News and Views: NAIC Cybersecurity Draft Law, Uber’s Acquisition of Otto, Adaptation to DOL Ruling

Novarica’s team comments on recent insurance and technology news

Insurance groups are looking to define uniformity provisions in the most recent draft of the NAIC Insurance Data Security Model Law.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Uniformity is the key to the new Data Security Model draft law. Once the draft is accepted by NAIC (target end of 2016), each one of the states will start looking at passing a law based on the draft law provided. What this highlights to carriers is compliance to the NIST framework, no matter what form the final draft law takes, will be key to avoiding fines, penalties, and reputational damage in the future. Within 2-3 years all states will have a version of the final NAIC draft law on the books. If you are not evaluating your security practices today through a NIST assessment, you should start right away. Novarica has a security workshop to highlight key areas of concern that can help.” More from Novarica on IT security frameworks.

Uber acquired self-driving truck startup Otto in a move to expand its foothold in commercial logistics.

Steven Kaye

Novarica comment by Steve Kaye, Associate VP of Research: “Uber announced it was purchasing Otto, a company founded by ex-Google employees that seeks to retrofit long-haul trucks for autonomous driving. The long-haul trucking industry is currently faced with a driver shortage, and sleep-deprived drivers are also a problem, one that may grow with recent regulations. The near-term impact may be reduced accidents (as highways are an easier problem to solve than city streets), with drivers on-board to help load and unload, for unanticipated issues, and to prevent hijackings.

From Uber’s perspective, this further expands their presence in logistics. Uber has already been able to evade regulations in some locations by operating as a delivery service rather than a ridesharing firm. Combine this with Uber’s plans to invest in mapping roads worldwide and Uber may wind up making more money from commercial logistics services. After investing in self-driving cars and trucks, perhaps equipment at ports and remote piloted or semi-autonomous ships?” More from Novarica on autonomous vehicles and commercial lines

LPL Financial has decided to adapt to the DOL ruling rather than fight it.

Rob McIsaac

Novarica comment by Rob McIsaac, Senior VP of Research and Consulting: “One of the things which frequently follows introduction of expanded compliance rules is a natural period of grieving for an earlier status quo, as well as some notable scrambling to identify options to deal with a revised operational landscape. However, implementation of the rule changes can actually create a form of competitive advantage. Better customer insight can, for example, create new or improved marketing and sales opportunities. From the news reports, this is exactly the approach being taken by LPL. While this undoubtedly carries some near-term pain, the strategic intent focuses on using compliance with the DOL mandate to improve their use of information and their competitive position concurrently.

Potentially lost in some of the other news is the idea that LPL also plans to make use of “robo-advisor” capabilities. In addition to addressing short-term practical needs in the market, this may have the longer-term benefit of “encouraging” a form of future state omni-channel capabilities that would have otherwise faced a more difficult “row to hoe” for implementation. It will be very interesting to watch this develop for LPL, and to see the responses that come from other BDs and IMOs.” More from Novarica on the DOL ruling.

Google learns selling insurance on commission is hard; industry rejoices prematurely

Matthew Josefowicz

According the the WSJ and Insurance Journal, Google will announce today that it is suspending Google Compare for all financial services including insurance.

It turns out, selling insurance for commissions through comparison sites is much harder than it seems. This was obvious to anyone who read InsWeb’s 10Ks from 15 years ago. Comparing rates doesn’t necessarily lead to buying directly from the site that lets you compare rates. Google seems to have figured out that it can make a lot more money selling advertising to insurers than selling insurance on commission.

It’s an interesting example of how innovation works in the Valley. They tried something, it didn’t work the way they wanted it to, they learned something, and they shut it down.

Unfortunately, some industry observers are drawing the wrong lesson. An industry source quoted in Insurance Journal says “U.S. consumers are still enamored with their agents.” But it’s pretty clear that the massive growth of direct personal lines and the current investment in direct commercial lines shows this is at best an overstatement.

Again, the lesson is not “the old ways are best.” The lesson is “new market dynamics mean new models.” Commissioned sales is less remunerative than selling ads. Google learned their lesson. They’re moving on.

One start-up’s stumble does not signal an end of disruption

Matthew Josefowicz

The insurance industry enjoyed another collective moment of schadenfreude yesterday when Zenefits’ CEO resigned after the company was found to have bungled agent licensing. But here’s something that appeared in no headline:

Zenefits bungles licensing; insurer customers go back to preferring inefficent processes and bad buyer experiences.

Just because Zenefits stumbled doesn’t mean they will fall. And even if they do, it doesn’t mean someone else won’t pick up the ball and give customers what they need. Maybe a company from inside the industry. Maybe not. Maybe a combination of both.

For example, on the same day that Zenefits announced their problems, P2P start-up Lemonade announced relationships with several top-tier reinsurers.

For those of us old enough to remember the first dot-com boom and its impact on the insurance industry, there’s an interesting difference this time around. Back in the 90′s, the aspiring disrupters were ahead of the market. This time, they’re in sync with the market and ahead of the regulators. Like Uber and disrupters in other industries, they’ll struggle with regulations. But if they create enough customer value, eventually they’ll win those struggles.

And as the DOL is proving, sometimes regulators can disrupt markets all by themselves in an attempt to be more customer-centric.

Insurers need to keep these external market shifts top of mind when making IT plans and decisions. External pressure, customer expectations, and innovation and putting new pressure on insurers’ data, digital, and core processing capabilities. IT leaders have a critical role to play in positioning insurers for the future that’s already here.

Next generation agents – Daniel Pink offers some advice

Tom Benton

Day 2 at the NAMIC Annual Convention began with a keynote from Daniel Pink, author of “Drive”, “To Sell is Human” and other New York Times bestsellers. His message for the NAMIC attendees was about selling, with what he called a “1-3-4″ message: 1 big idea, 3 principles and 4 takeaways.

One Big Idea:  Seller Beware

After pointing out that sales is generally viewed as negative and pictured as a slimy sales man (almost always a man) selling a used car, Pink pointed out that this view is from a time in the past, a time of “buyer beware” when customers had little information, few choices and limited ways to talk back. However, times have changed: instead of information asymmetry with sellers owning most of the information, we live in a new world of information parity where consumers have all the information, have many choices and multiple ways to talk back. In this new paradigm of “seller beware”, we need to reconsider how sales are done.

Three Principles, Four Takeaways:  Summary

Pink then proposed three principles to selling in this new world, and four takeaways based on current research on behavior in the new world. Here is a summary of thoughts from this part of his talk.

Much of our thinking about who is best at sales is not true – we picture the ultimate salesman as highly extroverted, but in fact they are no better than ones that are highly introverted. Research shows that “ambiverts” are best – they are able to be introverted or extroverted based on context. We also assume that a direct approach is best for persuading customers to buy, but in fact research shows an interrogatory approach, asking questions, can be more effective when based on facts. Also a small, honest blemish on an otherwise strong offering can increase it’s attractiveness, another counter-intuitive result from research. Finally, giving the information a customer needs to make the sale easy, rather than trying to persuade them to change their minds, is effective. Pink presented his findings in a humorous but very informative presentation.

What does this mean for the insurance industry?

As good as the main presentation was, the real gem came in the last question of the Q&A session at the end of the keynote. A participant asked a great question: in an industry where agents are an aging population and we’re finding it difficult to find, train and make successful a new generation of sales professionals, who should we look to hire? Pink talked about avoiding strong extroverts and look for a few qualities that can be measured and correlate with successful sales candidates: ambiversion (as described above) and conscientiousness (shows ability to follow up, make calls, and stick with the sale). Pink observed that the new work generation grew up in households where they were served a “heaping bowl of self-esteem”, and didn’t learn how to handle rejection. He said this generation responds well to being trained in how to handle rejection, that it’s part of the process to encounter failure. They can be taught that sales is not just a transaction, but a way to help people and make a difference – values are important to the new millennial agents.

Pink’s presentation offers important advice to developing the agent force for insurers. In a new world where consumers have an advantage of knowing about the products and services we offer, insurers need to look for and train a new generation of agents that are equipped to succeed by better knowing how to fail. Contact me if you’d like to discuss Pink’s presentation and how it can be applied to insurer distribution networks.

Four Obstacles Annuity Providers are Facing in 2015

Mitch Wein

Recently Novarica hosted a Special Interest Group Meeting in Boston for Annuity providers. The meeting was well attended with four key themes emerging:

  • Product Time to Market
  • Straight-Through-Processing and Related Issues around NIGO
  • Electronic Signatures
  • Security

The executives in attendance were looking at how technology can solve problems and enable capabilities. What struck me was the paradox of technology providing better and better ways to reach the customer, while at the same time introducing new issues that didn’t exist earlier. One participant noted that “Annuities are sold, not brought”. This comment provided insight into this area of insurance and why it is unlike other area. Clearly the customer and agent experiences are very important. How analytics and mobile can help is still being explored by the carriers.

Another area of keen importance is the product itself and the ability to modify or introduce new products quickly. We talked about innovations that are on the horizon, especially around customized product offerings that can be assembled in real time out of product features that have already received regulatory approval. Yet, today’s existing legacy systems can’t support these types of time to market innovations. A third area of importance is the ease of doing business for the agent & broker. E-app, illustration and e-signature have been deployed to facilitate straight-through-processing but in the non-captive third party distribution channels, the effectiveness has been more limited. Security is the overlay on top of everything. Carriers feel they are in a good position but noted breaches in firms like Target and Home Depot indicated that what they perceive may not be accurate. We talked about ethical hacking and proactive penetration testing as mechanisms to validate assumptions. All-in-all a terrific an interesting session.

Our next special interest group will be taking place June 25th in Boston, MA. This meeting will be geared towards Regional P/C carriers. If you or a colleague would like to attend, please feel free contact me at email.

Related Blogs

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

Related Reports

Program Business Growth Outstrips Overall Commercial Market Growth

Matthew Josefowicz

Interesting article in PropertyCasualty360 today about how Program Business has now grown to $30B and is experiencing faster growth than the overall commercial lines market.

Hmmm…maybe there’s something to this idea of aligning products, market segments, and distribution strategies after all.

Strategic Alignment for Insurers

Matthew Josefowicz

As part of my presentation this week to the annual PCI Technology Conference on Technology Trends in Insurance: Change, Legacy, and Disparity, I discussed the need to align product, segment, channel, and process/technology in insurance.

Although some insurers have been discussing this need for a long time, changes in the data environment and information technology capabilities, and attendant changes in customer expectations, make this more important than ever.

Novarica PCI Tech Presentation 2014b

  • Product. Insurers need to broaden their definition of product. There is a disconnect between the way insurers see their products, which focuses exclusively on coverages and pricing, and the way customers see the product, which includes the overall experience of buying and being a customer. Insurers need to start from this customer perspective in order to design a product that effectively meets a market need for more than fair coverage at a fair price.
  • Segment. All business is program business. Insurers already have experience in aligning product, segment, and channel – it’s called “program business.” The insurance industry needs to apply this approach to the rest of their product portfolio.
  • Channel. Different segments will buy different products through different channels. Insurers should make sure they’re leveraging the right channels to sell the right products to the right segments, and not assume that they can push any product to any segment through their preferred channel.
  • Process and Technology. All of the above is only possible with the right processes and technology that are aligned to support the creation and delivery of the right products to the right segments through the right channels. Insurers should re-examine their processes in the light of currently available information technology capabilities and the experiential needs of their target market segments.

Only by aligning these four areas will insurers be able to compete for modern customers. For more insights from my presentation, Novarica clients can download the full deck here.

Small commercial insurance moves online…because it’s too low margin to do offline?

Matthew Josefowicz

There was an interesting article today on PC360 about the state of small business online. The article echoed many of the themes and issues we raised in our report last summer, Direct Online Small Commercial Insurance.

The article had some interesting quotes from direct players like Insureon and Hiscox, both of which were featured in our report. But it also contained this quote, which raises an issue we didn’t mention last summer:

“The Hartford is committed to a multichannel distribution model in its small commercial business and independent agents are at the center of the distribution strategy,” says Ray Sprague, senior vice president of small commercial insurance at The Hartford, but adds that the vast majority of small businesses operating in the U.S. today are often too small for many independent agents to profitably acquire and serve (emphasis added).

This resonates with several comments that small commercial CIOs made at a meeting I attended last week. There’s a big SOHO small commercial market that’s too small for most agents to care about. I believe insurers will increasingly look to the direct channel to be able to meet this market demand.

Related research and blog posts:

Systems of Engagement, Core, and Analytics are Major Topics at IASA

Our team is just back from the annual IASA conference, which provided the opportunity to meet with dozens of CIOs and solution providers over a couple of days.

In general, insurers and vendors appear to have been investing heavily in technology over the last year or so, with carriers launching major initiatives in core systems and analytics and vendors improving their products both in core engineering and in UI.

In contrast to prior years where technology investments appeared to be focused primarily on cost reduction or mitigation of technology risk, there was one overwhelming theme in the private discussions and panels our team participated in: meeting rapidly changing customer demands.

While we continue to see very strong interest and activity levels in core systems among insurers of all sizes and sectors, there was a notable focus this year on systems of engagement as well. Agent portals, customer portals, responsive technology, and mobile were frequent topics of conversation among the carriers our team met with. Some insurers feel overwhelmed by the problem and lack the expertise to develop a strategic roadmap in an effective way, and there’s a high level of interest in vendor partners that can help them get there.

We found many of the same themes in discussions at the Research Council Meeting. Our report from that meeting is available online and is free to clients and council members.