Grange’s Bet on Amazon Shows Importance of Building Flexible Core Systems

Jeff Goldberg

The major tech players are all betting that smart home automation and digital assistants will be the next big thing for consumers. Grange is taking advantage of this emerging area with their recent announcement that Amazon’s voice-controlled Alexa can now help users learn about Grange insurance or find local agents. It’s clear that the insurance marketplace has not always adapted quickly to improve the customer experience, so this is a great example of an insurer working to serve consumers in whatever way they prefer. It also demonstrates the necessity for insurers to think to the future when they modernize their back-end systems. Will a new core system support future channels? Over the last five to ten years insurers have poured a lot of time and money into building web-based consumer portals. Those that didn’t build for future flexibility had to start from scratch in order to create mobile-ready sites. Will they have to begin again to leverage voice-based home assistants or some as-of-yet unknown customer interaction? Insurers who are thinking in an omni-channel way will instead be architecting agile back-end systems that can support any number of channels and–just as importantly–can support transfers between channels when necessary.

With Yodil Acquisition, Duck Creek Continues to Broaden Its Offerings, and Core System Consolidation Continues in the New Year

Jeff Goldberg

2017 has barely begun and the 2016 trend towards core system consolidation in the insurance industry is showing signs of going strong for another year. Duck Creek’s recently announced acquisition of Yodil comes as no surprise, as it both continues the willingness by Duck Creek to invest in broadening the scope of its offering as well as a growing focus on data and business intelligence across the industry as a whole.

This is another example of a multi-year trend towards consolidation in the P&C core system space, a direct response to insurer preferences for suite providers as opposed to best-of-breed. Even when insurers do seek out standalone components, they show a strong inclination towards vendors who will be able to provide additional components at a later date. Over the course of their history, Duck Creek has continued to grow their offering to satisfy more of an insurer’s technology stack, both through development and acquisition.

What’s notable here is that Yodil isn’t what the industry has considered standard insurer core component like claims or billing, but instead is a business intelligence and data management offering. This move by Duck Creek is likely at least partially in response to Guidewire’s multiple acquisitions of data warehouse and business intelligence solutions, with EagleEye (now Guidewire Predictive Analytics) the most recent example. It’s safe to say that BI and data warehousing can now be considered a core part of the insurance suite just like any other business process focused system. Insurers are increasingly budgeting more money towards the data arena, so other suite vendors will need to follow up with their own competitive BI and warehousing offerings either through development or M&A.

Google Spins Off “Waymo”, Readies its Self-Driving Cars for the Market

Jeff Goldberg

This week, Google announced it’s spinning off its self-driving car unit into its own standalone company, Waymo. Fundamentally, this is news about internal corporate restructuring that is mostly making headlines because we tend to be captivated about any news regarding Google and self-driving cars. Whatever Google chooses to call it, Waymo is still part of the overarching Alphabet corporate structure. The move does signify, though, that Google is positioning their self-driving vehicle technology for the marketplace, commercializing what has up until now been an ongoing research project. We can assume commercializing it has always been the end goal, this is just a step in that process.

When Google started developing autonomous driving technology, the company was ahead of everyone else in the field. Now, in late 2016, there are a lot more competitors in the space to contend with. Insurers need to prepare for the possibility that self-driving vehicles might be out on the roads sooner rather than later. As the technology first makes it out of the labs and into the real world, we’ll see a mix of self-driving and human-driven vehicles on the road, which could have unexpected effects on claims and premiums. What’s more, auto insurance won’t be the only line of business impacted by autonomous vehicles. There will be emerging opportunities to reduce risk at work sites, simplify delivery, and take advantage of overnight transportation across all of P/C, plus innovations in risk management and mitigation that no one can predict.

Lemonade Questions the Integrity of the Insurance Industry at its Own Peril

Jeff Goldberg

One of insurance startup Lemonade’s key values is surely its ability to generate constant news about itself, keeping their profile high and helping position themselves for more funding and exposure to potential customers. After a lot of hype about peer-to-peer, Lemonade has evolved to be not so much an insuretech startup, but rather a new insurer leveraging insuretech to improve the customer experience. It remains to be seen if their automation of claims payments while utilizing a charitable donation model to discourage fraud will truly help rein in the worst excesses of human nature. Since Lemonade’s initial policies will be fully reinsured, it’s a third-party who will feel the losses if the approach does not work, and Lemonade may therefore have a chance to pivot before those (possible) losses directly hit their own bottom line. Over time Lemonade will likely find itself acting more and more like a traditional insurer, while —simultaneously— traditional insurers will push more and more to adopt the modern approaches of companies like Lemonade.

If we sift through the Lemonade-specific hype, the real lesson is that there’s room and appetite for new entrants to the insurance industry. Despite the frequent criticisms made by Lemonade about traditional insurers, the reality is that all insurers are trying to help make policyholders whole while minimizing fraud. It might generate buzz for them now, but in the long term it doesn’t help Lemonade to base a PR campaign on questioning the integrity of the entire industry of which they are a part. But it is true that the burden of legacy technology makes many incumbent players slow to adopt new models and channels. Where Lemonade’s critiques do hit home is the fact that many insurers have not kept up with the emerging demands of a modern customer service model. If insurers do not figure out a way to rise beyond their legacy technology and processes, they will find that reputation and history are not enough, and it leaves room for more new unknown insurers like Lemonade to compete based on ease-of-use and the leveraging of mobile/social channels.

S&P Predicts InsureTech Companies Won’t Replace Traditional Insurers. We Agree.

Jeff Goldberg

A recent S&P report predicts that insuretech companies will work together with traditional insurers rather than displacing them. This has been Novarica’s stance as well, most recently in the report “ABCs of InsureTech for Incumbent Insurers” as well as “Understanding Insurance Disrupters”. Disruption doesn’t mean destruction, and just because new and innovative technology will impact the way the insurance industry works doesn’t mean that traditional insurers won’t be part of those opportunities. Much of the funding and investment in innovative insuretech is coming directly from the insurance industry, and will continue to do so. And even when outsiders do step in to disrupt the traditional business model, it means shifts in the landscapes that will still leave traditional insurers a major role. For example, AirB&B exists alongside and complements the hotel industry rather than replacing it. Eventually what we see as insuretech disruption today will just become part of the established insurance industry.

Metromile and CoverHound Partnership Shows There’s Room for Experience in Innovation

Jeff Goldberg

The announced partnership between Metromile and CoverHound shows how innovation and disruption can work within the paradigm of traditional insurance industry modes of business. Metromile is a “creative carrier,” with new ways to productize auto insurance policies. CoverHound is a “digital distributor,” bringing a new, web-based approach to the agent channel. It turns out even a modern insurance carrier like Metromile with a new approach still benefits from an expert agent that can help distribute their product to the right clients, and that’s where CoverHound steps in. Within the industry innovation, there is also room for the lessons of the last hundred years.

Workers’ Compensation Special Interest Group Members Find Agreement on Cybersecurity, Core Systems Replacements

Jeff Goldberg

Four members of the Novarica Research Council special interest group for Workers’ Compensation met in mid-November, at a meeting hosted by Builders Mutual in North Carolina. A summary of key topics of discussion is below:

Cybersecurity There was general consensus that the best overall security strategy was containment and damage control. Insurers understand that attacks are inevitable and even the best systems won’t stop every incursion, but are taking steps (such as working in virtualized environments) to prevent potential breaches and quickly detect and neutralize them if and when they do occur. Common tools and services included LogRhythm, Dell Secure Works, IDS, MX Logic, Webroot, NovaFour, Open DNS, and Websense. Training is an equally important element, as unaware employees may open infected emails, documents, and flash drives.

Core Systems Replacements Participants agreed that it’s important for carriers to realize that core system replacement projects aren’t IT-only initiatives, in execution or in implementation. One carrier was able to bring up 13 states in two years by sequestering SMEs from IT and business units as an integration team, going so far as to locate their common workspace away from other employees. Not only was this approach effective, it eased adoption and training, as each BU had its own ambassador to explain the decisions that led to end-state functions and processes.

As that carrier’s CIO pointed out, vendor engagement is also a crucial success factor for CSR projects. While this CIO recommended that insurers should lean on vendor expertise, it’s also important to ask vendors to push back. Vendors are typically willing to implement anything the insurer requests, but a good vendor partner will feel comfortable saying “no” to unnecessary configurations. Another CIO agreed that OOB functionality is often best preserved, but for truly unique products, customization may be necessary. And clarity of requirements is crucial for effective projects, something carriers should plan sufficient time to execute well.

Predictive Analytics Carriers are using a small assortment of services and systems to develop and launch predictive analytics, including Deloitte, SAS, Valen, and EagleEye (now Guidewire Predictive Analytics). For this group, the activity is largely focused on renewal scoring, and carriers are only beginning to pivot to new applications like premium audits and new business. Surveys show that Workers’ Compensation carriers are more likely than other insurers to apply predictive analytics towards claims severity and fraud detection, though this trend was not reflected in the meeting group.

Carriers made the critical distinction between building a PA model and executing it. Regarding the former, carriers underscored the need to track and audit predictive model performance over time, confirming that a model has made a correct predictions and allowing them to adjust and “train” the model to make more accurate predictions in the future. Especially for smaller insurers who have strong community ties, there is a reluctance to leverage predictive models if it means eliminating human workforce. It’s important in those cases to tie any predictive model-based automation directly to growth goals rather than efficiency/cost-cutting goals.

Millennials Carriers’ most common frustration with Millennials came from the hiring process, which highlighted larger divides between how workers find jobs and the sometimes formulaic HR job descriptions and hiring processes. CIOs considered how best to match an employee’s particular talents with the correct level in a corporate hierarchy and salary structure, which often don’t support flexing job responsibilities to suit employees. As an example, even if an internal role is classified as “IT Specialist 1,” the externally facing job listing needs to have a more compelling title and description that is tailored to the desired applicant.

But carriers also grappled with communicating internal attitudes of company loyalty and upward mobility to a generation which largely believes companies won’t be loyal to employees. One CIO mentioned that recruitment at local colleges had been fruitful, but it can be a long branding effort.

One carrier highlighted their positive experience with, an online analytic service that highlights matches between job prospects and open positions. Employers and applicants each complete brief surveys (which consist of one-word descriptions of a position’s responsibilities and the type of person who would succeed), and the system returns matches that are extremely accurate.

Is Cyber Liability The Next Cat Risk For Insurers?

Jeff Goldberg

There’s a lot of exploration and discussion of cyber liability insurance in the media. It’s not often that the industry has an entirely new line of business to sell, especially one as in demand as this, so it makes sense that insurers are aggressively pursuing the opportunity. On the other hand, most insurers realize that their knowledge of how to rate and underwrite cyber risk is still immature, and therefore are proceeding with caution. (It’s interesting to see so many technology security officers—long relegated to a subset of the IT organization—suddenly thrust into the thick of product development and underwriting, though that’s a different topic.) Most people agree that there are potential catastrophic risks for companies who have poor cyber security, and that it’s only a matter of time before another Target-like hack costs a company hundreds of millions of dollars (or more). Without a proper way of assessing that risk, many cyber policies on the market today have strict limits, meaning a policyholder will be protected from a million dollar loss from a cyber hacking event but not more.

My concern is that the cyber liability market may face events that behave more like a true catastrophe—such as hurricanes or floods—and not just a costly event at a single company. Take for example the recent IoT-powered denial of service attacks that crippled much of the internet. This was a relatively benign event in the grand scheme of things, but it exposed the fact that potential cyber backdoors were much more widespread than we realized. Often major hacking events piggyback on “zero day” exploits, existing vulnerabilities that are widespread across systems but as of yet unknown to users and vendors. The issue with such vulnerabilities is that they expose not just one company with a poor security process, but many companies—even those who have taken best practice security measures—who all rely on a trusted vendor or technology.

In the wake of a major zero day exploit in any common platform technology, it’s possible that thousands of companies would be compromised at the same time. Hence the comparison to a hurricane or flood: the big risk isn’t one company with a major cyber liability, but rather all of those companies to whom insurers have sold limited cyber policies filing claims at once. Suddenly a block of limited-coverage policies becomes a massive exposure for the insurer.

Should cyber liability insurers be attempting to limit certain exposures, for example balancing the number of clients who rely on Windows servers vs Linux servers, much the same way a property insurer will limit geographic exposure? Insurers are already developing better methods to judge the risk of an individual cyber liability policyholder, but it’s also important for insurers to look at their entire cyber book of business and assess the potential for cat-like behavior across all of them.

Travelers used Drones to Survey Damage during Hurricane Matthew

Jeff Goldberg

The use of drones by Travelers to survey damage from Hurricane Matthew is an excellent application of new technology to the insurance industry. It lowers risks for everyone in the process, it allows a more rapid response for policyholders, and–rather than technology replacing human jobs–it serves to bring new and old skills together and allow existing resources to be more effective at what they do. While the general media loves to talk about drones delivering tacos, this is the area where the tech will have true impact to people’s lives.

Case Study Highlight: Enterprise Data at Farm Bureau Financial

Jeff Goldberg

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 consolidation and speed, combining disparate data silos and core systems to enable centralized access and real-time querying.

This week, we look at an enterprise data initiative at Farm Bureau Financial Services.

Farm Bureau Financial Services needed to improve its data integration capabilities as part of a larger life insurance core systems replacement project. To address this issue, the company built a hub-and-spoke architecture to consolidate more than 30 data integration points between disparate systems. The team executed the project through a series of Agile iterations, and the integration layer was ready for deployment in July 2015. The project reduced report run time from over an hour to three minutes, and time to produce complex data reports decreased from two weeks to an hour. Design time was cut from multiple months to two weeks, and consuming systems are now able to retrieve data in near real-time as opposed to batch feeds. Defining long-term strategy and enterprise architecture and articulation of the goal state were crucial to help the team stay focused. The team also attributes success to support from executive management, as well as education and assistance from its vendor partner.

For more detail on this project and more than 30 others, including cases from MetLife, Amerisure, Merchants Mutual, and Trustmark, see Novarica’s Best Practices Case Study Compendium 2016.