Novarica’s team comments on recent insurance and technology news
Novarica Comment by Jeff Goldberg, VP of Research and Consulting: “GuideOne’s CEO attributed their decision to exit personal auto, in part, to trouble keeping up with big data needs. Any insurer with a small book of business understands the difficulty in trying to use that limited data set to extract the same kind of insight compared to large competitors. Some utilize third-party data providers who aggregate larger sets of contributory databases across many insurers, allowing participants to position against those Tier 1’s. But access to the broader data doesn’t translate into the right skills for big data insight. Novarica often refers to data technology as an arms race: as long as your competitors aren’t doing it, you don’t have to do it either. But as soon as someone else adopts a new approach to make better pricing/underwriting decisions, you need to follow or else face adverse selection. Big data technology hasn’t always been common enough to cause these problems. But now, especially in personal lines auto, big data and big data tech is becoming so prevalent that insurers feel the pain if they ignore it. It’s another example of insurers needing to “Adapt or Decline.”
Novarica Comment by Chuck Ruzicka, VP of Research and Consulting: “The USAA, which has been a leader in technology and innovator in the insurance industry, made a significant statement today by appointing a C-level executive with an explicit mandate to oversee and improve their overall customer experience. This ‘voice of the customer’ has long been lacking in the C-suite, and while other companies in other industries have started to bring that voice into the room, insurers are only now beginning to do so. The USAA, at least, is clearly banking on the idea that offering a world-class customer experience will enable them to thrive in an increasingly challenging marketplace.” Novarica will be publishing a report on best practices in User Experience later this month.
Novarica Comment by Mitch Wein, VP of Research and Consulting: ”UpGuard’s Cyberrisk score factors in public, web accessible reviews of a company’s IT environment (strong ciphers, using up-to-date software, using valid certificate authorities, applying phishing protections, etc.) to create a FICO like score. This score can then be used by an underwriter to help price cyber risk. The problem of how to price cyber risk is very real, in part because of the very recent emergence of demand for this type of coverage and the lack of loss history over time and because third parties can introduce cyber risk into the company requesting the coverage. The problem is that this type of score, while a good preliminary indicator, is that it over-simplifies the issue. Human behavior is a primary cause of security risk (putting a thumb drive into a computer, clicking a phishing link on an email, letting someone come into the office that they don’t know). This score will not be able to factor this in.”
Novarica Comment by Rob McIsaac, SVP of Research and Consulting: “As we approach the 4th quarter of 2016, the efforts to prepare for the implementation of the DOL Fiduciary Rule changes are clearly accelerated across the value chain. While the “real” effective date for key elements of the rules isn’t until April of next year, there is a growing consensus that distributors and manufacturers both anticipate having key changes implemented by the end of 2016 to avoid a “split year” scenario that will be difficult to manage. However, many producers are still unclear on what this brave new world will mean for them. Most importantly, there’s a lack of clarity on how certain things like the Best Interest Contract Exemption will be implemented and how their sales practices will be altered by the changes.
While the study is interesting, it doesn’t address demographic differences in the distributor force. With the average agent age now 59, understanding how the more mature producers react may be a key to future state planning. It’s plausible that older producers will simply turn attention to other product sets to simplify their own business models if the changes appear to be overly daunting. Carriers may find this yet another example of an area where the need to think bi-modally in order to maximize their chances of success.
Effective communication, support mechanisms, and a focus on being “easy to do business with” will be critical for carriers hoping to preserve product shelf space with key distribution partners. We fully expect the pace of activity to sharply accelerate as carriers recognize there’s little more than four months left before their ’go live’ date.“ More from Novarica on the DOL ruling.