A Contrarian View on Self-Driving Cars – Beware the Unintended Consequences

Rob McIsaac

While I embrace many (most?) things with a technology flair, I have to admit to being a bit amused with all the recent breathless excitement exuded over the idea of self-driving cars. To be sure, technology is making them ever safer and more fuel efficient. It is also augmenting the driving experience so that paper maps are going the way of LP recordings and being “lost” is now something of a personal choice rather than a state of condition, but I suspect that the rush to sell ad space may have people overlooking a few practical realities that could lead to surprising, if not dire, unanticipated, consequences.

I’m quick to point out, by the way, that driving my vintage BMW has a completely different set of experiences than driving a new one. No airbags, crash avoidance alarms, proximity radar or backup cameras. Driving it requires real and significant concentration and the consequences of an error can be real and immediate. While I’d never want to retrofit a blind spot warning system, I can appreciate the value. Heck, from the dark ages back in 1984, the vintage ride doesn’t even have a single cup holder.

I can appreciate ABS brakes and traction control too. These technology dependent devices can make drivers feel invincible … or at least support the idea that training and engagement are less important than they once were, since mistakes can much more easily be recovered from. Further, I can also appreciate that under “normal” conditions while cruising down the Interstate and experiencing the commuter equivalent of the “Talladega Draft”, where any open space on the road is an invitation for someone to dive in for advantage, advanced computer control can stay on top of following distances and emergency braking procedures better than the average distracted commuter trying to manage the car, the coffee cup, the kids and the cell phone concurrently.

No, my real concern will come about when we get to the point of auto-driver being a real possibility. At that point, under normal conditions, the onboard systems could handle all the easy stuff with a minimal amount of drama or trauma. Parking between 2 stationary objects? No sweat. Maintaining following distances at 70mph? Again, not much of an issue. The concern will emerge when bad or unexpected or unusual things happen and the computer control gives up and hands it back to the now, even more woefully unprepared occupant, under the tag line of “I don’t know what to do, you take it!”. A failed sensor, a set of road conditions that are unexpected, and a wide range of other factors could create scenarios where the on-board systems decide that they have reached max capacity. Or there’s just the Help Desk Rule #1 for electronic devices: when all else fails, reboot, and start clean.

In other forms of transport, such as high-speed trains and airliners, there is significant control automation even for such dicey maneuvers as station stops and landings. In the main, it works great. But when it goes wrong, it can go spectacularly wrong.

As a backup, these devices have alternative systems, called engineers or pilots, who are well trained and capable of taking over navigation in mid-transaction. They have a full training and testing regimen that they need to follow in order to maintain their certifications. When the training kicks in, the auto pilot comes off, and the results are generally good. Even at that, however, they aren’t perfect as some recent plane crashes have suggested. Training really does matter. A lot.

Which gets back to the driverless car concept. If the occupants are going to be expected to “take over” at any point in the journey, where is the training and experience going to come from? How will they practice dicey moments to build an experience base rather than becoming unwitting guidance systems for land-locked missiles that run amok?

Renting a car today can provide an interesting view if the future. Mastering such simple tasks as turning cruise control on and off varies so much between brands and model years that the first few miles out of the lot are like a training mission of their own.

So, one consequence of increasingly automated vehicles could be fewer, but sadly more spectacular, crashes that are hard to pinpoint “blame” for. The conversation around who is liable in such circumstances could be both long and full of rich legal entanglements. Breathlessly talking about self-driving cars and the end of accidents as we know them may be both significantly premature and a preview to different and more nuanced or complex dialogue.

Of course, on a weekend that required a surprisingly large number of re-boots to both my real world laptop and tablet devices at unfortunate moments, I find myself a little less concerned. If the technology crashes on an Excel problem, how can it possible handle a Jersey Jug-handle first time, every time? Or, maybe I should be more concerned. Time will tell. And that could be the actuarial nightmare scenario.

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  • Four Obstacles Annuity Providers are Facing in 2015

    Mitch Wein

    Recently Novarica hosted a Special Interest Group Meeting in Boston for Annuity providers. The meeting was well attended with four key themes emerging:

    • Product Time to Market
    • Straight-Through-Processing and Related Issues around NIGO
    • Electronic Signatures
    • Security

    The executives in attendance were looking at how technology can solve problems and enable capabilities. What struck me was the paradox of technology providing better and better ways to reach the customer, while at the same time introducing new issues that didn’t exist earlier. One participant noted that “Annuities are sold, not brought”. This comment provided insight into this area of insurance and why it is unlike other area. Clearly the customer and agent experiences are very important. How analytics and mobile can help is still being explored by the carriers.

    Another area of keen importance is the product itself and the ability to modify or introduce new products quickly. We talked about innovations that are on the horizon, especially around customized product offerings that can be assembled in real time out of product features that have already received regulatory approval. Yet, today’s existing legacy systems can’t support these types of time to market innovations. A third area of importance is the ease of doing business for the agent & broker. E-app, illustration and e-signature have been deployed to facilitate straight-through-processing but in the non-captive third party distribution channels, the effectiveness has been more limited. Security is the overlay on top of everything. Carriers feel they are in a good position but noted breaches in firms like Target and Home Depot indicated that what they perceive may not be accurate. We talked about ethical hacking and proactive penetration testing as mechanisms to validate assumptions. All-in-all a terrific an interesting session.

    Our next special interest group will be taking place June 25th in Boston, MA. This meeting will be geared towards Regional P/C carriers. If you or a colleague would like to attend, please feel free contact me at email.

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    Dealing with the COBOL Brain Drain

    Rob McIsaac

    As Baby Boomer COBOL programmers increasingly have the opportunity to say “bon voyage” to working 9-5 and retire, some Insurance IT executives are having restless nights trying to figure out how they are going to address the resulting brain drain. Not only are insurers losing vast amounts of programming knowledge, but they are losing vital business knowledge as well.

    Documentation on aging systems in many cases is more akin to tribal knowledge than a true knowledge management “system”, and the potential for things to go bump in the night increases as these environments face generational transition. For example, one CIO recently shared a story about the transition of responsibilities for running an annual production job from one retiring individual to another programmer. The transition involved, by definition, a year between education and execution. And what was the final result?

    A minor error sent an entire production run of annual statements, totaling 400,000 documents, to a single address! Somehow “oops” fails to capture the full magnitude of such an event.

    The insurance industry isn’t the only sector trying to figure out what they are going to do next. Banking, retail, manufacturers and even the federal government will be looking to find new sources for COBOL talent as the generational transition accelerates. As of 2015, 10k boomers achieve retirement eligibility daily, so the issue won’t resolve itself easily or quickly. This will be the pattern until 2029, so “hope is not a plan” may have never been a more appropriate sentiment.

    With such a competitive marketplace to find COBOL programmers what can you do? Three options immediately present themselves:

    1) Moving off big iron platforms dependent on COBOL, Assembler, VSAM and related technologies
    2) Finding COBOL programmers offshore
    3) Leveraging COBOL programs at local universities

    For many entities, the first option really isn’t feasible based on economic factors alone. The business case for converting old blocks of business can be weak at best, leading carriers to conclude that these systems will be running for the foreseeable future in tandem with more modern capabilities designed to handle new products, channels and priorities.

    The second and third options, however, can offer some immediate relief for these legacy programming needs. I’m pretty sure most people have a good handle on offshore providers, but some IT executives may not be familiar with the third option and I’d like to tell you more about it.

    Currently, I’m on the Advisory Board for the Computer Science and Engineering Department at North Carolina State University which provides some interesting visibility into both the demand and the development of new onshore resources. We are certainly seeing training programs emerge that are intended to restock some of the lost talent in this space. We are also seeing some fascinating collaborations between educational institutions, private enterprises and technology providers as they look to address gaps. One example of this is a collaboration between IBM, Blue Cross / Blue Shield of South Carolina and the University of South Carolina. BC/BS has the need, USC has the capacity to train and IBM has been an active participant in framing the curriculum and capabilities. Other examples are emerging as well which provide an opportunity to collaborate with either traditional colleges and universities as well as technical schools. Junior / community colleges may also provide some interesting options. We also understand that some companies are reverting to a tried and true technique deployed in the 1960’s: internal development programs to build new skills around aging technologies.

    At the end of the day, if the only tool a CIO has in their toolkit is a hammer, every problem looks like a nail. In this case, it is incumbent on CIO’s to develop a broader set of tools that can allow them to creatively and effectively build up the talent pool required to keep aging platforms and systems functional until such time as they can be retired. The reality for many mid-career CIO’s today is that these platforms may still be running after THEY retire, so considering the options sooner rather than later may minimize pain points.

    If you would like to learn more, or share your own experiences in this potentially mission critical area, please feel free to contact me at email.

    Agile and Continuous Delivery in a Regulated Environment

    Jeff Goldberg

    Many insurers are interested in the modern development methodologies of Agile and Continuous Delivery, but worry about how those approaches will work in such a highly regulated industry. When done properly, using an Agile development methodology and/or a Continuous Delivery approach shouldn’t prevent an insurer from putting controls and reviews in place to satisfy external regulations (and internal rigor). A test-driven approach supports both Agile and Waterfall development efforts.

    First, just because a development team is doing continuous delivery or packaging releases into two-week sprints doesn’t mean that code is being moved to production. One of the points of this approach is that code is constantly being built and deployed to a test server and that smaller chunks of effort are packaged for business user review. This means that some of the API integration and build issues that often hold up a project at the end are being nurtured and considered the entire time. It doesn’t mean, however, that actual production releases can’t go through the same rigorous testing and sign-off before ever moving to production servers. You can take an agile approach to a project with two-week sprints that doesn’t actually go into production more than once or twice a year.

    (Note that some organizations do consider continuous delivery to mean that once code has been committed by a developer, it can be tested and moved to production at any time. While this is interesting in theory I know of very few organizations that actually do it this way, and none in the insurance industry that do. The idea to embrace with CD is that you have a production quality branch ready to go at all times, but that doesn’t mean you have to actually move that branch to production outside of a predictable schedule.)

    Second, when done well, an agile approach actually results in more business user review and testing of a system as opposed to less. Testing is spread out over the entire process rather than done in one large burst at the end. A key value of the “sprint” concept is a continuous involvement of business users. Engineers are supposed to be delivering something every single sprint that can be demonstrated and reviewed by stakeholders. Unfortunately, this is where a lot of organizations fail to properly follow the agile methodology. A lot of companies (not just insurers) who embrace the idea of a sprint, really just treat it like a way for developers to chunk up rapid milestones. Agile is not the same thing as Rapid Prototyping. Without the business stakeholders regularly reviewing the results, adjusting priorities, and signing off on items, it’s not really following the agile protocol.

    Third, there’s a misconception that requirements in an agile approach are highly fluid or not well defined. While an agile approach is supposed to allow you to make rapid shifts in priority, it doesn’t mean as an organization you have to do so. If there are a set of regulatory-demanded requirements for a project, those are going to be at the top or near the top of the priority queue, and no amount of flexibility will mean that they get pushed off the list. Until they’re implemented and signed off, the project isn’t going to go into production regardless of how many sprints have passed.

    While I’m a big fan of an agile approach, I don’t think it is right for all insurers or even right for all projects at an agile-minded insurer. If the executives at an organization feel uncomfortable without very detailed project plans and requirements documents, the culture may not be right for agile. If you want to make some important feature updates to a legacy core system, you’re probably going to want to take a waterfall approach of defining the changes, implementing, and testing them; it’s often very difficult to do the sprint method with systems like that. But if you’re building a new web portal and the culture supports it, an agile approach can work great, especially when UI development is involved. And sometimes a mix is in order: if you are implementing a new core system, even if you take an agile approach you’re probably going to want to have some major planning and requirements gathering sessions up front so that you can define costs and timelines with your vendor.

    If you’re interested in talking more about Agile, Continuous Delivery, or other approaches to development, please feel free to email me to set up a complimentary 30 minute consultation.

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    Special Interest Group 2015: Annuities

    Rob McIsaac

    Earlier last week, we hosted our first special interest group meeting focused exclusively on annuities. Increasingly we have found carriers value opportunities like this to spend dedicated time on very specific lines of business. We were certainly not disappointed this time! One carrier noted that “This is the first event I’ve ever been to that is focused only on annuities, and I’m very excited about that!” Indeed.

    For the event, we shared updated information from our Business and Technology Trends report series. The market continues to evolve as new products are brought to bear which improved competitive positioning for carriers but which may test existing technology infrastructures in ways that were not anticipated in the past. One of the key business drivers for the future is “time to market” for new and enhanced products and, in many cases, legacy systems are simply not up to the task of supporting new variations in product features or distribution channels. A variety of approaches for dealing with this were discussed by the group.

    Another key issue area relates to electronic applications and the broader subject of Straight-Through-Processing. We used the meeting as an opportunity to unveil new research that we’ve done highlighting carrier deployment patterns and experiences with both electronic applications and electronic signatures. This research will be part of a future Novarica publication but the preview at this session provided for a highly engaged interaction. One of the things that we were particularly pleased with was our ability to share “lessons learned” with the various vendors which can provide key information to other carriers as they put together their own implementation plans.

    Another area which prompted lively discussion was security. No doubt fueled by concerns associated with recent breaches at places like Target and Anthem, CIOs are acutely aware of the potential risks and challenges. In addition to talking through some of the characteristics of current environments, we explored a range of best practices which carriers can consider in their future investment plans. The use of ethical hacking as a means of exposing, in a controlled manner, important gap areas was particularly interesting.

    This was the third in our series of special interest group meetings and we are particularly pleased with the level of interest and engagement that they are providing. If you would like to review the agenda or discuss the research material we shared at the session, please let me know. You can reach me directly at email.

    Our next webinar for a specific line of business will be on Wednesday, March 18th at 2 p.m. (ET), and will focus on the business and technology trends we are seeing in the group insurance space. If you would like to participate, please make sure to pre-register today to secure your spot.

    This is also a good time to remind Research Council members that our annual meeting is coming up at the end of April in Providence, RI. We already anticipate that there will be time dedicated to a follow-up discussion between the annuity carriers that participated in last week’s session. We look forward to seeing you there!

    Webinar: Group Life/Annuity/Voluntary Benefits

    Rob McIsaac

    In my last blog post I wrote about seven key findings from our Business & Technology Trends: Group Life/Annuity/Voluntary benefits report. In this post I would like to quickly highlight some of the top technology priorities, which I will be covering in more detail during our webinar on March 18th at 2 pm (ET).

    Technology is playing an ever larger role in insurers’ ability to attract, retain and profitably serve clients in the group life, annuities and voluntary benefits space. Some of the top initiatives include:

    • Solid product design that attracts a broad audience
    • Tools to help plan sponsors or enrollers to sell, market, or enroll individuals
    • Robust flexible group administration capabilities
    • Multi-channel marketing and sales
    • Administrative capabilities such as the ability to quickly and efficiently process and post payments

    Novarica research has concluded that success for carriers will revolve around these technology priorities. To learn more about these initiatives in more detail, as well as the latest trends and issues in the Group Life/Annuity/Voluntary Benefits space, pre-register for our webinar on Wednesday, March 18th at 2 pm (ET). I look forward to seeing you there!

    The Benefits of an IT Assessment in 2015

    Martina Conlon

    Our 2015 research indicates that insurers # 1 business priority is growing revenue, most typically through rolling out new or changed products and launching into new territories. Business agility is critical to compete today, and IT departments are charged with delivering rapid system changes to support these new products and business models. But the typical IT department is incredibly busy keeping the trains running and reacting to the increasing needs and demands of the business community. It’s easy to get caught up in the day to day and react to the tactical and miss the strategic. Doing an IT Assessment helps ensure that your technology and IT organization are aligned with your strategic goals.

    Our IT Assessment projects cover:

    • Budgets and spending
    • Staffing levels and staff profiles
    • Application portfolio and technology plans
    • Governance, oversight and reporting structures
    • Business/IT alignment
    • Intake, planning and execution processes

    We review your business goals and pain points, your technology, your strategic technology plans (if they exist) and IT organization to ensure you have the right staff, capabilities and systems to be successful. We leverage our knowledge of industry best practices to help ensure your competitive parity or differentiation.

    IT Assessments are most valuable when there are major changes in business direction, new IT leadership, concerns about business/IT alignment, business satisfaction or the cost of IT, or when you’re looking to assess your performance against your peers.

    If you’re interested in learning more about IT Assessments, please feel free to contact me at email to set up a complimentary 30 minute consultation.

    WSJ: The Driverless Car is Officially a Risk

    Mitch Wein

    There was a fascinating article in the WSJ the other day about the impact of driverless cars on Insurance.

    “WSJ’s Theo Francis joined the MoneyBeat show this morning to talk about how insurance companies and car-parts makers are already talking about the threat from driverless cars. It’s years off, to be sure, but some of these companies, like Cincinnati Financial Corp, and LKQ Corp are already discussing the competitive threat in the “risk factors” section of their SEC filings.”

    We have been talking about the impact of IoT generally, with driverless cars being one example. We are now reaching a tipping point. Sometime in the near future, the technology will be fully matured and the regulatory environment fully adapted to this new paradigm. All sorts of impacts will occur. Insurance coverage will transition from Personal Lines (where people do the driving) to Commercial Lines (where the manufacturer is responsible for the safety and accuracy of the vehicle). While less cars will be in accidents, accidents will still happen. When cars are damaged, the cost will be higher to repair due to the advanced electronics. These cars will probably be connected to the insurer’s claims systems and underwriting models, with the notion of metered insurance a real possibility. People may not even own cars in the future, but simply call the car up on an “Uber-like” service through their smartphone. The car itself may be its own self-contained business, optimizing its availability and the routes it drives based on P&L (the most popular routes) and insurance risk(where the most accidents occur). And what about a driverless ambulance that is auto-dispatched if your fitbit device indicates a health emergency. If the ambulance does not get to the hospital on time, who’s at fault?

    As we have said…the Internet of Things is actually the Internet of Transformation.

    Stay Tuned……

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    Top Stories in Life/Annuity

    Steven Kaye

    We’ve just published our Novarica Industry Intelligence Brief for Life and Annuity for February 2015. These reports highlight some of the most interesting industry stories from the past month, and present them along with Novarica commentary. Commentary is available to clients only, but we’ve posted direct links to the stories below:

    • Seven insurers are working with the Greater Des Moines Partnership to offer capital and mentoring to tech startups. Full Story.
    • AXA has launched AXA Strategic Ventures to invest in tech companies relevant to the insurance industry. Full Story.
    • Capgemini’s latest World Insurance Report reveals North America has the largest drop in positive customer experience of all regions covered. Full Story.
    • Mercer has taken a 9.9% stake in vendor BenefitFocus, whose technology powers its private exchange. Full Story.
    • Observers think the US Supreme Court will be unlikely to propose new standards for retirement plan fiduciaries and their responsibilities regarding
      investments. Full Story.
    • Paul Forte, CEO of Long Term Care Partners, has proposed the establishment of a long-term care insurance exchange, more to spread risks than to lower prices. Full Story.
    • President Obama has asked the Department of Labor to proceed with redrafting fiduciary standards for retirement accounts. Full Story.
    • Prudential Group Insurance has named a VP of digital and customer experience. Full Story.
    • Smartphone-based apps are just as accurate as wearables according to a study by University of Pennsylvania researchers. Full Story.

    For Novarica commentary, clients can download the Brief at http://novarica.com/february-2015-novarica-industry-intelligence-brief-life-and-annuity/

    Top Stories in Propery/Casualty

    Steven Kaye

    We’ve just published our Novarica Industry Intelligence Brief for Property and Casualty for February 2015. These reports highlight some of the most interesting industry stories from the past month, and present them along with Novarica commentary. Commentary is available to clients only, but we’ve posted direct links to the stories below:

    • Seven insurers are working with the Greater Des Moines Partnership to offer capital and mentoring to tech startups. Full Story.
    • AXA has launched AXA Strategic Ventures to invest in tech companies relevant to the insurance industry. Full Story.
    • Capgemini’s latest World Insurance Report reveals North America has the largest drop in positive customer experience of all regions covered. Full Story.
    • The University of Iowa has found more frequent flooding in the U.S. Midwest and adjacent states over the past fifty years. Full Story.
    • A.M. Best anticipates more reinsurance M&A activity. Full Story.
    • Colorado State University is building a resilience forecasting model to help local governments mitigate the impact of natural catastrophes on communities. Full Story.
    • Senator Edward Markey warns auto manufacturers are not incorporating security measures into newer in-car systems. Full Story.
    • The federal government is creating the Cyber Threat Intelligence Integration Center to coordinate information sharing on various cybersecurity dangers.
      Full Story
    • Government agencies are seeking input on cyber risk avoidance and mitigation, as well as how to make it easier for smaller firms to obtain cyber risk coverage. Full Story.
    • Several insurers are undertaking data quality initiatives, including business ownership of data and identifying useful changes to data capture for future analytics. Full Story
    • Towers Watson disclosed in a recent survey that predictive analytics have increased retention for over half of respondents. Full Story.
    • USAA has introduced Onsight Connect, allowing policyholders to connect to claims reps via mobile devices using streaming audio and video. Full Story.

    For Novarica commentary, clients can download the Brief at http://novarica.com/february-2015-novarica-industry-intelligence-brief-property-and-casualty/