Replacing Men with Machines: A Capital Idea.

We have been replacing men with machines for generations.  It’s called progress and its here to stay.  Cars are built by robots.  Airplanes are flown by computers.  Money is dispensed by ATMs.  However, insurance is sold and underwritten by agents and underwriters.  Claims are priced by appraiser and settled by adjustors.  We in the P&C space consider imaging to be high tech. 

Now looms an interesting confluence of events.  First the rise of a genuinely capable new generation of new core processing systems – policy administration, claims and billing which are rules based and can structure, store and execute complex rules-based evaluations and sophisticated workflows.  Second, a slew of recent studies pointing to an impending shortfall in core insurance human capital.

One of last week’s comments on our Welcome Blog is from a gentleman called Ian Turvill, a guest blogger at the Enterprise Decision Management blog.  I followed the link (and you should too) over to Ian’s neck of the blogsphere and found a posting titled “Capture the Expertise Now”.  This posting cites a survey by the Society of Certified Property Casualty Underwriters in which respondents questioned the “preparedness of their industry to deal with the upcoming wave of retiring Baby Boomers. Combined with a projected shortfall in the number of new entrants with the necessary technical and subject skills, 66% of survey respondents foresee an "experience gap" as very likely to form in the next five years if nothing is done”.  Let’s add a few additional facts to SCPCU’s low key statement from a recent webinar that I participated in with our sponsor, Guidewire Software:

·                      84% of CPCUs and 70% of adjusters are over 40 years old today

·                      Median tenure of employment for U.S. workers aged 55-64 declined from 15.3 years in 1983 to 10.2 years in 2001

·                      In 2003, 83% of U.S. workers said they were “extremely” or “somewhat” likely to switch jobs in a stronger economy

·                      COBOL training is found in less than 5% of college computer science programs

So, not only is an “experience gap very likely to form” in our human-based legacy business operations, but, per the last bullet point, it’s also going to happen in our legacy based computer systems environments.

Sounds like a recipy for disruption if not disaster doesn’t it?  So what to do?  Well, SCPCU  suggests:  “More aggressive recruiting efforts; improved training; retaining retiree capital via consulting, mentoring, and flexible scheduling; more competitive compensation and benefits; and enhanced positive visibility for the industry and its career options”.   At best this might work as a stop-gap, but it does nothing to change the wider picture, which is that the delivery of P&C insurance is inefficient, too expensive and overly dependant on human capital.  And even if it does work in the business operations space it isn’t going to work in the systems space.  It is now almost impossible to recruit and train quality COBOL programmers.  Young technologists simply refuse to get involved with a “dead language” and frankly have no need to because of the burgeoning opportunities in the Java and .Net fields.  Unfortunately, the vast majority of all insurance transactions which execute every single day are reliant on COBOL programs to do the heavy lifting.

So, I’m with Turville.  Let’s start “an aggressive process of discovering the rules and analytics that govern the” core insurance processes “and automating their execution”. 

Lord help me, I am a consultant by trade so I am going to use a $10 phase here:  it seems our industry is at a "tipping point" where the key technology question is now no longer “What will it cost to change my legacy systems?”, but is rather “What will it cost if we don’t change?”  The conversation has begun to shift focus.  It will be interesting to see where it leads us.

Comments

[Peter Rousmaniere]

You report that 70% of adjusters are over 40 years old today. I'm not sure what to make of it. If the figure was 60% ten years ago I'd be worried, but maybe it has not changed. Any comments?

Peter

[Ian Turvill]

Thanks for the plug. Your readers will find two articles on the topic at:

http://www.edmblog.com/weblog/2007/01/edm_could_be_a_.html

And

http://www.edmblog.com/weblog/2007/01/underwriters_ca.html

[Todd Wenzel]

George,
Congratulations on your blog initiative – I believe it will be a benefit to all who visit!

There is no doubt that we are reaching or have reached a critical confluence of technology, automation and business intelligence. We indeed have the technological ability to reproduce processes in computer systems that were traditionally the realm of humans. We can do this with ever increasing speed and sophistication thanks to the software tools that are now available. We can deliver it all in a “touch-less” manner, through a browser and be available to the client’s employees anywhere they choose to be on planet earth. The challenge we have is to not just replace our “human processes” with a digital analogy, but rather to understand *why* the human processes and procedures were constructed the way they were; then change them for the new reality.

You see, we naturally put policies (not the insurance types, the business types) and procedures in place as solutions to some limitations we observe in our environment. If we as consultants do our job well, we can use technology to diminish or remove the limitations. But if we do not help our clients change their thinking, which includes changing their processes and policies, then our technological solutions will not produce the fullest value (i.e. bottom-line results) for the client. At best we will automate a flawed process, at worst we could throw the client into severe chaos and have dramatic negative effects on the bottom line.

So, yes we can ask “What will it cost if we don’t change?”, but perhaps we should also ask “What will it cost it we don’t make the proper change?” Any improvement (as measured at the bottom-line) is a change, but not every change is an improvement (to coin another $10 phrase).

Todd Wenzel
President, Throughput Consulting, Inc.

[Bobby Ahluwalia]

George,
the blog is enlightening. As a heavy technologist but a neophyte P&C industry follower, it is interesting to see so much going on and the size of the opportunity.

Like you said the P&C industry is still run by old style procedural coding and could use a face lift.

thanks
Bobby Ahluwalia
Partner, Active Consulting Group, Inc.