Novarica Council Gathers Insurer CIOs to Address The First Year of the Future

Matthew Josefowicz

Nearly 70 IT leaders from more than 50 insurers gathered last week at the 9th Annual Novarica Insurance Technology Research Council Meeting to participate in panels and workshop sessions with their peers, get insights from Novarica’s senior team, and attend keynote sessions from outside experts on operational transparency and cyber-security.

The First Year of the Future

We dubbed last year “The Year the Future Arrived” for insurance, when nascent trends like wearables, Internet of Things, consumer internet giants’ interest in the sector, and a growth of direct sales beyond personal lines became a reality. This year, the clock is no longer counting down, but counting forward.

Keynote: Nine Trends and Issues…

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My keynote focused on our Novarica Nine for 2016 and Beyond, looking how these and other trends are shaping the industry, as well as what kinds of technology strategies insurers are taking to address these trends, and how they are managing their IT organizations to deliver these capabilities.

…100 Technology-Enabled Capabilities

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We also reviewed our expanded “Benchmarking the New Normal” framework, which we will publish this summer, looking at deployment rates for 100 key technology-enabled capabilities across functional areas like product, marketing, distribution, customer engagement, billing, claims, and finance/operations and technology areas like data, digital, and core.

CIO Panel: Core, Agile, Evolving Customer and Employee Dynamics

Our CIO Panel, which included Kate Miller of Unum, Scott McClintock of OneBeacon, and Paul Brady of Arbellla, addressed strategic issues ranging from core systems replacement to embracing agile development to redesigning their organizations to make insurance IT an attractive career option for millennials.

Operational Transparency for External and Internal Customers

Our guest keynote, associate professor Ryan Buell of Harvard Business School, presented his research on operational transparency and its impact on customer service to a tremendously responsive and engaged group. We’d invited Dr. Buell to join us because his research is so applicable not just to the insurance customer experience, but to the relationship between IT and other business units. See this recent post for more on this session

Novarica Research on Core Transformation, Data, Digital

On the second day, the Novarica panel of Rob McIsaac, Martina Conlon, Mitch Wein, and Jeff Goldberg from our team discussed some of their recent research and customer projects in areas like core systems selection, transformation project assurance, data strategy, meeting agents’ digital needs, and a wide range of other trends and best practices.

Discussion Groups of CIO Members Focus on Their Key Issues

Special interest group discussions for group voluntary benefits, individual annuities, individual life, personal lines, specialty, commercial lines, and workers comp explored recent research relevant to each sector. In discussions co-led by a Novarica expert and a CIO chairperson, these groups addressed topics like enrollment standards, impact of the DOL fiduciary ruling, market dynamic changes, ISO rating, and core systems vendors.

Cyber-Security Threat Evolution and Preparation

Distinguished professor and Department of State cyber-security adviser Dr. John Savage gave a closing keynote on the cyber-security, emphasizing the importance of managing security beyond perimeter protection and staying engaged with industry groups to monitor the evolution of new threats globally.

Knowledge-Sharing and Networking

novarica-councilCouncil members valued the opportunity to network and learn from each other in a private, vendor-free environment, and many of the special interest groups have already made plans to meet again later this year. We’ll be publishing a report summarizing the discussions and panels next month, and the 10th Annual meeting will occur in late April, 2017.

For more information on joining the Council, senior insurer IT executives are invited to visit http://novarica.com/council and request membership. Membership is free and has no obligations.

Operational Transparency, Agile, and Perceived Value

Matthew Josefowicz

Our guest keynote speaker at the recent Novarica Insurance Technology Research Council Meeting was professor Ryan Buell of Harvard Business School, who presented some of his recent research on operational transparency and its impact on customer service.

Transparency Changes Perceptions

The main finding of Dr. Buell’s research is that service providers perform better when they see the impact that their work has on customers, and that customers are more appreciative and feel better served when they see the work that has gone into providing services to them.

Here’s a video of Dr. Buell presenting on this topic as it relates to government services, from his website:



I invited Dr. Buell to join us after encountering his research online, and realizing how important this topic was not just for insurance customers, but for the internal customers of insurance IT leaders.

Insurance is an opaque product

For customers, insurance is an invisible and mysterious product. Few customers know what goes into underwriting and issuing a policy or processing a claim. Even for distributors, a major source of frustration is not understanding when or how decisions are being made. Some insurers have found that simple process additions like progress bars, proactive process notifications, or simple explanations can have an impact on customer and agent satisfaction levels.

IT is also an opaque product

IT is an equally opaque product to its internal customers. Leaders and staff in other business units generally have a poor understanding of IT, why things that seem simple are complex, how long tasks actually take, and generally just what the heck those technology guys are doing all day. This lack of understanding and lack of transparency leads to frustration and turns other business executives towards trying to manage IT with the only tool they do understand: budgets. This rarely leads to value creation.

For IT, Agile is helping

With the mass adoption of Agile development by insurers, this is starting to change. One of the main benefits of Agile is enforcing regular communication and review of progress between technology staff and other business units.

As shown below, the majority of insurers report that this is improving end-user satisfaction with delivered products, relations between IT and other business units, and even IT job satisfaction.

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Through frequent interactions and reviews, other business units feel greater ownership in IT projects, and IT feels like it’s making a difference in achieving overall business goals.

Future collaboration

We believe that insurers can benefit from an operational transparency orientation in multiple areas, and we’re currently in discussion with Dr. Buell about future collaboration and activities with our team and Novarica Research Council members. Contact me if you’re interested in learning more.

Related Research

  • Novarica Nine Insurance Technology Trends and Issues for 2016
  • Agile at Insurers 2015
  • Insurance Enterprise Software Reverticalizes

    Matthew Josefowicz

    This week’s announcement of Accenture’s spin-off of Duck Creek Technologies to a joint venture with a private equity firm underscores a trend we’ve seen in the insurance enterprise software and services market — increased verticalization.

    When we first started tracking M&A in this space nearly a decade ago, we focused significant attention on the tech giants like IBM, MSFT, ORCL, and SAP, pictured on the left of our 2015Q2 market view below, as well as the financial investors, pictured on the right.

    InsSoftwareUpdate2015

    Source: Insurance Software M&A Update 2015 Q2

    While financial investors have gotten much more active in this space in the last five years (lured no doubt by the successful Guidewire and Majesco IPOs), the tech giants are no longer much of a factor. They seem to be focusing much more on their horizontal strengths like cloud and data analytics.

    Why is this happening? Well, insurance enterprise technology is not like general enterprise technology. It has a distinctive and closely-connected customer community that values vertical expertise and relationships above all, it requires maintaining a network of partnerships or a comprehensive set of vertical services, and has a business rhythm and sales process that rarely aligns with that of horizontal enterprise technology companies.

    Insurance technology companies have been most successful on their own, and frequently struggle to maintain relevance when they are swallowed up by larger companies with broader markets. Right now, most of the M&A activity in this space is taking place among the vertical insurance software providers themselves. We expect this to continue for the foreseeable future.

    Talking to the Board, Talking to Millennials (and How the Two are Related)

    Matthew Josefowicz

    As insurers increasingly become tech companies that sell insurance, ensuring that the highest levels of management understand that technology is a source of competitive advantage rather than a risk should be on every CIO’s list of priorities for 2016.

    Our annual Quick IT Benchmarks report provides Insurer CIOs with data on the state of IT spending and initiatives at their operational peers. These benchmarks are designed to provide both an opportunity for self-assessment and a tool to help CIOs communicate with senior management at their companies. In a recent report on Technology and Corporate Governance in Insurance (check out the webinar here), we found that few corporate boards have the experience to manage IT in a strategic way, yet that’s precisely what will be required over the next few years as boomers retire and millennials take their place in society.

    This generational change, and the change in mindset it will necessitate in insurers, is the real theme of our recent report on the Internet of Things. While the IoT is not exactly pervasive yet, the larger point is that it’s symptomatic of a change in the expectations consumers, agents, and employees have of technology. Proactive, usability driven, smart – how many insurer’s systems currently measure up to these expectations?

    Related Research

    Policy Admin, Corporate Governance, and Disrupted Distribution

    Matthew Josefowicz

    Policy administration system replacement and evaluation activity is at an all-time high across the industry. Across both life/annuity and property/casualty, policy administration systems vendors are offering suites that include not just traditional policy and rating functions, but billing, claims, portals, documents, and business intelligence capabilities.

    Yesterday, we published our 2016 Novarica Market Navigator on P/C PAS solutions (complementing the LHA edition published last month). This report covers more than 50 vendor solutions, with individual profiles averaging more 10 pages, providing detailed information on the functionality of all of the sub-components on the system. These reports also include single-page executive summaries for each vendor.

    Together, they provide more than 900 pages of research on these important vendors. Jeff Goldberg and Tom Benton will review and discuss this research in a webinar on Wednesday at noon.

    Large strategic projects like policy administration system replacement highlight the importance of corporate governance when it comes to technology strategy. According to our recent research, 89% of insurer CIOs say their board members don’t know the right questions to ask about technology, and end up overfocusing on risks rather than opportunities. Frank Petersmark and I will discuss this on a webinar on March 28.

    Life and retirement board members will have a lot to think about as the new DOL regulations take effect, requiring sellers of retirement products to act as buyer fiduciaries, and completely disrupting distribution in this marketplace. Several large insurers have cited this change as the reason for divesting their distribution arms, and more change is afoot. Rob McIsaac has been discussing this with our annuity and retirement Council members, and shares his thoughts in a new executive brief.

    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.

    2015 Year in Review

    Matthew Josefowicz

    The Year the Future Arrived

    At the spring meeting of our Research Council of insurer CIOs, we predicted that 2015 would be “The Year the Future Arrived” in insurance. New entrants, new expectations, and customer-centric innovation are starting to change the game for the industry. All of this is creating new challenges for insurance IT leaders and their teams.

    More than One Hundred Insurers

    Throughout the year, our team has helped more than a hundred insurers make better decisions about technology projects and strategy in this new environment. Our retained advisory clients call on us to help them understand new trends, issues, vendors, and best practices. Our research covers all these areas and more, with more than thirty new reports and briefs published this year. And we delivered dozens of strategy consulting engagements, ranging from vendor selections to project assurance for transformation programs, analytics strategy development, enterprise architecture review, and more.

    Council Meetings and Community

    Our annual Research Council meeting brought together more than 60 insurer CIOs in a private, sponsor-free, knowledge-sharing environment. And our Special Interest Groups brought together dozens more members in smaller, focused meetings of hard-to-find peers like those writing annuities, specialty P&C, or COLI/BOLI.

    We’ve shared our insights with the industry at large, recording more than ten webinars, speaking at more than twenty conferences, and being quoted in more than two hundred press articles.

    Expanded Team

    As our business has grown, we’ve expanded our team with two new vice presidents and five new staff members. Our senior team now includes former executives from AIG, AXA, Liberty, Guardian, Marsh, Progressive, and Prudential. Our staff includes a diverse group of associates with degrees in classics, linguistics, economics, international relations, religious studies, and visual arts.

    Celebrating the Year

    We recently had a chance to celebrate our great 2015 results together at one of the several restaurants owned by our very first staffer-turned-restaurateur Tse Wei Lim, who created a custom cocktail menu for the occasion.

    Cocktail_Menu_2015_Holiday_party

    Looking Forward

    As we head into 2016, we are grateful for the chance to work together, for the the trust that our clients place in us, and for the opportunity to help the industry adjust to the future that’s finally arrived.

    For Life Insurers, the First Step is Admitting there is a Problem (in this case, with Customer Experience)

    Rob McIsaac

    I had a chance to speak at the recent North Carolina CEO summit and one of the key takeaways was that one of the hardest things for companies in any industry to do is adjust their business processes to reflect appropriately on the challenges and opportunities made possible by new technology and changing consumer expectations. This is especially true in insurance. The majority of carriers have perfected looking at the world from the inside out, which may be fine in an era of limited change, but it is exactly the wrong response in a period of dynamic activity and shifting expectations, punctuated by the threat of new market entrants.

    This inside out thinking leads companies to focus on service-level agreements and other metrics which completely miss the importance of getting the actual customer experience right. Companies may well understand the correlation between poor customer experiences and financial outcomes (e.g., poor persistency rates or a failure to loss of assets under management), but they seem to fail routinely in understanding what the root cause events are driving these results.

    A personal customer experience with business as usual

    As a case in point, I recently went through a series of unfortunate customer service events with a large, national, life insurance carrier. The start came through a phone call to one of their support centers. This particular facility was in Ireland and their function was limited to letting callers know that the company was closed in the evening and would be open during “normal business hours”. Of course, “normal business hours” turns out to be the same hours when most consumers are at work, making it remarkably inconvenient. On the next day, a call during normal business hours and was routed to a call center in Manila. After almost an hour on the phone I discovered that this operation was only able to deal with non-registered products; that issue wasn’t picked up by the VRU when I dialed in. Once we got past that confusion, the call was routed to another call center in the Midwestern United States. At that point, a knowledgeable representative walked through the issue but concluded that since the transaction spanned multiple internal business units there was nothing he could do. The best response was to have an agent call me. The SLA for a call was 24 to 72 hours.

    The empowered customer finds an alternative

    Two weeks later, when no call came, I gave up and went looking for an alternative company to manage the assets. The multiple contracts involved were 30 years old, so this was not a new customer issue. It was however a life event issue which a new financial institution was happy to address. In this case, the company in question was a brokerage firm who happens to sell life and annuity products on behalf of a range of manufacturers. They were happy to set up the new accounts and handle the 1035 exchanges and had the experience wired before the original life carrier understood what had happened.

    So, from a customer standpoint, I was quite happy. I was able to move the funds into an experience where there was a knowledgeable entity on the other end of the wire; the account opening experience was very Amazon-like, inasmuch as routine updates on the status of the transactions came to me in my preferred channel of communication.

    Too little, too late

    That might’ve been the end of the story except that the life carrier now seemed spurred into action. However, the action invoked processes that are little exercised and had unintended consequences. For example, multiple conservation letters were received offering to discuss options for keeping assets at the original carrier. Unfortunately, the conservation letters arrived after the proceeds had already been distributed to the new financial services company. Another bit of detective work found that the time lapse between producing (and dating) the letters and their actual delivery was 10 days. Based on the postmark, it was six days between the production of the letters and having them sent. They came via a bulk mail rate resulting in further delay.

    The operation was successful, but the patient died

    Through this whole effort, it is possible that the service-level agreements for every component in the process were met. The whole of the experience was very different than the sum of those parts, however.

    Fixing this kind of problem doesn’t need to be particularly difficult or expensive. It does require, however, the recognition that there is a problem. One approach that we see taking hold now is the introduction of the position of Chief Customer Experience Officer. Frequently coming from outside of the insurance industry, from banking or consumer products, the individuals taking these roles have a charge to look at the carriers “from the outside in”. This is a promising development that many more carriers should consider as they kick off 2016.

    To discuss this topic further, please contact Rob McIsaac at rmcisaac@novarica.com

    Update from Orlando: Themes for 2016

    Rob McIsaac

    I had the opportunity to participate in the revamped CSC user conference recently, which was a terrific opportunity to visit with both the issues … and the challenges … facing carriers as they move into the final stages of 2015’s Budget Season. With technology developments moving quickly and the reality of raised expectations around what “good experiences” should really be like, carriers face some important prioritization decisions in the near future.

    Legacy

    For carriers we see continued efforts to push toward the concurrent addressing of legacy technology issues while trying to improve capabilities related to product deployments and improved end user experiences for consumers and producers. Time to market continues to be a recurring theme for carriers although in the session I had a chance to facilitate there was a clear distinction raised by some CIOs who, armed with process metrics, were able to confirm that the IT group was no longer the “long pole” in that tent. This was but one manifestation of how better analytics can help organizations be more effective and efficient … while potentially helping build greater trust between IT teams and their “other business unit” customers.

    Budgets

    That said, one of the laments of the CIOs in the session was the overwhelming percentage of their spending annually that goes to “keeping the lights on”. For the vast majority of carriers this continues to hover at or above 75% (equal to the “Run” plus “Grow” spending in our new Insurer IT Budgets and Projects 2016 report), leaving limited headroom for transformational efforts and innovation.

    To that end, there was considerable discussion across the conference events related to both BPO services (as a mechanism for addressing legacy products and platforms) and increased interest in the role cloud solutions can play in the future. This is certainly consistent with other research Novarica has done and positive cloud experiences with SFDC and Office365 seem to be confirming that key workloads can effectively be handled for carriers. Both of these capabilities can ultimately allow CIOs to respond to what we are seeing in the 2016 budget surveys for carriers: a continuation of a theme that requires “doing more … without much more money.”

    Data and Digital

    Analytics and expanded digital capabilities are also top of mind for many carriers. The need to think about distribution system issues, highlighted by the average agent age now riding to 59 in the U.S. should be impacting more investment decisions than it is at the moment. The realization that Millennials now (and forever more) outnumber Baby Boomers does not yet seem to have sunk in for many organizations.

    Innovation, in varying forms, was a topic that emerged in almost every conversation at this event. In addition to the M&A activity that a number of carriers (and solution providers) embarked on in 2015 to build their own set of capabilities, there was considerable interest in the investment funds that a number of carriers have very publicly deployed over the course of the past year. For some small carriers, this raised a concern about the best way forward to competing in a rapidly evolving space. To that end, discussions about the Global Insurance Incubator (Des Moines, IA) and other local shared sourcing events proved interesting. Further, approaches that carriers have made to create innovation centers from Silicon Valley to Silicon Alley were very much on the minds of carriers in the sessions we facilitated.

    Talent and IT Organizations

    Another area of considerable interest related to some of the challenges carriers face with both managing an aging IT workforce to address their current needs, exacerbated by some of the challenges carriers have experienced with attracting and retaining a younger generation of associates to support their technical needs. Recent research we’ve done at Novarica both highlights the “Silver Tsunami” issue and offers insights into actionable steps CIOs can take now to address the concerns.

    The Future

    We have repeatedly said that 2015 has been, in many ways, the year that the future arrived. Competition among solution and service providers heightens their “game” for delivering the functionality carriers will need in their own battles to stay competitive (and relevant) in that future. The transformational journeys for L&A and P&C carriers are evolving along somewhat unique pathways, no doubt tied to the length of the tails associated with their primary product offerings. Irrespective of the lines of business, however, the realization that legacy solutions can’t provide the horsepower needed to address the future state needs of the carriers they support is increasingly clear for CIOs and their senior teams. Armed with a range of solutions for both technical capabilities and hosting options, the future promises to be dynamic. And yes, the insurance industry has clearly entered a period of interesting times.