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.

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.

The Problem With Differentiation

Tom Benton

In reading recent articles on innovation, there is a definite focus on differentiation. Various elements to innovation are often mentioned: agility, culture, transformation, customer-focus, data-centered, etc. These are often directed at how a company can develop new innovative products or provide new innovative services or new innovative delivery channels. Carriers are encouraged to use big data to learn more about their customers (policyholders and/or producers), to use the cloud and mobile to provide ease of doing business or to modernize their systems to provide customers with faster better service through internal process efficiency. The focus of these efforts is to be different, faster, better than other providers.

Now, differentiation can be a very good strategy. Apple has become the number one brand and the company of the highest net value (or near it) by following a corporate-wide culture of “Think Different”. Within the insurance world, companies like MetLife, Geico and Progressive have use innovative marketing, branding and technology to their advantage through differentiation. However, there’s a problem with focusing your strategy on differentiation. To be successful at differentiation, a company has to have a corporate culture that supports it – a culture of listening for ideas, design thinking, and tolerance for failures. It has to support its innovation efforts with talented staff, properly funded technology investments and simplified agile processes.

Developing this kind of culture and environment for innovation is relatively easy for start-up companies, but more difficult for the established players in a market, especially if they are risk averse, have a culture of failure being fatal and established technology that is difficult to maintain, upgrade and replace. Creating the proper environment for innovation takes either radical change, or time to evolve the culture and environment. Leaders in established companies often are not willing to make the radical changes necessary, and evolving the culture takes time while other companies get further ahead in the race for innovation and differentiation.

The real problem with differentiation is that unless you are prepared to differentiate now, the innovations will become accepted and you will need to follow a course of imitation. In a recent HBR article, Freek Vermeulen. Associate Professor of Strategy and Entrepreneurship at the London Business School, talks about how customers view differentiation. In some industries, the products and services are fundamentally not that different. He suggests that customers make buying decisions based less on what is different and more on social context – they buy a particular product or service because their social network and relationships suggest it is known and an acceptable choice.

The implication for insurance carriers is that differentiation is a good strategy, but eventually the innovation produced is imitated and becomes a standard offering. A strategy of imitation will eventually be required, and when products look the same to the customer, they will choose based on their social networks and relationships. An alternate focus for innovation by differentiation, then, might be to follow a strategy of imitation and socialization. For example:

  • Instead of using big data to understand customer behavior, shape the behavior through social interaction. While streamlining customer interaction through the cloud and mobile strategies, find ways to build relationships where customers will interact with you and others to build trust and preferences.
  • While modernizing systems to provide internal process efficiencies, put internal social networking into place to build a culture and skills that can be used to leverage external social interactions.
  • Win customers not by being the coolest or latest, but by being the most connected and trusted.

The best part is that a strategy of imitation and socialization can be done while updating technology to do what others are doing, and it builds the kind of culture that can transform into one that is innovative and possibly differentiated in the end. It doesn’t take a radical change or large technology investments that work against the clock of the wave of technical change.

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.

London Market Insurer IT Budgets and Projects – New Novarica report

Catherine Stagg-Macey

This spring, we interviewed almost a dozen CIOs within the London market on their plans for 2014. Whilst much of the mainstream P&C market in the UK and US are absorbed in legacy modernization programs, the London market insurers are focused on data.

Developing or enhancing business intelligence capabilities is a priority program in almost all the insurers interviewed. The three largest brokers have all developed strong BI capabilities – AonGrip, Willplace, MarshConnect – and they use this information to negotiate rates with the insurers. The challenge is that the London market insurers do not have the right level of information to ensure this conversation is on a level playing field.

More about plans and projects for this sector of insurance can be found in the new published London Market insurer IT budgets and projects report, available now. This report presents the results of a survey conducted during May 2014 among 10 insurers and syndicates in the London market. These insurers placed either all their business or a significant portion of their business through Lloyds.

The full version of the report is available here.

Accelerating Pace of Change Requires New IT Planning Paradigms

Rob McIsaac

One of the realities of IT in any industry is that “truth” related to technology is a fleeting thing. The best system or technology to deploy can evolve with surprising speed, making it important for CIO’s and their organizations to determine with some precision what a roadmap toward a future state should look like. Increasingly, CIO’s and their team should carefully consider just how long they think they will be in that future state too. This has implications for both the technologies to be deployed and the financial mechanics used to pay for them. Missing either of these key points can create the IT equivalent of “The Hangover”. Unfortunately, aspirin alone won’t cure this one!

There are parallels in other parts of our personal and professional lives. As a frugal minded sort, my typical approach to cars was to buy them and drive them long after the warranty and that new-car smell were gone. While the shapes and sizes until recently changed like fashion statements, the essential technology remained pretty stable.  Parts evolving slowly over time and had surprisingly long useful lives. As a result, parts and skills remained in a pretty consistent supply. A few years ago I finished restoring a 30 year old BMW (ok, so being frugal has its limits) and the only limiting factors were time and money. Parts and skills could be bought, because essentially the same vehicle had been in production for nearly 15 years.

Try that trick with a new car. They are better in every way. Faster, quicker, safer, better fuel economy, less maintenance. The list is long. But the challenge is that the technology used is fleeting. A two or three year old vehicle may have technology embedded that looks nothing like what is in production now. When the parts run out, there may be no clear path forward. As a friend of mine said, “I don’t think I could afford the risk of owning a new one when the warranty runs out!”.  Relatively small parts failures could lead to catastrophic financial events.  Leasing starts to sound like a pretty decent idea; about the time problems begin to set in, give the keys back and start over again.  It is an appliance, not an investment.

That’s hardly unique to cars. Is anyone paying real money to fix an iPhone 4?  Of course not. They were the height of cool a few years ago and helped to change the world we live in. Now they are disposable.

Large flat screen TV’s are the same way.  When a circa 2008 model expired recently, it was cheaper to get a new one (that was far better) than it was to fix the old one.  Turn them and burn them when they’re done.

There’s a good chance my next car will be disposable too. I will lease it, use it for a specific period of time, then replace it on or around a known date. I won’t depreciate it, won’t fix it, won’t treasure it like a friend. I will consume it and move on.

The same should be true of future core systems at insurance carriers. The systems and their vendors will evolve quickly using the “best” available technology at a moment in time. Then they will move on. Rinse and repeat will be their model.

And while carriers have built, bought, modified and embraced systems from the 1960′s to the 2000′s (a surprising number of 40-50 year old systems run major workloads every night), that’s a model that has a foreseeable end. Anyone pining for that “state of the art 2009 platform” now?  Of course not; we would have had a challenging time describing some of the things that would be key drivers for business success five years later.  That will be even more true as we think about 2019 or 2024.

Rather than acquiring and depreciation systems for a protracted lifespan, implementing with an eye toward “replacing the replacement” appears to be a more viable and effective model. This impacts skill sets, depreciation schedules and even the future state IT discussions. It may no longer be a “buy versus build” dialogue. For the future it may be “buy versus rent”.

A variety of factors have now come together to make this a viable option. If email for large / complex / highly regulated companies can live in the cloud, a host of other things like policy administration, claims, distribution management and financials can too. Pun intended.

I never thought I’d lease a car either, but we’ve crossed a risk / return tipping point that makes that a pretty attractive option. Of course I will keep my ’84 Bimmer for fun and pleasure. Sure wish the A/C worked better, however …