Tesla Gets a Win from Federal Regulators, But More is Still to Come

Chuck Ruzicka

Federal regulators gave Tesla some good news this week when they cleared the automaker’s “Autopilot” system of responsibility for a fatal crash in 2016. Instead, the U.S. National Highway Traffic Safety Administration found the driver of a Tesla car that collided with a truck (the article says the car “drove itself into” the truck) ignored warnings by Tesla to keep control of the car at all times. This is certainly a victory for autonomous driving systems — the opposite finding would have been a major setback for Tesla — but not the end of the war.

Like seat belts, autonomous driving vehicles will reduce accidents and fatalities, not eliminate them. And Americans are litigious. Apple is being sued for not doing enough to prevent texting while driving, even though texting while driving is explicitly against the law. Companies with deep pockets, like Tesla, Apple, and Google, will continue to attract litigators, and insurers who provide product liability coverages to autonomous auto industry should not start cutting prices. However, auto insurers should anticipate reduced frequency and severity of accidents as safety features continue to be improved.

All of that being said, this week’s ruling is an indication that our society accepts this research and technology direction. Autonomous cars offer significant benefits to portions of our society that have disabilities and to the elderly who can become riskier drivers, not to mention the potential large-scale benefits of improving traffic flow and reducing air pollution. Lastly, with this decision as precedent, the profit potential for the winners in this space will continue to drive research and innovation.

BMW Enters Self-Driving Cars Space With Correct Innovation Mindset

Chuck Ruzicka

The consensus among those keeping an eye on the development of self-driving cars is clear: Autonomous vehicles are coming, sooner rather than later. Still, all the analysis in the world doesn’t speak as loudly as one of the world’s premier automotive brands, BMW, announcing it is releasing a fleet of self-driving cars onto U.S. and European roadways this year. BMW says its goal is to train the cars, equipped with computing systems developed by Intel and Mobileye, to drive in urban areas, with an eye towards full autonomy by 2021. As the article points out, automakers who hope to compete in the autonomous vehicles market space have a long way to go to catch up to Google and Tesla, whose vehicles have logged 2 million and 1.3 billion self-driving miles on public roads, respectively.

BMW’s move offers an important lesson about innovation. When starting to innovate with a new product, or any new way of doing business, learning about the space you’re entering is often more important than getting it exactly right from the start. BMW has made the decision that, rather than ceding the ground of self-driving cars entirely to early entrants like Google and Tesla, the company is better served by looking towards the future and starting to play catch-up now while the technology is still being developed. When it comes to innovation, the first movers don’t always win. Getting engaged with the right mind set of learning from the experience and data gathered is the key to proper execution.

Intel’s Move into Self-Driving Cars Paves Way for More Innovation

Chuck Ruzicka

This week, Intel announced a new partnership with Delphi and Mobileye to develop computing systems for self-driving cars, increasing their commitment to this space. Intel is a huge company whose resources are now aligned with makers of self-driving cars. Completely autonomous cars are therefore one step closer to becoming reality. Looking beyond autonomous vehicles, the challenge of processing the vast amounts of real-time data autonomous vehicles will be producing and taking in will drive innovation in other areas as well. Real-time decision making, a requirement of autonomous driving technology, brings us closer to the way the human mind thinks and analyzes data.

Agent Acceptance of Core System Changes

Chuck Ruzicka

Carriers should expect some agent skepticism whenever they announce the intent to modernize or replace their core systems, and proactively take steps to improve the acceptance of their proposed changes. Most independent agents have moved books of business to new systems. This movement temporarily causes additional work for the agency and can be very disruptive. Agent acceptance of a modern core PAS system, and the related processes and products, is critical to the success of major transformation projects for those carriers in the independent agent channel. Most carriers expect new business submissions to increase as a result of their transformation project and include this assumption in their cost benefit assumptions.

Discussions with carriers reveal differing success rates that appear to be independent of the solution vendor chosen and the choice of Portal component. Some carriers have been very successful extending a variety of core systems directly to agents, and some modern Portal implementations have been unsuccessful. Results can be mixed with the same solution provider, with one carrier getting very positive feedback from agents and other carriers getting negative feedback. Clearly in this case, there are other factors impacting acceptance rates than the choice of core system. So what are the most important factors in determining agent acceptance of a business transformation solution?

Here’s what we recommend:

Separate disruption caused by product and underwriting changes from the impact of new work flows and systems. A company that can’t implement product changes due to legacy system limitations often has a book which reflects adverse selection. A good example might be the average credit scores for a given customer’s base when compared to the average population. Incorporating credit into underwriting guidelines for the first time to address loss ratio concerns will be disruptive from an agent’s perspective regardless of what system it is implemented on. Carriers may consider easing in new factors to reduce disruption rather than fully taking all the required rate indicated by actuarial analysis. Proactive communication of product changes separate from system announcements, as well as clarifying market appetite and offering new products, helps to offset this disruption.

Focus on user experience from an Agent perspective. Engage user experience experts in design and review of the critical functions within a core suite solution. Small companies have demonstrated the effectiveness of just having one or two people designated as having this responsibility or focus. Outside services are readily available. Minimize the number of questions asked during application process by leveraging third party data sources and challenging the value of each and every question asked. Involve Selected agents or customer service representatives (who will actually use the system) in prioritizing functionality and review of early designs and business process.

Don’t communicate unrealistic or premature target dates. Agents often put pressure on carriers to deliver new products quickly. However, they would much rather have a quality implementation and smooth conversion than deal with customer or performance issues. Agents do not like uncertainty. Planning to move business only to have it delayed undermines credibility and irritates the agents.

Pilot all implementations with subset of the targeted population. Pilots should be actively monitored and support teams should be fully engaged in responding to feedback. Too often firms conduct pilots without having a mechanism for obtaining feedback or allowing adequate time to respond to suggested changes. Listen and respond without rushing changes to production. Changes must be implemented with quality and reflect the opinions of a broad audience, not just one user.

Execute. In addition to configuring functionality correctly, carriers must allow adequate time for testing of both the external facing capabilities of the new system as well as the processes for supporting and responding to questions and submissions. Testers should have various levels of technical knowledge and should utilize multiple browsers and access functionality from multiple points within the system.

Create communication plans stressing the benefits of the new system from an agent’s perspective. Ease-of-use, Real time policy issuance, shorter underwritings cycles, and limiting agent entry before knock out rules are invoked all benefit the agent.

Make sure that the project team understands the importance of agent acceptance, defining scope of releases and prioritizing features with this in mind.

Make the above items part of your culture. Once a base Portal or external facing functionality is implemented, keep the focus on User experience, implement incremental changes and pilot changes using A/B testing techniques.

Applying these principles will improve agent acceptance and will benefit the agent, the consumer and the carrier.

When it Comes to Driving, the Future is Not Now

Chuck Ruzicka

Intel CEO Brian Krzanich spoke at the Los Angeles car show this week about a new $250 million investment Intel Capital is making in autonomous-car software, touting the company’s ability to build processing systems capable of processing the vast amounts of data self-driving cars are expected to produce and consume. Even more more futuristic news came this week in the form of augmented-reality windshields, inspired by sci-fi movies, being developed at several car companies to help make people better drivers.

It’s important to keep in mind, though, that the same risks that auto insurance carriers have always had to take into consideration are still around. If anything, they may even be amplified by today’s technology. This week, the National Highway Traffic Safety Administration reported the largest annual percentage increase in highway fatalities in fifty years. The chief culprit, according to the article, is distracted driving due to smartphone usage. The future of driving is rapidly approaching, and is in some ways already here. But it’s important for carriers not to let themselves get so wrapped up in what’s coming in the next decade that they lose sight of what’s happening right in front of them.

J.D. Power Study Shows Digital is About Customer Service, Not Just Cost-Saving

Chuck Ruzicka

In today’s environment where retention is critical, the quality of a carrier’s claims service and handling is a major source of competitive advantage. Other than the bill, claims are often the only contact that a customer may have with an insurance company. A new study from J.D. Power found that while the majority of claimants would prefer to check the status of their claims online, consumers would also like the option to call a representative for first notice of loss. This study highlights that digital service is a complement to call-center service, not a replacement for it. Early business strategies around what used to be called e-business focused on the cost savings of “self-service.” But digital is about engaging customers where they are, not pushing them to lower-cost channels.

Allianz, Toyota, and BMW are Partnering on Autonomous Vehicle Development

Chuck Ruzicka

Rather than choosing to ignore the undeniable emergence of self-driving cars, Allianz had chosen to engage in this development by leveraging its resources, data analytics capabilities, and risk management skills. What better way to understand the future than to help create it. By understanding the capabilities and limitations of the software and having access to enormous driver data sources, Allianz will be well-positioned to define emerging risks, new products and their risk appetite.

Hartford Steam Boiler and Church Mutual Partnered on an IoT Initiative

Chuck Ruzicka

The Internet of things is just beginning to change risk profiles and loss costs for insurers. The recent IoT partnership between Hartford Steam boiler and Church Mutual shows that collaboration between carriers and third parties can accelerate implementation of new services. It is also a terrific example of an insurance carrier thinking about how to increase their value proposition to existing customers, proactively moving to reduce loss frequency and severity. Carriers that provides products and services to a well-defined niche or set of customers have an advantage in this area. Carriers don’t have to be large to be innovative; they just need to focus on customer needs and define the relationship they want to establish.

Case Study Highlight: Core Systems Replacement at CSAA

Chuck Ruzicka

As we approach the announcement of the Novarica Impact Awards in the fall, we will be highlighting one Impact Award nominee each week on our blog. The Novarica Impact Awards are voted on by over 300 members of the Novarica Insurance Technology Research Council, making them the only purely peer-reviewed awards program in insurance technology.

Many of the 2016 Impact Awards nominees cited cross-functional teams, with resources familiar with multiple business areas, and the use of Agile methodology as keys to a quick and successful delivery. Many projects focused on systems consolidation and speed, combining disparate core systems to improve product development and time to market.

This week, we look at a CSAA core systems replacement initiative.

Multiple acquisitions and expanded partnerships among AAA regional clubs left CSAA with a large, complicated integration architecture that spanned multiple legacy core systems. CSAA needed to replace and consolidate these systems in order to improve infrastructure and policy service, as well as cut costs while laying the groundwork for growth. The project required over fifty internal and external integrations of the organization’s six PAS and three billing systems. While this was a substantial organizational challenge, the company ultimately credits success to its prioritization of the project and use of top project management. Moving program analysts into sustaining operations roles and establishing support and advisory were also key factors. Ultimately, the replacement initiative reduced time-to-market for new products by 50% and decreased underwriting expense ratio by 1%. CSAA also reported a savings of $26 million as a result of retiring two legacy systems, and its DPW increased from $2.6 billion to $3.2 billion.

For more detail on this project and more than 30 others, including cases from MetLife, AIG, Michigan Millers, and Aflac, see Novarica’s Best Practices Case Study Compendium 2016.

The 13 “Don’ts” of Core Systems Implementations

Chuck Ruzicka

Implementing a new core system is always a learning process for an organization. While every insurance company is different, all of their system implementations tend to encounter the same sorts of difficulties. In my most recent executive brief, I outline the following 13 common mistakes to avoid in core systems implementations. Keeping these 13 “Don’ts” in mind will help to reduce the risk associated with these challenging transformational projects.

  1. Don’t Expect Too Much from Solution Providers and SIs. While they have experience, neither the solution provider nor the SI should be asked to lead or manage the entire project. Carriers must maintain overall ownership of the project.
  2. Don’t Ignore Solution Provider Recommendations. Solution providers are the experts in what their system can and cannot do. Respect their expertise. Carriers should explore configuration approaches exhaustively before thinking about asking for system changes.
  3. Don’t Create Win/Lose Situations. Micro-managing solution provider staffing, costs, and actions can be counterproductive. Instead, insurers should manage outcomes and agree on work processes and how transparency will be created. The end goal of a successful implementation should be a strategic partnership.
  4. Don’t Be Afraid to Create a Backlog. It is better to go live faster with a base system and learn from it than to go live later with a feature rich system that may be underutilized. Insurers should communicate this clearly to business users, assuring them that the initial release is not the final product, and that backlog items will get delivered.
  5. Don’t Ask to Change the System until You Understand It. Insurers should examine configuration options extensively—most modern systems can meet most needs through configuration rather than customization. Insurers should be open and understand suggested alternatives.
  6. Don’t Over-Engineer Your Workflows. Too many carriers build multiple business rules and notifications only to take them out in their second releases. Insurers should understand work queues and query capabilities, and ask whether business users would prefer query and queue tools or rules and notifications.
  7. Don’t Build Unnecessary Control Reports. Many companies have hundreds of reports that modern systems make obsolete. Modern systems accomplish all these with filters and views within work queues.
  8. Don’t Perpetuate Legacy Master Data. Legacy systems with poor data structures or configurability often made it easier to embed payment types, LOBs, and other business data into fields meant to do something else. Insurers should clean up these tangled data structures rather than perpetuate them.
  9. Don’t Convert Data When You Don’t Have To. Carriers should understand the cost for converting historical policy data and detailed transaction data before committing to expensive conversion projects. Data warehouses, document management systems and legacy inquiry environments can often be viable and much cheaper sources of the required data.
  10. Don’t Treat This as a Part-Time Job for Senior Leaders. Insurers need to free up their best people and backfill for them to get these projects done fast and right. Full-time project managers, adequate-skilled BAs and adequate testing resources must be assigned to complement the development team and solution provider resources.
  11. Don’t Skimp on Environments. Having too few environments can create artificial constraints that delay the development effort and limit the productivity of a carrier’s most expensive resources.
  12. Don’t Be Afraid of Risks, Manage Them Instead. Carriers can manage implementation risks by resourcing teams adequately, investing in quality assurance, creating transparency, and having the end users review deliverables from each sprint. The financial risk of cost overruns must also be managed. Successful carriers assign portions of the overall program budget to each project and work stream in advance.
  13. Don’t Expect the Organization to Change on Its Own. Many individuals within an organization will be apprehensive about the impact of the changes that implementation projects will trigger. Carriers should align the organization by communicating the need for change and the benefits to be achieved. The end goal is a culture that embraces and contributes to change.

Implementation projects are often painful and downright ugly. Ironically, carriers typically end up better prepared for the project after they complete it than before they start it. Avoiding these 13 “don’ts” can help insurers avoid pitfalls sooner rather than later.