forward. How important is technology in progressing companies, as well as the industry as a whole?
A: Technology is absolutely critical, and I would have answered exactly that way in my previous role with a large insurer. Obviously, in an InsurTech, I can see the power of technology. The benefit of an InsurTech is they don’t have old systems to link back into. At Evari, we are basing ourselves around the customer. How can we deliver the best customer experience, and how can we solve the customer’s challenges about buying insurance and servicing their insurance needs? We are focused on the customer, rather than being focussed on how everything links into the back-end system.
Unfortunately, for many big insurers, the back-end systems are old technology that have less flexibility. Insurers have been working out how they can divide up their back-end, so they can better meet the needs of their customers, collect data, and drive better pricing outcomes and customer experiences.
Moving forward, continuing to invest in technology is absolutely critical to success. That’s where the threat from InsurTechs arises, because InsurTechs have a brand-new technology stack, building everything in the cloud. At Evari, we are using Amazon Web Services. The cloud is becoming a well-worn path for many, and it means getting great flexibility and using the latest technology programs to operate in a much more efficient way.