The second law of thermodynamics reveals that “as one goes forward in time, the net entropy of any isolated or closed system will increase, or at least stay the same” or, to put it plainly – all things tend towards disorder. Disorder or ‘chaos’ was certainly on the minds of the team behind the recent Altus Consulting whitepaper on ‘Designing for Chaos: Embracing disruption to drive innovation’.
Zeroing in on what this means for the insurance industry, some core questions spring to mind – among them, where do insurance businesses stand today when it comes to designing for chaos? And how aware are these businesses of the interconnectivity of the risks they face and of the accelerating consumer demand for transformational change?
Lending their insights, Chris Moore (pictured left), principal consultant at Altus Consulting, and Mark Andrews (pictured right), insurance director at Altus Consulting, underscored the complexity of the financial services environment – with regulation, products rules and standards, technological innovation and customer behaviour all crucial considerations in the success or failure of any project.
Moore pointed to the McKinsey statistic that around 70% of all transformation projects fail, noting that a recent Altus survey also identified that of those deemed successful, nearly 75% don’t hit their timing or budget constraints.
“And if 70% of projects fail,” he said, “why do we still cross our fingers and hope for the best? We’ve got to do things a different way. Because in our world, when looking for change, clients typically plan for the best-case scenario. They have a plan, they try and squeeze their estimates, and they hope that all their dependencies will line up and everything will just fall into place. And it never does. So that’s what gave us the idea. You have to plan for chaos, you’ve got to be designing alternate plans and alternative pathways to success.”
Addressing some of the key projects being undertaken by insurance businesses today, Andrews noted that every business is trying to undergo further digital transformation. And most transformation projects aimed at overhauling the legacy mainframes of tier one and tier two insurers have taken place over the last decade.
“They’ve done that core platform replacement,” he said. “But now it’s all about building digital on top of that, about improving customer experience and reducing costs. Cost is a huge problem at the moment for insurers with inflation. So, they’re looking to lower the costs of running their businesses through enhanced digital services. And supporting them in delivering that is what we’re doing across most of our clients today.”
As to how well-equipped he believes modern insurance businesses are to handle chaos and disruption, Andrews highlighted the complexity of the risk environment facing these organisations. Digital transformation is one part of the puzzle, he said, but you’ve also got to factor in the regulatory upheaval facing the market, not least with the advance of the new Consumer Duty standards.
“With Consumer Duty, insurers are trying to adjust to what is quite a grey piece of regulation. It’s not clear cut so they’re having to interpret what they need to do around it,” he explained. “And then there are all the other regulatory bits and pieces that came last year with Fairer Pricing. So, it’s a constant wave of regulatory impact and consumer expectations and technology upgrades.
“How well are they set up to handle this? Well, they’re coping but it’s non-stop. It’s just one thing after another. But [assessing] that statistic about 70% of projects failing, I wonder how that can be re-interpreted. Is a project a failure because it didn’t do what it said it would from day one, or is it a failure because it didn’t deliver full-stop? I expect a lot of projects eventually deliver something, even if they don’t deliver in the same way they intended to when starting out.”
With that in mind, Moore noted the applications of the findings of the recent whitepaper for businesses redefining and reimagining the definition of project success by designing for chaos and accepting that it can generate unexpected but not necessarily negative results. Taking the launch event for the report as an example, he said, the team defined what it wanted to achieve, outlined its success factors – and navigated significant technical challenges in pursuit of that success.
“As a result, on the day we’re talking about the importance of solution architecture, we found ourselves in the Gherkin, which is such an iconic building,” he said. “So, chaos is not always a negative. It can give you a better outcome than you originally anticipated, provided that you’ve got the vision for what you want to achieve. You might end up getting there in a different way but you also might end up with a better outcome”
For Andrews, his advice for insurance businesses undertaking transformation projects is clear – they must be prepared to embrace some bumps in the road.
“Don’t get frustrated if you get halfway through a project and something changes,” he said. “Because something will change, you’ll lose some key resource or vendor that you’ve selected, you’ll come up against a problem with something. Or you might have a live issue somewhere else in the business. You’ve just got to embrace that it’s not going to go perfectly and it’s not always going to go the way you planned it.”
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