Posted by & filed under Guest blog, Insurance, Insurtech.

This is a guest post from one of our mentors, Petri Ekman. Petri is an experienced executive with a broad and in-depth experience in financing, financial and insurance products and risk management strategies for corporate clients. Petri’s current role is the founder and owner of Elevon Consulting Oy. There he focuses on advising companies in carrying out change programmes and setting up financing solutions. 

In part one, I discussed the external factors forcing change upon the insurance industry. There is an obvious question that arises after. What is holding back insurance companies from changing their ways? Especially taking into account all of these looming threats on their horizon?

Again, I see a number of factors, many of which are universal, not insurance industry specific. Here is my list:

1. Non-life insurance is profitable

The non-life business is profitable today. That is because companies in a difficult investment environment have systematically cut their operating costs. And thus made their primary insurance business much better than before.

By embarking on a major corporate change programme, one would jeopardize cannibalizing one’s existing business. It is a big change in anyone’s mindset to disrupt one’s own good business. Not only for management but also for shareholders. Profitability feeds complacency, which might be justified but is probably baseless in light of the pace of change.

2. Shortage of resources

Another element that causes slow progress is the shortage of resources. That is the result of years of cost-cutting in the industry. People with line responsibility haven’t got the time to think or innovate, even if they had budgets for it.

In incumbent companies, the established culture and people being snowed under by daily routines usually encourage thinking “inside the square”. There is no time to get an educated outside view, or such is easily discarded as irrelevant or naïve. And yes, many companies still continue to focus mainly on internally driven development, in cost-cutting by streamlining processes, introducing robotics and reducing staff, instead of starting their development work from customer needs.

3. Functional silos

In big companies, responsibilities and targets are typically walled inside functional silos. This effectively prevents cross-organizational thinking and development. This is the exact opposite of how a quick-moving start-up works. They have no silos and the customer’s need is their starting point. Hence, all work needs to be carried out cross-functionally.

4. Old, big, rigid ICT systems

And, finally, there are the ICT systems; old, big, rigid, often not storing the exact information needed for a new product or application. All too often, a minor change in the customer interface requires coders to climb down to the “boiler room”, open the hatch, and enable the desired change by writing new code to the old core system. Change done like this becomes costly. It takes a long time to complete and often causes unexpected side effects in a number of other systems.

Doomsday? Is There Anything Insurance Companies Can Do?

So, do I think the incumbents in the non-life insurance industry are doomed? No, they aren’t. But continuing on an “as is” basis will inevitably lead to a bleak future.

Some companies have opted for big projects to renew their core systems to enable more flexibility, more automation and speedier development of new applications. Another group has started from the customer interface and introduced digital-looking services with old, manual background processes. There are also incumbents with big venture capital funds for the purpose of identifying and hatching start-ups to develop the new applications.

It may be that a combination of approaches is a necessity. To develop new mobile and digital services using start-ups without immediate cost savings (or even incurring incremental operating costs) while embarking on the long and expensive project of renewing the core systems to ensure future competitiveness. One can also set up an internal ”lab”. But such risks narrowing the view on what is possible and available.

The key driver should be to concentrate on actions that ensure the incumbents a position on top of the customer value chain both in the short and the long term.

Becoming more innovative and agile internally

Most importantly, established incumbents need to rethink their old in-house development model, their silo-based structures, and collaboration between developers and business. It is inconceivable that the companies’ salaried staff would invent all the greatest ideas for new customer services. Hence, it is paramount that the incumbents create a culture and processes that function as a foundation for a client-centric ecosystem. It is the way to enable work with start-ups and more established partners to quickly innovate, test and launch new services and to come up with better processes.

Being able to develop innovative services with short lead times is crucial for insurers. That is if they want to stay highest in the value chain and maintain or win “ownership” of the customer. Companies need to structure their development work across organizational silos much more effectively than today. Irregular meetings of “representatives” of different internal practices are far from what could justifiably be called teamwork. And they do not lead to the fast development of comprehensive services.

Corporations need to break the rigid silos and start working across them.

Finally, it seems like a popular idea to circumvent the inherent inertia (and lack of resources) of the big-scale traditional business by setting up skunkworks, or development labs. That is all fine as long as the services rolled out by the labs do not need co-operation, expertise or resources from the mainline business. If they do expect co-operation between the “old” and the “new”, then collaboration is important between the two from an early stage to gain a buy-in from the existing business.

´The change the industry must embark on is huge. Companies need to rethink and redo not only their technology but also their processes and culture. And their approach to start-ups and other outside partner candidates – basically just everything.

Customer Experience – anyone interested?

Follow the money – it comes from the customers. The industry needs to start all development work from its customers’ needs and behavior. And to structure its processes to serve these needs instead of the other way around. With increasing competition and more agile and cost-effective industry entrants, time-to-market of new products and services must become markedly shorter than it is today.

The Time is Now

So far, the most formidable potential competitors in insurance, the retail platform companies, have shown only limited interest in insurance. Alibaba and Tencent own together Zhong An, a Chinese insurance company, that was listed on Hong Kong in September with a current valuation of EUR 11 billion. Amazon sells already car and health insurances in the US. If and when these giants decide to spread their insurance operations to Europe, there will be a major battle for the ownership of customers. The mega-advantage of the incumbents is the claims and health data they have collected during their decades of operation – to the extent they are able to use and analyze it.

There are also a number of still small fully digital insurance companies that are building their own network of service providers to be able to be as agile and cost-effective as possible. To the extent that the major buying driver is price, it is very hard to beat the digital guys.

Its time insurance companies get their wheels turning.

How to Solve the Equation

Incumbent insurance companies will have to shed their built-and-run-in-house mindset to even defend their current market position. They need to create a culture and ecosystems that generate a constant stream of customer service ideas that can be tested and implemented proactively. I believe that a key solution to meet these requirements is for the incumbents to learn to work actively with start-ups and other high-performance outside partners. And to even re-think the concept of friend and foe. It may be that the only way to stay in the game will be to join forces with some of the new players and their already forming ecosystems.


I believe in collaboration, both internally within an organization (please see the McKinsey article “Givers take all: The hidden dimension of corporate culture”) and externally between companies. Big companies still tend to treat their smaller partners merely as subcontractors and dictate the terms of their business relationships. In our emerging business environment, active networking and genuine collaboration as partners between enterprises regardless of size are the key to survival and success – love thy start-up!

Time to get the ball rolling? Book a free 45-minute consulting: How to change your corporate culture and get new/better business with fintechs.

Contact Antti Kosunen at [email protected] 


Related post: Insurance is about to be disrupted. Here’s why.