Novarica’s team comments on recent insurance and technology news
Consolidation of software vendors continues, most recently in benefits management with the acquisition of benefitsCONNECT by benefitexpress.
Novarica comment by Rob McIsaac, SVP of Research and Consulting: “By inserting themselves between employers and carriers/brokers, benefits providers have provided employers with a one stop shopping approach for benefits. Many employers like this approach since it is much simpler than maintaining separate relationships with multiple carriers. Consolidation of the sort represented by this merger, is likely to accelerate in the future. A product that is not only an enrollment platform but an engagement solution integrating products from several carriers is not just an employer portal but also a new distribution channel for carriers. For many carriers, the group and voluntary benefits markets are key to their financial success. They will want to remain vigilant to how the competitive space is changing and aware of what they need to do in order to effectively adapt.” More from Novarica on M&A in the insurance software market here.
Low interest rates and Brexit continue to force organizational changes at MetLife, and pressure to lower costs will mean job cuts.
Novarica comment by Don Metz, VP of Research and Consulting: “Recent earnings results continue to emphasize the difficult headwinds facing the life insurance industry. Persistent low interests, foreign exchange rate volatility and continuing turbulence in the domestic equity markets continue to drive thin profit margins, while sluggish sales growth compounded by regulatory challenges, such as the recent DOL ruling, may further impact short term sales. Many insurers recognize the need to innovate and transform to drive growth and open new opportunities. But, the dual pressures of needing to invest in innovation and technology modernization while also maintaining aging legacy systems and processes will continue to challenge insurers, and carriers without a holistic approach to IT modernization will find themselves without the tools to cope as the competitive environment gets tougher.” More from Novarica on IT modernization and program management here.
Cat bonds are upsetting profits for reinsurers, showing that the insurance industry doesn’t have a monopoly on risk transfer.
Novarica comment by Matthew Josefowicz, President and CEO: “Catastrophe bonds now account for 12% of the overall reinsurance market, a number that is triple the level projected for 2016 in by a Guy Carpenter report from 2012. Advancements in information technology makes it possible to better understand and price risk, meaning that insurers no longer own this type of risk transfer. The insurance entities that facilitate risk transfer- distributors, resellers and carriers of risk, and others- are vulnerable to disruption and disintermediation if they can’t justify their existence by adding value to this process. More from Novarica on risk transfer in the insurance industry.
Six IMOs have filed for exemption to be defined as “financial institutions” to comply with the DOL’s Best Interest Contract Exemption (BICE).
Novarica comment by Rob McIsaac, SVP of Research and Consulting: “One of the great questions facing annuity manufacturers now, particularly for those involved with Indexed products, is exactly how they and their distribution partners will comply with the Fiduciary Responsibility component of the DOL ruling which is slated to go into effect next year. In reality, many are facing the prospect that the real go-live date could be 1/1/2017 for many changes, since distribution partners are unlikely to want to run 2017 on a “split basis”.
In any case, for variable annuity products, part of the compliance model has relied on the governance controls provided by retail Broker Dealers. This does not currently exist for the Indexed product set. As a result, evaluating different options becomes critical for the entire value chain. Some interesting developments highlighted this week, including the potential direction of an increased number of IMO’s moving to become Broker Dealers.” More from Novarica on the DOL ruling here.
The FAA’s revised drone rules will allow insurers to take full advantage of the technology for inspections and data capture.
Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “Insurers sitting on the sidelines wondering about FAA drone regulation have had one major obstacle removed. Now that the FAA has removed most of the regulatory burden of simple drone operations, we expect most P/C carriers to be keen to exploit the numerous operational advantages it can bring. However, to fully leverage drones and the data they can supply, insurers also need to have prepared the necessary technical resources, the data absorption and data analysis capabilities, and prepared their claims departments for the potential impact of new data sources on adjusting and litigation. Permission to take off is only one part of getting off the ground.” More from Novarica on drones and IoT here.
Wearables to manage workplace injuries are poised to reduce risk and cost in workers’ comp.
Novarica comment by Tom Benton, VP of Research and Consulting: “Wearable devices have the potential to quantify many variables for personal health: movement, heartrate and even more specific items like blood sugar levels for medical monitoring. Consumer adoption has been rapid with fitness bands and smartwatches in the last few years, but insurers have struggled with how to leverage the massive amounts of data that are becoming available. Specific use cases are hard to find, but as the article points out, wearables can make an impact on workers compensation (WC) claims. Injured employees can be better monitored to track recovery to decrease the time away from work, and possibly increase the likelihood of returning to their job. As Novarica pointed out in a report earlier this year, wearables and other IoT devices face significant long-term challenges for insurers such as regulation, adoption, standards and other issues. However, application to workers comp could provide a use case that has near-term impact and measurable benefits to WC insurers.” More from Novarica on wearables and IoT here.
The spinoff of Allstate’s telematics company, Arity, signals intent to sell data and analytics knowledge to competitors and other industries.
Novarica comment by Matthew Josefowicz, President and CEO: “This announcement shows that leading P&C insurers are not going to be content to have their fortunes completely hostage to a low margin, commodifying business like mass market personal auto. They are going to look for new services that they can offer based on their extensive knowledge of risk. Whether insurers will buy services from a company owned by a competitor is another question.”