Matthew Josefowicz on reports that Aon is in talks to sell its employee benefits outsourcing group.
Federal regulators gave Tesla some good news this week when they cleared the automaker’s “Autopilot” system of responsibility for a fatal crash in 2016. Instead, the U.S. National Highway Traffic Safety Administration found the driver of a Tesla car that collided with a truck (the article says the car “drove itself into” the truck) ignored warnings by Tesla to keep control of the car at all times. This is certainly a victory for autonomous driving systems — the opposite finding would have been a major setback for Tesla — but not the end of the war.
Like seat belts, autonomous driving vehicles will reduce accidents and fatalities, not eliminate them. And Americans are litigious. Apple is being sued for not doing enough to prevent texting while driving, even though texting while driving is explicitly against the law. Companies with deep pockets, like Tesla, Apple, and Google, will continue to attract litigators, and insurers who provide product liability coverages to autonomous auto industry should not start cutting prices. However, auto insurers should anticipate reduced frequency and severity of accidents as safety features continue to be improved.
All of that being said, this week’s ruling is an indication that our society accepts this research and technology direction. Autonomous cars offer significant benefits to portions of our society that have disabilities and to the elderly who can become riskier drivers, not to mention the potential large-scale benefits of improving traffic flow and reducing air pollution. Lastly, with this decision as precedent, the profit potential for the winners in this space will continue to drive research and innovation.
The recently-launched Argo Risk Tech Solutions looks at common causes and locations of accidents, like slip-and-fall, in the workplace. The idea is to use IoT devices like sensors to communicate to the employees to modify behavior and identify areas of risk like a wet floor, hot soup bowl or items blocking the halls. The IIR article indicates that companies using this technology have seen accidents reduced substantially over a period of time. This positions insurers not just to transfer the cost of risk to them for the cost of premium to an employer, but to actually prevent the risk from ever materializing. This in turn reduces the overall loss experience and allows the premium to be reduced. This approach will be adopted in more and more areas of commercial and personal lines insurance and will be widespread by the 2020s. Over time policy holders that do not deploy these types of sensors will be penalized by being put in different risk pools from those that have the sensors. It will no longer be an option but a requirement. Even further out, the analytics tied to the collection of this data from IoT devices might proactively communicate what to do and when to do it to minimize risk (ex. a commercial truck taking an optimal road to minimize an accident weighed against the time it takes to do the journey). There could be some backlash, however, as people may start to feel the technology is too invasive and not want to provide data or work with a company that does.
Automation that enhances the agent experience and ultimately their selling and service capabilities is fundamental to enabling their success. But with so many potential areas to focus on, from portals to licensing and contracting to mobile, it can be challenging to know what to prioritize. Here are some best practices to help CIOs and business partners focus attention on the most value-added elements of agent automation:
- Know your agent: A successful agent is someone who puts the needs of their clients first, has a positive impact on the people and community in which they serve, and takes pride in being counted on by their clients. Knowing the motivations of an agent provides a good base for understanding where you can get the most value from your investments.
- Create an inventory of opportunity: Given the complex array of systems that provide support for the agent, a significant step is creating an inventory. There are a mountain of touch points that leave a lasting impression for an agent.To fully realize areas of opportunity, CIOs and their teams should develop a process map covering the agent interactions with all the touch points during the course of a business day.
- Define metrics for success: The measures of success are likely to be a combination of things like improving the efficiency of submission to commission process, straight-through processing, aggregating access via single sign-on, and reducing agent onboarding times. Whatever the ultimate metrics may be, the process of working with agents and business partners to develop the metrics helps bring all parties together.
- Understand mobile use cases and value: Mobility for agents has grown beyond calendar and contacts to more of a full agent “mobile office.” Depending on the use case, agents may be looking to access all of their data and applications from any device from anywhere at any time. A well thought-out and well executed IT strategy can support mobile applications by leveraging an open, service-oriented architecture.
- Consider the impact of emerging technology: For most carriers, using today’s widely available digital technology and approaches will have the most immediate value in agent automation. But there are several emerging technologies, like gamification and wearables, whose potential values should be considered for inclusion on carriers’ roadmaps for the next few years.
Agents are heavily dependent on automation for every aspect of the engagement and service functions that support the ability and sell and service a client. The more CIOs can enable them through technology and process simplicity, the easier it is for them to do what they do best: develop relationships and provide peace of mind.
For more on this topic, see my recent CIO Checklist report: http://novarica.com/agent-automation/
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/
Recently, innovation-focused startup insurers Lemonade and Haven Life both announced expansion beyond their initial states–Lemonade to all but 3 states and Haven Life adding five states and D.C., leaving only California and Montana to add. Both initially launched in limited states (33 for Haven and just New York for Lemonade). Add to this the announcement this week that Ladder has launched in its first market, California. The limited launch approach allows these companies to gather customer data and make the necessary process changes that will be critical to their data-driven approaches going forward.
As these insurance startups build their policy counts, more customer data will be accumulated that will provide better algorithm results. But, scaling up in size will offer different challenges for these “Creative Carriers”. Lemonade faces a transition of showing profitability while continuing to innovate, and Haven Life, backed by Mass Mutual, may face different pressures as they grow. In both cases, customers will continue to expect these startups to continue being innovative in how they approach customer experience.
Lemonade’s approach is centered on transparency to build trust. According to this recent blog post, they intend to soon release information on performance metrics and the impact of their ‘Giveback’ program (in which the company donates leftover money form premiums to causes customers choose). This is consistent with their focus on changing the industry by changing the dynamics of interaction based on behavioral economics principles infused in the organization by Chief Behavioral Officer Dan Ariely.
Haven Life on the other hand stays focused on creating the simplest and fastest possible experience–what they refer to as their “ridiculously easy process” for buying life insurance. Their value proposition also includes transparency, but more by providing a fast quote and enabling easy comparison price shopping.
With their expansion into new state markets, the continuing growth and adjustments at both of these innovators will be important for incumbent insurers and imitators to watch throughout 2017.
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.
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.
The major tech players are all betting that smart home automation and digital assistants will be the next big thing for consumers. Grange is taking advantage of this emerging area with their recent announcement that Amazon’s voice-controlled Alexa can now help users learn about Grange insurance or find local agents. It’s clear that the insurance marketplace has not always adapted quickly to improve the customer experience, so this is a great example of an insurer working to serve consumers in whatever way they prefer. It also demonstrates the necessity for insurers to think to the future when they modernize their back-end systems. Will a new core system support future channels? Over the last five to ten years insurers have poured a lot of time and money into building web-based consumer portals. Those that didn’t build for future flexibility had to start from scratch in order to create mobile-ready sites. Will they have to begin again to leverage voice-based home assistants or some as-of-yet unknown customer interaction? Insurers who are thinking in an omni-channel way will instead be architecting agile back-end systems that can support any number of channels and–just as importantly–can support transfers between channels when necessary.