News and Views Roundup: DOL Updates, Industrial IoT, Autonomous Vehicle Strategy, MetLife’s Spin-off

Rob McIsaac

Rob McIsaac on MetLife spinning off its retail unit.





Tom Benton

Tom Benton on HSB’s recent acquisition of industrial IoT startup Meshify.





Chuck Ruzicka

Chuck Ruzicka on the recent autonomous vehicle partnership between Allianz, Toyota, and BMW.





Rob McIsaac

Rob McIsaac on Merrill Lynch cutting commissions for IRAs in order to comply with the “client best interest” provision of the DOL ruling.





Mitch Wein

Mitch Wein on the potential for increased federal oversight of state workers’ compensation in light of a recent DOL report.

Hartford Steam Boiler Acquired Industrial IoT Startup Meshify

Tom Benton

As Internet of Things (IoT) devices and data become increasingly important for smart homes, smart buildings and smart facilities, insurers are considering how to leverage IoT for underwriting, loss prevention and claims. However, they face several challenges, among them the lack of standards for interfacing with IoT devices and platforms to take in the data and integrating the large volumes of data into analytics platforms to leverage the data. Hartford Steam Boiler (HSB) remains on the leading edge of IoT through their acquisition of Meshify this week, along with their investment in IoT startup Waygum last year. Meshify provides a cloud-based platform that “makes any device smart” along with tools for real-time monitoring, alerting and access to information through mobile applications. HSB and parent Munich Re consider the acquisition as a strengthening of their technical capabilities for providing innovation to their customers. Meshify’s capabilities will help HSB’s customers collect important data for risk reduction, but should also enable HSB to go beyond a value-added service for customers to better analyzing customer risk for underwriting and product pricing.

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

To Move Forward, Insurer CIOs Must Look Outward

Chuck Ruzicka

In our recent report on IT Budgets and Projects for 2016, CIOs cited their top challenges as IT operations, talent availability, and budgetary restrictions. How can you address, i.e. move forward on these issues? CIOs indicate that are looking outward and that they will be increasingly using cloud-based services and outsourcing to address these challenges.

Larger carriers project only modest increases in outsourcing. We have noticed over the course of the past few years that insurers are moving to embrace the use of blended/variable staffing rather than expanding traditional Application Development and Maintenance contracts. Outsourced infrastructure management and support services are waning in popularity as more insurers move applications to the cloud. Midsize carriers indicate that they are increasing their use of outsourcing. While these arrangements may seem challenging or uninitiated, services have matured and are not just for pioneers.

Carriers need to find the optimal level of outsourcing for themselves. Balancing cost and capacity benefits against their own abilities to manage external providers is crucial. Insurers who require more flexible cost structures may also consider moving towards variable or blended staffing models. This transfers some risk to the services provider but can reduce administrative overhead for both parties and establish more effective strategic partnerships.

Carriers should be evaluating strategic sourcing and outsourcing services on a regular basis. Remember to look outside for best practices and lessons learned to ease the transition.

Related Research:

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.

3.5%? Really?

Frank Petersmark

Having just returned from the annual PCI Technology Conference, it seems an appropriate time to reflect on some of the macro trends discussed. As is usually the case, it was packed with interesting and actionable content. It’s also one of the few conferences where the networking and perspectives exchanges amongst participants is as valuable as the sessions themselves. This year, among the usual pledges to do more with data and analytics, and to keep powering through those core systems transformations, there was one other theme that is worth noting.

In his annual update, Matt Josefowicz of Novarica provided some interesting data and perspectives on the forces propelling IT initiatives and their corresponding spend in the industry. However, the one that really caught my attention was a slide that Matt noted had not changed much, if at all, in at least the past ten years, and perhaps longer. And that was a graphic illustrating the amount of money insurance companies were spending on technology, as a percentage of direct written premium. That percentage was, is, and if you were an actuarial reviewing the trend line, will be, 3.5%.

Novarica PCI Tech Presentation 2015 Slide IT Budgets

Wait a minute. Based on the many discussions over the strategic importance of IT and technology to insurers, at this conference and over the past several years, it does not seem plausible that the investment amount has not increased. In fact, PCI featured a couple of excellent sessions wherein CIOs and their bosses – in this case a CEO and a COO – extolled the strategic import of technology in everything they were doing, and were planning on doing. They were preaching to the choir of course, but it doesn’t seem to align well with 3.5% investment statistic. Why should this be the case?

There may be many external factors, including macro market conditions, investment returns for insurers, underwriting profitability, etc. But I can’t help but believe that there may be another factor at play, as incongruous as it may sound, and that is that IT leaders, when it comes right down to it, still struggle at some level to effectively communicate the strategic value of IT that would justify additional strategic investments in technology and IT. It’s difficult to believe that would still be the case, but it’s also difficult to believe that the investment amount has not changed across this long time frame. If one didn’t know better, or hear the conversations in the PCI technology conference, one might simply look at that 3.5% investment over time as just another budget line item, like for real estate or office supplies. But that’s not the case, and it’s certainly not how some of those who make these investment decisions view the importance of technology, based on the many conference conversations over the past few years.

It seems for the 3.5% number to increase, IT leaders are going to have to become much better at communicating what they’re bringing to the table, and what that can do for the organization over the short and long term. That can be done, but it requires a different communications approach for many IT leaders when they meet with their executive steering committees and their boards. We have written recently on the importance of finding a common communications language that will resonate with an organization’s top decision makers. If the needle is ever going to move on the 3.5% investment number, this is the place to start.

I’ll be presenting my work in this are in a free webinar on Thursday, September 24, at 2:00pm EDT. Pre-register here .

Trends in Claims

Mitch Wein

According to Novarica’s 2015 US Insurer IT Budgets and Projects report, approximately 20-30% of insurers are replacing claims systems.

On Wednesday, May 28th at 2 pm (ET) I will be hosting a webinar, which will examine trends and issues in claims management systems, as well as review highlights from our Market Navigator report on leading claims vendors. Attendees of this webinar will also learn about:

  • Current market overview
  • Present state of claims system technologies
  • Advanced capabilities in claims
  • And more
Investments in Insurance Claims Technology 2015

Investments in Insurance Claims Technology 2015

Claims technology continues to play a crucial role in a carrier’s ability to differentiate, control costs, and deliver a consistent level of high service. Insurers continue to replace claims systems at a heavy pace. With the impact of mobile and social media starting to be felt as well, modern claims capabilities are a must for insurers.

To pre-register for this event, visit: https://attendee.gotowebinar.com/register/120108826

Core Transformation: Both Helping and Hindering Growth

Martina Conlon

At our 8th annual Novarica Insurance Technology Research Council Meeting, technology as both an enabler and an obstacle to growth came up at the Property/Casualty breakout session. Participants universally recognized that modern, flexible core systems are critical to support the business strategies to grow revenue (new products, modified products, new jurisdictions, etc.). Older brittle technology has been an obstacle for them all, but the complexity and challenges of building a quantitative business case has delayed funding a transformation effort for some. Few participants were able to gain funding approval on a positive ROI metric, instead business sponsorship and funding was gained through the more qualitative case that “this is table stakes to compete today”.

Others that have a core systems project in process reported that extended timeframe, excessive cost and all-consuming nature of transformation efforts have prevented them from implementing any other business changes and have effectively frozen their business strategy for the duration of the project. Many of their growth strategies and goals have been pushed down the road until the transformation is complete. But there was general agreement that the tactical hits and delays they are taking now are worth it in order to deliver a more flexible, strategic platform for the future.

If you’re interested in talking more about your Core Transformation efforts, please feel free to email me to set up a complimentary 30 minute consultation.

Related Reports

Related Blogs

Upcoming Novarica Insurance Technology Research Council Meetings
The Novarica Insurance Technology Research Council is a free, moderated knowledge-sharing community of nearly 400 insurer CIO members. Members represent a cross-section of property/casualty, life/annuity, and health insurers, and range from the very small to the largest companies in the industry. Some of our upcoming 2015 events include:

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.

New IT Benchmark Research Highlights Areas of Concern and Provides Insights on Spending and Budgeting Decisions

Matthew Josefowicz

External benchmarking data is an important tool for insurer CIOs in both self-assessment and communication with senior business management. Benchmarking data can provide critical support for spending and budgeting decisions, as well as highlight potential areas of concern.

Novarica’s new Quick IT Benchmarks for Insurers is based on 69 responses from the Novarica Insurance Technology Research Council and highlights key issues to consider when benchmarking. A few notable statistics from this report include:

  • Insurers spend 20% of their IT budgets on maintenance fees for hardware and software they already own, nearly twice as much as they spend on new hardware and software.
  • Insurers spend half their IT budgets on running the business, about 30% on growing the business, and only 20% on transforming the business.
  • About half of large insurers and less than 10% of midsize insurers have IT staffs that are mostly outsourced.
  • The average number of IT staff per enterprise application ranges from about 3 to 6.
Average Budget Breakdowns for Insurers in 2015

Average Budget Breakdowns for Insurers in 2015

In addition to the report’s findings, what makes this report significant is our “Supply and Demand” approach to IT assessment. Rather than focus exclusively on spending levels, our report contextualizes spending levels (Supply) against company size, new project volume, and current state of the organization, technology infrastructure, and product volume and complexity (Demand). This approach allows insurers to look at IT spending in a valuable new way. Benchmarking data is presented and understood within the context of the variation between peer circumstances and business needs.

On Tuesday, April 21st at 2 pm (ET) Matthew Josefowicz, President & CEO, Novarica will host a free webinar to discuss findings from this research. Interested participants should pre-register at: https://attendee.gotowebinar.com/register/120108378

A free summary of this report is available at: http://novarica.com/quick-it-benchmarks-for-insurers-2015/