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.


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

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.


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.


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.

Where will insurance disruption come from? Erik Wahl may have an answer…

Tom Benton

At the NAMIC opening keynote this year, Erik Wahl impressed the attendees with his graffiti art and thought provoking message – how we need to Unthink (title of his book) and unleash our creativity.

Wahl encouraged the attendees to think differently, going back to the creativity we displayed younger in life, but that has been minimized as creative abilities atrophy while we learn to limit our answers to one best practice or one “right” answer. We learn to avoid risk and go with what we find most comfortable. Wahl illustrated his points by painting portraits of Lincoln, the Statue of Liberty, then finally unveiling a portrait of Albert Einstein by turning his final creation upside down.

For some time there has been concern that disruption will only come from outside of our industry. The argument usually includes the thought that insurance executives and “forward thinkers” are only capable of incremental improvements, and they are so risk-averse in their thinking that transformative changes will only come from outside the industry from innovators like Google, Apple, Facebook or Amazon. It’s generally accepted that those “big four” are the only companies that have the resources and innovative thinking required to change a risk averse industry.

Wahl encouraged the attendees to step back and look at the industry in a new way, taking the creativity we knew as our younger selves and apply that to our industry. After all, every kindergartner believes he or she can draw, but by the time we reach the end of our education Wahl claims only 8 to 10 percent of us believe it. He challenged industry leaders to not fear failure, but look to expand and contract opportunities to consider new ideas rather than get stuck in a laser focus on what we know – and that failure is a matter of opportunities and not of loss, limits or weakness.

He compared our fear of failure to learning to paint. While the vast majority of us would say we cannot draw, Wahl asserts that being an artist is a practiced and disciplined skill – that we can learn to be creative and innovative through the same practice and discipline that artists apply to their craft. The message then is that we can create innovative solutions in insurance without facing disruption from outside the industry.

This is a radical thought for an industry struggling with how to define itself in terms of new customer engagement expectations in the new “social, mobile and connected” world. Wahl spoke passionately about connecting with our customers emotionally, and illustrated this connection through his art.

While we’ve been watching for disruption from outside the industry, Wahl tells us that we need to look within to consider how to better connect with our customer emotionally and “unthink” our long-developed risk aversion and return to creative thinking and solutions. If Wahl is right, we may already have what we need to innovate and disrupt the industry, and won’t have to wait and watch those outside the industry lead that disruption.

What do you think? Can the industry learn to innovate, by looking at the issues differently and in a practiced, disciplined way? Or will disruption come from outside the industry and leave traditional insurers behind? Contact me if you’d like to talk about innovation and how to use Wahl’s thoughts to enable disruption within your company.

Hello from NAMIC – San Diego

Tom Benton

This week I’m attending the NAMIC Annual Convention in San Diego. NAMIC expects this year’s Convention to include over 2000 attendees from over 250 Property and Casualty Mutual companies from the United States and Canada, along with a large number of vendors serving this market. This year marks the 120th anniversary of the organization, which represents the interests of mutual companies through advocacy and other services provided by the national organization and in state chapters.

Many of the Mutual companies that are part of NAMIC are small carriers, insuring farms or other properties and equipment in rural communities, with a few larger national companies. From the discussions I’ve had with various mutual executives since arriving here yesterday, there are a few common issues that they are facing:

  • IT Strategy – many need to determine a strategy to update technology to meet the increasing demands of customers, including the increased use of independent agents by many mutual insurers.
  • Regulatory concerns – smaller insurers in general are facing issues keeping processes and systems up to date with current regulation changes, and potential changes from congressional pressure being placed on federal agencies in response to international regulatory changes.
  • Reinsurance needs – many mutuals are dependent on reinsurers due to lack of capital, but feel somewhat restricted in terms of product changes and supporting their customer base.

In general, I’m hearing many of the same technology challenges as other small carriers I’ve talked with in the last few months.  For more on challenges and best practices at small carriers, see my webinar recording on Novarica’s website.

The NAMIC Annual Convention has a different atmosphere than many conferences I’ve attended – this is a very important event to mutuals and is attended by many CEOs/Presidents along with representatives from their Boards of Directors.  There is a high level of engagement on the vendor floor as these executives and their key stakeholders look to technology and services to better meet the needs of their organizations.  The keynote presentation on Monday by Erik Wahl was very different… more on that in another blog post soon.

Maturing Slowly but Surely…

Thuy Osman

In 2010 the insurance industry in Latin America was in the early growth stage. There was limited IT infrastructure and technology maturity level was low. The main vendors in the space were local providers. Yet, given the obstacle of the foreign and developing landscape, Latin America was an attractive market because the region was experiencing a sustained period of strong economic growth compared to the relatively static growth in the more developed markets.

Fast forward five years and the economic growth rate that was attracting insurers and software vendors to the market is no longer the main focus. In fact, economic growth actually slowed in Latin America in the last few years. But, although the growth rate has leveled off, a long period of growth created an expansion of the consumer classes, along with an increase in disposal income, and hence, a higher demand for insurance products. To meet the growing demand, carriers are slowly evaluating their technology environment and thinking about how they can better attract, service, and retain their customers to remain competitive.

Global carriers are expanding their business in Latin America and bringing their software providers from matured markets to the region to work on projects such as CRM, analytics, digital capabilities, and in some cases core systems. The presence of these international vendors adds experience, expertise, and availability of mature software options to the market. Instead of an environment where all development is done internally, or done by local providers, companies are increasingly outsourcing their application development and maintenance to international vendors from matured markets.

So, even though economic growth prospects in 2015 are not as attractive as they were in 2010, the market for insurance and insurance software in Latin America has gotten more interesting and will only become even more so in the years to come.

For more detail, see our new Executive Brief,”Latin American Insurance: Market and Technology Issues”.

Up-to-date Agent Portals: Table Stakes, Not Differentiators for Carriers

Steven Kaye

Half of insurers are planning to replace or significantly enhance their agent portals. While vended solutions are correspondingly gaining complexity and strength, many carriers still use homegrown systems.

The use of agent portals, although near ubiquitous, is also uneven. Specialty lines, as well as some of the more complex commercial lines, lag behind their more straightforward counterparts in transactional capabilities, but have been innovative in using agent portals for education and outreach to potential customers.

In this environment, it’s no surprise that many insurers count enhancement or replacement of agent portals as top priorities for upcoming IT projects. Interestingly, this percentage is approximately double the percentage of respondents who believed their current systems were “poor’ or “very poor,” leading one to assume that up-to-date agent portals are quickly being viewed as table stakes, rather than competitive differentiators.

For more, see our new report, Business and Technology Trends: Agent Portals.

The future has arrived for insurance, but have insurers arrived in the future?

Matthew Josefowicz

The good news from the recent PCI Tech Conference is that futurists like Vivek Wadhwa give the insurance industry at least three to five years before it is disrupted beyond recognition by data, analytics, the internet of things, self-driving cars, 3D printing, hyper-aggressive technology companies, and essentially free energy.

The bad news is, many large insurers are still planning five year technology transformation initiatives to shed their legacy burdens and take advantage of today’s technology.

Insurer CIOs understand the challenge. They need to mitigate the effects of yesterday’s inheritances. They need to address today’s business needs, and they need to prepare the organization for tomorrow. They need a deep understanding of all three timelines, and the ability to help others understand.

This requires a new set of skills and new kinds of relationships. As one speaker put it, CIOs need to be communicators and story tellers as well as effective managers. They need visionary business executive partners who are willing to embrace the opportunities that technology creates in their ability to deliver innovative products to changing markets. CIOs also need technology partners who will not just deliver today’s solutions but co-evolve with them to meet tomorrow’s challenges.

“I will invest in any technology initiative that increases our agility,” said one insurer CEO who understands. But far too many CEOs are still at a loss as to how to quantify the value of technology and continue to manage their technology investments as if spending more than 5% of premium on IT were a greater sin than letting the future pass them by.

Meanwhile, while the conference was in session, Google Ventures announced an investment in innovative health insurer Oscar. The clock is ticking in insurance, and it’s not counting down anymore. It’s counting forward.

Emerging Cyber Threats

Mitch Wein

I recently attended the IASA Mid-Atlantic conference in Atlantic City. This conference had a lot of business people from insurance, particularly from areas like regulatory reporting, accounting, audit and legal. Many topics that you would expect like GAAP and tax reporting, Economic Outlook for 2015, reporting under the Affordable Car Act were covered.

However, what was notable for a conference with almost no IT people was that almost half of the discussions were about cyber-security and cyber risk management. Acting as a communication vehicle to the board, the NAIC cyber security principles, emerging compliance coming from NAIC and FINRA requirements, user behavioral analytics and even security war games were covered.

The FBI did an excellent briefing on the type of cyber threats there are as well as the scam patterns that have emerged in recent years. This covered areas addressed by their Cyber division including infrastructure defense, nation state attacks, hacktivism, espionage and terrorism coordination through social media. This also covered the scam areas addressed by their criminal investigation division including the counterfeit check scam which targets attorney’s and CPA’s, the account takeover scam targeting business and individuals after personal information compromise, and business email compromise targeting businesses working with foreign suppliers and/or performing wire transfers.

We have written before about the importance of cyber security especially as insurers transition to a digital future and retaining insured and agent trust. It was obvious to me that every business person in insurance needs to understand cyber security and what they need to do relative to their job functions and roles. Every insurance company is now a combatant in a war against criminals and terrorists. This is the new normal.

Note: I’ll be presenting my recent work on IT Security Frameworks for Insurers on a free webinar on Sept 30 at 2pm. Pre-register here.

Related Research

IT Security Frameworks: NIST and SSE-CCM
IT Security Issues Update