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.

UnitedHealthcare Motion Provides Model for Faster Adoption of Wearables

Tom Benton

The potential for wearables in health and life insurance has been hindered over the past few years by lack of standards and slowing adoption by consumers. This week, UnitedHealthcare and Qualcomm announced they have “enhanced and expanded” the employee wellness program UnitedHealthcare Motion. UnitedHealthcare Motion is making progress in wearables use for wellness programs by leveraging the advantages of using the Qualcomm 2net platform, a medical-grade cloud-based infrastructure for medical device applications, with enhanced security and flexibility provided by standardization of end-to-end connectivity for wearables. The ability to quickly integrate in the Fitbit Charge 2, first shipped to consumers in mid-September 2016, shows the advantage of a standard platform that can respond to changing consumer demands and device capabilities. As mentioned in Novarica’s report on “Internet of Things, Wearables and Insurance Customer Experience”, security and standardization as seen with the UnitedHealthcare Motion BYOD capability will enable faster adoption of wearables for use by insurers to improve customer experience.

News and Views: Blockchain for Cat Bonds, New M&As, Activity Trackers, and Critical Illness

Novarica’s team comments on recent insurance and technology news

Allianz implements Blockchain for Cat Bonds

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “As we discussed in a blog post earlier this week, Novarica expects that Allianz’s implementation of Blockchain will be the first of many explorations of Blockchain use for insurance policies with simple payout structures. Any time an objective third-party “oracle” can give definitive information that will trigger a fixed payout or default to an insurance contract, a blockchain model will work well. Blockchain could provide a trusted and objective way to handle insurance contracts as long as all parties can agree on how to properly trigger claims, and the simplicity and transparency of the process would benefit the entire industry.”

Two insurance technology M&A stories this week point to the same trend. Insurity announced its acquisition of Tropics, (following on the heels of its recent acquisition of Oceanwide), and Ebix offers to buy Patriot National.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “We are increasingly seeing insurance technology companies pursue a portfolio strategy, maintaining parallel products or suites to support different buyers with different needs. As we discussed in a recent blog post, the diversity of the insurance marketplace means this will likely remain an attractive approach for growing through acquisition for some time to come.”

3 in 10 Americans would be willing to share activity tracker data with insurers

Tom Benton

Novarica comment by Tom Benton, VP of Research and Consulting: “As with the early use of UBI devices by auto insurers, wearable devices may offer a way to gather data on policyholder behavior, but insurers need to do more work to determine correlations to risk and pricing. LIMRA’s Insurance Barometer study indicates that at the moment, a willingness to share such data correlates heavily with early adoption and an interest in fitness, suggesting a strong likelihood that selection bias will affect any policy marketed on the basis of activity tracking.
As we wrote earlier this year
, wearables and IoT are starting to play a larger role in customer engagement.”

The federal government may try to disable critical illness insurance

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “For many carriers, the advent of the ACA and the associated exchanges for connecting with customers also meant the advent of voluntary benefits that could complement or replace traditional group benefits, and Critical Illness products in particular have seen growth as a result. While these products are hardly new, the potential for them to become confused with the minimal protection products envisioned by the ACA appears real. Carriers will have to ensure that they are understood to be supplemental coverages rather than “runarounds” for the ACA in order to keep them in the product mix and on the exchanges in the future. For carriers, considering their go to market plans for the future as well as their product development plans for the upcoming enrollment cycles should be a key part of the current planning process.

Another element that may be in play here is the generally low levels of
awareness or understanding that Millennials have about health insurance options
. Given that all options are clearly not created equal, the regulatory push may be further fueled by a desire to concurrently elevate awareness of what actually constitutes an effective option.”

More regulatory changes are afoot as principle-based reserving starts in 2017.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Current static, formula-based approaches to reserving have led to under-reserving or over-reserving for products due to increasing product complexity, and the difficulty of accurate reserving has proven to be a barrier to the creation of new products. The new Principle-Based reserving model will allow for more product flexibility by making sure that the reserve more accurately reflects the risks instead of being based on a formula. Lowering regulatory barriers to product flexibility will inevitably increase the competitive pressure on carriers to remove technical barriers to product flexibility.”

Group Benefits Solutions: Still a Work in Progress

Rob McIsaac

At our 8th annual Novarica Insurance Technology Research Council Meeting, the discussion was wide-ranging at the Life/Health/Annuities breakout session. The session focused on both Individual and Group product lines, with a particular focus on both Group and Voluntary benefits. For the Group space, after many years of depressed investment (no doubt fueled by the Great Recession), we’re now seeing carriers particularly focused on new capabilities that can help both defend existing market share while opening up new opportunities in the emerging areas of Worksite / Voluntary Benefits.

The Worksite/Voluntary space is also one that Individual insurance carriers are eyeing as an opportunity, which sets up an interesting “race” as companies prepare to face off in what may be a critical area for both lines of business in the future. In fact, competition and competitive capabilities were very much top of mind during these discussions. While Group and Individual Life carriers certainly see the Voluntary Benefits space as an area that they can gain leverage from current capabilities to build market share, there are other forces in the market that also see this as prime real estate for the future. Group Health carriers come to mind, for example, and we discussed the importance of being aware of alternative forms of competition that could make this space even more interesting in the coming years as the full impact of regulatory and demographic changes emerge.

In terms of capabilities that are high on the list of carrier concerns, the group had a wide ranging discussion that touched on electronic enrollment platforms and electronic signatures, consumer portals, approaches to integration with TPAs, death certificate processing, and group benefit enrollment vendors. The continued focus on electronic capabilities that effectively enable both a higher level of end consumer self-service and a great ability to support Straight-Through-Processing of transactions was central to the discussion. Better service can frequently be lower cost service too, when the functionality is available to allow both prospects and customers to handle transactions when they want, on the device they want, with other capabilities available to guide consumers through the navigation of options and features. Mindful that customer expectations around what a good experience should be are now essentially established in other domains (e.g., retail, banking), insurance carriers have some key focus areas to address in order to remain competitive.

Many participants were interested in digital channels, legacy system modernization or replacement, and especially the evolution of Group-oriented solutions. Handling different sizes of group cases was cited as a challenge with vended solutions, and several participants talked about using multiple solutions for non-core processes and systems. Private exchanges are not yet addressing their potential in the market, but carriers are watching them carefully. Each year, as the enrollment periods for benefits approach, the reality takes notable steps toward the promise of these platforms to deliver capabilities and plan sponsor/member access.

Customer experience remains a particular challenge, particularly when there is a need for carriers to span multiple internal systems and / or to integrate internal capabilities with functionality delivered through TPA’s or other third parties. This highlights the need to be thinking concurrently about both the desired user experience and the underlying architectural investments required to make “good experiences” a reality.

Discussion also explored the current state of commercial solutions available to cover a wide range of functionality to support Group insurance. While historically lagging behind Individual insurance alternative, the Group oriented capabilities are coming on quickly. A number of companies at the session are poised to make significant investment decisions in the near future.

The session also explored some of the differences in the challenges represented when addressing legacy core systems that come from a mainframe environment (1960’s to 1980’s technologies) when contrasted with the “legacy client server” and related solutions that date to the 1990’s (up to the present). While it is tempting to think of a correlation between the age of the systems and the magnitude of the challenge, this may simply not be true based on access to qualified resources and the stability of the underlying technology. In any case, there’s a clear understanding across participant carriers that getting after some of the aging foundation in the technology stacks will be critical if they are going to meet future state needs for flexibility, time to market and experiences that can support greater diversity of both customers and distribution channels.

The idea of a Special Interest Group (SIG) session, that would bring together Novarica Research Council members for a full working day that focused on specific lines of business, grew out of this session in 2014. Already this year, Novarica has hosted sessions focused on Group Insurance and Annuities. Another session, focused on Individual Life capabilities, is now scheduled for October 14th in Boston, MA (tentative agenda).

Anyone interested in this SIG event can let me know by sending me an email. As many carriers turn to start budgeting for 2016, things look both interesting and opportunistic for carriers and their IT organizations.

Related Reports

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Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

What Keeps CIOs Busy All Day and Up At Night

Tom Benton

During the Emerging Technology and IT Security breakout session at the 8th annual Novarica Insurance Technology Research Council Meeting, I framed the discussion with the following thought: while emerging technology keeps CIOs busy during the day creating information, IT security and keeping that information protected keeps them up at night.

Emerging technology topics discussed at the session included big data, cloud adoption, security concerns about these and technologies such as drones, wearables and Internet of Things. We talked about Progressive CIO Ray Voelker’s statement in a recent INN interview that they are “way ahead” on their big data strategy and how this is a bold statement in the insurance industry. Emerging technology is producing a large volume of data, at increasing velocity and insurers in general are not prepared for mining the value. HSB’s recent acquisition of mobile IoT startup Waygum and John Hancock’s recently announced partnership with Vitality were discussed as early examples of IoT and wearables being considered for new innovative insurance products. The general assessment of the discussion group was that for many technologies like wearables and IoT, the insurance industry is in the early days of exploring use for insurance products and customer engagement.

Turning to IT security, board and general business awareness around IT security has increased, with the focus shifting from risk elimination to risk mitigation. Auditing of vendors, ethical hacking (use of white hat firms), and scenario planning can avoid or identify vulnerabilities and improve incident response. CIOs are also finding it difficult to define metrics for communicating IT security needs to their boards and finding best practices for funding IT security initiatives. Also, for 2015, NAIC has increased their focus on IT security issues in the industry and formed a Cybersecurity Task Force that recently published a draft document with 12 principles intended to “establish insurance regulatory guidance that promotes coordination and protects insurance consumers.” The discussion group generally agreed that IT security will remain a top concern, and that sharing of best practices and use of NAIC and NIST standards will be helpful in approaching IT security issues.

If you’re interested in talking more about emerging technologies or IT security, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

Here’s the Problem… A Process Is Only As Good As Its Weakest Link!

Rob McIsaac

Recently, I decided that I needed to update my life insurance portfolio. With a range of life events taking place, and a 10 year term policy purchased in 2004 coming to a natural end, I was poised to take quick action. Suffering from mild OCD, I actually started the process a full 8 weeks before the anniversary date. Little did I know that I was dancing on a razor’s edge in terms of timing. This sort of “secret shopper” experience has been frustrating, humorous and thought provoking all at the same time. Does it really need to be this hard? If a process is only as good as its weakest link, this one sets a new standard on the low side of the scale.

In an era of instant access, and nearly instantaneous gratification, I went online to start shopping at an aggregator site. To my surprise, this was less functional than the site I recalled from 10 years ago but it did earn me a call back from a call center agent. After going through the medical questions, we landed on the need to “draw fluids”, a process that could take 2-3 weeks to complete. Given the green light, this process started. It took 3-4 weeks to actually schedule the blood draw.

Thinking the process had run amuck, I went to a second carrier directly. After completing their app online, I was called back in minutes for the medical questions. Because of how I answered one question, I was cautioned that I wouldn’t qualify for the super preferred rate and that the agent had no idea what the premium might be. The thrust of the conversation was that it would likely be around 50% more, but that this was just a SWAG. Clearly surprised that I wanted to proceed anyway (not a great trait in sales) we again marched into the need to draw fluids. A process that could take, I was assured, 2-3 weeks.

The third carrier was a traditional Agency company that I decided to test to see if the web site channel worked. Although it took several business days for someone to respond, when they did, the agent was effective and knowledgeable. She was able to share different premium scenarios and suggest which products might best fit the need. While the low end price was higher than the direct company super-preferred rate, the “likely” rate based on the medical questions was lower. And, of course, drawing blood would take several weeks.

Several interesting points in the process:

  • For all practical purposes, the questions the carriers asked were exactly the same. The only variations seemed to be in looking at my driving record (3 years or 5) and my parents issues with illness (before 60 or 65). Other than that, it was cookie cutter.
  • All three companies declined the opportunity to get medical records (fluids, EKG, chest x- ray) directly from my doctor, despite the fact that they were available as part of an annual physical done two weeks earlier. All wanted to have their own chance to stick me with needles.
  • All three carriers used the exact same service to do the fluid draw and on site visit. Some effect envy for me there, since I got a “three for one” deal on the fluids and the list time. Each carrier wanted their own EKG original so I had to sit through that multiple times, but only partially disrobe once.
  • The direct carriers are decidedly poor at staying in touch with process updates. With them it feels like I’ve fallen into an abyss. The agency carrier seems to be far more engaged through my touch point.
  • Across the board, the process seems broken … or at least archaic. I became a little worried about coverage gaps with the ’04 policy exporting, but I shouldn’t have been concerned. The old carrier indicated that it takes a calendar quarter to actually lapse the contract … whose premium would triple on the next anniversary barring action on my part.

    At a time when the balance of consumer’s financial lives is so readily available through self service and guided experience, this seems like a trip back in time to a different world. Actions are measured in weeks and quarters rather than minutes and hours. Rather than full transparency on information and pricing, the process feels both secretive and ill-informed.

    The process also seems to be intentionally inefficient. When my doctor did his version of the fluid analysis, we had results in 2-3 days. The paramedic firm used by all three carriers said it took 2-3 weeks. How could that possibly be?

    Left to a natural course, this process could run (in total) 6-10 weeks, by my estimation. At that point, I will be presented with “take it or leave it” offers from all the carriers involved. I will, of course, have a personal choice to make at that point, armed with full disclosure and valid pricing as inputs. In the end, it will have a happy outcome for some.

    This got me thinking about my own children and their Gen Y peers. They would be highly unlikely to participate in an exercise as slow and as painful as this one. Baby Boomers like me may now be closing in on purchasing their last life insurance contracts as other life events loom.

    For carriers, the time to think about the required paradigm shifts is coming quickly. Those footsteps you hear are future generations of prospects but they may be running away, rather than toward, you!

    Big data, mobile capabilities, access to a form of Telematics and other devices may all prove to be game changers sooner than we think. Remember what life was like before SmartPhone? I don’t either…

    More Health Insurance Website Woes… and Lessons Learned

    Tom Benton

    By now we are all painfully aware of the problems with the launch of the Federal health insurance website  NBC News recently quoted a government spokeswoman saying that the website successfully completes transactions only nine times out of ten.

    The Federal website is not the only exchange with serious problems.  The Washington Post is reporting that over the weekend (on February 23), the state of Maryland fired the vendor building their online health insurance marketplace.  Reportedly, Maryland chose the vendor in early 2012 in part due their track record with developing software that processes Medicare and Medicaid claims, reasoning that since the vendor planned to use off-the-shelf components, the project would be more likely to meet the tight deadlines – it had to be operational on October 1 2013 for the initial enrollment period ending March 31, 2014.

    However, problems started almost immediately.  A Washington Post investigation uncovered that state officials failed to take action when an outside auditor warned that early deadlines were being missed, and that Maryland had not left enough time to adequately “complete, verify and test” the system.  On top of that, the contracted vendor, based in North Dakota, hired another vendor, based in Maryland, for all the technical services related to operating the website, for nearly the same amount as originally contracted to develop the site.  The second vendor proved to not have enough resources and hired multiple subcontractors.  The two vendors are now suing each other.

    Some of the issues revealed by this unfortunate situation are ones commonly seen in insurance core system projects.  Among them:

    • Unrealistic expectations – state officials set an aggressive timeline and did not allow enough time for testing once early deadlines were missed, according to auditors.
    • Poor communication – Maryland claims that the vendor misled them about the maturity of the available software, and the vendor hired a subcontractor that did not clearly understand the resource requirements, leading the subcontractor to hire multiple sub-subcontractors.
    • Poor governance – the project lacked overall accountability and did not have a process in place to reassess the project to correct issues raised during the outside audit.
    • Lack of attention on testing – though not specifically mentioned in the article, the auditors questioned the time allowed for testing.  As with most major projects, testing was likely trimmed back and not adequate for validating the major functions of the system.

    The result of the poor execution of the project is that Maryland is now forced to find a vendor to rescue the system, while at the same time processing applications through more manual work and increasing the amount of call center support.  State officials recently revealed that Medicaid participants cannot be properly identified by the system, costing the state over $30M.  As any CIO who has lived through a failed implementation would tell you, you will always spend more money fixing issues than if you had taken the time and resources to get them right in the first place.

    You Can Take It With You

    Rob McIsaac

    The model by which many Americans acquire a range of benefits has fundamentally changed in recent years, a trend that will continue into the future despite the debacle that has been the rollout of the Affordable Care Act. Long before the implementation of the PPACA, employers had been moving to share greater financial responsibilities for a range of benefits with covered employees. This is probably most clearly visible on the retirement planning front. While Defined Benefit plans were once widely available, they now only provide coverage for approximately 20% of the American labor force. The transition to having Defined Contribution plans carry the majority of the retirement burden has been surprisingly rapid and complete. One of the benefits of this model for employees is portability, an increasingly valuable feature in an economic environment characterized by more dynamic job shifts and career changes than would have been possible to imagine in the not-so-distant past.

    As a consequence, the majority of workers have become well versed on being active participants in the selection and management of these plans. It is a short trip from here to such things as Defined Benefit Health Insurance coverage. This will further solidify that the workplace is a viable, in fact a desirable, place to address an ever broader array of benefit options.

    One of the resulting changes for employees will be an increased sense that benefits should be more broadly portable with coverage that can be taken with them even when changing employment arrangements.

    This is a potentially fundamental change in how employees will look to acquire life insurance, DI coverage and a broad selection of other protection products. Easy access, payroll deduction options and the ability to shop where they work are appealing.

    Employers find the idea of low- or no-cost benefits similarly appealing.

    For carriers, the time to get ready for this reality is now. Voluntary benefits and the worksite markets present opportunities to gain broader exposure to prospects, to develop relationships earlier and, if well managed, to keep those relationships for an extended period of time. Doing so, however, will require thoughtful planning rather than a “let’s throw something on the wall and see what sticks” model. The enrollment and education processes will be key to initial success, as will finding ways to make the self-service experience a good one. Ultimately, planning for what DC-plan providers refer to as “leakage” … that is the potential for assets to be lost when major life events like a job change take place … may be a key to long term profitability.

    The future looks bright for those who plan for it. This applies to carriers as much as the individuals they hope to protect.

    Click here to view the report Business and Technology Trends: Defined Contribution Retirement Plans

    Three Glimpses of the Future of Insurance

    Matthew Josefowicz

    Three huge things happened within the last couple of months that are blowing my mind.

    1. Underwriting without questions. On 11/19/10, the WSJ reported on a pilot project at a major US life insurer in which a consulting firm was able to effectively underwrite the company’s book of business using only public or commercially-available data about insureds — not any information provided by the insureds themselves [see previous post]. It may take 5 years for this to ripple through the industry, and the regulatory issues will be a bear, but the future is clear: third-party data, not data collected directly by insurers or their agents, will become the primary source of underwriting requirements. This means that all of the resources insurers spend to gather this information themselves will become redundant. This is a huge challenge and a huge opportunity for insurers.

    2. Agents optional. The NAIC basically said agents are on their own to justify their value. Tim Jost, a consumer advocate at the NAIC, was quoted in Politico as saying the following: “Ten years ago you couldn’t buy a plane ticket without a travel agent. Now there are still travel agents, their services are just more specialized. Most people go on the web and buy a plane ticket…If we had said then: ‘We need to protect travel agents,’ would that have been a good thing for the economy?”

    3. Maximum Profitability. The Federal Government mandated a profit margin cap for health insurers. By mandating an 80% medical loss ratio for health insurers, the government would redefine the business entirely from a risk modeling business which essentially makes bets on probabilities to a risk pooling business which starts from a level of assumed losses and works backwards. Could the same logic be applied to property/casualty insurance? Or life insurance? If the MLR floor is accepted and stands, the insurance business model could be radically redefined.

    Consider a future in which:

    • Underwriting requirements come from third-parties, not your own efforts
    • Intermediaries are only one channel among many
    • Your total loss numbers are constant from year to year at a mandated level

    Is that a future in which your organization could survive?

    I believe the first two, which seem far out now, will be commonplace by the end of the decade. I will be happy to buy the drinks at the 2020 IASA show if I am wrong.

    The third is much more contingent on political winds. But if health insurers capitulate on this point, P&C and life insurers need to clearly differentiate themselves from health insurers in terms of public perception or face the risk of operating with the same constraints.

    Health Care Reform, MLR, and Broker Business Model

    Matthew Josefowicz

    Interesting article today in Politico about the letters some brokers are getting this month from health insurers announcing a slashing of commission rates due to the mandated 80% medical loss ratio in Health Care Reform, which means insurers only have 20% of premium to cover admin costs (including commissions!) and profits.

    The most interesting part of this article was the quotes from a consumer advocate at the NAIC, which shows an acceptance of the changing role of intermediaries.

    “Insurance commissions were trending downward anyway, and the industry can and will have to adjust,” said Tim Jost, a consumer advocate with the National Association of Insurance Commissioners. “Just because health care costs increased 20 percent, doesn’t mean the difficulty of the job of the broker increased 20 percent.”

    “Ten years ago you couldn’t buy a plane ticket without a travel agent. Now there are still travel agents, their services are just more specialized. Most people go on the web and buy a plane ticket,” said Jost. “If we had said then: ‘We need to protect travel agents,’ would that have been a good thing for the economy?”

    Insurance intermediaries are under pressure from all sides to justify their value.  And if the carriers are going to slash commissions, could this provide an impetus for insurance brokers to follow stockbrokers into a fee-based model away from transactional commissions?

    For more on this topic, see my previous blog post or my recent column in Insurance Networking News. And I welcome your thoughts at