Commercial/Specialty Underwriting Automation: Cui Bono?

Matthew Josefowicz

Good article recently in I&T on Commercial Insurers and Underwriting Automation., covering some recent studies by various industry analysts. Here’s a quote:

Complex risks are still much more hand underwriting and will be for the foreseeable future,” says Matt Josefowicz, managing director at Novarica. “It’s all about empowering those underwriters with more communications tools and more data. A lot of the tech investment for underwriting in the specialty and large commercial side involves bringing all the information needed to make decisions to the underwriter’s fingertips as quickly as possible.

Complex-risk underwriters present a challenge when implementing new technologies, Josefowicz explains. “The individual underwriting desks have a lot of political power,” he says. When dealing with high-value cases, these experts have a great deal of specialized knowledge and tend to call the shots for which technologies they want to use.

One of the main questions in automating commercial and specialty is in answering the question Cui Bono? – “to whose benefit?” As we discussed in our report on Centralized and Federated IT Models, it’s hard to drive IT strategy centrally when the political power in an organization is federated. Commercial and Specialty CIOs need to work closely with their business leaders to make sure they are addressing their key data and technology issues. If the P&L heads can’t be convinced of the local value of an IT initiative, appeals to a weak central power are rarely successful.

For more on business and technology trends in Specialty Lines, see our recent report.

New Brief: Wearable Technology and Insurance

Tom Benton

Over the last two years, fitness tracking bands, smartwatches and Google Glass have fueled the next wave of consumer electronics:  wearable technology. Financial services firms and insurers are already starting to find innovative ways to use wearables. In my new brief, Wearable Technology and Insurance , I outline three key capabilities and some examples of how these enable innovative applications for insurers and financial services firms. 

In some respects, “wearables” are not new – after all, the Dick Tracy comic strip introduced their iconic “wrist radio” just after World War II.  What is new is that smartphone adoption and more efficient smaller batteries are enabling new devices and applications.

I currently have two wearables on my wrist – a fitness tracking band (the Fitbit Flex that I have been wearing since June 2013) and a smartwatch (a Pebble – I was one of the 69,000 or so who backed the project on Kickstarter back in May 2012, but I started wearing it regularly earlier this year).  I am seeing more and more people wearing these devices and with the recent introduction of Android Wear, Google’s extension to the Android operating system for wearable devices, we can expect 2014 to be the “year of the wearable”.

As wearables gain adoption by consumers, innovative insurers will find ways to use them in engaging customers.  Others should consider how wearables will fit into mobile and customer communication strategies.  Wearables are on the way – how can you leverage them for customer interactions?  Read the brief and let me know your ideas.

New Report: Insurer IT Services Providers

Thuy Osman

Rob McIsaac and I recently published a Novarica Market Navigator report on Insurer IT Services Providers. The report gives an overview of some of the major IT services providers to North American insurers and contains a brief profile of each provider, including information about the company’s experience with different types of clients in different functional areas. Providers profiled in the report are: Accenture, Agile Technologies, Capgemini, CastleBay Consulting, CGI, Cognizant, CSC, Dell Services, Deloitte, Edgewater, EY, HCL, HP, HTC, IBM, iGATE Patni, Infosys, L&T Infotech, MajescoMastek, MphasiS, msg global solutions, NIIT Technologies, NTT Data, PwC, Return on Intelligence, Slalom Consulting, Syntel, TCS, ValueMomentum, Vertex, Virtusa, Wipro and Zensar.

With the market becoming more competitive, having a technology partner that can provide the right level of resources to support business initiatives is a crucial tool for CIOs. Novarica’s recent report Insurance IT Outsourcing Update (January 2014), based on a survey of 95 insurer CIOs, found that outsourcing is a part of nearly every insurer CIO’s toolset. 85% of respondents report at least some IT outsourcing. Instead of simply outsourcing for cost reduction, which was the trend in the past, insurers are now outsourcing to meet peaks in demand, get specialized skills and enable new capabilities.

This makes it even more important for CIOs to evaluate service providers not only on the number of resources available, but the type of skills and level of experience the provider has in a particular functional area. Careful evaluation will ensure that CIOs find the right partner to support the organization’s strategy for growth going forward.

Please note that this report is focused on North America, and presents only North American (US/Canada) resources and client experience numbers from these vendors, most of which are global. Each profile gives a summary of the provider’s capabilities and experience to help insurers sort through their many potential partner options, and Novarica’s team can help insurers assess potential partners in more detail through our retained advisory service.

Unintended Consequences

Rob McIsaac

An article in this week’s Business Week magazine reminded me of the impact that unintended consequences can have on projects and programs throughout financial services. Regardless of how one views the Affordable Care Act, one of the clear points of debate and discussion has related to the speed and breadth of program adoption. Following the decidedly flawed rollout of the Federal exchanges late last year, it seemed that the pace of “uptake” would have been considerably slower than program sponsors had anticipated.

A reality now, however, is that adoption is running along at a pretty good clip. One of the drivers helping this along now are professional tax preparation companies like Jackson-Hewitt and H&R Block (http://www.businessweek.com/articles/2014-02-20/obamacares-arms-length-allies-h-and-r-block-and-jackson-hewitt)

How can that be?

Well, it turns out that most of the info required to apply for health insurance is included in the tax return preparation process. Once the IRS forms are completed, it only takes about 6 minutes to apply for insurance, which these companies offer as a service to their customers. It isn’t a political judgment on their end, just actions driven by the economics associated with providing good service to their customers. As they are quick to point out, it is also part of the tax code, and their job is to get the best returns possible for their clients.

Didn’t see that one coming!

Which begs the question how many other good things, that may be unintended consequences, do we miss in managing technology for insurance carriers? Once when deploying customer service capabilities for life and annuity clients at a major carrier, we also deployed the portal into call centers to allow CSR’s to see the same screens that customers could. Nice idea. The unintended consequence, however, was that we dramatically improved our Business Continuity capabilities.

How? We achieved this by taking a variety of systems on different platforms and with different user experiences, and browser enabling them. It was a remarkable, if accidental, addition to our technology capabilities, which created real and measurable long term value.

Are there other unintended consequences that can appear as technology projects unfold? Absolutely there are. One of the challenges that CIO’s and their teams need to keep in mind is how they can foster the appropriate level of situational awareness, and openness of mind, to recognize these opportunities when they emerge.

This isn’t to say that all unintended consequences are “good things”, of course. There are many instances where the result of changes turns into poorly performing systems or capabilities that fall far short of the original objectives framed during the design phase of an initiative.

The key point remains, however. Not all surprises have to be portents of bad news. As new technologies emerge and business processes evolve, there may be new opportunities to see multiplied value for carriers making the appropriate investments in new and innovative ideas. This is potentially an area for IT organizations to add significant, strategic, value.

IT Planning: Mergers & Acquisitions

Rob McIsaac

We recently published the latest in our CIO Checklist series of executive briefs, focused on the actions that can best prepare IT organizations for supporting mergers and acquisitions. With margins tight and competition levels high, M&A opportunities may represents an important element for some carriers’ strategic growth plans. Mergers can also represent an important complement for organic growth as carriers look to create geographic diversification, expand sub-scale business or extend into new markets.

Irrespective of the reason for an acquisition, IT organizations are pivotal to the successful execution of a transaction and the ultimate integration of a business entity into a carrier. Mergers represent potentially significant and complex undertakings, however. Proper planning is crucial to achieving the economic goals that drive the transactions in the first place. In order to properly support these efforts it is important for CIOs and their teams to effectively prepare well ahead of the point of execution. In reality, an acquisition has many parallels with the development of disaster recovery and business continuity plans.

This brief provides a practical list of actions that can be taken in anticipation of future events which can dramatically improve the potential for near term success while also helping an organization build the kinds of strength that can be used to support multiple acquisitions in the future. The full report can be accessed from Novarica research library by following this link: http://www.novarica.com/cio_checklist_it_planning_m_and_a_2014>

More than 25% of insurers increasing IT outsourcing in 2014, but some heavy users scaling back

Matthew Josefowicz

Our latest CIO survey report on IT Outsourcing shows that while more than a quarter of insurers are increasing their use of outsourcing in either application development and maintenance, specialized IT skills, and IT Infrastructure, some heavy users of ADM outsourcing are planning to scale back in 2014.

Over the past decade, there has been an important shift in the business drivers for outsourcing. There are few pure cost reduction initiatives undertaken today. More and more of the demand centers on enabling new capabilities rather than just reducing the costs of current capabilities. Few organizations have the ability to meet peaks in demand or to attract and support staff to meet specialized needs. In addition, many insurers find that infrastructure and commodity tasks can be done more effectively by partners.

Outsourcing is an important part of CIOs’ toolkits. Like any good tool, it can deliver great value when used effectively, and cause great pain when used recklessly. Outsourcing decisions should involve careful consideration of business goals, current capabilities and skills, how external partners will be managed, and how external staff will integrated into the culture of the company as part of any cost/benefit analysis.

The full report is online here: http://www.novarica.com/it_outsourcing_update_2014/ (a free preview is available to non-clients as well).

What Can We Learn from Sailboat Captains?

Rob McIsaac

Some time ago, shortly after accepting my first CIO role at an insurance carrier, I had a chance to spend some quality time with one of my several new bosses, the President of one of our operating companies. He was a gregarious guy with a personality as big as all outdoors. He also had a way of sneaking up on issues, then landing the “money shot” square between the eyes. I quickly learned to be a very active listener in his presence since there was always meaning, beyond the words, in what he said.

As we were discussing the state of multiple aging record keeping platforms, funding constraints for the New Year and some of the challenges related to hiring / retaining key skill sets, he suddenly leaned back with one of those very far away looks on his face. That’s when he popped the question.

“So, what is the fastest way from Point A to Point B?” he asked. Armed with advanced math skills but somewhat naive to his style I quickly offered the text book response: “a straight line”.

Smiling fleetingly, he shared his reaction which was, paraphrased, “that **** never works”. It sounds good but as a practical matter was exactly the wrong answer to the posed question.

The correct response, he shared, was to take a page from the sailing captain’s guide and always be prepared to tack. Look at the waves, the sails, the clouds and other environmental factors, always being prepared to adjust to circumstances. Being properly positioned and flexible enough to pick up the power of the wind and take advantage of “flows” can be the critical difference between a successful journey and something that ends with Titanic-like results (i.e., a scuttled ship, limited survivors). This wasn’t an argument for variable project objectives but rather recognition of the realities of organizational dynamics, an awareness of time management considerations and realization that unexpected things will always happen on a journey. More specifically, it supports the premise that these deviations from set assumptions can alter circumstances a lot. Of course the irony is that the Titanic was, sadly, on a straight line course when things went horribly, tragically, wrong for just these reasons. A blind faith that advanced technology and willpower will somehow overcome certain types of surprise events fails to recognize reality. Charging into an icepack at high speed has predictable results; the defense that it wasn’t supposed to be there is interesting, but of little practical value.

The wisdom of that bit of advice has significant implications for IT organizations today. Certainly knowing where one is going is absolutely vital for CIO’s and IT managers if they are going to provide effective organizational leadership. In order for CIO’s to be constructive contributors to strategic discussions they need to aware of both technical and business issues so that effective tradeoffs can be made which enable the pursuit of specific, tangible, goals. The achievement of those goals will, by definition, be about hard work that will require unflinching navigation skills to get through the political and cultural landmines that mark every organization. At the same time, however, an unbending, contextually unaware, overly zealous pursuit of a specific long term goal that is based on a beeline between two fixed points is more than likely headed for disappointment if not outright disaster. The insurance industry is littered with examples of large scale project failures that tried to execute on the shortest line model, uninformed by the need to factor in the practical realities of both organizational and technical change.

In reality, today’s agile development philosophy is completely in synch with the sailing captain model. Going in sprints, course correcting frequently, taking advantage of lessons learned along the way and being prepared to deliver real value throughout a journey rather than focusing on singular Big Bang event at a terminal point, all suggests an incredibly valuable circumstantial awareness. These elements sharply increase the probability of organizational success for delivering on big projects while concurrently improving the odds that the delivered capabilities will meet the business needs of the enterprise. The opportunity that this methodology offers for appropriately recognizing the importance of changing environmental factors also improves project economics, by maximizing the upside potential (while minimizing the tendency to throw good money after bad). The reality is that delivering a project that matches the requirements developed years earlier, while effectively missing the current state business needs, represents a pretty hollow victory for any IT organization.

Sometimes when we hear things it takes a while for the true meaning of a conversation to be illuminated. That was certainly true of this bit of insight. The more time I spend in the insurance technology world, the greater my appreciation for the wisdom of sailing captains.

CIO Wish List

Matthew Josefowicz

If you subscribe to Best’s Review, check out this month’s Technology article on pages 70-72, which features interviews with CIOs Kate Miller of Unum, Greg Tranter of Hanover, Michael Fergang of Grange,  Rick Roy of CUNA Mutual, and myself, as well as stats from our US Insurer IT Budgets and Projects 2014 report.

The article notes, “Data, analytics, mobile, and self-servicing capabilities are among the items on insurance chief information officers wish lists.”

Here’s a couple of my quotes from the article:

Underinvested business resources needed to develop and implement new systems continue to plague carriers, [Josefowicz] said. “Even if you have all the IT dollars you want, you can’t deliver an effective system unless you have a time investment from users and those who will benefit from it.

 

 

The question shouldn’t be how much are carriers spending on IT, “but rather what effect is it having and how is it driving down the overall expenses and the expansion of the business,” [Josefowicz] added. “It’s a challenge for many business leaders to think that way because they’re used to viewing IT as purely an expenses. But it’s really an enabler, just as expert staff is an enabler.”

Check out the full article in the December issue of Best’s Review.

The White House Needs to Look to the Left… in their SDLC

Rob McIsaac

In recent days, it has become painfully obvious that something went very, very wrong in the implementation of the Federal Government’s deployment of web properties to support the roll-out of the Patient Protection and Affordable Care Act (Obamacare). This has been a large scale undertaking that has been complex, both in terms of the technical challenge and the organizational structure put in place to support it. While some glitches and challenges are to be expected with any large scale implementation, the story reported today by Bloomberg News is rather stunning for both the simplicity of the problem and the overriding sense that this could have been avoided.

The gist of the news today is that the testing effort was underestimated, that the importance of testing was not apparently recognized by the effort’s management team … and when testing did show problems with the capabilities, a decision was made to proceed with deployment anyway. This final decision appears to have been a brain-cramp of epic proportions since it put the problems related to the implementation into a blindingly bright public light. Yes, in fact, the whole world is watching and the option of using a phone or paper based process as an alternative is both frustrating and disconcerting. Now that the fog of Government shutdown has lifted, all eyes are now squarely on what may go down as one of the more egregiously poorly managed technical implementations in recent times.

And, at the end of the day, the old IT adage remains intact: Organizations never seem to have enough time to do things right the first time … but they always have time to fix things once they have created a smoking hole in the ground. The corollary to this also remains in place: Testing is the first thing to get pushed when schedules grow tight … and the first thing to blame when the handwringing starts.

To date, while disappointing, the results aren’t a complete surprise. Perhaps the 2.0 version will be better. But is the failure one that truly lands on the altar of testing?

While it may make good headlines to focus there, the real problem runs far deeper and is more systemic to the overall development process employed. Our experience has shown repeatedly the testing isn’t the issue, it is finding ways to build a Quality Assurance mindset into the overall Software Development Life Cycle. The inclusion of testing resources at the outset, on the far left side of the SDLC, supported by appropriate organizational and communication processes, make all the difference in the outcome of major efforts. This is true for carriers doing internal development, vendors building their own product solutions and, of course, for governments engaged in large publicly funded efforts. Looking to the left can cut the cost of error remediation by as much as 90%, based on recent Novarica research.

Transparency, code reviews and a more agile development methodology can also pay big dividends for delivery efforts. As the public explanations are revealed, it now appears that some basic principles of good development work were ignored there as well. In reality, this too is part of what should be a well orchestrated Look to the Left mantra.

In this implementation, we see State developed properties in places like Kentucky and California working “as designed”. While the problem they were tasked to solve was more contained than the Federal effort, the message remains the same. It appears that some State teams heeded lessons that were ignored elsewhere.

What is playing out now on newspaper front pages and 24×7 on cable news is also a reminder for CIO’s and their teams at insurance companies broadly. The value of Looking to the Left can have significant implications for the delivery of big efforts. Evangelizing this within carriers by technology teams, with business partners, can substantially improve results at a far lower price point with less drama all around. That’s a true win-win for IT organizations across the board.

2014 Insurance IT Budgets and Projects: More of the Same, Plus Increased Activity in Mobile and Big Data

Matthew Josefowicz

We’ve just published our fifth annual study of insurer CIOs’ budget and project plans for the coming year. The good news is that more insurers are increasing their IT budgets slightly, although with IT spending ratios are still within historical norms, which indicates budgets are tracking projected growth rather than being dramatically expanded. We’re also seeing more activity at least at the level of pilot projects in mobile and big data (real big data, not just analytics).

In general, the story for 2014 is one of continuity rather than change. Project priorities are the generally the same as 2013 — for more than half of respondents in this year’s survey, the top two priority projects for 2014 are the same as for 2013. The most common top priorities continue to be policy administration systems, business intelligence/analytics, portals, and (for property/casualty insurers) claims. There are slightly more CRM, more GL/Financials projects in insurers’ top-three priorities, and we believe investments in both areas are being driven by data/analytics strategies.

Self-assessment of current capabilities continues to be modest, and while self-assessment does not distinguish between one respondent’s high standards for itself and another’s delusional self-satisfaction, fewer than half of insurers consider themselves to have strong capabilities in most areas. Which is to say that most insurers are primarily investing in IT to get up to the bar, not over it.

The full report has 17 charts analyzing survey responses by size and sector of company. It is online at http://www.novarica.com/InsIT_2014