News and Views: Argo, Tesla, Aon

Matthew Josefowicz

Matthew Josefowicz on reports that Aon is in talks to sell its employee benefits outsourcing group.





Chuck Ruzicka

Chuck Ruzicka on Tesla’s win with federal regulators and why it’s just the first of many battles for self-driving car manufacturers.





Mitch Wein

Mitch Wein on Argo Risk Tech Solutions and the future of commercial and personal lines insurance.





CIOs Should Not Underestimate the Potential of XaaS

Chris Eberly

Chris Eberly

Some technology trends are just that: trends. Others have the potential to change the landscape of the IT industry landscape. A deep review and understanding of XaaS (“Anything as a Service”) puts the practice on a parallel with similar industry sea changes of the past, like the PC movement of the 80s, the web movement of the 90s, and the sourcing movement in the 00s. Here are our thoughts on what the best practices are for CIOs moving forward with XaaS implementation:

    • Review current business processes with a critical eye: Whenever a CIO embarks on replacing any major platform, the first caution is not to recreate what already exists into another system, unless the business is completely satisfied with the current platform which quickly begs the question; why move? Assuming there is a need to move because the existing platform is complex, not scaling appropriately, doesn’t support current compliance requirements, lacking modern security
      capabilities, costing too much to maintain, or any other similar reason, the first step should be to review what functions are being supported, what value is behind these functions, and are these functions generic to the industry.
    • Define value add processes and align to benefit targets: It is important to define value-add processes and take the step to align benefit targets to each of these processes. This analysis will need to start with a top-level agreement between CIO and COO on value benefits, cost of non-standard process, and success metrics before moving into discussions and process planning.
    • Implement Rent vs Buy vs Build model: A very old question that is outlined in just about every IT strategy is the philosophy direction of Buy versus Build. XaaS adds a new dimension of whether the function or service should be rented? In other words, can the company pay per user, pay per customer or pay per policy instead of making the significant investment, to buy or build a platform?
    • Prepare for organizational shift, not just technology shift: There is clearly a technology shift in moving to XaaS which includes all the challenges and opportunities with implementing a new platform. One aspect that isn’t as apparent is the need to make an organizational shift from a focus on development and application maintenance to vendor and product management. Specific consideration might include QA focus more on regression testing using business use cases instead of feature testing focus, a shift from focus on intra data center design to inter data center design, and architecture with greater focus on data, data management instead of interconnecting applications within data center.
    • Shift primary focus to data and analytics capabilities: Many IT shops spend most their time and resource maintaining, developing, and servicing existing platforms, which leaves little ability to address the huge data frontier. By fully taking advantage of XaaS, IT shops can reallocate resources to focus on unleashing the power of data into the whole enterprise.

Lessons learned and experience from previous sea changes lead us to review XaaS as part of the IT strategy roadmap. XaaS is not simply a new technology but rather a clear move and opportunity that requires a full assimilation into IT shops. At a minimum, adopting XaaS should create the opportunity to bring IT and business teams closer together.

 

For more on this topic, see my recent CIO Checklist report: http://novarica.com/best-practices-for-xaas-strategy/

As More Insurers Look to Big Data, Expect Regulators to Pay Attention

Mitch Wein

We have written previously about the ever increasing importance of data in Insurance. A related area of interest to insurers is the growth of predictive analytics. Modern predictive analytics solutions are capable of providing deep insight into a wide range of business areas such as underwriting risk, product profitability, and financial projections. However, maturity and adoption of predictive analytics solutions vary widely among insurers. As more carriers prioritize data strategy, usage of this potentially disruptive technology will grow rapidly. Data is a major component of Novarica’s “Hot Topics” for insurers, which include social, mobile, analytics, big data, cloud, digital, and Internet of Things/drones. Data is being utilized to speed up underwriting, utilizing external third party data (e.g. prescription information, telematics information for driving), improve actuarial models (e.g. data collected from drones, the National Weather Service), and help to process claims (e.g. data generated from devices, commercial vehicles, health devices). Over 25% of insurers ran big data programs last year in order to gain insights from large volumes of data with high variety (structured and unstructured) and velocity. This article from the New York Times discusses the increasing concern of regulators, mostly in Europe and the UK, that access to large amounts of data may ultimately lead to a decrease in competition by freezing out smaller firms who can’t get at as much data as large firms like Amazon, Google and Facebook. The article mentions the case of IBM, which is combining internal data with customer data in order to train Watson AI software for a wide variety of tasks in fields ranging from medicine to finance. Some insurance carriers are working with IBM’s Watson software to develop underwriting, claims, and actuarial modeling. Data will continue to grow in importance even as it grows in volume. It is inevitable that regulators will start looking more at data and access to it as we move forward into the 2020s.

Revenge of the Mutuals?

Rob McIsaac

An interesting article came out over the weekend that delves into the consolidation that has taken place among publicly traded life insurance companies, and contrasts this trend with the relatively stable number of mutual carriers that are in the market today. We are now the better part of two decades past the period when there was a significant demutualization effort which included notable, name-brand, national carriers. In that period, we have weathered multiple recessions, one of them the worst economic downturn since the 1930s, and emerged into a world that has experienced persistent low interest rates. Taken as a whole, these factors have produced a series of economic outcomes which were outside of the planning corridors that many carriers executed against. As the article suggests, carriers face some very interesting challenges going forward. For those with long tail liabilities such as life and annuity contracts, the conflicts associated with quarterly earnings reports and maximizing shareholder value appear to be particularly daunting.

There is more to this story, however, which may suggest some additional advantages for mutual carriers. Almost without exception, life carriers are grappling with aging technology platforms which may date as far back as the Kennedy administration. The blocks of business on these platforms are themselves old, and may be closed to new business. But because they were at the heart of these businesses over multiple decades they have become, through the magic of cost accounting, blocks of business which absorb significant overhead for carriers. For many companies, these platforms represent a significant drag in terms of being able to implement new products and services effectively. At the same time, however, these platforms, if they are walled off, can become quite stable and relatively inexpensive to operate. This can meaningfully influence both operational and financial outcomes for carriers.

We recently unearthed a 1995 chronicle from MIT which provides a fascinating view of the first 35 years of policy administration utilization in North America. The fact that many of the systems that were deemed to be aging in that 22-year-old report are still being used by carriers should give cause for concern to some!

In any case, as carriers plot their technology strategy for the future, addressing these old systems and blocks of business running on them will become increasingly critical. The investments and planning horizon required to make them successful may be easier for mutually owned companies to execute than it will be for their publicly traded competitors given their respective focus on long- versus short-term results.

Even as market competitive threats loom large, it is not just a technology challenge that many life insurance carriers face. There is an accounting and a reporting issue which carriers would be well advised to consider as they put their strategic plans in place.

News and Views: Lemonade’s Instant Claims, NYS Cyber Regulations Delay, UnitedHealthcare Motion, and BMW’s Self-Driving Cars

Matthew Josefowicz

Matthew Josefowicz on why Lemonade’s instant claims processing is most impressive when looked at from a user experience standpoint.





Mitch Wein

Mitch Wein on the delayed implementation of New York State’s new cybersecurity regulations.





Tom Benton

Tom Benton on UnitedHealthcare Motion and the future of wearables in wellness programs.





Chuck Ruzicka

Chuck Ruzicka on BMW’s entry into the self-driving car market and the importance of learning in innovation.





Instant Lemonade Impressive for Flavor more than Ingredients

lemonade

Matthew Josefowicz

Lemonade got some great press this week with their instant claims payment for a small property loss on a renters policy.

While Lemonade is spinning this a miracle of AI, it’s really more a miracle of intelligently-designed processes. Many insurers do rules-based, auto-adjudication for small property losses, but few have the ability to translate those automated decisions into real time payments.

The other thing that Lemonade has done successfully here is focus on the desired customer experience, and exploit the industry’s lack of willingness to do so.

Now if Lemonade can do the same thing with a $25,000 liability claim on a small renters policy, that’s a different story…

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.

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.

Why Aren’t Insurers Doing More With Their Data Strategy?

Jeff Goldberg

While the business intelligence space has matured greatly in the last decade, it has been and remains an area where insurers need to work with a variety of platforms and tools to build out their capabilities. This requires a mix of technical skillsets, business expertise, and vendor relationships. While few efforts at an insurer are more complex or time consuming as a core system replacement, a major BI initiative will eventually touch all aspects of an organization. I will be presenting more on this topic in a webinar on December 1, 2015.

Today there are more vendors that provide a full business intelligence suite which includes the data layer, the industry-specific data models, the presentation and visualization tools, and the pre-built insurance reports and dashboards. But these suites still need to be tailored to and integrated into the rest of the insurer’s environment. Some policy administration system vendors are either pre-integrating with or releasing their own business intelligence suites. This does simplify the deployment but adds another variable to the “suite vs best-of-breed” decision, and until these options have more production exposure most insurers are still opting for best-of-breed.

For now, most of these approaches don’t provide some of the ancillary but very important data and analytics areas such as predictive modeling tools and the models themselves, the use of aggregated third-party data sources, or the emerging area of big data. And no matter what approach an insurer takes, it is a near-universal condition that there will be siloes of historical data that need to be considered with or migrated into the new BI solution, and that will take time and effort.

So despite plethora of vendor options and the general acknowledgement across the industry that good business intelligence is key to ongoing success, why aren’t more insurers further along in their data strategy?

1. Most insurers struggle with multiple legacy systems and siloes of disparate data, and they are still at the first steps of bringing that data together.

2. The data that does exist in the organization is of variable quality or completeness. New systems don’t immediately solve that problem without a broader plan in place.

3. Insurers and core systems have traditionally looked at data from a policy view, complicating the effort to move to new models that tend to take a 365 degree customer view.

4. Many insurers still have no formal data governance in place and lack organizational agreement on data definitions.

A good vendor partner can help put the framework and some tools in place to solve the above four roadblocks, but it requires more than just technology. It requires process and cultural change, which can’t be driven solely by IT.

Many insurers are still looking for a data champion to help push a strategy across the organization and get buy-in from other business leaders. As organizations mature, this data champion role is often formalized as a Chief Data Officer (CDO), and that person typically has a strong data background. But for insurers who are still looking to get a data strategy off the ground, it’s most important to find a leader who is respected in the organization and who is passionate about the value that good business intelligence can bring, even if they have little data experience themselves.

Related Reports:

  • Business and Technology Trends: Business Intelligence
  • Novarica Market Navigators: Business Intelligence Solutions
  • Up-to-date Agent Portals: Table Stakes, Not Differentiators for Carriers

    Steven Kaye

    Half of insurers are planning to replace or significantly enhance their agent portals. While vended solutions are correspondingly gaining complexity and strength, many carriers still use homegrown systems.

    The use of agent portals, although near ubiquitous, is also uneven. Specialty lines, as well as some of the more complex commercial lines, lag behind their more straightforward counterparts in transactional capabilities, but have been innovative in using agent portals for education and outreach to potential customers.

    In this environment, it’s no surprise that many insurers count enhancement or replacement of agent portals as top priorities for upcoming IT projects. Interestingly, this percentage is approximately double the percentage of respondents who believed their current systems were “poor’ or “very poor,” leading one to assume that up-to-date agent portals are quickly being viewed as table stakes, rather than competitive differentiators.

    For more, see our new report, Business and Technology Trends: Agent Portals.