North America: Insurtechs raise the bar for customer service and lower it for price

Our North America profile combines quantitative insights derived from our global survey, some of which we covered in our earlier post introducing our Regional Profiles, and qualitative perspectives from our two in-region commentators:

  • Chicago-based Stephen Applebaum, Managing Partner at Insurance Solutions Group
  • Boston-based Matthew Josefowicz, CEO at Novarica

Firstly, a quick overview of the salient stats from our survey, as they manifested themselves in North America ...

Key Stats: A Quick Recap

--- i) The External Challenges: North America


In North America, the top external challenges for the insurance sector as a whole follow the global trend from our earlier post on Industry Challenges, with ‘Technological advancement’ and ‘Changing customer expectations’ taking 1st and 2nd place respectively, except that in 3rd place we find ‘New emerging risks’.

In comparison, this comes 4th globally and only makes 6th place in Europe – which, as we indicated in our Europe Profile, likely reflects some parts of the world being more exposed to disasters (and hence concomitant risks) than others. Further down the table, 'Increased competition' moves up a place, knocking 'Increased regulation' down one spot to 7th.

--- ii) The Internal Challenges: North America

Looking internally, the top challenges reflect the global trend we outlined in our earlier post on Industry Challenges, except that ‘Legacy systems’ wrests the top slot from ‘Lack of innovation capabilities’ (which, by way of comparison, comes first in Europe and Asia-Pacific).


Innovation is, at its heart, customer-driven, so, in the course our Regional Profiles, we compare the insurer-customer relationship in North America with what we find in our other key regions – and this may well explain the different positions ascribed to ‘Lack of innovation capabilities’ in their respective challenge tables. The parallel suggestion is that ‘Legacy systems’ play more of a role in North America, which is another theme our North America profile explores.

--- iii) Insurer Priorities: North America

These are the priority areas on which North American insurers lead our other regions, out of our shortlist of 15 priority areas as presented in our earlier post on Insurer Priorities:


--- iv) North America Top Trumps

The table below is in the style of Top Trumps, with a regional score for each characteristic — we have tables for Europe and Asia-Pacific in their respective profiles too. A full explanatory key is included within the full Trend Map, which you can of course download for free whenever you like.


Today's discussion of North America falls into 5 short chapters:

  1. Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending Insurtech disruption
  2. The rise of the ‘new consumer’ and how this is changing the insurer-customer relationship
  3. Customer-centricity as the prime mover of distribution and product
  4. The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
  5. How insurers are to unlock new sources of growth in a mature market


1. In the Eye of the Insurtech Storm

North America, as we have defined it (that is, the USA and Canada), has a total population of around 350 million people, making it one of our smaller markets at less than 10% the size of Asia-Pacific. Not only are we looking at a smaller population, but it also has the biggest middle-class skew of any of the regions we deal with in the course of our Regional Profiles

This is predominantly a market of existing customers, and the low-end market opportunity is much less substantial than in Asia-Pacific, Africa and LatAm for instance (get our dedicated profiles for all these regions by downloading the full Trend Map here).

So, while insurers in the developing world have to juggle the needs of an emerging middle class and those of the uninsured millions (often microinsurance candidates), in North America they can focus more single-mindedly on retaining and growing the custom of their existing policyholder demographics. Unsurprisingly then, North American respondents exhibited the most focus on customer loyalty of all our regions.


North American respondents exhibited the greatest focus on customer loyalty out of all our regions


See also: Insurance Nexus Global Trend Map #8 Marketing and Customer-Centricity

This focus on the existing business has become paramount with the continued pressure (re)insurers are facing from low interest rates (admittedly, a global phenomenon), which is limiting the returns they can make on their investments and shining a spotlight on the profitability and sustainability of underwriting practices.

‘The real challenge is focusing on the underwriting itself and using data, analytics and market segmentation in order to really maximise underwriting profitability,’comments Novarica's Matthew Josefowicz.


Insurers must now contend with new market entrants, such as Insurtechs, who raise the bar for customer service and lower it for price ...


Insurance has always been a cyclical industry in this sense, moving with interest rates, so insurers – at least looking at the big picture – are used to periodic readjustments. However, this time is shaping up to be different in the sense that their underwriting market is no longer being served to them on a plate in quite the same way as before. Insurers the world over must now contend with new market entrants, such as Insurtechs, who are raising the bar for customer service and lowering it for price.

"Innovative products and the market segments they support are underpinning the design of new Insurtech business models, with companies like Lemonade, Slice, TROV, Cuvva, Surify and others establishing new model footholds in the market."

Denise Garth, SVP of Strategic Marketing, Industry Relations and Innovation at Majesco

While insurers are already having to up their game in order to keep their underwriting customers, the overall turn towards Insurtech is still in its infancy and also varies considerably from region to region. So, at what stage is this customer-led disruption in North America?

The indicators we have gathered across this content series lead us to believe that North America is late – though only marginally – compared to Europe and Asia-Pacific, and we will substantiate this perspective in due course.

Looking at things at the highest level, our most telling stat is the ‘disruption score’ for North America, from our earlier Insurtech Perspectives post. Only a quarter of (re)insurers in North America indicated that they were losing market share to new entrants, whereas this figure rose to nearly half of (re)insurers in Asia-Pacific (something we explore in our forthcoming Profile for Asia-Pacific).

Whether interpreted literally or as an indication of carriers’ current mood, this implies that disruption – while certainly present – has not yet reached the fever pitch in North America that it has elsewhere, and potentially explains the lower prominence assigned to ‘Lack of innovation capabilities’ among the internal challenges for the region (see the opening section of this post, as well as our introductory post the our Regional Profiles).

See also: Insurance Nexus Global Trend Map #2 Insurtech Perspectives

Speaking primarily from a P&C/General perspective, Stephen Applebaum acknowledges that the USA market at least may be somewhat of a laggard, although he is careful to distinguish it from Canada. He places the Canadian market ahead of the USA in terms of innovation and technology adoption.

Applebaum ascribes the notional leadership of the Canadian market to a mixture of culture, infrastructure and population size (Canada having approximately 10% of the population of the USA). We also call attention to Canada’s different approach to the broker market, its different regulatory regime and its different methodologies for data exchange. All of this said though, the sorts of consumer needs insurers in each market are trying to serve are fundamentally the same.

Access all seven of our Regional Profiles straight away by downloading the full Trend Map here ...

In any case, regardless of where the North American market stands today, Applebaum believes that a huge amount will change over the coming 18 months and beyond. This is due partly to the steady globalisation of technology (Applebaum cites as an example of this the recent push by Italian Octo Telematics into the US market), partly to the size of the prize inevitably attracting takers.


This prize would appear to be more tantalisingly poised in the US than elsewhere, if indeed there is a slight lag in that market, as this makes it easier still for light-footed new entrants to outflank incumbents and capture market share. We have seen the rise of several high-profile Insurtechs in the USA, such as Lemonade on the home-owner and Insureon on the small-business side, and we note also the recent estimate that nearly half of investment money for Insurtech in 2016 went to US companies.

"You have to change your culture and embrace experimentation. We’ve set up labs around the world where we incubate innovation. It’s about embedding it through the employee base and being attuned to the customer. And it has to be top down to be effective."

Cindy Forbes, EVP & Chief Analytics Officer, Manulife Financial

If this gives the impression of a silently massing army waiting to storm the sleepy, unguarded border forts of insurance, then that is certainly a long way from the truth. Incumbent insurers in the USA are waking up to the threat of disruption in a big way. Applebaum, once again talking primarily from a P&C/ General perspective, explains the twofold consideration going through insurers’ minds:

‘The first point to remember is that, while disruptors may still represent less than 5% of the P&C insurance market today, 5% of $200billion is a significant amount of revenue lost from the traditional carriers,’ he states. ‘And the second point is that the rate of growth seems to be accelerating fairly rapidly, so that what is 5% today could very well be 25% five years from now, and that suddenly represents a material challenge to the industry. Nobody is ignoring it because they know that the adoption curve is going to look like a hockey stick.’

This recognition on the part of incumbents is finding expression in their recent Insurtech investments – so it is misleading to interpret the high investment figure we invoked earlier as signifying only what is stacked against insurers. One of the main reasons it is being driven so high is in fact because of legacy insurers trying to get in on the action. 

Josefowicz, whose clients at Novarica include numerous Fortune 100 insurers, also acknowledges insurers’ growing preoccupation with Insurtech.

‘The number of insurers that have internal development funds and investment funds is skyrocketing, as everyone is trying to stay in touch with all these new developments and approaches to using technology in the industry,’ he explains.

‘I don’t think it’s that the insurers believe the companies they’re investing in are going to be the next Facebook or Snapchat but I think they do believe that these companies are going to show them the way and they’re going to be able to learn a lot from them. Not just in terms of how to engage with customers but also how to use analytics and digital channels effectively, as well as all kinds of innovative practices that are difficult for a mature company to come up with on its own.’


"The Insurtech space got crowded in the last 18 months, with significant funding for new entrants. Now the rubber's hitting the road as startups bring products to market. It should be interesting in the coming year to see who's able to navigate the world of regulations and carrier relationships, and whether they're able to do it at scale."

Ted Devine, CEO at Insureon

Get the complete profile for North America straightaway as part of the full Insurance Nexus Global Trend Map ...


2. Rise of the ‘New Consumer’

As intimated in the foregoing section, the 21st-century customer represents the ground on which Insurtechs stand to challenge insurers: by raising the bar for customer service and lowering it for price. In line with this, both Josefowicz and Applebaum identified changing customer expectations – that is, how customers want to buy insurance and interact with insurers – as a key challenge for insurers in North America.

"Insurance in the US has long been a product-driven, not a customer-driven industry. Faced with high churn and the spectre of ambitious new market entrants, insurers are finally waking up to the need to better engage and service customers. To this end, we are increasingly seeing the creation of cross-functional customer-experience teams within carriers."

Mariana Dumont, Head of New Projects at Insurance Nexus

We are witnessing what Applebaum describes as the rise of the ‘new consumer’, and he believes furthermore that this is the number one challenge facing insurers in the region:

'It’s not only the millennials and the emerging demographic groups but basically the new customers who are almost always connected digitally,’ he elaborates. ‘They have come to expect that all of their interactions will be digital.’

In our section on Marketing and Customer-Centricity, we characterised North American insurers as having a marginally less 'problematic' relationship with their customers. While the customer certainly remains a core strategic priority, respondents in this region are marginally less focused on it than in Europe and Asia-Pacific. Below are certain measures that bear this out:

  • North America achieved the lowest priority score for ‘Customer Centricity’ out of all our global regions (see our earlier Insurer Priorities post)
  • Chief Customer Officer was a relatively unimportant new appointment within North American companies, at least compared to the prominence attained by Chief Information Security Officer, Chief Data Officer and Chief Analytics Officer (see Services, Investments and Job Roles)
  • In our regional assessment of internal challenges (see Industry Challenges), North America is the only region in which 'Lack of innovation capabilities' fails to make the top spot

At the end of our section on Marketing and Customer-Centricity, we tentatively concluded, based on this constellation of factors, that North America has been fractionally late on the current customer-led disruption of insurance compared to our other regions; if customer expectations are more easily met, then this will result both in the customer rising less high up the priorities ladder and in current levels of customer-centricity being deemed more adequate. This is of course a question of degree, as the customer is still critically important to North American insurers – as we shall see!

‘I think that in a lot of ways North American consumers are behind other advanced markets when it comes to insurance,’ comments Josefowicz. ‘For example, in the UK a large portion of small-business insurance is now bought online. Here, that’s still very much an emerging segment of the market. The heavy shift to direct auto purchase in other mature markets is evident here but not quite as developed.’

At various points in this report we have tied the current consumer-led disruption sweeping through insurance (and all consumer industries for that matter) to changes in distribution. Digital channels have given new, non-traditional players with alternative products and services access to insurers’ customer base. This added element of competition – on both price and customer service – has fundamentally changed the way customers relate to all the products they buy, and this in turn is driving change within the insurance industry.


Digital channels have given new, non-traditional players with alternative products and services access to insurers’ customer base.


In line with this view, and with our hypothesis that disruption has not yet arrived with full force in North America, we expected the distribution landscape here to be relatively more stable than elsewhere. This is indeed the impression that we have received:

  • Among our three key regions, the direct digital channel appears to feature least prominently in North America
  • While our respondents in all our geographies were increasing their distribution through affiliate partners, our broader research points to this channel being less well developed in North America than in, for instance, Europe and LatAm

"Digital direct is new in Canada and there’s a certain profile that it’s most suitable for. We are looking to target and attract the right customer. Then we want to capture as much data as we reasonably can along that journey so we can attract and convert customers while also understanding what’s working effectively to optimise our marketing efforts."

Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance

These measures suggest that traditional channels are indeed relatively more in intact in North America than elsewhere, and this may be more the case in the USA than in Canada. Josefowicz puts this down in part to the innovator’s dilemma, whereby the need to innovate is mediated by the fear of cannibalising the existing business:

‘If all your money is coming today through the broker channel, it’s very difficult to plan for a future where that’s not true, without disrupting the present,’ he explains.


As customer behaviours continue to evolve, we expect to see growth across North America in the direct-to-customer channel. This, along with the steady growth in affiliate channels, will increase the number of channels that North American insurers must manage.

‘I think that the US will start to look more like Europe in terms of the distribution models across the different product lines,’ Josefowicz comments.

‘We don’t believe that intermediary distribution is going to disappear in North America but it is already losing its monopoly hold on the market. So what insurers are going to be dealing with is not a future where everything is direct, but a future that is much more multichannel.’


3. A ‘New Insurance’ for the ‘New Consumer’

In Part I of our Regional Profile for North America, we identified the rise of the 'new consumer', who expects and seeks out on-demand digital interactions, as representing both a challenge and an opportunity for incumbent insurers.

It is not enough just to focus on customer-centricity in a broad sense ... If, as we have suggested across this content series, distribution disruption is the root of customer disruption, it is on this ground that insurers must stand and fight. This makes distribution into a key axis of insurer response as they seek to prevail over their new-age competitors.

It unsurprising, then, that we discern a fresh strategic focus on distribution from our North American correspondents:

‘Every major, every top-tier P&C carrier is actively developing multi-channel communication capabilities and multi-channel distribution capabilities,’ states Stephen Applebaum, Managing Partner at Insurance Solutions Group.

This is far easier said than done, given the legacy constraints that insurers find themselves under, which we explore below in the next chapter.

‘Insurers’ infrastructure, which has been built over literally hundreds of years, never anticipated having multiple channels of communication to support, so insurers are scrambling to learn how to do that,’ Applebaum continues.

‘In the past, it was a paper-based business and the postal service was the method of communication, or the agent was the method of communication. The role of the agent is dwindling, as is that of the post office in P&C insurance.’

There is a risk that insurers attempt to become all things to all people from a distribution perspective, dissipating their energies, and the task of transforming distribution will certainly be a much more manageable one if they can focus their efforts on what really works for their specific customers and products.

‘Different segments of the market and different products imply different distribution methodologies – so it’s a matter of dealing with increasing complexity,’ summarises Novarica's Matthew Josefowicz.

While distribution is arguably the centrepiece, the heightened demands of 21st-century consumers in fact apply to the entire customer journey from start to finish. It is not enough to give customers the option of researching, buying and accessing their products via digital channels in addition to physical ones – the entire interaction must be as frictionless as possible, and all of this irrespective of access device. Applebaum gives us some context around what this means for insurers:

‘Whether it’s filing a claim through an app on their phone or receiving a claim payment electronically to an app or to their bank account, or even just exchanging information like adding another vehicle to the policy, today’s consumers don’t want to have to make phone calls and they don’t want to send emails. They basically just want to exchange digital information as quickly and efficiently as possible.’

Encouragingly, most North American respondents indicated that they had digital, mobile and cross-platform strategies in place (see our earlier post on Digital Innovation).

"Insurers must focus on removing the friction points customers encounter in their interactions if they wish to meet the needs and expectations of their customers. Processes and customer interactions need to be redesigned from the customer’s point of view."

Cindy Forbes, EVP & Chief Analytics Officer, Manulife Financial

Friendly interfaces with high usability go some way towards eliminating friction from customer experience but the greatest improvement is to be wrought at the back end, by achieving transparency and straight-through processing. The analogy of the retail industry (as it moves towards e-commerce) is once again instructive: what matters to retail customers is not always the absolute speed of their order but often their ability to track its progress. Offering this level of immediate insight to customers – as well as satisfaction – generally requires some level of automation.


The analogy of the retail industry (as it moves towards e-commerce) is instructive: what matters to retail customers is not always the absolute speed of their order but often their ability to track its progress ...


If we take claims as an example, we see that automation does not imply that the whole process is automated across the board, rather that enough is automated to provide clarity on the status of a given claim.

Some simple claims will be dealt with automatically, while, for more complex claims, customers can be provided with a working estimate for the resolution time – the key point in each case is the clarity and feeling of control that customers are left with. In our post on Claims, we registered a moderate degree of automation among North American respondents, in line with our other regions.

In addition to a seamless, zero-friction experience, customers are also demanding personalisation, and in the context of insurance this applies first and foremost to range of coverage and premium price. Usage-Based Insurance (UBI), which we went into in greater depth in our Profile on Europe, is a fundamentally ‘new’ insurance for the ‘new consumer’. Formal UBI strategies are only acknowledged by a minority of North American respondents but this is consistent with our other key regions (for more on UBI, see our earlier posts on Internet of Things and Product Development).

The premise of UBI is that insurers can leverage real data on individuals’ actual usage (for example of a car) to tailor prices and ultimately incentivise better risk behaviours. The two key ingredients here are data and analytics.

See also: Insurance Nexus Global Trend Map #5 Analytics and AI

Analytics was in fact one of the priority areas that North America led on in our Insurer Priorities section. A majority of North American insurers also reported increasing their investment in this area, and the salience of the Chief Analytics Officer role in the region has already been noted (see Services, Investments and Job Roles).

"The whole business understands the value of what analytics can help deliver. In traditional businesses, this seems to mean reports, hundreds of them every month that are mostly rearview mirror. Getting intelligence out of that is what many companies should be focusing on and then making use of it."

Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance

As for data, this is available from a variety of sources. In North America, we find well-established the use of third-party aggregators as a supplement to first-party data, although this data is often neither personal nor in real-time (two key criteria for UBI). 

The pre-eminent ingress for UBI data must remain IoT, which appears not to be quite as well-established in North America as in our other regions. Revisiting our Insurer Priorities section, we should point out that, while IoT was not ranked highly as a priority in any of our global regions, it came out lowest in North America with a rank of 13th (compared to 10th in Europe and Asia-Pacific). We also suggested in our Internet of Things section that Europe has the lead in terms of platform implementation.

"With connected devices becoming more and more ubiquitous, the availability of data is increasingly a nonissue. The next hurdle for insurance carriers in North America is finding ways to incentivise customers to adopt IoT solutions and part with their personal data – and this requires careful investment in building customer engagement."

Emma Sheard, Head of Strategy at Insurance Nexus

These measures aside, Applebaum is quick to point out that all the familiar consumer devices that enable IoT in insurance have a presence in the North American market, from in-car telematics to smart-home security and connected-health devices, and he even points out a couple of areas that are well ahead of the curve:

‘I think IoT is catching up but there are a couple of specific areas, like water leaks, where it is quickly gaining traction in the US market, both in personal-line and in commercial-line policies,’ he explains. ‘IoT devices that control water leakage are becoming very popular.’

Josefowicz points to the strong IoT opportunity for the US market in commercial property and commercial inventory. Applebaum also acknowledges the property opportunity and hints at some of the innovative uses of drones in this area:

‘Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming. So drones, water-leak management and of course telematics are prime examples of IoT where there is adoption.’

Given the strong growth indicators for the next 2-3 years, it would be foolish to read too much into our depiction of North America as an IoT laggard. Indeed, our stats on IoT platform implementation suggested that our key global markets could be aligned in as little as a year.

See also: Insurance Nexus Global Trend Map #7 Internet of Things

One extension of IoT that Applebaum flags as a space that insurers are watching closely is autonomous driving.

‘We will have a situation where people don’t drive cars, where software drives cars and cars don’t have many accidents – but when they do, they are going to be extremely serious and will involve large liabilities,’ he explains, and we touched on some of these aspects in our Profile on Europe.

‘There is a lot of IoT left where there is no adoption as of yet, it’s just being developed, it’s emerging, and that would cover all the other 50 billion sensors that are going to be broadcasting data by 2020,’ Applebaum concludes.

Insurers looking to usher in the ‘new insurance’ must, concurrently with expanding their sources of real-time data through IoT, build out their back end so that it can firstly cope with and secondly capitalise on the influx of sensor data; to have the unprecedented volume of customer and thing data that IoT promises but deficient systems for accommodating it would be like striking oil in a world without refineries.


Fundamentally, front end and back end must be developed in synchrony, given the dependencies that each one has on the other, although we believe that organisations may place a different emphasis on them depending on the point they have reached in their transformation. One hypothesis would be that focus on the back end – which is the foundation of the whole transformation effort – is higher at the outset and that, with the passing of time and the steady expansion of capabilities, the C-suite’s strategic focus shifts towards harvesting the rewards at the front end.


To have the unprecedented volume of customer and thing data that IoT promises, but deficient systems for accommodating it, would be like striking oil in a world without refineries ...


As we pointed out in the International Priorities table under our Insurer Priorities post, North America has a substantial lead over Europe in Underwriting (by 19 points), Risk Management (13 points) and Product Development (5 points); Europe on the other hand leads North America on Internet of Things (by 11 points), Pricing (9 points), Digital Innovation (5 points), Customer Centricity (5 points) and Claims (3 points).

We feel intuitively that, in the context of emerging UBI models, the priority areas on which Europe leads have more of a front-end flavour, and those on which North America leads more of a back-end flavour.

We suggested in our Profile on Europe that the North American market might be marginally behind Europe in terms of customer-led disruption, and it is possible that Europe’s front-end overtone reflects this market having progressed marginally further down that path – this can remain a moot point.

See also: Insurance Nexus Global Trend Map #2 Insurtech Perspectives

Whatever the blend, every insurer must juggle early-stage and late-stage initiatives all at once, managing their investments across these ‘tranches’ like they’d manage any other investment portfolio.

‘We think it’s very important for insurers to exist in three timelines at the same time,’emphasises Josefowicz. ‘They have to mitigate the limitations of their legacy systems, they have to address current business needs – short-term, tactical business needs – and then they have to keep an eye on the future in terms of how technology is going to change their business tomorrow.’


4. How Insurance Must Set its (Digital) House in Order

Standing at the start of the road of digital transformation, incumbent insurers find themselves in an awkward position. In one sense, operating a pre-existing business should represent a head-start over new players. However, their established systems and processes quickly reveal themselves to be less a blessing than a curse, when we consider the rampant dependencies that exist between them. Josefowicz briefly sketches how this becomes problematic for insurers:

‘The majority of insurers in the US are working with 20th-century systems that didn’t anticipate 21th-century challenges,’ he explains.

‘Most of the systems of record or policy-management systems that most insurers have are from the 90s or before, and they didn’t anticipate this level of digital and this level of analytics, so they aren’t necessarily as flexible as they need to be to bring new products to market quickly.’

It is to the drag of these legacy systems and processes that Applebaum attributes the relative tardiness of the US market (compared to Europe and Asia-Pacific) which we mooted earlier, with much of the previous generation of technologies being more entrenched in the USA than elsewhere in the world (a good analogy would be with telecoms, whereby cell phones have achieved their highest penetration in precisely those areas where legacy fixed-line infrastructure is missing).

This is presumably reflected in ‘Legacy systems’ rising to first place among the internal challenges in North America while nowhere else getting above second (as we saw in Part I of our Regional Profile for North America).

"The CTO or CIO is driving both the ‘cleanup’ of redundant systems and systems that don’t communicate well but additionally he or she would typically have the responsibility for driving the vision of the future. They need to be finding efficiencies where possible and pinpointing the best investment areas for the future. The CTO must understand the needs of customers, business partners (third parties) and also internal stakeholders such as sales, marketing, actuarial and finance."

Damon Levine, CFA, CRCMP, ERM Practitioner, Writer & Industry Speaker

The ideal solution to legacy would be wholesale system replacement but, given that budgets are limited, (re)insurers are more often than not forced into an uneasy coexistence with systems old and new. The overwhelming challenge North American insurers face today – starting with their back office – is to orchestrate the myriad pieces of the transformation jigsaw, keeping cost, time and adverse business impacts to a minimum, and we will see that there are various approaches that they can take.

‘The last decade has really been insurers struggling to make their 20th-century systems meet 21st century business challenges, and replacing them when they can,’notes Josefowicz.

"The key considerations for choosing a technology platform include compatibility with existing customer information storage and analysis platforms at your company. Of course, cost and adaptability to a changing data landscape are also of interest. The regulatory landscape, including penalties for data loss, will evolve."

Damon Levine, CFA, CRCMP, ERM Practitioner, Writer & Industry Speaker

Applebaum observes that digital transformation is overwhelming the resources of most insurers, who simply cannot provide all the pieces of the puzzle in-house, and that this is forcing them to look further afield.

‘Insurers want to be all things to all people, they want to be available by all channels,’ he comments. ‘If they can’t do it internally, for whatever reason – like they’re not fast enough or the skills don’t exist – then they will partner. And if they can’t partner, they’ll buy. But basically, it’s by any means possible.’

In the longer term, Applebaum believes, many components of the ‘stack’, like the management of IoT data streams, will end up as the preserve of large third-party software vendors, who can not only specialise but also operate at a scale far beyond that of even the largest insurance carrier.

This will also work out positively in other ways, like from a cybersecurity perspective, because it will shift the liability from the insurer to a third party that can bring to bear a much wider experience with cyber threats. Incidentally, Cybersecurity was one of the priority areas on which North America led our other global regions (see Insurer Priorities).


Alongside legacy, we should draw attention to the regulatory environment – at least in the USA – as another hurdle that insurers have to get over in their efforts to innovate:

‘The regulatory environment in the US is extremely complex, with the insurance industry regulated at the state level, so essentially that’s like operating 50 different insurance companies when you are just one insurance company, because you have to adhere to this never-ending, changing regulatory environment, state by state by state,’ elaborates Applebaum.

‘That’s not the case of course in the European markets or in the Asian markets, where country markets are regulated by a single national authority. So that’s a real issue for carriers and they’re trying to deal with it. It’s expensive, it’s complex and it’s a reality.’

Josefowicz agrees that regulation will remain a key factor for North American (re)insurers, though he notes that this applies less to the Canadian market, which does not have the fifty separate regulatory regimes on a state level that the USA does. While this framework is indeed onerous, requiring insurers to file for the same product in multiple jurisdictions and potentially structure it differently in each one, insurers at least operate on a level playing field with Insurtechs in this respect.

Indeed, Josefowicz believes that incumbent insurers’ established regulatory competence and compliance may be one area where they can convincingly trump new market entrants:

‘Most insurance companies that exist are already pretty good at managing the state regulatory process, and in fact they see that as a defensible capability because it’s something that they have a lot of experience in that new entrants struggle with,’ he says.

‘And you can see what happened with Zenefits, where they ran afoul of the licensing requirements, as either inexperience or a willingness to disregard regulatory challenges a la Uber, which is much more painful in the financial-services world than it is in the taxi world.’

As a final point on this topic, we asked respondents to indicate via an open-text response what regulation was currently the greatest cause for concern. There were too many responses to list everything but one that stood out from North American respondents was the DOL Fiduciary Rule.

We conclude our Regional Profile for North America with our next post, looking at what insurers in the region can do to unlock new sources of growth in a mature market.

Alexander Cherry

Alexander Cherry, Head of Research & Content at Insurance Nexus.