This week marked a very interesting development involving Amazon and two core systems vendors focused on PAS and adjacent capabilities supporting different lines of business, as both EIS and Guidewire were awarded Amazon’s “AWS Financial Services Competency”. Cloud computing continues to make significant strides in taking on key workloads for carriers, irrespective of size and line-of-business focus. Once approached cautiously because of concerns over things like security, when compared with traditional deployment methods, the cloud provider space has significantly matured in recent years. Today security, which was once considered to be an Achilles’ heel for cloud providers, is now considered to be one of the strengths for top-tier service providers. Many CIO’s now understand that the security that a provider like Amazon, Microsoft or Google (to name three) can deliver is better than what is available via company-owned facilities. To test this, and build organizational comfort and support for cloud-based solutions, carriers increasingly have moved key workloads such as email, HR platforms, CRM solutions and financial systems to cloud offerings. In fact, during recent Special Interest Group sessions (sample summary here) Novarica hosted with carriers from widely different lines of business, one of the comments that insurance CIO’s repeatedly offered was that it is getting increasingly difficult to procure non-cloud-based solution sets from companies like Oracle and Microsoft. The push is on to move ever more complex and mission critical offerings to the cloud.
Up to this point, there have been somewhat limited deployments of PAS suites in this space, such as Liberty Mutual Benefits’ recent and notable decision to move forward with an EIS deployment on Amazon Web Services. Which brings us to this week’s news about EIS and Guidewire. As the press releases noted, this is a differentiating event for these companies which should have carriers and competitor software solution providers taking note. While these two firms represent the start of something new, for properly architected solutions, we expect that this type of certification will be increasingly important. Given the increase desire of carrier CIO’s to leverage cloud-based computing, the certifications can be not only a means of achieving greater confidence in a particular solution’s ability to support their needs, but may also become a key differentiator when weighing alternatives for carrying specific workloads.
We’ve already seen a range of insurance applications, including underwriting workbenches and claims platforms, move to being delivered only as cloud offerings (e.g., ClaimVantage for Life, Disability and Absence claims). Having PAS suites join the mix of options is likely to be welcomed by many CIO’s and their teams as they move forward with key transformation events in their organizations.
A recent S&P report predicts that insuretech companies will work together with traditional insurers rather than displacing them. This has been Novarica’s stance as well, most recently in the report “ABCs of InsureTech for Incumbent Insurers” as well as “Understanding Insurance Disrupters”. Disruption doesn’t mean destruction, and just because new and innovative technology will impact the way the insurance industry works doesn’t mean that traditional insurers won’t be part of those opportunities. Much of the funding and investment in innovative insuretech is coming directly from the insurance industry, and will continue to do so. And even when outsiders do step in to disrupt the traditional business model, it means shifts in the landscapes that will still leave traditional insurers a major role. For example, AirB&B exists alongside and complements the hotel industry rather than replacing it. Eventually what we see as insuretech disruption today will just become part of the established insurance industry.
We learned this week that Allstate has acquired SquareTrade, which offers mobile device and consumer electronics protection plans, at what looks like a high price on the surface. Yet, if we consider the trends we have written about from The Novarica New Normal 100 research, the acquisition is right in line with what we would expect. SquareTrade brings 25 million protection plans with it, bringing the number of Allstate customers up to 70 million. The SquareTrade business provides a branded experience with a 5 day claims turnaround (2 days for mobile phones). By definition, these consumers are sophisticated, and many of them are millennials. The customer information provided will allow for digital marketing of Allstate’s auto and homeowner products, incorporating customized marketing information delivered on the devices being protected. The data can also be used for analytics-driven market segmentation and targeting, allowing for pre-underwriting for auto and homeowners products in some cases. There’s also a possibility of CRM-driven campaign management sharing info across distribution and underwriting, customer behavior modeling, and campaign management analytics. If someone wants to move forward with an Allstate product, much of the data can be prefilled electronically from the data provided by SquareTrade. Underwriting opportunities exist as well, but this was not a focus of the deal since CNA and Starr already produce the coverage. Look for more of these acquisitions over time, especially by personal lines carriers.
This week, Intel announced a new partnership with Delphi and Mobileye to develop computing systems for self-driving cars, increasing their commitment to this space. Intel is a huge company whose resources are now aligned with makers of self-driving cars. Completely autonomous cars are therefore one step closer to becoming reality. Looking beyond autonomous vehicles, the challenge of processing the vast amounts of real-time data autonomous vehicles will be producing and taking in will drive innovation in other areas as well. Real-time decision making, a requirement of autonomous driving technology, brings us closer to the way the human mind thinks and analyzes data.
Carriers should expect some agent skepticism whenever they announce the intent to modernize or replace their core systems, and proactively take steps to improve the acceptance of their proposed changes. Most independent agents have moved books of business to new systems. This movement temporarily causes additional work for the agency and can be very disruptive. Agent acceptance of a modern core PAS system, and the related processes and products, is critical to the success of major transformation projects for those carriers in the independent agent channel. Most carriers expect new business submissions to increase as a result of their transformation project and include this assumption in their cost benefit assumptions.
Discussions with carriers reveal differing success rates that appear to be independent of the solution vendor chosen and the choice of Portal component. Some carriers have been very successful extending a variety of core systems directly to agents, and some modern Portal implementations have been unsuccessful. Results can be mixed with the same solution provider, with one carrier getting very positive feedback from agents and other carriers getting negative feedback. Clearly in this case, there are other factors impacting acceptance rates than the choice of core system. So what are the most important factors in determining agent acceptance of a business transformation solution?
Here’s what we recommend:
Separate disruption caused by product and underwriting changes from the impact of new work flows and systems. A company that can’t implement product changes due to legacy system limitations often has a book which reflects adverse selection. A good example might be the average credit scores for a given customer’s base when compared to the average population. Incorporating credit into underwriting guidelines for the first time to address loss ratio concerns will be disruptive from an agent’s perspective regardless of what system it is implemented on. Carriers may consider easing in new factors to reduce disruption rather than fully taking all the required rate indicated by actuarial analysis. Proactive communication of product changes separate from system announcements, as well as clarifying market appetite and offering new products, helps to offset this disruption.
Focus on user experience from an Agent perspective. Engage user experience experts in design and review of the critical functions within a core suite solution. Small companies have demonstrated the effectiveness of just having one or two people designated as having this responsibility or focus. Outside services are readily available. Minimize the number of questions asked during application process by leveraging third party data sources and challenging the value of each and every question asked. Involve Selected agents or customer service representatives (who will actually use the system) in prioritizing functionality and review of early designs and business process.
Don’t communicate unrealistic or premature target dates. Agents often put pressure on carriers to deliver new products quickly. However, they would much rather have a quality implementation and smooth conversion than deal with customer or performance issues. Agents do not like uncertainty. Planning to move business only to have it delayed undermines credibility and irritates the agents.
Pilot all implementations with subset of the targeted population. Pilots should be actively monitored and support teams should be fully engaged in responding to feedback. Too often firms conduct pilots without having a mechanism for obtaining feedback or allowing adequate time to respond to suggested changes. Listen and respond without rushing changes to production. Changes must be implemented with quality and reflect the opinions of a broad audience, not just one user.
Execute. In addition to configuring functionality correctly, carriers must allow adequate time for testing of both the external facing capabilities of the new system as well as the processes for supporting and responding to questions and submissions. Testers should have various levels of technical knowledge and should utilize multiple browsers and access functionality from multiple points within the system.
Create communication plans stressing the benefits of the new system from an agent’s perspective. Ease-of-use, Real time policy issuance, shorter underwritings cycles, and limiting agent entry before knock out rules are invoked all benefit the agent.
Make sure that the project team understands the importance of agent acceptance, defining scope of releases and prioritizing features with this in mind.
Make the above items part of your culture. Once a base Portal or external facing functionality is implemented, keep the focus on User experience, implement incremental changes and pilot changes using A/B testing techniques.
Applying these principles will improve agent acceptance and will benefit the agent, the consumer and the carrier.
Last week, Novarica hosted a Special Interest Group session focused on Individual Disability Insurance carriers in Boston. These carriers, which frequently operate this business as an adjunct to either bigger individual life or group benefits lines, face some unique challenges (and opportunities) as they plan their go-to-market strategies for the future. The resulting discussions, which leveraged both Novarica research and carrier insights, were informed by the near finalization of budgets for 2017. The session was framed around a discussion which started with a presentation of the “Novarica Nine”. Accessible here, this report highlights the key elements that carriers need to address in organizing their plans for the future. The following key points summarize the day’s conversations:
Innovation is all around us but approaches to execution vary widely. In a business which has been increasingly commoditized, and where the next generation of targeted consumers may have a very different approach for connecting with external sources for gaining insight and recommendations, the concept of innovation is increasingly important. Carriers are approaching this in a variety of ways, from looking to create teams that can focus on specific activities, to hackathons, to purchasing innovation (or the permission to do things that the parent brand won’t allow), to establishing subsidiary operations. One of the challenges carriers face internally is from their own corporate “immune systems” which at some level keeps enterprises safe from wayward adventures, but can also work to kill off any semblance of real innovation. Getting away from the use of traditional business cases and the creation of dedicated R&D budgets can help, but this may not be sufficient to create something really new and different that can challenge basic business model foundations. Some companies, notably Allstate and Penn Mutual, have purchased separate brands to create more operational room and technical acumen. MassMutual has created a brand in Haven Life and located it far from the home office, in an ecosystem of innovation in a rekindled Silicon Alley (NYC). These are creating valuable new perspectives but also some new challenges for carriers to be aware of in execution. We also discussed evolving engagement models, including worksite and voluntary benefit exposure through employers as an increasingly attractive way to connect with younger workforce members who are connected with social media but for which traditional agent relationships may appear to be both disinteresting and uncomfortable. We also explored the value of learning that has come from initiatives such as MML’s creation of the “Society of Grownups” coffee shops in the Boston area. Such initiatives may not generate immediate premium results, but may provide a new window on opportunities to experiment with prospects that would otherwise be out of reach. There was also an interesting segue from innovation into bi-modal operations and the value companies are now finding (e.g., MetLife’s recent agreement with CSC) in approaching legacy technologies in a fundamentally different way than they think about future-state operations. Regardless of how carriers think about innovation, access to talent is an ongoing and nearly universal concern as 2017 plans begin to unfold.
Digital capabilities are key irrespective of how you define “customer”. The discussion related to the definition of “customer” is alive and well in carriers in this line of business, but the recognition is clear that both premium paying “units” and producers both require a significant upgrade in experiences to operate effectively in a broadly digitally-enabled world. The reality is that good experiences have already been defined in retail and banking access points that generally enable Omni-channel access. Carriers need to find ways to both understand this and make the investments needed to remain competitive and viable. Some of the lessons that banks have previously learned, including the power of focus groups and the importance of looking at the company from the “outside in”, need to inform strategies. Some carriers have begun to look at similar approaches with the creation of separate and distinct producer groups that are demographic cohort-based so that carriers can get better traction with Baby Boomers and Millennials concurrently. This leads to a recognition that traditional carrier mindsets around having “one size fits all” solution sets simply won’t work in a future state model. Millennials will represent 50% of the US labor force by 2020 and the intergenerational wealth transfer that will come in the succeeding decades will be significant. Carriers need to prepare for some of this reality now, which will require both experimentation and a willingness to be open to new ideas and concepts. Hunkering down with a bunker mentality on a hope trip — that the past will be returning in the future — appears to be something that carriers increasingly understand will not lead to long term success.
Generational change is upon us, with implications across the value chain. In 2015 the number of Millennials in the US population surpassed the number of Baby Boomers for the first time, a gap that will continue to grow ever wider. In addition, the average age of an Agent in the US now tops 59, and a whole cadre of technical advances have forever changed how relationships are framed and maintained. The implications for this across the carrier value chain are significant. Iconic brands that have a history of stability and success that extend back a century or more may find that those brands don’t have a value proposition that carries the same weight or cachet that they did a generation ago. Millennials gather and evaluate information in fundamentally different ways than their older siblings or parents, and may simply not value (or trust) the same sources of data that once were highly valued. As a recent Novarica study on the cohort illuminated, a variety of new sources that can be access in self-service form, with independent methods of confirmation, have replaced tools and approaches that evolved relatively gradually in preceding decades. This creates some notable challenges for carriers in the market for financial services products. The challenges don’t end there, however, since carriers find themselves in a highly competitive labor market for attracting and retaining the best and brightest talent. This can force added pressure on Human Resources organizations which may now need to be ready to go after top talent in some non-traditional ways (e.g., well prior to graduation via intern and other programs) and structure jobs to be much more accommodating to a working model that has employees creating their own careers as a series of experiences that may span multiple companies in three- to four-year increments rather than through a model that anticipates decades-long commitments locking in either employees or employers. The impact on how benefits are structured, institutional knowledge is managed and training programs are managed will be significant. Carriers discussed some of their own efforts on intern programs and how a new-found relationship with educational institutions can lead carriers to help reframe curricula so that they can more logically tie into the employment opportunities of the future. In some ways, this may reflect a “Back to the Future” moment, reflecting upon how engineering schools were closely aligned with manufacturing / transportation centers in the past. Aligning the consumers of technologists with the institutions that help produce them could be a notable value in the future, and we already see this happening in centers like RTP (NC), Silicon Valley (CA) and Amherst (MA). Ironically, since COBOL and other mainframe related technologies are not going to go away any time soon, finding ways to restack talent pools are also reported to be underway with many carriers. Internal training programs and partnering with both technology suppliers such as community colleges and 4-year universities were discussed at length during the sessions. All of this highlighted yet another aspect of bimodal thinking that will need to be part of a CIO’s portfolio in the foreseeable future. Novarica’s research on Millennials can be accessed here.
The future for cloud computing is bright and sunny. Once again, we heard loudly and clearly that carriers are very interested in cloud-based capabilities for a wide range of future state workloads. While some things have easily migrated there, such as dev and QA environments, it has until recently been a slower progression with full production workloads that carry highly sensitive data. Increasingly, however, top cloud-based providers are demonstrating that they likely have both better security and greater resiliency for DR/BCP plans than many carriers are able to deliver on their own. Many of the carriers in attendance at the SIG have moved or are moving email as a mission-critical app to the cloud, most typically with Microsoft Office 365. Publically announced moves by companies like MetLife, Guardian and Prudential have helped solidify this as a “smart” choice, particularly when carriers begin the process of winding down legacy environments (e.g., Lotus Notes) that come to end-of-life. Human Resources and Financial systems such as Workday are also joining CRM solutions, notably Salesforce, as being valuable capabilities in carrier portfolios. The relatively straightforward and easy upgrades to maintain currency with these applications stand in stark contrast to upgrades with traditional software, which many agree is much more akin to a “conversion” than anything else. The emergence of some mission-critical core apps such as Claims and PAS platforms that are delivered on the Force.com platform or hosted via Amazon Web Services were particularly interesting to participant carriers at the SIG. We expect the trend to implementation in this fashion to accelerate in the future as carriers look to make their technology investments more tightly coupled to changes in the business cycle and priorities.
Vended solutions in this space are maturing but successful core implementations require careful planning and execution. There are clearly success stories with the implementation of core systems solutions in the Life and Disability space, related to both individual and group/voluntary benefits. That said, the carriers at the SIG discussed a wide range of issues that need to be addressed before a carrier is able to successfully achieve the goals set out in a large transformational event. Understanding the corporate culture, making sure that the communications issues (both for sending information and receiving feedback) and handling and implementing the right supporting tools (e.g., for program management, testing and QA) while trying to minimize the amount of “On the Job Training” for support tasks were all mentioned as key factors for success. In addition, we discussed the importance of recognizing that, across both business and IT organizations, the probability of the team which starts a journey of core system replacement being the one that finishes the effort and enjoys the after-party being comprised of the same people is actually quite low. In that context, it is critically important that transformation teams and the executives that are responsible for sponsoring/supporting them must anticipate a clear change management process which anticipates onboarding new people at varying points in the future. Planning for these changes at the outset can have a remarkably positive impact as the effort evolves and matures. Organizations which fail to get this right frequently also fail to achieve the goals anticipated in the justifying business case for the transformation event. Another key aspect discussed included the notion that while many organizations are moving their development methodology to some form of Agile, there remain points where the potential for integration of methodologies between carriers and suppliers to fail remains quite high. Carriers need to factor this into their own planning and should avoid assuming that terms of art have actually been defined the same way between strategic partners. Some additional details on factors to consider when ramping up on this type of effort can be found this this executive brief.
Accounting has an important role to play in recognizing the value of technology investments. For many IT organizations, there may not be a full appreciation for the role that accounting can play in the timing of key strategic investments, or how accounting treatments in the future may change in order to accommodate the ever faster cycle times for technology advances, which create shorter useful lives for today’s investments. Many companies continue to employ management accounting systems which are themselves derived from the statutory reporting required by the State Departments of Insurance for evaluating performance and solvency. As a result, the cost accounting approaches used to allocate shared services to participating business units can be rough approximations at best. Determining how some of these allocations are done can be more art than science, with the result being that a determination to optimize a company at the “top of the house” can lead to a very different outcome than when optimizing at the business unit level. For IT organizations engaged in transformational efforts, understanding this may be critical not only for understanding what needs to be done, but also how it should be implemented. For example, understanding the basis for allocations can help to determine if a shared solution can even make sense for a smaller business unit or if, from a financial standpoint, they themselves are better off economically by attempting to execute their own approach. All approaches need, of course, to be considered in light of the desired business outcome. Another issue to be wary of is the period over which assets are depreciated. While long depreciation schedules can be very attractive at the outset by minimizing near term financial impact, they can also force a carrier to use an asset long after the useful life has really been reached (based on evolving technologies) simply because it is too expensive to write off a large impaired asset. As companies consider this carefully, one conclusion they may reach is that it is better to try and minimize capital expenditures for the future in favor of operational ones that don’t risk a large technology “hangover”. Technology investments cannot be made in a vacuum that doesn’t fully recognize how the accounting treatment will recognize them in a specific corporate context.
We particularly appreciate Principal Financial Group’s assistance in framing the agenda and for chairing the session. As we’ve said before, the future is already here … it just isn’t evenly distributed. We are now looking forward to our next set of Special Interest Group meetings as part of our 2017 Novarica Research Council event, which will be held in Providence, RI, on April 25-26. Additional information on the Research Council can be found at http://novarica.com/council-meeting/.
The announced partnership between Metromile and CoverHound shows how innovation and disruption can work within the paradigm of traditional insurance industry modes of business. Metromile is a “creative carrier,” with new ways to productize auto insurance policies. CoverHound is a “digital distributor,” bringing a new, web-based approach to the agent channel. It turns out even a modern insurance carrier like Metromile with a new approach still benefits from an expert agent that can help distribute their product to the right clients, and that’s where CoverHound steps in. Within the industry innovation, there is also room for the lessons of the last hundred years.
John Hancock announced this week that it will be subsidizing the cost of an Apple Watch for policyholders through its Vitality Active Rewards program. Vitality life insurance policyholders will have the opportunity to purchase a new Apple Watch for an initial fee of $25 and, depending on how active they are, will either pay off the remaining balance in monthly installments, or pay nothing beyond the initial fee. John Hancock and Vitality initially provided fitness tracking devices to policyholders, but changed the program to just collect data from insureds via device interfaces like Apple’s Healthkit.
Typically, healthcare payers and the Vitality program have provided incentives via discounts for providing the data. This new Apple Watch initiative, however, now adds in monitoring of movement data in return for a low initial cost for the device.
Vitality says it has seen positive results in studies done in South Africa, where they report that the 17,000 participants increased physical activity by 46% in a similar Apple Watch program. For those who don’t meet activity goals to earn the “Vitality Points” that fund the 24 monthly payments, there could be negative sentiment toward the program. Still, the up-front incentive to make lifestyle changes is very strong.
This program continues a trend of insurers collecting more detailed information about insureds and providing incentives to change behavior. Over time it will provide some valuable data for assessing the effectiveness of these changes on risk.