As part of my presentation this week to the annual PCI Technology Conference on Technology Trends in Insurance: Change, Legacy, and Disparity, I discussed the need to align product, segment, channel, and process/technology in insurance.
Although some insurers have been discussing this need for a long time, changes in the data environment and information technology capabilities, and attendant changes in customer expectations, make this more important than ever.
- Product. Insurers need to broaden their definition of product. There is a disconnect between the way insurers see their products, which focuses exclusively on coverages and pricing, and the way customers see the product, which includes the overall experience of buying and being a customer. Insurers need to start from this customer perspective in order to design a product that effectively meets a market need for more than fair coverage at a fair price.
- Segment. All business is program business. Insurers already have experience in aligning product, segment, and channel – it’s called “program business.” The insurance industry needs to apply this approach to the rest of their product portfolio.
- Channel. Different segments will buy different products through different channels. Insurers should make sure they’re leveraging the right channels to sell the right products to the right segments, and not assume that they can push any product to any segment through their preferred channel.
- Process and Technology. All of the above is only possible with the right processes and technology that are aligned to support the creation and delivery of the right products to the right segments through the right channels. Insurers should re-examine their processes in the light of currently available information technology capabilities and the experiential needs of their target market segments.
Only by aligning these four areas will insurers be able to compete for modern customers. For more insights from my presentation, Novarica clients can download the full deck here.
There was an interesting article today on PC360 about the state of small business online. The article echoed many of the themes and issues we raised in our report last summer, Direct Online Small Commercial Insurance.
The article had some interesting quotes from direct players like Insureon and Hiscox, both of which were featured in our report. But it also contained this quote, which raises an issue we didn’t mention last summer:
“The Hartford is committed to a multichannel distribution model in its small commercial business and independent agents are at the center of the distribution strategy,” says Ray Sprague, senior vice president of small commercial insurance at The Hartford, but adds that the vast majority of small businesses operating in the U.S. today are often too small for many independent agents to profitably acquire and serve (emphasis added).
This resonates with several comments that small commercial CIOs made at a meeting I attended last week. There’s a big SOHO small commercial market that’s too small for most agents to care about. I believe insurers will increasingly look to the direct channel to be able to meet this market demand.
Related research and blog posts:
Our team is just back from the annual IASA conference, which provided the opportunity to meet with dozens of CIOs and solution providers over a couple of days.
In general, insurers and vendors appear to have been investing heavily in technology over the last year or so, with carriers launching major initiatives in core systems and analytics and vendors improving their products both in core engineering and in UI.
In contrast to prior years where technology investments appeared to be focused primarily on cost reduction or mitigation of technology risk, there was one overwhelming theme in the private discussions and panels our team participated in: meeting rapidly changing customer demands.
While we continue to see very strong interest and activity levels in core systems among insurers of all sizes and sectors, there was a notable focus this year on systems of engagement as well. Agent portals, customer portals, responsive technology, and mobile were frequent topics of conversation among the carriers our team met with. Some insurers feel overwhelmed by the problem and lack the expertise to develop a strategic roadmap in an effective way, and there’s a high level of interest in vendor partners that can help them get there.
We found many of the same themes in discussions at the Research Council Meeting. Our report from that meeting is available online and is free to clients and council members.
Accenture published a new survey this week about consumer preference on buying home and auto insurance. The headline of the press release was “U.S. Auto and Home Insurance Customers Turn to Digital Sources to Obtain Information and Quotes, but Prefer Using Agents to Buy Products.”
The first two bullets in the summary of findings were:
- Nearly three-quarters (76 percent) of consumers express a preference for setting up and paying for their auto and home insurance policies in person with an agent, and more than half (58 percent) indicate a preference for doing so via the Web.
- When asked where they prefer to obtain quotes, 43 percent of respondents choose websites, while 26 percent choose over the phone and 26 percent in person. A much smaller percentage (four percent) chooses mobile applications.
The first question seems to have allowed for multiple preferences. Despite the headline, this doesn’t look to me like a preference for agents. This looks like an openness to using agents, but a growing preference for online channels even to buy — more than 50% of consumers.
At The Life Insurance Conference this week in New Orleans, Rob McIsaac, Tom Benton and I had the opportunity to present on the topic of e-processing. The event, which is co-managed by LOMA, LIMRA, the Society of Actuaries, and the ACLI, had the largest number of carrier attendees we’ve seen in years. The topic proved popular with nearly a full house, which I found ironic since we’ve been discussing this topic for the last decade.
Our presentation focused on the “app through issuance” process, and approached the topic from three viewpoints—the high-level viewpoint of the analyst, a more narrowly focused view of bringing the theory down to reality, and the carrier’s viewpoint based on Tom Benton’s recent experience implementing a modern solution that included new business, underwriting, and issuance (among other areas). Topics included those three areas and how they can be improved through e-processing. We dived down into the implementation process and how to improve success rates through better implementation approaches and program structures, as well as developing models for execution and governance.
Additionally, we took a look at the common challenges carriers face when undertaking e-processing projects, as well as the potential pitfalls. We looked at the benefits that Tom expected from his implementation, as well as the benefits actually achieved. Overall, our joint conclusion was that these projects—though difficult—have a strong ROI and are a key aspect to staying competitive among increasingly tech savvy agents, brokers, and new distribution channels.
I’ve seen a number of blog posts and articles over the past year warning agents not to get too excited about social media, since insurance prospects still favor other sources of information over social media…like personal friends and family.
As if social media wasn’t one of the most important ways that personal friends and family communicate.
This reminded me of a general principle for insurance and financial services technology: Technology is not a “what,” it’s a “how.”
No company needs a web strategy, a mobile strategy, a cloud strategy, or a social media strategy. What they all need is an awareness of the roles that these technologies play (or will play) in how their customers want to do business and how their companies can operate most efficiently.
For example, our Social Media and Independent Distribution report this year showed that 25% of agents/brokers under the age of 40 use social media to communicate with their underwriters. But this doesn’t mean insurers need a social media strategy, it means they need to incorporate an understanding of social media into their distribution strategies.
Summaries of all reports are available for free downloads on our site. Some of our recent reports include…
Business and Technology Trends
- Business and Technology Trends: Commercial Lines. Commercial market pricing is showing a decided recovery, leading commercial lines carriers to invest in core systems replacement, agent portal functionality, and business intelligence and predictive analytics.
- Business and Technology Trends: Workers’ Compensation. A distressingly high combined ratio in written premiums for WC carriers is driving a strong interest in core claims systems replacement, business intelligence, PAS replacements, and document management upgrades.
(see full list of Business and Technology Trends Reports at http://www.novarica.com/sectorreports/)
CIO Surveys, Best Practices, and Case Studies
- US Insurer IT Budgets and Projects for 2013. Modest budget increases, core PAS replacement projects, business intelligence, agent portal enhancements, and mobile and social media pilots are all on the 2013 priority list for insurer CIOs.
- Best Practices Case Study Compendium 2012. These case studies, the fruit of the first annual Novarica Research Council Impact Awards, provide a useful set of examples of impactful IT projects. They offer insurer business and IT executives detailed examples across a broad range of diverse industry initiatives.
Novarica Market Navigators
- Property/Casualty Rating Solutions. Profiled vendors include: Accenture, AQS, Camilion, CGI, Decision Research Corporation, Instec, OneShield, Oracle, SISTRAN, StoneRiver, and ValueMomentum.
- Insurance Distribution Management Solutions. Profiled vendors include: Callidus, CSC, MajescoMastek, Navagate, Oracle, Outline Systems, SAP, SunGard, Trilogy Software, Varicent, Vertafore, and VUE.
Executive Briefs and Checklists
- Minimizing Project Risk Checklist. Insurers’ core missions are tied to managing risk in a cost effective and predictable manner. This brief illuminates common factors that contribute to IT project failure and offers a checklist to reduce project risk.
- Insurance IT Transformation Checklist. In order to survive and thrive in the future, CIOs need to facilitate and support business transformation efforts. This report provides a roadmap of things to consider for a transformational program.
Earlier this week, I gave a presentation about the Future of Insurance, which discussed potential disruptions from non-traditional players like Wal-Mart. My slide said:
- How many times do we have to hear about companies like Wal-Mart considering selling—and manufacturing—insurance before we believe it will happen?
- What are you doing to prepare?
- Think about it…
- In the Wal-Mart example, distribution would be completely upended with an agency in every store (they did it with optical care)
- They have a pharmacy in every store that could do life paramed exams
- They believe in taking out costs not for the sake of increasing profits but for lowering prices; imagine the impact
Then this morning, a friend sent this tweet of a display from Wal-Mart:
Sometimes, you don’t have to wait long for the future to arrive!
(Picture Courtesy of @tadeyoung)
Novarica’s latest research report, Insurer Social Media Strategies for Independent Agent Distribution, addresses the use of social media by insurers with independent distribution. Surveying insurers that write through independent agents as well as independent agents themselves, we looked at social media usage rates, the different rates for different uses, and the preferred platforms (especially Facebook, Twitter, and LinkedIn) for various uses.
We found that a striking majority—more than 70%–of the insurers we surveyed have some presence on Facebook, Twitter, or LinkedIn. However, 40% or more have no official social media policy in place—a fact that could create compliance risk and limit the company’s ability to capitalize on social media activity.
Additionally, about 30% of insurers responded that they use social media for one-to-one communication with both agents and policy holders. This suggests that some of the critical communication that used to take place via telephone or email is migrating to social media platforms. This data is notably split by age, as 25% of agents under 40 report using LinkedIn to communicate with specific underwriters at their insurers, double the percentage of those over 40. More communication may migrate to social media platforms, then, as baby boomers move into retirement and are replaced with GenX and Millenials.
The report concludes with a discussion of six ways insurers are supporting agents’ social media efforts, as well as four key recommendations to ensure insurers best leverage social media within their distribution strategies. Insurers that write through independent agents must understand that changes in communication platforms and behaviors will affect their most critical capability: their ability to manage relationships and communicate effectively with their distribution partners.
A free preview of the report is available here.
For the latest in our series of Novarica Market Navigator reports, we looked at ten solutions being used to provide agent portal capabilities for life and annuities insurers. Agent portals, a term which encompasses a range of capabilities like product illustrations, new business submission, account servicing, basic reporting, and now, straight-through processing capabilities, have become a significant and highly strategic technology assets for life and annuities insurers. The feature set is continuing to evolve, most recently with the emergence of electronic applications and straight through processing.
As insurers face an ever-growing market to select from when considering IT projects, the Novarica Market Navigator serves as a great guide for developing a shortlist of potential vendors. But when it comes to agency portals, it’s vital that insurers look at their decision in terms of their core systems strategy and overall e-business strategy. Likewise, it is critical that they understand the desires of the agency force and the growth and trends of the various distribution channels.
A preview of the report is available online here.