Insurance Industry Remembers that Investment Dollars Buy Access to Innovation

Matthew Josefowicz

Everything old is new again. Like the E-Venture Investment Groups of the late 90′s and early 2000′s, a new crop of investment activity is springing up in the insurance industry, with the hope of giving the industry a preview of tomorrow’s capabilities and approaches.

This includes single company initiatives like AXA Strategic Ventures and American Family Ventures, as well as the Des Moines-based Global Insurance Accelerator incubator, and the recently announced ACORD Insurance Innovation Challenge showcase for start-ups.

It’s almost as if the industry woke up and realized it didn’t have to sit and wait to be disrupted from the outside. A multi-billion dollar industry can buy some of its own innovation!

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Seven Key Findings About the Group Life/Annuity/Voluntary Benefits Sector

Rob McIsaac

With plan sponsors becoming increasingly price-conscious, the group life, annuities and voluntary benefits sector is turning to technology to help them attract, retain and profitably serve clients. Across the industry, insurers continue to make investments spanning the Novarica Insurance Core Systems Map.

Group Life Annuity & Benefits Heat Map

Novarica has identified seven key findings in its Business and Technology Trends: Group Life/Annuity/Voluntary Benefits report. If you’re not familiar with this report, it provides and overview of group benefit providers’ business and technology issues, data about the marketplace and 57 recent examples of technology investments by group benefit providers.

Key Findings

1) Top technology initiatives for group and voluntary insurers include agent and customer portals (including enrollment) and core policy administration, including benefits administration. The need for effective sales and marketing tools across multiple channels is key to drive enrollment, and robust flexible group administration is also vital. Carriers are opting for incremental upgrades over “big bang” core system transformations. Vendors must grow their understanding of individual markets, as well as the linkages between billing and enrollment.

2) True sales growth is a challenge in group business, with much activity consisting of carriers trading business or increases in group term life face amounts rather than cases or lives covered. Group annuities reportedly also saw declining sales. At least one carrier is experimenting with offering cheaper long-term care insurance coverage for lower benefits in an attempt to drive uptake.

3) Private exchanges are emerging as a new distribution channel for voluntary products, though enrollment is modest to date. The need for brokers to make up for caps on commissions and high deductibles for traditional health coverage may lead to more activity in this arena.

4) Group annuity contracts are seeing increased interest as some carriers are offering US employers the chance to offload some or all of their defined benefit plan liabilities in exchange for purchasing group annuity contracts.

5) Lower priority technology initiatives include billing, BI, claims, CRM, distribution management, document creation and management, rating, underwriting workstations, and specialized components. While lower priority, many of these components can contribute both cost savings as well as more efficient handling of transactions and payments. The lower priority of investment in BI should not be read as an indictment of its potential, as plan sponsor reporting and analytics capabilities, the ability to analyze participation, and understanding channel and producer productivity and profitability remain important.

6) Mobile devices continue to make inroads. Both members and plan sponsors see benefits, such as the ability to submit claims or view policy information.

7) Critical success factors for carriers continue to be sound product design; better tools for enrollment, marketing and sales to individuals; powerful and adaptable administration systems; marketing and sales across multiple channels, and continuing improvement of administrative systems to drive cost savings and efficiency.

With customer expectations changing across the industry, driven by changes in the technology ecosystem within the industry and across the economy, insurers need to plan to incorporate these paradigm shifts into their business and technology strategies for 2015. Or else plan to be taken by surprise! If you have any questions or comments, please feel free to send me a note at email.

Peer Review: What areas are insurance CIOs focusing on?

Staying on top of the latest Property/Casualty and Life/Health/Annuity insurance technologies and trends can be a pretty daunting task. In order to provide our clients with more insight into what their peers are focusing on in 2015, Novarica has compiled a list of its top ten most downloaded reports for the year to date.

There are two main benefits of this top ten list: it will save you time by highlighting only the hottest topics, and it allows you to see if your organization is on track with its IT strategy or if something is being overlooked. The top ten list below covers a variety of topics in critical areas, including: digital, reinsurance, policy administration systems, social, mobile, big data, analytics and much more.

Top Ten Most Downloaded Reports

1.) Life/Health/Annuity Policy Administration Systems
2.) Property/Casualty Policy Administration Systems
3.) Preparing for Digital Transformation
4.) Benchmarking the “New Normal”: 50 Advanced Capabilities for P&C Insurers
5.) “Hot Topics” for Insurers: Social, Mobile, Analytics, Big Data, Cloud, and Digital
6.) Report Rationalization: A CIO Checklist Report
7.) Internet of Things Update: An Executive Brief
8.) US Insurer IT Budgets and Projects 2015
9.) Architectural Governance: A CIO Checklist
10.) Business and Technology Trends: Reinsurance

In 2014 alone Novarica released over 30 reports. If you’re a Novarica client, downloading reports from list above is a great way to get up to speed on the latest trends and guidelines. For more information about Novarica’s published research, visit our online library or contact email.

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Upcoming Webinar

Vendor Selection Best Practices for Insurance Carriers

Martina Conlon

Over the last few years more and more insurance carriers have forgone custom software development projects and turned to the vendor marketplace to find solutions to their most pressing problems. While there are many advantages to leveraging vendor solutions, many insurance IT departments are not experienced in finding and evaluating solution providers to meet their needs.

The traditional methods used by insurance carriers for selecting vendors can limit success and take an inordinate amount of time, leading to challenges long before a project even begins. By focusing on asking the right questions and engaging business leaders and users early in the process, insurers can streamline the traditional process while providing far better results. Below I have highlighted a few vendor selection best practices, including:

  • Get business commitment to the process upfront.
  • Limit purchasing/sourcing departments control until the contract negotiation stage.
  • Focus on strategic needs rather than current practices.
  • Use a simplified RFI that is easy for the vendor to complete and for you to score.
  • Set the agenda of demos and evaluation meetings, rather than letting the vendor drive.
  • Focus on where your organizations is unique, don’t over analyze the ordinary.
  • Question vendor pricing models and negotiate for what you think is a fair partnership deal.

The best practices above are a sampling of the lessons learned during years of Novarica vendor selection projects and conversations with experienced CIOs. For more information about vendor selection best practices, register for our upcoming Vendor Selection Best Practices webinar taking place Thursday, January 29th at 2 P.M. (ET) or contact me via email.

The Evolving Data Analytics Group: Applying Lessons from IT Organizations of the Past

Jeff Goldberg

I’ve been working with a lot of insurance companies who are struggling to find the right home for data analytics within their organization and I’m struck by the similarity these questions have to the more general evolution of IT organizations over the last two decades. Matt Josefowicz pointed this connection out in a blog post and I’d like to examine the phenomenon in more detail.

When I call this a “struggle” I don’t mean that in a negative way. Often companies try out different approaches with an updated technology or a shift in process or–in this case–an entirely new group because they believe in its value to the business but industry best practices haven’t been worked out yet. This struggle is part of the growth and leadership process. That’s definitely the case now with data analytics and was (and is still!) the case with IT. There won’t be a general agreement about the best practices for a data analytics group within an insurance company for a long time yet (if ever) but we can shortcut some of the learning curve by looking at a similar evolution of the IT organization.

The most common question: where does the role of data analytics fit? Should insurers create a new separate data analytics group or should different data analytics resources report directly to their respective business units? Insurers are trying it both ways right now, and there’s no sure right answer. This is the same centralized v federated (or horizontal v vertical) debate that has gone on for decades in regards to IT resources.

By centralizing data analytics resources together in their own corporate unit, it (1) allows a sharing of skills, tools, and best practices, (2) avoids redundancy and rework, and (3) leads to an easier adoption of a corporate mission for insight and business intelligence. By federating resources out to each operating business unit it (1) allows very tight alignment of business goals with the assigned data analytics expert, (2) helps that expert gain a depth of understanding about the business that they may lack otherwise, (3) better promotes the mission of data analytics to business users.

These are similar–if not the same–as the drivers in IT, and just like IT there are benefits to both approaches. In fact, for IT alignment, while shifting between a horizontal and vertical approach, many organizations have found that the shift itself is valuable, giving employees the opportunity to spread what they’ve learned to others, either in terms of business insight or best practices. So insurers trying different approaches to the organization of data analytics should be rest assured that multiple approaches all have value.

The second similarity between data analytics now and IT organizations of the past is about recruiting talent. These days colleges offer a variety of information technology and computer science degrees, creating a pipeline of potential employees. But that wasn’t always the case, and insurance companies (and companies in other industries) had to staff their IT departments by hiring out of other engineering programs or find people who had a technical aptitude and train them in computer programming.

With data analytics, there’s a similar lack of clarity about who to hire. Some insurers are recruiting PhDs and creating teams of data scientists, others are looking internally for technical staff who have a knack for data insight and exploration and can be cross-trained. But as demand grows, more universities will offer data analysis coursework at an undergraduate or masters level, increasing the availability of trained hires. Of course, just like IT, insurers will be competing against specialized companies to recruit those graduates, and will need to figure out how to attract them to our industry.

If you’ve been struggling with the role of data analytics within your organization or are interested in benchmarking your company’s BI approach against your peers, please feel free to reach out to me. To send me a note or set up a complimentary 1 hour consultation, contact me via email.

Lessons from Peter Drucker

Paul Ptashnick

As I was reading our latest report: Benchmarking the “New Normal” 50 Advanced Capabilities for Property & Casualty insurers, it reminded me of a few famous quotes from management consultant, author and educator Peter Drucker. Below I have highlighted a few of his quotes and how they relate to the insurance industry.

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”

As technology evolves it’s going to have a revolutionary impact on the insurance industry over the next few years. Some of these areas include the “Internet of Things,” Social Media, Big Data, Cloud, Mobile, Security and Digital. With the rapid changes in technology-enabled capabilities, it’s imperative for organizations to have access to the latest research and subject matter experts to stay on top of the latest trends.

“The best way to predict your future is to create it”.

We’re seeing larger insurers creating their own future by widening their lead in advanced capabilities in analytics, data, digital channels, modern applications and innovative business practices. In addition, some midsize insurers are also creating their own future by deploying more advanced capabilities than their peers.

“What gets measured gets improved”

As saavy insurers start deploying new capabilities in underwriting, product, distribution, analytics, etc., it’s vital for them to be able to track their own progress. Novarica is helping insurers to “measure and improve” their own initiatives with our new benchmarking tool.

“The purpose of business is to create and keep a customer.”

Technology is playing a vital role for Property & Casualty insurers in creating and keeping customers. Below are a few advanced capabilities being deployed by insurers in 2015 to help with these efforts.

  • Customer: Mobile app to view customer relationship details, balances, key documents, etc.
  • Distribution: Mobile app/mobile optimized web for producers to provide access to customer, book of business, or sales materials
  • Product: Analytics-driven product design
  • Product: Products designed to optimize buying/selling experience through one or more of the following: (a) use of pre-fill data, (b) elimination of unnecessary questions, (c) streamlined underwriting process matched to control of risk/coverage levels
  • Distribution: E-Signature
  • Underwriting: Predictive scoring based on models leveraging internal and third-party data
  • Marketing: CRM-driven campaign management that shares information across distribution, underwriting and service channels
  • Billing: Electronic bill presentment and payment
  • Analytics: Self-Service analytics based on verified and accessible enterprise data
  • Analytics: Use of Big Data tools to mine enterprise data effectively (Hadoop, NoSQL, etc.)
  • Claims: Mobile FNOL with video/GPS data capture and pre-fill

“If you want something new, you have to stop doing something old”

The capabilities listed in our Benchmarking the “New Normal” 50 Advanced Capabilities for P&C Insurers are widely available to insurers and are deployed more or less widely by them today. These advanced capabilities are being driven by a combination of five elements: analytics, data, digital channels, modern applications and innovate business practices. Successful organizations in the future will re-imagine and re-conceptualize their product, service and operation strategies in light of technological changes.

As always I welcome your feedback. Send me a message at email or to learn more about Novarica’s Benchmarking the “New Normal” 50 Advanced Capabilities for P&C insurers, download a preview

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Novarica Webinar: Change, Legacy, and Disparity

Matthew Josefowicz

If you missed yesterday’s webinar on Change, Legacy, and Disparity in Insurance Technology, you view the replay here. Novarica clients can also download the presentation slides.

The webinar examines the themes of change, legacy, and disparity in the way insurers are reacting to rapid evolutions in the technology landscape. It includes a high-level summary of data from Novarica’s 2015 Insurer IT Budgets and Projects study, and concludes with four guidelines for insurers to thrive in this new age.

What do Enterprise Architecture and Underwriting Guidelines have in Common? A lot more than you think!

Mitch Wein

A lot of people view enterprise architecture as a bunch of sign-offs and permissions but it’s really a lot more than that. In reality, enterprise architecture should be viewed as a set of underwriting guidelines for IT. Here’s why….

Enterprise architecture is about taking a holistic view of risk, avoiding long-term unforeseen consequences, and making informed decisions to manage total company risk to within pre-defined appetites. Sounds a lot like underwriting guidelines, right?

Enterprise architecture, conflicts with the desire to move fast without regard for long-term consequences. Sound familiar? Underwriters vs. Agents…IT vs. Project Management

Although often maligned, enterprise architecture’s purpose is to ensure long term success for insurers. Below is a checklist (or maybe we should call them guidelines) based on the direct experience of Novarica Principals and Research Council Members that can help CIOs to determine their architectural governance maturity.

  • Identify key business and IT strategic drivers and create reference documents that will arbitrate technology decisions
  • Establish a target technology reference architecture that reflects all possible investment needed without economic constraint.
  • Link architecture governance to funding governance through logical gates.
  • Create a standard template to capture all dimensions of the architecture review and highlight the tradeoffs that may be needed.
  • Gain commitment in writing for future projects and investments.
  • Adopt a test-and-learn culture for architecture. Test the proposed solution and its expected benefits, implementation complexity, and its technical feasibility.
  • Support the architecture process consistently.

The dependence on complex technology architecture is increasing and in order to be successful, CIOs need to create a strong architecture governance function to ensure that each project is consistent with the overall technology direction of the firm.

A strong architecture process will guarantee that an insurer will be simplifying the IT landscape over time, deploying more agile business capabilities quicker and future proofing the solutions as technology continues to evolve rapidly in the years to come.

As always I welcome your feedback. Send me a message at email or to learn more about Novarica’s executive brief on Architectural Governance, download a preview here.

Silicon Valley Ventures

Rob McIsaac

I recently had a chance to spend a week in the San Francisco Bay Area, which offered an opportunity to combine business and pleasure. My son and daughter in law are scientists working for startups, which gave us a chance to get better perspective on the elements driving the local economy. It also proved to be a bit of a dream trip for my “inner geek”, as we explore the history of Silicon Valley. What application do I see this having for insurance? Plenty it turns out.

The Valley is a hotbed of activity and the path to getting from its birth to today is surprisingly clear. According to the California Historic Marker, the birthplace is actually at the garage where Bill Hewlett and Dave Packard began their famous collaboration. Their first major customer was Walt Disney and the garage is only a few blocks from Stanford University. HP was where Steve Wozniak worked when he and the other Steve began the Apple journey and the garage they worked in is a short hop from HP’s. There’s an energy in the air that recognizes and rewards both innovation and risk taking.

Google is a short distance away, adjacent to Moffett Airfield, home of the Ames Research Lab (NASA) and the site of many aircraft innovations from the early part of the last century. This is also the home of the famous Hanger One, where the US Navy kept monster airships in the 1930′s. What do you do with an 80 year old building designed to house Zeppelins? Google is taking it over so they can fly things indoors, of course. And test self-driving cars with advanced features and capabilities away from prying eyes.

For the better part of a century, the area has been a focal point for innovation and creativity. Each new advance and breakthrough is a combination of new ideas built out by the next generation of technologists on a foundation that was framed by those who went before them. The next innovative idea may come from a big company with a long track record of success or a small one that is scrambling in the same mode as Hewlett and Packard … or Jobs and Wozniak … or Brin and Page.

In any case, people are surrounded by an environment of creativity, risk taking and a willingness to tackle big problems. Watching as an outsider from “back east” is engaging, particularly when you consider the financial, technical, educational and legal structures required to keep the engine of innovation running. There is clearly a case of a rising tide lifting all ships. If you want to see what the future may hold, visit The Valley.

Clearly, some others are catching this message. Pharmaceutical companies are setting up and / or investing in research labs. Auto manufacturers are moving work into the area, with BMW now being one on Google’s new neighbors. At least one P&C carrier has an operation there, putting them in close proximity to leading edge thinking and access to technical resources. It turns out things like the application of Big Data Analytics are unencumbered by notions of industry specific barriers.

Some remarkably innovative banks are also located in the same area. While my trip to Silicon Valley started as a family vacation, it became a thoughtful point of introspection on insurance.

Seeing the interaction of business elements, combined with the life changes spawned by technology advances, calls into question the potential viability of legacy systems, operations and processes. While the changes may not happen with the flip of a switch, the best defense, as always, remain a good offense. The list of companies that failed to heed this advice reads like a roll call of spectacularly failed brands. Even recognizing that changes were coming, and in possession of capabilities that could have changed their trajectories, companies like Kodak and Polaroid and DEC (to name but three) found that they could not trade the comfort of the past for the potential of future success. This Success Trap issue is one that should be a point of concern for carriers, as they contemplate both the potential for new forms of competition and the demographic shifts now underway in traditional markets.

Recognizing the value of the phrase “seeing is believing”, Novarica is in the early stages of planning a Research Council meeting to be held in Silicon Valley. We will be targeting mid-year for an event that promises to be both thought provoking and perspective expanding. To quote William Gibson, “the future is already here, it just isn’t evenly distributed”.

For more information on the Silicon Valley meeting, drop me a note at email or give me a call.

Sometimes The Best Way to Speed Up … is to Slow Down

Rob McIsaac

I was recently reminded of this old adage while racing through A New York area airport. I had allowed a meeting to run a little long, which ate into my traveling “margin for error”, which had then caused me to get caught in rush hour traffic. One small event led to a much bigger one and now, bag in hand, I was rushing toward security. And then I hit a double whammy. The security line on a Friday night looked like a pre-release event for a new i-Phone … and my boarding pass didn’t include the magic words “TSA Pre check”. Spending the night at the airport now seemed a real possibility.

The temptation? Jump in line and hope for the best. The smart play? Go back to the ticket counter and get them to issue a new boarding pass that was my “Get Out of Jail Free Card”. Slow down even more, on the chance it would speed me up on the overall process.

At the counter the agent blamed the issue on a software bug (nice irony there) and dutifully printed the new pass. With no one in the Pr-check line I sailed through security and into a blissful repose at the back of a regional jet winging my way toward home. Victory was mine.

Which got me to thinking about some of the work we, at Novarica, do with carriers. Increasingly we see companies across all lines of business recognize that their existing core systems don’t have the ability to properly position them to deal with imminent competitive threats. Implementing new products takes too long and is too expensive. Supporting new channels presses existing technology past the breaking point and support for a 24×7 world creates an architectural model that only Rube Goldberg could love. With time to market pressure high and business leaders trained by Apple and Google to be dazzled by new features, the idea of slowing down to speed up may seem inane. On the other hand, pursuing the current course may ultimately be the world’s biggest game of “push the wet noodle”. Entertaining but hardly productive.

Which leads to the search for alternatives. A quick scan of many carrier IT organizations finds that they don’t have the institutional memory for knowing how to do an effective vendor selection. In many cases the process, unaided, can start to look like painting the Golden Gate Bridge. About the time it is done, you need to start over. Fundamental things have changed and what was once a good answer or approach may no longer be. Slowing down this much doesn’t speed anything up! It just leads to indecision.

A better alternative? Using a structured and repeatable process that allows a carrier to leverage industry expertise so that it can focus internal SME’s on the things that create real competitive advantage for the carrier itself. This can be where a process like Novarica’s can make a significant difference. A typical vendor selection can be done in 10-12 weeks, a pretty far cry from what many carriers experience when they “roll their own”. Armed with better process and tools can lead to a much faster end to end process.

The ultimate irony, of course, is that I was late to the airport in the first because we were wrapping up a carrier vendor selection effort … and enjoying a protracted discussion around how we’d met a self-imposed goal of selecting a new core system in ten weeks. All is well, it turns out, when it ends well!