Predictions of Insurance Future from 2011 are Materializing…

Matthew Josefowicz

In January 2011, I wrote a post on this blog highlighting three glimpses of the future of insurance. The three issues I called out were:

  1. Underwriting without questions, as illustrated by the Aviva/Deloitte pilot project featured in the WSJ in November 2010
  2. Agents optional, based on general trends, with the specific example of the NAIC basically throwing agents under the bus
  3. Maximum profitability, as illustrated by the industry’s acceptance of the minimum Medical Loss Ratio provision of PPACA

I asked insurers to:

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[emphasis added].

As we’ve pointed out in recent posts, agents are already just one channel among many, even in previously unthinkable lines of business like small commercial. I also recently came across an example of underwriting without questions, MetLife’s Xcelerate system, as reported in IIReporter.

Perhaps most concerning for insurers, however, is a recent example that indicates the third item — government-mandated maximum profitability — is not too far off. The ban by Florida and several other states on “price optimization” is an indication that political pressures may bring a PPACA model to P&C.

However insurers choose to try to address these changes, they cannot ignore them much longer. The industry is changing rapidly, and insurers must ensure that they can adapt their business models and the technology capabilities that support their business models.

Novarica Research Update: M&A and Insurer Accelerators and VC Funds

Matthew Josefowicz

With investor money flooding the insurance technology sector and tech company M&A activity at a fever pitch, Novarica has published two new reports: “Insurance Software M&A Update 2015 Q2” and “Insurer Accelerators and VC Funds: Buying Innovation”.

With the recent acquisitions of Agile Technologies and Cover-All by Majesco, Oceanwide by Insurity, and CCC Information Services and Mitchell International by a private equity firm, as well as a slew of other acquisitions over the last 24 months, there is continued activity in this still highly fragmented sector

Novarica’s “Insurer Software M&A Update 2015 (Q2)” brief provides an update on the M&A in the insurance software sector with an overview of the main participants, information about recent transactions, and predictions for future activity. Solution providers discussed include: Accenture, Capgemini, Cognizant, Computer Sciences Corporation (CSC), Ebix, Guidewire, HP, IBM, iPipeline, Insurity, Majesco, Microsoft, Mphasis, Oracle, SAP, Sapiens, StoneRiver, TCS, and Vertafore. A free preview of this report is available at: http://novarica.com/manda2015/

Insurance Software Mergers and Acquisitions 2015

Insurance Software Mergers and Acquisitions 2015

Not to be outdone, several insurers have established either accelerators or venture capital funds in recent years. The idea of insurers with dedicated venture groups is not a new one. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. Insurers interested in establishing their own groups should be clear in what the goals and risk profiles of these groups should be.

Novarica’s “Insurer Accelerators and VC Funds: Buying Innovation” brief looks at current trends and issues in this space and provides a list of recent examples of accelerators, incubators, and insurer venture funds active today. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. A free preview of this brief is available at: http://novarica.com/insurance-vc-buying-innovation/

For more information about these reports, please contact us at inquiry@novarica.com

Overcoming Reluctant Users: Part II

Jeff Goldberg

Back in January I blogged about an issue that comes up frequently when talking to insurers about change management: how to handle end users who don’t want to move to a new system. It’s a frustrating (and yet common) experience, with one, two, or a handful* of people not “getting” the value of a change that everyone else** believes in. A reluctant user doesn’t necessary throw up roadblocks or even complain too loudly, but a lack of positive engagement can still slow down or hinder a project.

  • *If it’s more than a few end users, then there are bigger problems that need to be addressed.
  • ** If “everyone else” is actually a code word for “just management,” see the above comment.

My original blog post received a lot of feedback, with some people questioning why a company would implement a new system that end users are reluctant to adopt. While I’ve tried to clarify that there’s a difference between reluctance from all end-users and reluctance from just a few, it also got me to wondering about the different reasons users might have for pushing back on change. There is obviously no common person called “end user,” and in fact every company is made up of a variety of different people with different motivations. There are power users who don’t want to start from scratch, users who fear for their jobs, users who question IT’s ability to deliver, users who are scared of change, and other scenarios that get in the way of a successful transition.

In response to this, we looked to the experience Novarica has had helping insurers prepare for new system implementations, talked to various CIOs who have gone through change management problems of their own, and also thought back to those times when we had been reluctant users ourselves. And so that initial blog post has now been expanded to a full report. It covers different scenarios and complications that cause some end users to resist a new system, and it aims to help an insurer plan for the kind of change that everybody can rally behind.

On Monday, June 22nd at 2 pm (ET) I will be speaking more about this subject on our CIO Series Webinar: Preparing for Digital Transformation and Overcoming Reluctant Users. Interested participants may pre-register online at: https://attendee.gotowebinar.com/register/120109254

Related Reports

Insurance, Big Data, and Game Changing Cost-Bases

Steve Papa
Board Partner
Andreessen Horowitz
GUEST BLOGGER

Last week at the Novarica Insurance Technology Research Council Meeting, I got the chance to present and discuss some thoughts about how Moore’s Law has the potential to affect insurer value propositions and business strategies.

With chips getting faster and cheaper all the time, insurers have the opportunity to consider both incorporating new data sources and adding value-added services that would have been prohibitively expensive just a few years ago.

Screen Shot 2015-05-04 at 10.51.39 AM

To draw on another industry, take the example of Google Chromecast, a $40 device that has completely disrupted the Smart TV market. What if auto insurers leveraged this technology to provide a free, limited satellite radio device and to insureds who maintained a high driving score through a gameification app enabled by the same device?

As technology, data, and connectivity get cheaper and cheaper, insurance itself may migrate to being more like a SaaS offering and less like something that’s bought once and forgotten.

Is 2015 is the year the future arrives for insurance and technology?

Matthew Josefowicz

Last week, we held our 8th annual Novarica Insurance Technology Research Council Meeting (see here for Council info, agenda, and press release). This week, we’ll be blogging about some of the discussions and presentations.

One of the general themes of the Council meeting was the acceleration of the rate of change in technology and the effects on the insurance industry. As we pointed out in the keynote presentation of Novarica research, there’s a strong case for considering 2015 the “Year the Future Arrived” for insurers.

YearTheFutureArrived

 

There are now real live examples of many of the things that industry watchers have been predicting for the last five years and more. To paraphrase Hemingway, changes comes slowly at first, and then all at once. Insurers and insurance IT leaders who are not prepared for rapid change need to start preparing now.

Clients and Council Members can download the full slide deck from the keynote presentation here.

Wearables and Gamification in Life Insurance Goes Mainstream?

Matthew Josefowicz

John Hancock’s new life insurance program that gives discount points for behavioral modification was covered in this morning’s New York Times.

The article was titled “Giving Out Private Data for Discount in Insurance,” which gives an idea of the initial media reaction. If these types of product offerings are going to catch on, insurers will need to invest in changing the narrative to “Insurer Encourages Healthy Behavior in Policyholders.” Nonetheless, it’s encouraging to see these kinds of initiatives getting mainstream coverage, and we believe this is only the beginning. As we said recently, the future just keeps getting closer

With so many US households still uninsured, insurers are going have to try new things to re-position their product, focusing on consumer needs. New technologies like wearables and the Internet of Things will be an important part of executing that strategy, but insurers shouldn’t confuse adopting new tools with adopting a new orientation.

Related Research:

Insurance Industry Remembers that Investment Dollars Buy Access to Innovation

Matthew Josefowicz

Everything old is new again. Like the E-Venture Investment Groups of the late 90′s and early 2000′s, a new crop of investment activity is springing up in the insurance industry, with the hope of giving the industry a preview of tomorrow’s capabilities and approaches.

This includes single company initiatives like AXA Strategic Ventures and American Family Ventures, as well as the Des Moines-based Global Insurance Accelerator incubator, and the recently announced ACORD Insurance Innovation Challenge showcase for start-ups.

It’s almost as if the industry woke up and realized it didn’t have to sit and wait to be disrupted from the outside. A multi-billion dollar industry can buy some of its own innovation!

Related Posts:

Related Webinar:

Don’t Get Tripped by a Tipping Point!

Rob McIsaac

Late last year I had the opportunity to spend time exploring Silicon Valley in depth which created a new-found appreciation for the form and function of innovation that comes from that singular location. The interconnectedness and leverage that has been created by having a unique combination of talent, financing, risk taking and competition is impressive. The number of companies tied to financial services looking to form innovation centers in this unique environment continues to grow.

Another observation from that tour was the rather surprising connection between technology innovation and utilization in areas focused on entertainment. The recognition that HP’s first big order fulfilled out of “The Garage” went to Walt Disney is a point well taken.

Recently I had a chance to see this point of intersection from a different perspective, this time at the Disney World complex. This is another eye opening event that has some potentially key insights for financial services purveyors. It is not a story about magical mice but rather about technology advances and adoption. Insurance carriers would be wise to take note.

As a veteran of Disney trips, I didn’t expect to be amazed in any way. I was wrong. Visiting as an adult observer with too much time on my hands (translation: no kids to manage) afforded an opportunity to watch how new technology has changed the operation of the properties and the way customers interact with them. For example, upon entering the grounds, you are given a stylish armband that looks like a high end Fitbit device. This is how you track your reservations, book special events, manage your tickets and connect with groups on the property. It is also your virtual wallet. Wherever you go, simply touch the wristband to a reader and you are magically able to proceed.

Of course the flip side of this is that Mickey (or a delegate) pretty much knows where you are all the time. As a result, workflow capabilities are optimized. Buses seem to be at the right place at the right time. Support staff placement is optimized. Wait lines are minimized. There’s a smart phone app that helps manage the experience on those moments when you need a keyboard. For anyone with a Fitbit (or equivalent) on the other wrist, the learning curve is essentially zero.

But that wasn’t even the best part. Upon entering a place where value is consumed from the wrist-wallet, such as entering a park, they have deployed two-factor authentication. In addition to reading the wristband there are fingerprint readers everywhere. Scan your wrist, read your index finger and you are “good to go”. It is smooth, clean and fast. More to the point, Disney is now training tens of thousands of new people every day on how to use the technology. They are also setting a high bar for what a good, effective, non-intrusive security experience can be like. In a word, it is “slick”.

The implications for insurance are broad and potentially represent a tipping point which also happens to coincide with the number of Millennials in the US exceeding the number of Baby Boomers for the first time. People are ever more willing to give up personal information for the promise of a better deal, an enhanced experience and better service. Holiday trips can now join Amazon shopping experiences as a place where things just seem to work well and a byproduct of it all can be targeted messaging that can affirm that “smart people like you” found value in this next call to action.

Returning to a world dominated by last century technology, and last century experiences, will increasingly seem quaint and out of touch with a new reality. The fact that they are slow and painful may seal a deal of irrelevance.

Is it any wonder that Google appears poised to move into the insurance space or that Silicon Valley VC firm Andreessen Horowitz sees insurance as a business that is poised for disruption? Being tripped by a tipping point can be hard to recover from. Just ask Kodak.

Related Novarica Reports

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The future just keeps getting closer…

Matthew Josefowicz

In case you were wondering when the great disrupters in Silicon Valley would turn their attention to the insurance industry, wonder no longer, and read this post on the Andreesen Horowitz site from 1/22/15.

How about an insurance company that empowers you to make smart lifestyle decisions? Examples: the car insurance company that routes you around dangerous intersections; the home insurance company that automatically summons a plumber when it detects water on the floor near the water heater; or the health insurance company that connects you with friends that are also trying to lose weight?

By encouraging us to keep safe, insurance companies can keep their payouts low. And we all bask in the glow of an insurance company that has our best interests at heart — because even though our interests are really aligned, it doesn’t always feel that way

Combined with the recent news about Google’s recent moves in auto insurance, it’s pretty clear that tech is starting to smell blood in insurance.

The barbarians are coming. Insurers need to suit up.

The barbarians don’t care about tradition, or the way it used to be, or what yesterday’s customers liked. They see only need and opportunity. Insurers need to adopt this mindset quickly.

Related Novarica Blog Posts

The Usage-Based Insurance (UBI) Short Cut: Developing a usage-based insurance program has now gotten easier

Thuy Osman

I’ve been following telematics in insurance since 2012 and the main thing I’ve noticed is that the application of telematics by insurers moves at a sluggish pace. While telematics service providers continually improve their platforms and services, offering insurers multiple ways to collect data (connected car, OBD plug in, mobile app), numerous data points to analyze (speed, braking, cornering, road type, etc.), and various applications for the analyzed data (from underwriting to claims), many insurers are still stuck in the initial phase of designing and developing a UBI program.

Aside from the issue of patents, the concern I hear most from carriers who are in the process of developing a UBI program is the data approach. Deciding on what data to collect, how to collect the data, and how to store and analyze the data is a huge obstacle. The main point of the data process is to arrive at some sort of driver risk score. Instead of throwing time and resources to come up with that score, carriers can now partner with an external analytics vendor who will collect, analyze and synthesize the data into a risk score that can then be used by underwriters to determine eligibility for discounts or rewards.

Partnering with an analytics vendor and using their program, such as Verisk Telematics Safety Scoring program (which, it was recently announced, is now approved in 41 states), essentially allow carriers to skip over the data process and jump straight to developing insurance products based on risk scores. Sure, carriers will still have to determine which driving behaviors constitute risk to their company. But, checking off the behaviors on a list for the analytics provider is far more efficient than planning out the hardware to collect the data, storing the data, and in particular, wading through pools of data to make some sense of it all.

A few years ago at a summit for telematics in insurance, the presenters were talking about the possibility of deriving a driver risk score from the telematics data collected from a vehicle. At that time, only a small number of vendors had large enough data sets that could be representative of a segment of the customer driver pool. Today, analytics vendors and telematics service providers alike have collected enough miles and other driving data to develop an algorithm (however simple or complex) to calculate a driver risk score. In fact, providing carriers with a driver score is one of the standard services a TSP provides.

For carriers who are looking to develop a UBI program, or even for carriers who are already entrenched in this process, partnering with an external vendor can save time and decrease the risk involved in launching such a program. As carriers see the benefit in this partnership and as they begin to outsource more to the data process to the data experts, maybe the application of telematics in insurance will pick up.

If you’re interested in discussing this topic further, please contact me at email to arrange a call.

Related Research

  • Telematics in Insurance: Key Issues and Trends 2014