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.

IT and Other Business Units

Matthew Josefowicz

“Don’t Align with the Business, Be the Business” has long been a mantra for CIOs seeking to ensure that IT is an integral part of their companies’ business strategies.

But too many IT professionals still refer to “The Business” as if it were an alien entity, and as if they were not part of it.

TheBusinessJar

One of our CIO panelists at the recent Novarica Insurance Technology Research Council Meeting raised this point, and we decided to change our terminology then and there.

Instead of “IT and Business” we will now use the phrase “IT and Other Business Units.”

After all, IT is a business unit like any other. It should think of itself that way, and encourage others to think of it that way as well.

And for anyone who uses legacy terminology? Put a dollar in the jar.

Six Technology Priorities for Individual Life Carriers

Rob McIsaac

The individual life marketplace continues to be hyper-competitive with technology playing an ever larger role in insurers’ ability to attract, retain and profitably serve clients. With the release of our new Business & Technology Trends: Individual Life report, it is an ideal time to highlight six technology priorities in this area.

More robust policy administration
Replacing legacy platform environments with more modern, robust core policy issuance, management, and reporting capabilities is pivotal to properly positioning carriers for the future. While many aging, generally mainframe-based systems, remain capable of supporting basic policy processing and accounting functions, the costs associated with enhancing them are becoming increasingly problematic. Of potentially even greater concern, the risks of continuing to try and enhance these systems using aging technological underpinnings can create both resource challenges and delay getting capabilities and new products to market in a timely fashion. With cycle times turning ever faster, these platforms simply create competitive disadvantage.

Application capabilities
Carriers are targeting key improvements in both producer and end customer satisfaction, concurrently looking to increase operational efficiency through advanced self-service capabilities. One critical focus is on e-applications and increasing straight-through-processing through new business and underwriting. Carriers are also implementing e-signature and e-delivery capabilities to enhance user experiences while reducing costs and improving throughput. Across the spectrum in financial services, better service is frequently tied to user-controlled self-service which can both reduce turnaround times and error rates, something that is especially important on equity based products such as variable / universal life.

Business intelligence and improved analytics
Successful carriers are using business intelligence and analytics solutions to recognize and analyze market trends, product adoption, and producer performance. They are using it to draw out data that has been locked in legacy system silos, to evaluate the potential to change the new business underwriting process, and to assess the effectiveness of agent and field management compensation programs. This increasingly becomes an imperative as carriers look to both better understand (and reward) the appropriate types of behavior in increasingly complex and diverse distribution channels. Customer analytics can also allow carriers to build greater levels of customer “intimacy”, assisting in the identification of “next best offers” and activities that could be a prelude to financial events (e.g., a lapse) that might not ultimately be in the policyholder’s best interest. Rather than simply processing transactions, carriers will need to be able to assist in making the right decisions in the future. Amazon and other online retailers have already taught consumers what is possible; now carrier need to catch up in order to assure future relevancy.

Distribution and compensation management
Carriers are continuously improving distribution management functionality to include licensing and appointments, as well as support for greater flexibility around the frequency of both commission calculations and actual payments in compensation plans. Complex hierarchies remain an issue for many carriers; new and improved distribution management platforms allow carriers to more effectively link actual performance and desired results to improve bottom line financial results. They can also allow carriers to bring information together across previously disaggregated product silos or policy administration environments to drive better performance at a lower operational price point.

Claims
Carriers are accommodating new claims capabilities and support of living benefits payout options as well as replacing aging repetitive payout systems. While claims systems have not historically been at the forefront of planning, a combination of regulatory imperatives, market changes driven by concerns such as the Affordable Care Act (PPACA), and a desire to break the large problem of legacy systems down into more discrete consumable components primed for replacement is leading carriers to place increased importance on this space. Interest in this space has been steadily growing and is likely to continue as shorter tail products offer carriers and opportunity to make more direct connections between how they underwrite risks and the losses they subsequently experience.

Architecture and integration planning
While not a discrete system, increased focus is now being placed on developing a discipline that will allow of the integration of new capabilities, at times in concert with legacy platforms, which will allow carrier to transition workloads or functionality to new solutions in a staged approach, avoiding the notion of a Big Bang event. This also allows carriers to operationalize a new reality: the systems being deployed today will not have anywhere near the useful operational life of the systems they replace, particularly those implemented in the 1960’s-1980’s.

The technology priorities listed above are based on the expertise of Novarica’s staff, conversations with members of the Novarica Insurance Technology Research Council and a review of secondary published resources. To download a free preview of our new Business and Technology Trends Individual Life report, visit: http://novarica.com/business-and-technology-trends-individual-life/

On Monday, May 18th at 2 pm (ET) I will present and discuss findings from this report on a free webinar. Interested participants should pre-register online at: https://attendee.gotowebinar.com/register/120109071

Related Reports

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:

A Contrarian View on Self-Driving Cars – Beware the Unintended Consequences

Rob McIsaac

While I embrace many (most?) things with a technology flair, I have to admit to being a bit amused with all the recent breathless excitement exuded over the idea of self-driving cars. To be sure, technology is making them ever safer and more fuel efficient. It is also augmenting the driving experience so that paper maps are going the way of LP recordings and being “lost” is now something of a personal choice rather than a state of condition, but I suspect that the rush to sell ad space may have people overlooking a few practical realities that could lead to surprising, if not dire, unanticipated, consequences.

I’m quick to point out, by the way, that driving my vintage BMW has a completely different set of experiences than driving a new one. No airbags, crash avoidance alarms, proximity radar or backup cameras. Driving it requires real and significant concentration and the consequences of an error can be real and immediate. While I’d never want to retrofit a blind spot warning system, I can appreciate the value. Heck, from the dark ages back in 1984, the vintage ride doesn’t even have a single cup holder.

I can appreciate ABS brakes and traction control too. These technology dependent devices can make drivers feel invincible … or at least support the idea that training and engagement are less important than they once were, since mistakes can much more easily be recovered from. Further, I can also appreciate that under “normal” conditions while cruising down the Interstate and experiencing the commuter equivalent of the “Talladega Draft”, where any open space on the road is an invitation for someone to dive in for advantage, advanced computer control can stay on top of following distances and emergency braking procedures better than the average distracted commuter trying to manage the car, the coffee cup, the kids and the cell phone concurrently.

No, my real concern will come about when we get to the point of auto-driver being a real possibility. At that point, under normal conditions, the onboard systems could handle all the easy stuff with a minimal amount of drama or trauma. Parking between 2 stationary objects? No sweat. Maintaining following distances at 70mph? Again, not much of an issue. The concern will emerge when bad or unexpected or unusual things happen and the computer control gives up and hands it back to the now, even more woefully unprepared occupant, under the tag line of “I don’t know what to do, you take it!”. A failed sensor, a set of road conditions that are unexpected, and a wide range of other factors could create scenarios where the on-board systems decide that they have reached max capacity. Or there’s just the Help Desk Rule #1 for electronic devices: when all else fails, reboot, and start clean.

In other forms of transport, such as high-speed trains and airliners, there is significant control automation even for such dicey maneuvers as station stops and landings. In the main, it works great. But when it goes wrong, it can go spectacularly wrong.

As a backup, these devices have alternative systems, called engineers or pilots, who are well trained and capable of taking over navigation in mid-transaction. They have a full training and testing regimen that they need to follow in order to maintain their certifications. When the training kicks in, the auto pilot comes off, and the results are generally good. Even at that, however, they aren’t perfect as some recent plane crashes have suggested. Training really does matter. A lot.

Which gets back to the driverless car concept. If the occupants are going to be expected to “take over” at any point in the journey, where is the training and experience going to come from? How will they practice dicey moments to build an experience base rather than becoming unwitting guidance systems for land-locked missiles that run amok?

Renting a car today can provide an interesting view if the future. Mastering such simple tasks as turning cruise control on and off varies so much between brands and model years that the first few miles out of the lot are like a training mission of their own.

So, one consequence of increasingly automated vehicles could be fewer, but sadly more spectacular, crashes that are hard to pinpoint “blame” for. The conversation around who is liable in such circumstances could be both long and full of rich legal entanglements. Breathlessly talking about self-driving cars and the end of accidents as we know them may be both significantly premature and a preview to different and more nuanced or complex dialogue.

Of course, on a weekend that required a surprisingly large number of re-boots to both my real world laptop and tablet devices at unfortunate moments, I find myself a little less concerned. If the technology crashes on an Excel problem, how can it possible handle a Jersey Jug-handle first time, every time? Or, maybe I should be more concerned. Time will tell. And that could be the actuarial nightmare scenario.

Related Posts

  • WSJ: The Driverless Car is Officially a Risk
  • Digital Failings
  • Dealing with the COBOL Brain Drain

    Rob McIsaac

    As Baby Boomer COBOL programmers increasingly have the opportunity to say “bon voyage” to working 9-5 and retire, some Insurance IT executives are having restless nights trying to figure out how they are going to address the resulting brain drain. Not only are insurers losing vast amounts of programming knowledge, but they are losing vital business knowledge as well.

    Documentation on aging systems in many cases is more akin to tribal knowledge than a true knowledge management “system”, and the potential for things to go bump in the night increases as these environments face generational transition. For example, one CIO recently shared a story about the transition of responsibilities for running an annual production job from one retiring individual to another programmer. The transition involved, by definition, a year between education and execution. And what was the final result?

    A minor error sent an entire production run of annual statements, totaling 400,000 documents, to a single address! Somehow “oops” fails to capture the full magnitude of such an event.

    The insurance industry isn’t the only sector trying to figure out what they are going to do next. Banking, retail, manufacturers and even the federal government will be looking to find new sources for COBOL talent as the generational transition accelerates. As of 2015, 10k boomers achieve retirement eligibility daily, so the issue won’t resolve itself easily or quickly. This will be the pattern until 2029, so “hope is not a plan” may have never been a more appropriate sentiment.

    With such a competitive marketplace to find COBOL programmers what can you do? Three options immediately present themselves:

    1) Moving off big iron platforms dependent on COBOL, Assembler, VSAM and related technologies
    2) Finding COBOL programmers offshore
    3) Leveraging COBOL programs at local universities

    For many entities, the first option really isn’t feasible based on economic factors alone. The business case for converting old blocks of business can be weak at best, leading carriers to conclude that these systems will be running for the foreseeable future in tandem with more modern capabilities designed to handle new products, channels and priorities.

    The second and third options, however, can offer some immediate relief for these legacy programming needs. I’m pretty sure most people have a good handle on offshore providers, but some IT executives may not be familiar with the third option and I’d like to tell you more about it.

    Currently, I’m on the Advisory Board for the Computer Science and Engineering Department at North Carolina State University which provides some interesting visibility into both the demand and the development of new onshore resources. We are certainly seeing training programs emerge that are intended to restock some of the lost talent in this space. We are also seeing some fascinating collaborations between educational institutions, private enterprises and technology providers as they look to address gaps. One example of this is a collaboration between IBM, Blue Cross / Blue Shield of South Carolina and the University of South Carolina. BC/BS has the need, USC has the capacity to train and IBM has been an active participant in framing the curriculum and capabilities. Other examples are emerging as well which provide an opportunity to collaborate with either traditional colleges and universities as well as technical schools. Junior / community colleges may also provide some interesting options. We also understand that some companies are reverting to a tried and true technique deployed in the 1960’s: internal development programs to build new skills around aging technologies.

    At the end of the day, if the only tool a CIO has in their toolkit is a hammer, every problem looks like a nail. In this case, it is incumbent on CIO’s to develop a broader set of tools that can allow them to creatively and effectively build up the talent pool required to keep aging platforms and systems functional until such time as they can be retired. The reality for many mid-career CIO’s today is that these platforms may still be running after THEY retire, so considering the options sooner rather than later may minimize pain points.

    If you would like to learn more, or share your own experiences in this potentially mission critical area, please feel free to contact me at email.