Major Trends in Global Insurance and Reinsurance and IT Implications

Mitch Wein

I recently attended the Insurance Insiders Conference in New York. The presentation and discussion panels focused on three major areas of disruption in the global insurance and reinsurance industry: capital and regulation, competition, and technology.

Capital and Regulation

  • Large parts of the world are awash with capital looking for a place to be reinvested. This includes a large increase in alternative capital (ex. Diversified pension funds, endowments). Diversified capital allocation models are guiding where the money is going.
  • CAT Bonds (risk-linked securities that transfer a specified set of risks from a sponsor to investors) are growing. CAT insurance pricing is at an all-time low
  • Increased global regulation may cause a retreat from long-term products since not all firms are being treated equally (ex. SIFI-systemically important financial institution)

Competition

  • Rate reductions are persisting, especially in Property. However, Professional Liability is stable. A low interest rate environment will remain in the short-term. There is more price decreases on new business vs. renewal. The will be continued activity in M&A in insurance. There has been an industry consolidation in the Lloyds Marketplace
  • Foreign Insurers are exiting the US because of higher capital requirements-especially in the US Life and Annuity segment
  • Opportunities are emerging to transfer risk from the public to the private sector.

Technology

  • Advanced predictive analytics in reinsurance is helping to optimize returns for strategic capital
  • Increasing amount, frequency and types of data is driving innovations in specialty lines like drone based claim inspection for catastrophes and crop damage
  • Cyberrisk mitigation is gaining in importance and has led to a focus on enterprise risk management. Related areas of growth are privacy liability and network security. However, the risks around cyber are not well understood by underwriters. Additionally there is a risk of duplicate and overlapping regulations in this area.

Even in the first two areas, technology’s impact is being felt. The use of new technology allows not only more scale, but also enables firms to diversify, triggering M&A’s to exploit synergies. What was very clear was that global insurers and reinsurers can no longer think of themselves as somehow insulated from the effects of the rapid changes in information technology that are disrupting the more consumer or commodity lines of the market. Global insurers and reinsurers need to incorporate a deep understanding of technology issues, both internal and external, into their strategic planning.

Trends in Claims

Mitch Wein

According to Novarica’s 2015 US Insurer IT Budgets and Projects report, approximately 20-30% of insurers are replacing claims systems.

On Wednesday, May 28th at 2 pm (ET) I will be hosting a webinar, which will examine trends and issues in claims management systems, as well as review highlights from our Market Navigator report on leading claims vendors. Attendees of this webinar will also learn about:

  • Current market overview
  • Present state of claims system technologies
  • Advanced capabilities in claims
  • And more
Investments in Insurance Claims Technology 2015

Investments in Insurance Claims Technology 2015

Claims technology continues to play a crucial role in a carrier’s ability to differentiate, control costs, and deliver a consistent level of high service. Insurers continue to replace claims systems at a heavy pace. With the impact of mobile and social media starting to be felt as well, modern claims capabilities are a must for insurers.

To pre-register for this event, visit: https://attendee.gotowebinar.com/register/120108826

Predictions of Insurance Future from 2011 are Materializing…

Matthew Josefowicz

In January 2011, I wrote a post on this blog highlighting three glimpses of the future of insurance. The three issues I called out were:

  1. Underwriting without questions, as illustrated by the Aviva/Deloitte pilot project featured in the WSJ in November 2010
  2. Agents optional, based on general trends, with the specific example of the NAIC basically throwing agents under the bus
  3. Maximum profitability, as illustrated by the industry’s acceptance of the minimum Medical Loss Ratio provision of PPACA

I asked insurers to:

Consider a future in which:

  • Underwriting requirements come from third-parties, not your own efforts
  • Intermediaries are only one channel among many
  • Your total loss numbers are constant from year to year at a mandated level

Is that a future in which your organization could survive?

I believe the first two, which seem far out now, will be commonplace by the end of the decade. I will be happy to buy the drinks at the 2020 IASA show if I am wrong.

The third is much more contingent on political winds. But if health insurers capitulate on this point, P&C and life insurers need to clearly differentiate themselves from health insurers in terms of public perception or face the risk of operating with the same constraints[emphasis added].

As we’ve pointed out in recent posts, agents are already just one channel among many, even in previously unthinkable lines of business like small commercial. I also recently came across an example of underwriting without questions, MetLife’s Xcelerate system, as reported in IIReporter.

Perhaps most concerning for insurers, however, is a recent example that indicates the third item — government-mandated maximum profitability — is not too far off. The ban by Florida and several other states on “price optimization” is an indication that political pressures may bring a PPACA model to P&C.

However insurers choose to try to address these changes, they cannot ignore them much longer. The industry is changing rapidly, and insurers must ensure that they can adapt their business models and the technology capabilities that support their business models.

Novarica Research Update: M&A and Insurer Accelerators and VC Funds

Matthew Josefowicz

With investor money flooding the insurance technology sector and tech company M&A activity at a fever pitch, Novarica has published two new reports: “Insurance Software M&A Update 2015 Q2” and “Insurer Accelerators and VC Funds: Buying Innovation”.

With the recent acquisitions of Agile Technologies and Cover-All by Majesco, Oceanwide by Insurity, and CCC Information Services and Mitchell International by a private equity firm, as well as a slew of other acquisitions over the last 24 months, there is continued activity in this still highly fragmented sector

Novarica’s “Insurer Software M&A Update 2015 (Q2)” brief provides an update on the M&A in the insurance software sector with an overview of the main participants, information about recent transactions, and predictions for future activity. Solution providers discussed include: Accenture, Capgemini, Cognizant, Computer Sciences Corporation (CSC), Ebix, Guidewire, HP, IBM, iPipeline, Insurity, Majesco, Microsoft, Mphasis, Oracle, SAP, Sapiens, StoneRiver, TCS, and Vertafore. A free preview of this report is available at: http://novarica.com/manda2015/

Insurance Software Mergers and Acquisitions 2015

Insurance Software Mergers and Acquisitions 2015

Not to be outdone, several insurers have established either accelerators or venture capital funds in recent years. The idea of insurers with dedicated venture groups is not a new one. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. Insurers interested in establishing their own groups should be clear in what the goals and risk profiles of these groups should be.

Novarica’s “Insurer Accelerators and VC Funds: Buying Innovation” brief looks at current trends and issues in this space and provides a list of recent examples of accelerators, incubators, and insurer venture funds active today. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. A free preview of this brief is available at: http://novarica.com/insurance-vc-buying-innovation/

For more information about these reports, please contact us at inquiry@novarica.com

Group Benefits Solutions: Still a Work in Progress

Rob McIsaac

At our 8th annual Novarica Insurance Technology Research Council Meeting, the discussion was wide-ranging at the Life/Health/Annuities breakout session. The session focused on both Individual and Group product lines, with a particular focus on both Group and Voluntary benefits. For the Group space, after many years of depressed investment (no doubt fueled by the Great Recession), we’re now seeing carriers particularly focused on new capabilities that can help both defend existing market share while opening up new opportunities in the emerging areas of Worksite / Voluntary Benefits.

The Worksite/Voluntary space is also one that Individual insurance carriers are eyeing as an opportunity, which sets up an interesting “race” as companies prepare to face off in what may be a critical area for both lines of business in the future. In fact, competition and competitive capabilities were very much top of mind during these discussions. While Group and Individual Life carriers certainly see the Voluntary Benefits space as an area that they can gain leverage from current capabilities to build market share, there are other forces in the market that also see this as prime real estate for the future. Group Health carriers come to mind, for example, and we discussed the importance of being aware of alternative forms of competition that could make this space even more interesting in the coming years as the full impact of regulatory and demographic changes emerge.

In terms of capabilities that are high on the list of carrier concerns, the group had a wide ranging discussion that touched on electronic enrollment platforms and electronic signatures, consumer portals, approaches to integration with TPAs, death certificate processing, and group benefit enrollment vendors. The continued focus on electronic capabilities that effectively enable both a higher level of end consumer self-service and a great ability to support Straight-Through-Processing of transactions was central to the discussion. Better service can frequently be lower cost service too, when the functionality is available to allow both prospects and customers to handle transactions when they want, on the device they want, with other capabilities available to guide consumers through the navigation of options and features. Mindful that customer expectations around what a good experience should be are now essentially established in other domains (e.g., retail, banking), insurance carriers have some key focus areas to address in order to remain competitive.

Many participants were interested in digital channels, legacy system modernization or replacement, and especially the evolution of Group-oriented solutions. Handling different sizes of group cases was cited as a challenge with vended solutions, and several participants talked about using multiple solutions for non-core processes and systems. Private exchanges are not yet addressing their potential in the market, but carriers are watching them carefully. Each year, as the enrollment periods for benefits approach, the reality takes notable steps toward the promise of these platforms to deliver capabilities and plan sponsor/member access.

Customer experience remains a particular challenge, particularly when there is a need for carriers to span multiple internal systems and / or to integrate internal capabilities with functionality delivered through TPA’s or other third parties. This highlights the need to be thinking concurrently about both the desired user experience and the underlying architectural investments required to make “good experiences” a reality.

Discussion also explored the current state of commercial solutions available to cover a wide range of functionality to support Group insurance. While historically lagging behind Individual insurance alternative, the Group oriented capabilities are coming on quickly. A number of companies at the session are poised to make significant investment decisions in the near future.

The session also explored some of the differences in the challenges represented when addressing legacy core systems that come from a mainframe environment (1960’s to 1980’s technologies) when contrasted with the “legacy client server” and related solutions that date to the 1990’s (up to the present). While it is tempting to think of a correlation between the age of the systems and the magnitude of the challenge, this may simply not be true based on access to qualified resources and the stability of the underlying technology. In any case, there’s a clear understanding across participant carriers that getting after some of the aging foundation in the technology stacks will be critical if they are going to meet future state needs for flexibility, time to market and experiences that can support greater diversity of both customers and distribution channels.

The idea of a Special Interest Group (SIG) session, that would bring together Novarica Research Council members for a full working day that focused on specific lines of business, grew out of this session in 2014. Already this year, Novarica has hosted sessions focused on Group Insurance and Annuities. Another session, focused on Individual Life capabilities, is now scheduled for October 14th in Boston, MA (tentative agenda).

Anyone interested in this SIG event can let me know by sending me an email. As many carriers turn to start budgeting for 2016, things look both interesting and opportunistic for carriers and their IT organizations.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

Core Transformation: Both Helping and Hindering Growth

Martina Conlon

At our 8th annual Novarica Insurance Technology Research Council Meeting, technology as both an enabler and an obstacle to growth came up at the Property/Casualty breakout session. Participants universally recognized that modern, flexible core systems are critical to support the business strategies to grow revenue (new products, modified products, new jurisdictions, etc.). Older brittle technology has been an obstacle for them all, but the complexity and challenges of building a quantitative business case has delayed funding a transformation effort for some. Few participants were able to gain funding approval on a positive ROI metric, instead business sponsorship and funding was gained through the more qualitative case that “this is table stakes to compete today”.

Others that have a core systems project in process reported that extended timeframe, excessive cost and all-consuming nature of transformation efforts have prevented them from implementing any other business changes and have effectively frozen their business strategy for the duration of the project. Many of their growth strategies and goals have been pushed down the road until the transformation is complete. But there was general agreement that the tactical hits and delays they are taking now are worth it in order to deliver a more flexible, strategic platform for the future.

If you’re interested in talking more about your Core Transformation efforts, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

What Keeps CIOs Busy All Day and Up At Night

Tom Benton

During the Emerging Technology and IT Security breakout session at the 8th annual Novarica Insurance Technology Research Council Meeting, I framed the discussion with the following thought: while emerging technology keeps CIOs busy during the day creating information, IT security and keeping that information protected keeps them up at night.

Emerging technology topics discussed at the session included big data, cloud adoption, security concerns about these and technologies such as drones, wearables and Internet of Things. We talked about Progressive CIO Ray Voelker’s statement in a recent INN interview that they are “way ahead” on their big data strategy and how this is a bold statement in the insurance industry. Emerging technology is producing a large volume of data, at increasing velocity and insurers in general are not prepared for mining the value. HSB’s recent acquisition of mobile IoT startup Waygum and John Hancock’s recently announced partnership with Vitality were discussed as early examples of IoT and wearables being considered for new innovative insurance products. The general assessment of the discussion group was that for many technologies like wearables and IoT, the insurance industry is in the early days of exploring use for insurance products and customer engagement.

Turning to IT security, board and general business awareness around IT security has increased, with the focus shifting from risk elimination to risk mitigation. Auditing of vendors, ethical hacking (use of white hat firms), and scenario planning can avoid or identify vulnerabilities and improve incident response. CIOs are also finding it difficult to define metrics for communicating IT security needs to their boards and finding best practices for funding IT security initiatives. Also, for 2015, NAIC has increased their focus on IT security issues in the industry and formed a Cybersecurity Task Force that recently published a draft document with 12 principles intended to “establish insurance regulatory guidance that promotes coordination and protects insurance consumers.” The discussion group generally agreed that IT security will remain a top concern, and that sharing of best practices and use of NAIC and NIST standards will be helpful in approaching IT security issues.

If you’re interested in talking more about emerging technologies or IT security, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

Enterprise Architecture and Digitalization

Mitch Wein

At our 8th annual Novarica Insurance Technology Research Council Meeting, discussion began with a definition of “digital” at the Enterprise Architecture and Digitization breakout session. Novarica stresses that digitalization encompasses the entire customer interaction lifecycle, from front-end to back-end. A common theme was that of silos: a given process might be automated, but still require manual elements to be fully executed. A example of this could be creating and exposing a form through a portal but requiring the form to be mailed in by the agent or customer and scanned in by the carrier back office. In part, this is a function of change management and budget – an agent portal project as a quick win has appeal compared to a more exhaustive transformation.

We explored how prepared carriers were for digital given the definition above. Clearly key emerging technology trends like IoT, social media, big data and cloud were pushing firms to reconsider what they needed to do to remain competitive. While some firms were doing regular Strength, Weakness, Opportunity, Threat (SWOT) reviews, many were not. All agreed that a SWOT analysis should be an ongoing effort.

As part of their digital transformation, many carriers were concerned about data quality (and thus resisting automation and subsequent “exposure”). They were also under investing in areas that will be critical to their digital success; many carriers do not have business and technology architects involved with their digital efforts or in some cases don’t even have a business or enterprise architecture group!!!

We briefly touched on security and the importance of making sure security risks are mitigated to avoid reputational, regulatory or legal exposure that could impact a digital insurer. Existing cyber security frameworks like the NIST framework released in 2014 can save carriers time and effort, by providing metrics and a framework that regulators are familiar with. Security exposure of vendor practices and products was mentioned as key to a carrier. We discussed requiring vendors to conduct security audits and report on the results, which can serve as a lever for negotiations.

Finally, we talked about the need to introduce a test and learn culture into the carriers, allowing projects to “fail fast” if they do not work well. We related this to the notion of Fast IT and how it compares with Core IT. Core IT will often use traditional waterfall methodologies and take a long time to evolve systems. In the new digital world Fast IT will behave differently. Fast IT will evolve solutions through Agile processes and allow for solutions to be “thrown-away” if they are not working out. We discussed examples like smartphone portal front-end apps for agents, brokers, or customers. All of the carriers participating felt that the Fast IT concept was new to their firms and will probably difficult to adjust to from a process and funding perspective.

After digital, we moved on to enterprise architecture. We discussed how a reference architecture can provide consistency across projects as well as help with project prioritization. This allows carriers to be proactive and not just chase the hot new technology and feeling constantly behind. Linking architecture governance, aligned to a reference architecture, to funding governance through logical gates was being done in an informal way in some carriers and not at all in others.

If you’d like to discuss enterprise architecture or digitalization further, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

Will Big Data Replace the Enterprise Data Warehouse?

Jeff Goldberg

At our 8th annual Novarica Insurance Technology Research Council Meeting, we had some great conversations about data, both as part of the formal event agenda and also via informal discussions during breaks or meals. Many of the trending or future technologies being discussed (Internet of Things, wearable devices, social media) from an insurer perspective are really just more and bigger channels of data. And just in case you think insurance data is lacking in thrills: my favorite story of the day was about auto insurers looking for fraud or stolen vehicles by integrating data feeds from the license plate scanners used by bounty hunters.

At the analytics breakout session I had the opportunity to sit around a table with CIOs from a variety of insurers of different sizes and lines. One thing that struck me was how much big data and big data technology is part of the conversation. Novarica typically urges caution when asked about big data, stressing that insurers shouldn’t go looking for a use case to fit a technology. But it seems that more insurers are finding the use case which leads them towards a big data approach, and it raises questions about the future of the enterprise data warehouse.

Building a data warehouse with a single data model that supports the whole business is notoriously difficult, with a success rate that drops as the amount of data and number of lines of business get larger, until becoming a near impossibility. A big data approach allows bringing together many different data sources with different structures without having to go through the normalizing and cleansing process that often derails EDW projects. While both approaches have value, larger insurers are discovering the big data route may be their only option for cross-business analysis. And some smaller insurers see this as a way to rapidly gather and review data as well, often running side-by-side with an existing data warehouse. In fact, in at least one case, an insurer’s big data lake has become the first step in the data workflow, with a data extraction from it feeding the older data warehouse as a way to maintain legacy processes.

We’re currently reaching out to the Novarica Insurance Technology Research Council with a survey about analytics and big data, so will be reporting soon on just how many insurers have taken a big data approach. But even though we expect the percentages to remain small, it’s clear the growth will continue. The tools and options around big data are increasing and more vendors are providing services that make it easier for insurers to leverage big data tech without having to build it from scratch themselves. In time, I expect to see more insurers running a big data project alongside an enterprise data warehouse, and, in some cases, taking over as the hub of that insurer’s data.

If you’re interested in talking more about big data and data technology, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

Overcoming Reluctant Users: Part II

Jeff Goldberg

Back in January I blogged about an issue that comes up frequently when talking to insurers about change management: how to handle end users who don’t want to move to a new system. It’s a frustrating (and yet common) experience, with one, two, or a handful* of people not “getting” the value of a change that everyone else** believes in. A reluctant user doesn’t necessary throw up roadblocks or even complain too loudly, but a lack of positive engagement can still slow down or hinder a project.

  • *If it’s more than a few end users, then there are bigger problems that need to be addressed.
  • ** If “everyone else” is actually a code word for “just management,” see the above comment.

My original blog post received a lot of feedback, with some people questioning why a company would implement a new system that end users are reluctant to adopt. While I’ve tried to clarify that there’s a difference between reluctance from all end-users and reluctance from just a few, it also got me to wondering about the different reasons users might have for pushing back on change. There is obviously no common person called “end user,” and in fact every company is made up of a variety of different people with different motivations. There are power users who don’t want to start from scratch, users who fear for their jobs, users who question IT’s ability to deliver, users who are scared of change, and other scenarios that get in the way of a successful transition.

In response to this, we looked to the experience Novarica has had helping insurers prepare for new system implementations, talked to various CIOs who have gone through change management problems of their own, and also thought back to those times when we had been reluctant users ourselves. And so that initial blog post has now been expanded to a full report. It covers different scenarios and complications that cause some end users to resist a new system, and it aims to help an insurer plan for the kind of change that everybody can rally behind.

On Monday, June 22nd at 2 pm (ET) I will be speaking more about this subject on our CIO Series Webinar: Preparing for Digital Transformation and Overcoming Reluctant Users. Interested participants may pre-register online at: https://attendee.gotowebinar.com/register/120109254

Related Reports