Baked Ham and How “Best Practices” Reflect the Best Available Technology…

Rob McIsaac

Both organizations and the people who comprise them are, to a significant degree, a function of their experiences. As time progresses we learn what works, and what doesn’t. We explore strategic alternatives and consider decisions which reflect an appropriate balance of risks and rewards in order to allow us to optimize results based on a specific set of criteria.

Both insurance companies and their employees also learn from their mistakes. The corporate form of “don’t touch that stove” may actually tie to business ventures gone sideways, technical investments gone bad or M&A events that spectacularly failed to hit their mark. No matter what it is, these experiences inform future decisions unless (or until) they fade from the conscious memory.

Of course these events have a corollary which focuses on what worked, and these “winning” strategies and tactics also form a foundation for future success. In fact, for many organizations, the past many times is deemed to be a predictor of the future, so long as it gets put into the right context. This also means being in a position to draw the correct lessons from past experience, and avoiding the temptation to confuse “correlation” with “causation”.

The correct lesson extraction may, in fact, be the tricky part.

I heard a story recently which brings home the point. In prep for a holiday dinner that involved a ham, a spouse noted that the ham had been cut in half before put in the oven. Why?

“Because that’s what my mother did” came the reply. Asking the mother-in law-why she did it produced a similar, inter-generational,: “because that’s the way my mother did it”.

Blessed with the opportunity to ask the grandmother-in-law why the ham was cut on half got to the root of the matter. And the response for the ages: “because my oven was too small for a full ham to fit!”

Which gets back to many insurance carriers as they consider options for future business process changes and the technology investments, including core systems, that will support them. As carriers look to replace platforms from an earlier era, rather than focusing on what is possible to do with modern tools , they continue to plan for a world that was heavily informed by what worked in the past, failing to appreciate the limitations created by the environment of a different day. Rethinking business processes and related structures can dramatically improve operational and financial results, but not if they are arbitrarily constrained by legacy limitations.

As carriers embark on technology stack replacements they need to understand their own half-a-ham stories and proactively work to explode them for the myths that they are. Getting outside of the company, perhaps outside of the industry, can be particularly helpful and instructive for CIO’s and their teams today. Last year, I had a chance to visit the BMW assembly plant in Greer, SC. This is an amazing facility that is essentially business process and industrial choreography on steroids. The last time I’d seen a plant like this was in the late 1960’s watching Chevys come down the line. This was like Star Wars (my new experience) meeting Charles Dickens (my recollection from a bygone era). It was hard to imagine that these were the same types of places.

Building a state of the art, 21st century car, in a plant rooted in the lessons of Henry Ford, would be impossible. Insurance carriers face a similar dilemma as they get ready for a new and every more competitive environment. Game on!

Novarica Quick Quote: Product, Market, and Channel Alignment

Matthew Josefowicz

We’re experimenting with a new series of Slideshare presentations we’re calling Novarica Quick Quote. Each one is designed to convey a single important idea related to how technology is changing the insurance industry. Each one is meant to be consumed in 15 seconds or less, and our hope is that our clients and council members will find them to be a useful tool to stimulate strategic discussions.

This week, we look at Product, Market, and Channel alignment, which we’ve also blogged about in more detail.

IT Security Update: Financial Services Now In The Spotlight

Tom Benton

News about a major bank security breach dominated the weekend, and new developments continue to emerge.

How should insurance CIOs and CISOs respond to this news? In Novarica’s IT Security Issues Update earlier this year, a significant percentage of insurers revealed that they had not conducted an external audit of IT security in the past year. The report concluded that insurers should consider audits more frequently than annually. This recent news may prompt them to consider how frequently access permissions are reviewed along with what processes they have in place for monitoring access to sensitive data and key customer systems.

As many insurance CIOs go into annual budget cycles, some consideration should be given to funding of audits, educating IT and business staff on IT security and investing in security monitoring and other security tools.

It may only be a matter of time before a major insurer is in the news for a data breach. Some consideration should be given to how your company would respond if this happened to you. What are your communication and response plans for an IT security incident? Use the recent news of breaches to be better prepared and protected.

Strategic Alignment for Insurers

Matthew Josefowicz

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.

Novarica PCI Tech Presentation 2014b

  • 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.

Wearables Update: the Apple Watch

Tom Benton

The tech world has been waiting in anticipation the last few weeks to find out what Apple’s latest offerings will be. While everyone expected a new iPhone model (and got two actually – the iPhone 6 and a larger screen version, the iPhone 6 Plus) and the next version of the iOS operating system (iOS 8), the key question was whether the long-rumored iWatch would be presented at the fall product announcement event on 9/9.

Apple did announce their new Watch offering at the event, and found ways to differentiate their offering through providing various editions for specific markets/purposes, and providing ways to use watch functionality beyond telling time without a phone connection, such as heartrate monitoring and ability to respond to gestures, etc. Also, the Apple Watch will leverage Apple’s new Apple Pay service to allow wearers to pay for items at such retailers as Whole Foods and Macy’s.

However, the device is not yet available (probably shipping early next year) and will be at a price point higher than competing devices – starting at $349. Apple device users expect a premium price, but may be confused by the three “editions” of the watch: a standard smartwatch (“Apple Watch”), a rugged sport version (“Apple Watch Sport”) and a fancier fashion-focused edition (“Apple Watch Edition”). Also, by not shipping until next year, Apple may lose significant ground to other smartwatch offerings – the Pebble, which has been generally available for over a year, Samsung’s many offerings and new Android-wear devices such as the Moto 360 which became available late last week and sold out in a few hours.

So what will the impact be on insurers? In my report on wearables, I mentioned that smartwatches can be used for customer engagement and collecting information about the wearer’s activity, useful for determining their level of fitness and general health. Apple’s Watch offerings will fuel the growing consumer interest in wearables, leading to a critical mass of users who will demand they are supported by all businesses they work for and purchase from, including insurers. Wearables are becoming another important communication and engagement channel for insurers, and need to be considered in digital and customer experience strategies as well as considered in IT application and architecture roadmaps. As current systems struggle to support mobile channels, future systems should be planned with wearables taken into consideration.

By the way, after Apple’s announcement I asked around to various demographic groups at the Insurance CIO Summit, which I am attending this week in Atlanta. Few said they would be interested in buying the Apple Watch – some were not yet interested in wearables, others felt there were other offerings that were available that they would consider and others took more of a “wait and see” approach. One interesting response was from a younger Gen-Xer who continues to wear a fashion watch, and said she would not be interested in the Apple Watch because she expected it not to look as fashionable (for instance, she found my Pebble “unattractive”). Clearly people choose what they wear on their wrists for many purposes, so Apple’s approach of multiple offerings may prove to be a good strategy. However, they will need to provide relevant apps and educate consumers on why their smartwatch provides capabilities that wearers can’t live without. (Is my Pebble watch really that unattractive? Hmm.)

Core Systems Selections… It Isn’t Like Riding a Bike!

Rob McIsaac

Or, in retrospect, maybe it is. The old adage that “we never forget” key life skills from an earlier time may have some instructive elements for CIO’s to be aware of. And to beware of.

I recently really did return to riding a bike and, while there haven’t been any medical emergencies, it hasn’t exactly been what I’d call “smooth”. While I understand the concepts and the physics, the act of putting all the pieces together into a smooth and fluid motion that is safe requires more than just fond memories of an earlier time. It requires practice and a surprisingly high level of dedicated time to get it right. A success metric built around the phrase “didn’t crash” seems to be dubious at best.

My wife recently took up the piano again with very similar results. Knowing where the keys are is helpful but not enough to make visions of Carnegie Hall dance in anyone’s head.

All of which, of course, then begs the question about how an insurance carrier can best go about selecting … and hopefully implementing … a new core system. The reality is that for many carriers this is something that they have very limited recent practical experience with, even if they have some vague recollection of the key steps. There’s no muscle memory that they can rely on or institutional capacity that has been recently exercised in order for them to have a leverage able asset. Once again, “didn’t crash” is a pretty low success bar to achieve. For many carriers, making these kinds of investment decisions are only pursued a few times in the course of a generation, so thinking that there’d be notable carryover from one experience to another would really stretch credibility.

Beyond that lack of recent experience, the changes in technology from one era to another can also add daunting new level of complexity to the issue. I also learned this the hard way when rekindling the interest in biking. It turned out that all of my experiences were rooted in the 1980’s and 1990’s; the technology has changed dramatically since then, creating a multi-dimensional learning event. Unless my goal was to optimize around solutions that are 30 years old, thinking differently and being open to outside influences proved to be pretty important elements for building to ultimate success.

For carrier CIO’s, finding a way to gain both organizational muscle and institutional knowledge fast is also a critical factor for success. As increasing numbers if carriers across a range of lines of business are finding, a system strategy the addresses replacement of core capabilities is a logical enabler for future success. It isn’t just for P&C anymore.

To that end, using a process like what Novarica offers our Advisory clients is a way to both speed up the selection process and to reduce the risks associated with these initiatives. The experiences built up over many efforts across multiple carriers helps to position these assets to be immediately leveraged for success. The idea of “didn’t forget” something is rather different from “didn’t stop doing”.

As exciting as “On the Job Training” can be, the IT equivalent of open heart surgery is likely not a practice with an appropriate risk / reward profile. Happy trails!

London Market Business and Technology Trends

Catherine Stagg-Macey

This week, Novarica released the most recent of our Business and Technology Trends reports, focused on the London Market. The report is available for immediate download from Novarica’s research library.

Lloyds is the oldest insurance market in the world and often criticized for it’s slow adoption of technology or changes to business practice. Any time spent in EC1 and the iconic Lloyds building will assure you that paper and handshakes still form an incredibly important foundation for this sector of insurance. It is Lloyds Market that has insurer the vocal cords of Celine Dion and Whitney Houston, the hands of the 1932 World Yo-yo champion and that will underwrite Virgin Galactic spaceflights. Underwriting of such risk relies very much on experienced underwriters and actuaries.

Whilst the large wads of paper stuffed into leather files will persist, the London Market has undergone a remarkable degree of modernization in the last decade. The areas of post data risk capture, claims, and account settlement have been transformed. ACORD messaging – specific to London market – is commonplace as are a variety of message gateways aimed at reducing friction costs between counterparties.

London Market CIOs have a unique challenge to keep on top of these initiatives and evaluate the benefit to their organization.

The top technology initiatives for London Market insurers include broker management/e-placement, business intelligence, pricing engines, and risk and catastrophe modeling. The appetite to continue to expand into new regions drives much of this investment, as does the increasing intervention by regulators. Lower priority technology initiatives include messaging (both bureau and non-bureau), core policy admin, and general ledger.

The report covers these initiatives in detail, provides examples of 29 technology investments in the London Market, and provides view of market segmentation. The report also proposes there are four areas of priority for a London Market CIO which include business intelligence, risk and catastrophe modeling, developing a modernization capability, and exploring core systems refresh options.

Getting at the Root Cause Helps Avoid “Ready, Fire, Aim” Events

Rob McIsaac

The idea of finding a root cause to a problem, before going into “action” mode for fixing symptoms related to issues, is a tried and true methodology. In the calm, when there’s no particular problem to address and no sense of impending doom caused by the pressure to actually get something done, the rationality of the approach makes perfect sense. The logic of being clear on what problem is being solved, identifying the cause, then (and only then) moving to action is compelling.

This helps avoid the self inflicted wounds that inevitably come with “ready, fire, aim!” events.

I was reminded of this recently when suffering an intermittent Wi-Fi outage. Some machines seemed to be impacted while others were not. A phased rebooting of equipment and a lengthy experience with the Telco eventually restored service … which then immediately failed. The real root cause? A Wi-Fi on / off switch that was hung on the tipping point of turning itself “off”. Once discovered the problem was quickly and easily solved, although I will never get the lost time back.

A far more serious event occurred in one of my data centers a few years ago when a SAN controller suddenly went into a freeze state, bringing all core processing to an immediate and agonizing halt. An immediate thought: let’s reboot / IPL everything and see what happens! Cooler heads prevailed and we did the hardest thing possible … nothing! … until we really understood the issues.

Once the issue was understood, we learned that the controller had done exactly what it was supposed to do. As the result of a fault in the original configuration (years earlier) that had hit just the right set of conditions, it stopped processing. Armed with that insight, we engineered a proper recovery which lost no data along the way. If we had followed a more action oriented approach, perhaps rebooting the device, we would have lost all the data that was in flight at that moment. The only word to describe that would have been “ugly”. By taking the more planful and thoughtful path we were able to recover with no loss of data and in a better business state than would have been possible otherwise.

Taking the time to do this was the smart thing to do, but it certainly ran counter to a human emotion that said “just do something!”.

Of course we see that “do something” mantra happening at many insurance carriers on a range issues. Whether it is because they are so close (perhaps too close?) to their own issues, IT teams frequently misunderstanding the real underlying causes for systems and operational issues. As a result, they may go after treating symptoms, which can actually mask the underlying problems. This can actually create a bigger problem with more significant, and unfortunate, long term consequences. Taking the time to do the root cause analysis, which may include bringing fresh eyes in to look at old issues, can ultimately be a faster and cheaper approach to real resolution. As counter to an action orientation as this may be, getting a plan framed and communicated can avoid all the collateral damage that can go with poorly conceived plans or a lack of proper context.

Setting context and framing issues can be a powerful way to get resources and organizational commitment to go after big issues too. This allows for proper education on issues, options and ultimately gaining organizational commitment to go after the right issues in the right way. This isn’t, however, something that is universally appreciated. In recent times, I’ve even seen some carriers shop for technology solutions to problems they don’t have … clearly not an optimal investment of assets. This can happen to organizations are too quick to jump to conclusions or somehow fail to frame issues in the correct, holistic, context for their specific organization.

Taking the time to plan things through early can avoid turning a modest problem into a nightmare scenario.

July Acquisitions in the London Market

Catherine Stagg-Macey

In a recent blog on the evolution of core software in London market, I suggested that changes were afoot. (http://blog.novarica.com/?p=2470/) And so they were.

At the beginning of July, Xchanging acquired two insurance software companies within a week of each other –
AgencyPort Europe *(http://www.xchanging.com/news/xchanging-acquires-agencyport-europe/) and Total Objects. (http://www.xchanging.com/news/xchanging-acquires-total-objects) A week later, HG Capital, a private equity firm, announced a co-investment in Sequel Business Systems. (http://www.hgcapital.com/news/hgcapital-announces-investment-sequel-business-solutions)

Whilst the deals are very different in nature, they speak to the buoyant view of both software companies and private equity firms alike. With the consolidation of vendors, it also offers a more distinct choice for insurers.

The Xchanging acquisitions fill out their portfolio of offerings with the addition of a cloud based bordereau management system (TotalObjects), MGA systems (TotalObjects and AgencyPort), a risk aggregation tool (AgencyPort) and a system for Health Insurers (AgencyPort). The deals bring with them some duplication – two broker systems, two reinsurance systems, two MGA systems and two underwriting systems for both syndicate and company’s.

Xchanging has made it clear to all users of all these products that they will continue to support all products for the foreseeable future. That said, we would expect to see some consolidation of the product portfolio in the coming years. At a minimum, this is needed to streamline the market messaging and at an operational level, it would not be surprising to see some reduction in duplication to reduce current operational costs and future product investment.

The co-investment in Sequel Business Systems, a competitor of AgencyPort and Xchanging, will bring with it an injection of cash. No details have been published on where this might lead the company, but in conversations with clients of all these software companies, initial responses were mixed. A spate of deals like this always introduces uncertainty and it takes time for customers and prospects to embrace and understand the impact of these deals on their own technology investments.

One of our critiques of this sector of insurance software over the years has been the underinvestment in the solutions. These deals suggest show this is changing and insurers can be optimistic in the future evolution of London market software.

NOTE: Agencyport Europe has been separated out from Agencyport NorthAmerica in the recent years. This acquisition does not impact AgencyPort NorthAmerica.

For more of our recent research on the London Market see our CIO Survey and our Business and Technology Trends report.

Three Questions to Ask about Every Analytics Solution in Order to Get Actionable Insight

Jeff Goldberg

I recently joined Novarica as a Principal after a brief hiatus from the insurance industry during which I founded and eventually sold a SaaS data analysis and business intelligence company in the health & wellness space. For most of my career I’ve been thinking about how to best leverage insurance data, and after spending so much time deep in the weeds of designing and selling a data analysis solution, I have a new perspective on actionable analytics and BI.

The idea of “actionable data” has been a minor buzzword for at least a decade, surrounding all of the many advances and evolutions of data projects and services. We all know intuitively what it means: make sure that we can take action from our data. And we all know examples of projects that failed to heed this advice, where after much time and money spent on bringing different data sources together and building reports against it, nothing in the business changed as a result.

But how do you actually get actionable data and what kind of action do we mean? After having spent so much time at a company that provided online business intelligence reporting to clients, is it perhaps surprising that I often don’t like reports? Or, rather, I frequently feel a report is just a stepping stone to a better business process. Clearly there are users, typically at the strategic or executive level, who need to be looking at big pictures and trends. But for most operational users, poorly designed business intelligence acts as a dead end rather than a call to action.

Now whenever I see a report, often with excellent data and filled with tables and charts and graphs, I ask three questions about it:

  1. What is the key take-away from this data, and if it can be distilled down to one or two important facts then why is the whole report even needed?
  2. Can these one or two important facts be worded in the form of an action or a “to-do” list?
  3. Can I get these “to-do” items directly into the hands of the person who needs to do them, either via e-mail or some other process integration?

As an example, my data company had a very popular report showing a manufacturer’s product distribution across retail stores. It contained a lot of trend and sales information at a macro and micro level. For an industry with a lot of middle-men and where manufacturers often don’t know where their own products are being sold, this was a very important report. But when we asked the above three questions, we got the following answers:

  1. The key take-away is a list of the top five or ten stores where a manufacturer’s full product line is not being sold, ordered by how much potential business is being lost.
  2. The action is to call those stores and sell them on carrying the additional products.
  3. The best way to get these actions done it to split them up by region, and have a list of stores to call (with phone numbers and product information) sitting in each sales person’s inbox on Monday morning.

The head of sales and marketing wants to look at the big picture and be able to analyze the data, and for her the original report is still the correct source. But for most users, by answering those three questions, we’ve just taken a potential confusing dead end and turned it into a driver of their ongoing behavior. (And for a startup that relied on a monthly SaaS subscription, getting data integrated directly into a client’s operating process whether or not their employees ever logs into the website was a great way to become invaluable.)

Every report in your business should be put to the same three questions. For example, any time a data analysis solution helps an underwriter make a risk decision it’s the result of taking what was once large reports with multiple tables and lots of data, boiling that down to the key rating, and then putting that rating in front of the underwriter right within their toolset.

To be clear, I’m not anti-report. Sometimes insurers’ services aren’t integrated or modern enough to support this kind of distribution across tools and systems. But if you can answer those three questions about a report, even if the kind of automated distillation and distribution of the data won’t happen for a long time, then you can better train users on how and when to use that report to take the action that makes your business better.