It’s all about how you use the data

It’s all about how you use the data

If you wait too long to adopt an idea, you may never catch up. Acord’s Bill Pieroni advocates a less risk-averse approach for insurance in the age of innovation

By Terry McMullan

It’s a little ironic that the revolutionary world of elec- tronic innovation in insurance is underpinned by an organisation that traces its roots way back to 1970, when computers whistled and beeped and used mag- netic tape to deal with simple tasks.

The Association for Co-operative Operations Research and Development, a non-profit known throughout the industry simply as Acord, was established 50 years ago this year to provide the insurance industry with data standards and implementation solutions for all that newfangled computer stuff.

Its founders in the United States were far-sighted enough to see the need for standardised forms to en- sure different systems could “speak” to each other. Today Acord can supply standardised forms for more than 1200 types of insurance transactions for users around the world.

“Are [insurers] all innovative? Absolutely not. Are they all luddites, not thinking about technology at all? Absolutely not. What is important is having strategic intent.”

And as digitalisation becomes more complex, it keeps right on building new solutions. One of its most recent major projects was the development of new software to improve integration between legacy data systems and the new wave of automated data processing systems.

Acord sees itself as sitting at the intersection of insurance, technology and research, bringing together the disparate parts of insurance distribution with technology solutions that make efficiency possible.

But there’s more about Acord that doesn’t immediately meet the eye. Suffice to say its position in the industry gives it unique ability to share ideas, shed light on new innovations and help define the technological future for insurance.

For President and Chief Executive Bill Pieroni, Acord is a very exciting place to be. A former global Chief Operating Officer of Marsh, he sees the organisation as a facilitator. “I don’t think there is enough commercial motive out there for companies to build the sort of solutions we develop, and that’s why we are building software and providing services,” he told Insurance News during a visit to Australia last year.

“We are not for profit, we are owned by the industry and our solutions really are cutting-edge,” Mr Pieroni says. “They are priced at cost and we have a significant backlog of solutions around the world. We are helping carriers, brokers and third-party vendors.”

While the rate of technology-driven change in 1970 was glacial by comparison with the 2020 experience, Mr Pieroni is relaxed about his organisation’s ability to keep pace. While Acord is there to support, is there a danger that it might accidentally leave the industry behind? No way, he says. “We are driven by our members.”

Acord’s job isn’t to innovate – it’s to always ensure its members have the support they need to make use of innovations. Blockchain, for example.

“I can’t tell you which blockchain initiative will be successful – I can’t tell you if any of them will be successful,” he says. “However, they are all using Acord’s standards, regardless.

“I try not to lead or push now when I see key stakeholders being somewhat reluctant around new technologies. But if we believe it’s a future inevitability, that the technology is going to take off, then I need to advocate for it.

“But we have more than 36,000 participating organisations globally, and with that kind of sample size I always have some members saying ‘how about AI, deep learning, the Internet of Things, blockchain…’

“With that kind of sample across more than 100 countries, half of the world’s insurance premiums, they’re very vocal. When they say we need you to do this, it helps us.”

Mr Pieroni says insurers are, in all, heavy spenders on technology. But he finds every insurance company’s approach is unique.

“The global average on general insurance spend is 3.5% globally,” he tells Insurance News. “I have some general insurers who spend less than 1%, and I have others who spend 6.5%. So that 3.5% is a very wide standard deviation about that mean, so we have everything that you can imagine.

“You can be tech-heavy and process-light. You can be process and IT-heavy and organisation-light. You can be heavy on the organisation and be light on process and IT. We have every permutation and combination out there.

“Are they all innovative? Absolutely not. Are they all luddites, not thinking about technology at all? Absolutely not. What is important is having strategic intent.

“If it’s to provide superior value propositions to emerging customer segments in a 24x7 online way, then you better be tech-heavy. If on the other hand you sell very few insurance policies with very high premium levels, and your claims are very low severity in frequency, then perhaps you can be less tech-heavy.

“If everything you’re doing works out 100% of the time, you’re not trying hard enough. I think being overly conservative really hurts this industry.”

“And we do have a few carriers like that who may sell a dozen insurance policies a year because they are so large and so complex.”

While Mr Pieroni sees technology across the insurance industry as a “future inevitability”, he points to a recent Acord study that looked at the top 100 insurers over the past 10 years and classified them into five categories.

“At the bottom of the pyramid were the digital laggards, and at the top were the digital competitors. What we found is that if you are a true digital competitor at the top of the pyramid – and we measured it across a number of attributes – it wasn’t just about IT spend.

“It was about strategic intent and culture and consumerisation and how open you were to source and distribute products.”

He says the survey revealed “a very strong positive correlation” between such attributes and premium and share price growth.

An associated study looked at a number of other technologies, and found the pace of change is accelerating, and sitting still is increasingly dangerous. “Last-generation technologies like internal combustion engines, automobiles and television took 20 to 30 years before you could really see an uptake. Today it takes less than five years before technologies become pervasive and critical.

“Historically you could wait out the uncertainty in the marketplace, not be an early adopter and wait to see if this newfangled combustion engine or whatever worked out.

“But today, when you think about things like Big Data, the Internet of Things or artificial intelligence, you can’t necessarily wait out that uncertainty, because it happens within five years. By the time you realise this is successful technology, you’ve waited too long to transform your organisation and to learn how to use the new tools. Then no amount of money is going to accelerate that.”

Mr Pieroni agrees insurance companies are cautious adopters of new technologies – sometimes to their disadvantage. “I strongly encourage our members to look critically at technologies, to review their strategic intent and try to understand where it can be applied.”

He says they have to be willing to invest early, learn by doing and “become better at being willing to make mistakes”.

“Despite the fact that we are in the risk business, we don’t like risks. We like to manage it, quantify it, transfer it, price for it.”

He also says we are change-averse, and have to be more willing to make a mistake or completely fail. “If everything you’re doing works out 100% of the time, you’re not trying hard enough; you’re not being innovative enough. I think being overly conservative really hurts this industry.”

So does the future belong to the insurers who have the most high-quality data? No, says Mr Pieroni, it’s all about how you use it. “You will compete based on the accumulation, the insight, the veracity and the velocity in which you use that data.”

Quoting Victor Hugo, he says there is nothing as powerful as an idea whose time has come. “Perhaps finally we are reaching a point where it’s about understanding the power of what data can do and using it for competitive advantage – not some unique standard but how you use it with your brand position, how you develop products and how you place them.

“I think that Acord is in a good position to help the industry and to serve it, and we are very fortunate to have such a rich global membership that can keep pushing us.”

Standard-bearer: Bill Pieroni