Is it Worth it? The Cost of Technology in Reinsurance

Implementing automated claims processing, data-driven platforms or mobile billing systems in reinsurance demands significant investment, which can add up quickly. Yet, these costs are increasingly seen as necessary investments for growth and efficiency. However, hidden costs can undermine even the best-planned initiatives. From budget overruns to ongoing subscription fees, these expenses can strain resources if not carefully managed. A hard balance to strike, if you ask me.

So, how can reinsurers get it right, avoiding costly pitfalls while making their technology investments truly worth it?

The true cost of technology

It probably comes as no surprise that investing in automated claims processing, data-driven platforms or mobile billing systems comes with significant expenses. When you’ve got to implement new infrastructure, software licences and training, it all adds up. However, these costs, while steep, are typically seen as investments in growth and profitability. As digital services become non-negotiable for customers, insurers and reinsurers are increasingly allocating more of their operating budgets to IT. McKinsey states that it is being increasingly recognised that technology is no longer a cost centre but a critical business asset. 

Hidden costs can creep in like uninvited party guests, creating challenges in unexpected ways. Misused systems often lead to mismanaged data, limiting insights you can actually use. Then there are the literal costs: building a system risks budget overruns, while buying one brings ongoing subscription and add-on fees which may not initially be obvious. These hidden expenses, if not managed carefully, can skew your ROI and derail your goals. So, how do you keep things upfront and minimise surprises?

Case study 1: a costly misstep

I hate to be negative, but let’s look first at what not to do. Imagine a reinsurance company that dove headfirst into a multi-million-pound tech overhaul with the best intentions but ended up with little to show for it. The plan? To revolutionise its data management and analytics systems. The reality? Overruns in cost, time and complexity. While the company invested heavily in new software and infrastructure, it failed to align its tech initiatives with clear business priorities. Key issues like unstructured data from connected devices, outdated infrastructure and a lack of clarity on how to extract actionable insights became roadblocks.

The lessons learned are a masterclass in what not to do:

• Start with data - The company underestimated the importance of collecting, organising and ensuring data could address pressing business issues.

• Set clear goals - Leadership didn’t establish specific objectives to guide the tech overhaul, leaving the project adrift.

• Invest wisely - Modernising technology isn’t about adopting the latest tools - it’s about building systems that work smarter, not harder.

• Orchestrate effectively - A lack of focus and coordination meant the initiative failed to deliver value across the enterprise.

Had they approached the project with purpose and alignment to business needs, quite like that of Allstate or Esure (see Risk and Insurance article below for more information on their case study) they might have created the value they were looking for.

Case study 2: a worthwhile investment 

Avoiding hidden costs in technology implementation starts with careful planning and a focus on efficiency. In a different scenario to the one above, let’s say a reinsurance company successfully modernised its claims management system while steering clear of the pitfalls that often inflate budgets. They did this by prioritising standardisation, automation and, consequentially, data. They avoided unnecessary expenses and ensured their investment delivered maximum value.

But how does one achieve this? Here’s a very broad blueprint:

Clarity in objectives - Before diving into implementation, the company clearly outlined its goals, such as reducing claims leakage and automating repetitive tasks. This ensured the technology chosen was fit for purpose and avoided the trap of over-engineering solutions.

Standardising processes - By consolidating and digitising workflows, the company eliminated inefficiencies, streamlining operations from claims reporting to settlement. This approach reduced manual interventions, minimising errors and excess costs.

Adopting scalable tools - They explored utilising no-code platforms to develop new products quickly and affordably, a tactic discussed by Cover Go (see their article below). This avoided the spiralling costs of traditional software development while enabling rapid adaptability.

Leveraging AI wisely - The company employed AI where it added the most value which, according to Acenture, is in areas of fraud detection, first notice of loss (FNOL) and underwriting. By focusing on specific, impactful areas, they avoided overspending on unnecessary features.

So… is it worth it?

It’s time to ask the big question: is technology really worthwhile for reinsurers? Here’s my two cents. When approached with clear goals and strategic planning, technology in reinsurance is absolutely worth the investment. The key insights from these case studies show that success depends on aligning technology with business priorities, avoiding hidden costs through thoughtful planning and really thinking carefully about the tools that can drive efficiency for the business. Done right, technology can massively improve processes AND reduce costs.

Thus, a critical factor in this journey is choosing the right partners. Collaborating with technology vendors who truly understand the reinsurance industry and provide the features actually needed by the reinsurer can make all the difference. But how can you find the right one(s)? 

I’m happy to be able to share with you a report which explains exactly this, with a comparison table of current reinsurance system platforms so you can review which ones may be able to support your company best. 

You can access these resources for free by following this link and downloading the comparison table or the report, or both! 

The question isn’t whether to invest in technology, but how to do it wisely. Feel free to drop me a message if you have any further queries. 

Sources:

https://www.mckinsey.com/~/media/mckinsey/industries/financial%20services/insurance%20blog/will%20your%20insurance%20it%20investments%20pay%20off/mck_itinvestments_march%202021.pdf?.com 

https://www.duckcreek.com/blog/is-your-old-technology-driving-up-reinsurance-costs/?.com 

https://riskandinsurance.com/insurers-struggle-to-extract-value-from-technology/?.com 

https://covergo.com/blog/insurance-technology-create-cost-savings/?.com 

https://www.accenture.com/us-en/insights/insurance/fuel-future-insurance-technology?.com