"Technical Debt" , created by software developer Ward Cunningham, captures the idea that technology, like any financial debt, incurs interest. This interest is measured in the additional time and mounting costs it takes to implement changes or systems upgrades because of the existing infrastructure beneath it. In this insightful interview with Bart Patrick, Managing Director of Duck Creek Technologies in Europe, you'll see what it takes to reduce technical debt and what technologies play an important role - but still have great untapped potential in this process.
The term "insurtech" came about sometime after 2013, certainly after the term "fintech" took off. But Duck Creek Technologies was already part of the insurtech wave since 2000 without having to put a label on it. What has experience taught you when trying to provide The Ultimate Tech Solution to an insurer? Where do you start from? How difficult is it to change a traditional company to an insurer of the future?
B.P: It’s true we are very well established in the global insurance technology market, and have accrued a wealth of experience and insight as a result. The crux of the issue is that there is no ‘one size fits all’ approach to solving the complex technology needs of the global commercial and specialty insurance markets, but there is absolutely a singular technology architecture that can be applied across the sector.
If we’re to challenge the operating model and look where competitive advantage lies, technology is currently only a competitive factor in the sense that the company with the least worst system can operate more efficiently than those with even bigger legacy burdens.
The low code, SaaS model is continuously updated and also steers insurers away from very large, complex and costly upgrades - traditionally a significant bottleneck for large insurers grappling with multiple, closed box legacy systems which quickly slip out of maintenance and become frankly too much of a headache to upgrade efficiently.
While many big insurers are veritable juggernauts to move, in reality it’s really not that difficult to transform a traditional insurance company into an insurer of the future, but it takes leadership and decisiveness to make the jump in the right direction.
While insurtech is very popular as a term, “technical debt” hasn’t been used as much, although it’s a core issue for many big insurance companies. Could you tell us more about what it is and how it can be reduced?
B.P: Technical debt is definitely an albatross for our industry, and it relates to my point above about legacy systems slipping out of maintenance. The term was first coined by software developer Ward Cunningham – the idea is that technology, like any financial debt, incurs interest.
This interest is measured in the additional time and mounting costs it takes to implement changes or systems upgrades because of the existing infrastructure beneath it.
Closed-box siloed systems are the source of technical debt across all industries, not just banking and insurance. Systems that cannot adapt, that have no openness or commonality to allow them to plug in to the latest innovations using the same architecture, effectively just sit there in offices giving them impression that business as usual is being achieved, but all the while adding extra costs and inefficiencies that keep getting worse as time goes on.
It’s this cumulative technical debt that makes the difference between low performing and high performing companies.
It’s our belief that only by taking technology out of company servers and into cloud SaaS architecture, with the connectivity to an evolving digital ecosystem of complementary applications and add-ons that this entails, can companies avoid paying exorbitant debts on their technology spending.
What about insurtech startups? Are they, by nature, less prone to accumulate technical debt because they are tech driven to start with and more agile when it comes to processes and innovation?
B.P: The short answer is yes - insurtech start-ups are very savvy and by their nature are adopting the most future proof architecture. This means online, open API and low code solutions that can plug in to the wider technology ecosystem. So they are indeed more agile, and often in technical credit rather than debt, to extend the metaphor!
In your opinion what areas of the insurance value chain have difficulty in getting to the next level from a technological point of view? What are the main barriers to innovation?
B.P: A key barrier to innovation has been the inability of insurers to plug in to the latest solutions that could give them that competitive edge. Data-driven underwriting is a good example here - underwriters want more data at their fingertips to better understand and manage exposure and price risks, and there are highly innovative insurtechs out there providing invaluable insights that would definitely help them with this challenge, but they can’t plug in to the data.
A “good” system is one that that can always hook into new things and can interoperate with other technology. Cloud architecture is a perfect example of this. A leading system should also take advantage of the latest developments in many technologies that can help throughout the business.
For example, Duck Creek Technologies plugs into FRISS for anti-fraud and UrbanStat for data and analytics. We also save our customers’ costs by dipping into such capabilities across partners, across borders.
It’s not enough to have a digital front end, we all know that conversion is the real objective. What is your vision of selling policies within insurance ecosystems?
B.P: We’ve spent a lot of R&D time designing a powerful and flexible policy administration solution - and critical to this is the ability to rapidly roll out new products and configure self-service portals, for all channels from consumers to brokers.
Insurance is a highly competitive market, and being able to respond quickly to new opportunities with new products is essential - we think insurers need the capability to respond to new product demand for any channel in as little as 30 days by using a single product definition made accessible to all applications in their enterprises. Built-in straight-through processing is also essential.
If your system isn’t designed around the need to get your products in front of customers quickly, and in the ways that customers want to consume those products, then quite simply you’ve got the wrong system.
In the last 5 years, which technology do you think was a missed opportunity for the insurance sector and why?
B.P: The insurance sector must shrug off the weight of its legacy technology to really take advantage of the opportunities that are out there. The key innovation to my mind in the last five years has been the mainstreaming of cloud technology and the ecosystem concept.
The Coronavirus crisis only confirms it in my eyes. Creating commonalities of processes in a multi-tenanted system allows for the true competitive edge between companies to shine through.
Duck Creek is creating cloud-based ecosystems that work as market-level architecture. In fact, we just launched Duck Creek.dev, a development platform that ecosystem partners can go to. They obviously have access to Duck Creek APIs and they can develop against those.
Only when software houses take responsibility for their own software via SaaS will we start to overcome the upgrade issue and growing technical debt lurking in the payday loan of quick fixes.