Yahoo News reports that Aon is in talks to sell its employee benefits outsourcing group. Aon bought Hewitt for $4.9 billion in mid-2010, when large brokers were under pressure to diversify into non-commission businesses after the financial crisis. Some interpret this as a signal that Aon wants to focus more on insurance and risk management businesses. With the large commercial insurance world being transformed by new entrants from the capital markets and new technology, and with the employee benefits market under pressure from the growing percentage of the labor force operating as freelancers, Aon may benefit from a tighter focus on its core market where disruption may create opportunity (as well as threats).
A recent survey of younger agents highlighted a generally optimistic view of the future. In addition to reflecting positive sentiments about economic prospects, they also appear to feel good about the security of their positions, given the significant number of current producers that are expected to retire from the labor force. The average age of an agent in the United States is greater than 59 and there are forecasts of up to 25% of the current population of agents planning to retire by the end of 2018.
While there may well be room for optimism for those who properly frame a career in insurance distribution, the likely reality is that carriers will need far fewer agent relationships in the future. Increasing focus on self service capabilities, desires from consumers to be able to have direct interaction with the companies they do business with and greater commoditization will all put pressure on the industry to do things in a more efficient, less labor intensive, fashion. Distribution will hardly be the only function to experience this pressure. More automated underwriting and automated claims adjudication are two other examples.
This also ties to research Novarica recently competed on Millennial consumers. As a generation, Millennials will represent half of the US labor force by 2020. As a group, they have a strong preference for DIY capabilities.
This doesn’t mean that the agent role will become extinct but rather that it will morph and evolve. There are likely to be far fewer, but on average more highly skilled, producers in the future. They will be experts on dealing with complex and difficult situations which don’t lend themselves to a do it yourself model. That could be a very good place for producers to be, albeit with a substantially different business model, than is currently the norm. Carriers will want to be preparing for these changes sooner rather than later, given the speed with which consumer preferences can be influenced by the likes of Google, Amazon, Facebook and Apple.
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.
- IT Security Update: Financial Services Now in the Spotlight
- New Brief: Wearable Technology and Insurance
- Mitigation versus Prevention: Three Questions Insurers Must Answer In Order to Evolve in a IoT and Big Data World
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:
- Novarica Research Council Impact Awards
- Novarica Insurance Technology Research Council Special Interest Group: Regional Property/Casualty
- Novarica Insurance Technology Research Council Special Interest Group: Large Property/Casualty
- Novarica Insurance Technology Research Council Special Interest Group: Life
In a recent blog on the evolution of core software in London market, I suggested that changes were afoot. (http://blog.novarica.com/?p=2470/) And so they were.
At the beginning of July, Xchanging acquired two insurance software companies within a week of each other –
AgencyPort Europe *(http://www.xchanging.com/news/xchanging-acquires-agencyport-europe/) and Total Objects. (http://www.xchanging.com/news/xchanging-acquires-total-objects) A week later, HG Capital, a private equity firm, announced a co-investment in Sequel Business Systems. (http://www.hgcapital.com/news/hgcapital-announces-investment-sequel-business-solutions)
Whilst the deals are very different in nature, they speak to the buoyant view of both software companies and private equity firms alike. With the consolidation of vendors, it also offers a more distinct choice for insurers.
The Xchanging acquisitions fill out their portfolio of offerings with the addition of a cloud based bordereau management system (TotalObjects), MGA systems (TotalObjects and AgencyPort), a risk aggregation tool (AgencyPort) and a system for Health Insurers (AgencyPort). The deals bring with them some duplication – two broker systems, two reinsurance systems, two MGA systems and two underwriting systems for both syndicate and company’s.
Xchanging has made it clear to all users of all these products that they will continue to support all products for the foreseeable future. That said, we would expect to see some consolidation of the product portfolio in the coming years. At a minimum, this is needed to streamline the market messaging and at an operational level, it would not be surprising to see some reduction in duplication to reduce current operational costs and future product investment.
The co-investment in Sequel Business Systems, a competitor of AgencyPort and Xchanging, will bring with it an injection of cash. No details have been published on where this might lead the company, but in conversations with clients of all these software companies, initial responses were mixed. A spate of deals like this always introduces uncertainty and it takes time for customers and prospects to embrace and understand the impact of these deals on their own technology investments.
One of our critiques of this sector of insurance software over the years has been the underinvestment in the solutions. These deals suggest show this is changing and insurers can be optimistic in the future evolution of London market software.
NOTE: Agencyport Europe has been separated out from Agencyport NorthAmerica in the recent years. This acquisition does not impact AgencyPort NorthAmerica.
This spring, we interviewed almost a dozen CIOs within the London market on their plans for 2014. Whilst much of the mainstream P&C market in the UK and US are absorbed in legacy modernization programs, the London market insurers are focused on data.
Developing or enhancing business intelligence capabilities is a priority program in almost all the insurers interviewed. The three largest brokers have all developed strong BI capabilities – AonGrip, Willplace, MarshConnect – and they use this information to negotiate rates with the insurers. The challenge is that the London market insurers do not have the right level of information to ensure this conversation is on a level playing field.
More about plans and projects for this sector of insurance can be found in the new published London Market insurer IT budgets and projects report, available now. This report presents the results of a survey conducted during May 2014 among 10 insurers and syndicates in the London market. These insurers placed either all their business or a significant portion of their business through Lloyds.
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:
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…
Last week’s LIMRA/ LOMA Retirement Conference in Chicago provided an interesting overview and update for what is happening in the industry today. Jim McCool from Charles Schwab noted the importance of having carriers move to establish trust with consumers, and the need to de-clutter and simplify products and business models. He highlighted the example of Apple as a company that has taken a potentially complex space and made it elegantly simple with a terrific user experience that inspires trust and confidence.
This was a great build on a presentation I had an opportunity to deliver at the conference on Straight Through Processing.
The reality in the United States is that 10,000 Baby Boomers are now reaching retirement every day, something that will persist for the foreseeable future. The opportunity for carriers to prepare for this is now. Further, with low interest rates and continued cost pressure, finding ways to reduce operational expenses while improving customer experience (for both agents and customers) is critical.
Another reality is that customer experiences are increasing being set by companies like Apple, Facebook, Google and Amazon. They have perfected ways to make complex things simple, easy to use, innovative and “delightful” to customers. With expectations set there, business practices that are dependent on paper and rooted in the 1950′s are increasing arcane and inaccessible to agents and customers alike. The need to drive toward electronic applications and electronic signatures is crucial for carriers across lines of business. It is both a crucial step toward better customer experience now … and a precursor to bring able to deliver on meaningful mobile capabilities.
This was an opportunity to highlight findings from a recent Electronic Signatures Executive Brief we published.
When asked if there was a potential crisis due to aging in the producer community, the executive panelists at the conference’s main session noted that there is. Allianz, Schwab and Wells Fargo all acknowledged the problem and highlighted approaches they are taking to prepare for a new generation of advisors.
In some places, the agent / advisor community is actually aging faster than the general population at large. This also highlights the importance of creating better and more compelling user experiences for both producers and end clients. Moving to simplify business process, allowing for the electronic execution of transactions and “going mobile” are all key to this. Carriers will continue to need to compete for advisor “mind share” which will require experiences that can be concurrently compelling to multiple generations of users. All of this, of course, ties back to the Hot Topics we see for insurers in the near future.
The Apple analogy continues to resonate, particularly if carriers want to truly remain relevant in a highly competitive environment.
While there are certainly complexities inherent to the life insurance, annuity and retirement plans segments of financial services, the future is clear: STP is moving from being innovative to becoming a “cost of doing business”. Hope is not a strategy and indecision is not a winning game plan.
Rob McIsaac and I recently published a Novarica Market Navigator report on Insurer IT Services Providers. The report gives an overview of some of the major IT services providers to North American insurers and contains a brief profile of each provider, including information about the company’s experience with different types of clients in different functional areas. Providers profiled in the report are: Accenture, Agile Technologies, Capgemini, CastleBay Consulting, CGI, Cognizant, CSC, Dell Services, Deloitte, Edgewater, EY, HCL, HP, HTC, IBM, iGATE Patni, Infosys, L&T Infotech, MajescoMastek, MphasiS, msg global solutions, NIIT Technologies, NTT Data, PwC, Return on Intelligence, Slalom Consulting, Syntel, TCS, ValueMomentum, Vertex, Virtusa, Wipro and Zensar.
With the market becoming more competitive, having a technology partner that can provide the right level of resources to support business initiatives is a crucial tool for CIOs. Novarica’s recent report Insurance IT Outsourcing Update (January 2014), based on a survey of 95 insurer CIOs, found that outsourcing is a part of nearly every insurer CIO’s toolset. 85% of respondents report at least some IT outsourcing. Instead of simply outsourcing for cost reduction, which was the trend in the past, insurers are now outsourcing to meet peaks in demand, get specialized skills and enable new capabilities.
This makes it even more important for CIOs to evaluate service providers not only on the number of resources available, but the type of skills and level of experience the provider has in a particular functional area. Careful evaluation will ensure that CIOs find the right partner to support the organization’s strategy for growth going forward.
Please note that this report is focused on North America, and presents only North American (US/Canada) resources and client experience numbers from these vendors, most of which are global. Each profile gives a summary of the provider’s capabilities and experience to help insurers sort through their many potential partner options, and Novarica’s team can help insurers assess potential partners in more detail through our retained advisory service.
The continuing hype around “Big Data” is focusing ever more attention on insurers’ data management and BI capabilities. Analysis of data, creation of predictive models, and the ability to take action based on the outcome of those models has always been at the core of the insurance industry. But BI tools and platforms, big data technologies and the availability of data analysts and scientists is spurring interest and adoption even further.
On Friday, Lis Maguda and I published the updated Novarica Market Navigator report on Business Intelligence Solutions for Insurers that profiles the solutions and tools in this space. The report contains a brief profile of each vendor solution: 4Sight Business Intelligence, Cover-All, Guidewire Software, IBM Corporation, InEdge, Information Builders, Innovation Group, InsFocus, Insurity, Microsoft, Policy Administration Solutions, SAP, SAS, SNL iPartners, Tableau Software, and Yodil. Most of the solutions profiled in this report provide insurance-specific models, dashboard, and reports. A few offer industry-agnostic tools to enable the insurer to develop their own custom BI environment, and a few others offer both tools and insurance data models/visualizations. All offer products that can accelerate delivery of a robust BI environment.
Business intelligence continues to be one of the most common areas of investment for insurers. The rising tide of Big Data threatens to overwhelm enterprises that have not yet gotten the most out of “little data” (structured enterprise data). Implementing a comprehensive analytics and business intelligence environment is a major step on the road to data mastery. Many insurers recognize that leveraging internal, external, and big data is the key to improving their business performance, and are investing accordingly. This report can assist insurers in assessing the options for enabling this critical capability.
Our new report looks at document creation/CCM vendors. While the document capabilities of core systems like policy administration and claims haven’t advanced much recently, document creation solution vendors have been investing in their core solutions to make them more intuitive and easier to use by adding better approval workflows and supporting more customer communication functionality, including better multichannel support. In addition, vendors who have historically focused more on document creation solutions or print processing offerings are expanding their footprint to include a more holistic CCM approach, focusing more enterprise-oriented customer experience. Cloud-based options are also proliferating.
The vendors and their offerings are as unique as the carriers and their needs. Our new Novarica Market Navigator, US Document Creation/CCM Systems can help insurers navigate the document creation / CCM vendor landscape. It captures vendor demographics, technology, solutions components, vendor service offerings and typical implementation approaches as described by the vendor.