EIS and Guidewire Awarded “AWS Financial Services Competency” as the Migration to the Cloud Picks Up Steam

Rob McIsaac

This week marked a very interesting development involving Amazon and two core systems vendors focused on PAS and adjacent capabilities supporting different lines of business, as both EIS and Guidewire were awarded Amazon’s “AWS Financial Services Competency”. Cloud computing continues to make significant strides in taking on key workloads for carriers, irrespective of size and line-of-business focus. Once approached cautiously because of concerns over things like security, when compared with traditional deployment methods, the cloud provider space has significantly matured in recent years. Today security, which was once considered to be an Achilles’ heel for cloud providers, is now considered to be one of the strengths for top-tier service providers. Many CIO’s now understand that the security that a provider like Amazon, Microsoft or Google (to name three) can deliver is better than what is available via company-owned facilities. To test this, and build organizational comfort and support for cloud-based solutions, carriers increasingly have moved key workloads such as email, HR platforms, CRM solutions and financial systems to cloud offerings. In fact, during recent Special Interest Group sessions (sample summary here) Novarica hosted with carriers from widely different lines of business, one of the comments that insurance CIO’s repeatedly offered was that it is getting increasingly difficult to procure non-cloud-based solution sets from companies like Oracle and Microsoft. The push is on to move ever more complex and mission critical offerings to the cloud.

Up to this point, there have been somewhat limited deployments of PAS suites in this space, such as Liberty Mutual Benefits’ recent and notable decision to move forward with an EIS deployment on Amazon Web Services. Which brings us to this week’s news about EIS and Guidewire. As the press releases noted, this is a differentiating event for these companies which should have carriers and competitor software solution providers taking note. While these two firms represent the start of something new, for properly architected solutions, we expect that this type of certification will be increasingly important. Given the increase desire of carrier CIO’s to leverage cloud-based computing, the certifications can be not only a means of achieving greater confidence in a particular solution’s ability to support their needs, but may also become a key differentiator when weighing alternatives for carrying specific workloads.

We’ve already seen a range of insurance applications, including underwriting workbenches and claims platforms, move to being delivered only as cloud offerings (e.g., ClaimVantage for Life, Disability and Absence claims). Having PAS suites join the mix of options is likely to be welcomed by many CIO’s and their teams as they move forward with key transformation events in their organizations.

Agent Acceptance of Core System Changes

Chuck Ruzicka

Carriers should expect some agent skepticism whenever they announce the intent to modernize or replace their core systems, and proactively take steps to improve the acceptance of their proposed changes. Most independent agents have moved books of business to new systems. This movement temporarily causes additional work for the agency and can be very disruptive. Agent acceptance of a modern core PAS system, and the related processes and products, is critical to the success of major transformation projects for those carriers in the independent agent channel. Most carriers expect new business submissions to increase as a result of their transformation project and include this assumption in their cost benefit assumptions.

Discussions with carriers reveal differing success rates that appear to be independent of the solution vendor chosen and the choice of Portal component. Some carriers have been very successful extending a variety of core systems directly to agents, and some modern Portal implementations have been unsuccessful. Results can be mixed with the same solution provider, with one carrier getting very positive feedback from agents and other carriers getting negative feedback. Clearly in this case, there are other factors impacting acceptance rates than the choice of core system. So what are the most important factors in determining agent acceptance of a business transformation solution?

Here’s what we recommend:

Separate disruption caused by product and underwriting changes from the impact of new work flows and systems. A company that can’t implement product changes due to legacy system limitations often has a book which reflects adverse selection. A good example might be the average credit scores for a given customer’s base when compared to the average population. Incorporating credit into underwriting guidelines for the first time to address loss ratio concerns will be disruptive from an agent’s perspective regardless of what system it is implemented on. Carriers may consider easing in new factors to reduce disruption rather than fully taking all the required rate indicated by actuarial analysis. Proactive communication of product changes separate from system announcements, as well as clarifying market appetite and offering new products, helps to offset this disruption.

Focus on user experience from an Agent perspective. Engage user experience experts in design and review of the critical functions within a core suite solution. Small companies have demonstrated the effectiveness of just having one or two people designated as having this responsibility or focus. Outside services are readily available. Minimize the number of questions asked during application process by leveraging third party data sources and challenging the value of each and every question asked. Involve Selected agents or customer service representatives (who will actually use the system) in prioritizing functionality and review of early designs and business process.

Don’t communicate unrealistic or premature target dates. Agents often put pressure on carriers to deliver new products quickly. However, they would much rather have a quality implementation and smooth conversion than deal with customer or performance issues. Agents do not like uncertainty. Planning to move business only to have it delayed undermines credibility and irritates the agents.

Pilot all implementations with subset of the targeted population. Pilots should be actively monitored and support teams should be fully engaged in responding to feedback. Too often firms conduct pilots without having a mechanism for obtaining feedback or allowing adequate time to respond to suggested changes. Listen and respond without rushing changes to production. Changes must be implemented with quality and reflect the opinions of a broad audience, not just one user.

Execute. In addition to configuring functionality correctly, carriers must allow adequate time for testing of both the external facing capabilities of the new system as well as the processes for supporting and responding to questions and submissions. Testers should have various levels of technical knowledge and should utilize multiple browsers and access functionality from multiple points within the system.

Create communication plans stressing the benefits of the new system from an agent’s perspective. Ease-of-use, Real time policy issuance, shorter underwritings cycles, and limiting agent entry before knock out rules are invoked all benefit the agent.

Make sure that the project team understands the importance of agent acceptance, defining scope of releases and prioritizing features with this in mind.

Make the above items part of your culture. Once a base Portal or external facing functionality is implemented, keep the focus on User experience, implement incremental changes and pilot changes using A/B testing techniques.

Applying these principles will improve agent acceptance and will benefit the agent, the consumer and the carrier.

Results, Regs, and Rates

Source: NYTimes.com 11/9/16

Matthew Josefowicz

Well, a few things certainly look different this morning. Here’s some quick thoughts for insurance technology strategists in light of the coming Republican administration and congressional majority.

1. Stop worrying about the DOL. A Republican administration is likely to reverse the pending DOL regs requiring investment product salespeople to act as customer fiduciaries. While this may still happen long-term, it’s unlikely to be implemented in the next two years.

2. Start worrying about healthcare again. However flawed the ACA may have been in the industry’s eyes, at least it was a known quantity. With the incoming administration’s plans to “repeal and replace” facing no opposition, everything may be up for grabs again.

3. Start worrying more about the states. With Federal regulations likely to be eased over the next few years, powerful regulators in democratic-leaning states are likely to get more aggressive. New York’s proposed cyber-security regulations may be just the beginning.

4. Keep worrying about interest rates. While the incoming administration has said they favor higher interest rates, market uncertainty, a global low interest environment, a rhetorical focus on jobs creation, and a Fed chair whose term lasts until 2018 may indicate that the current ultra-low interest rates will continue for the next few years at least. Insurers will remain in the double-bind of being resource strapped while badly needing to invest in new capabilities.

Life in the Cloud is Now a Reality

Rob McIsaac

One of the more rapidly developing issue areas in the portfolio of items facing IT organizations is how and when to best leverage cloud-based services. Many carriers have moved important (but non-production) work loads into cloud based options, including both application development and testing. This has given carriers the opportunity to try the services out on important work, even while grappling with some of the more daunting issue areas related to establishing guidelines for using cloud based resources; the most common issue area CIOs and their teams need to address is security. Of course, for many carriers, as they explore top tier cloud providers (e.g., Amazon, Microsoft, Google, etc.) more deeply, they actually find that the security they offer can exceed what is associated with a carrier-managed environment. Armed with this insight, more carriers are moving mission critical workloads into cloud based offerings for an ever-increasing list of functions including email platforms, HR solutions, financial systems, claims processing and underwriting. At our recent special interest group meeting for Group/Voluntary Benefits carriers we noted the degree to which cloud based solutions were not only gaining traction but were looking increasingly attractive to carriers in this space. That all provides a good backdrop for this week’s story highlighting Liberty Mutual Benefits’ successful implementation of a core systems suite based on Amazon’s AWS offering. We fully expect to see this type of deployment gain greater traction in 2017 for a variety of reasons. We’re a long way from wondering if security issues can be “solved”. In the future, it is not likely that “running a corporate data center effectively” will be one of the IT skill sets that will create competitive differentiation for insurance carriers. Yet another example of the future already being here…but not evenly distributed.

Insurers Need to Focus on Time to Value for Core System Replacements

Jeff Goldberg

Insurance core systems are not going to last thirty years anymore. That’s one of Novarica’s key messages about core system replacement. The pace of change, as always, is increasing, and a system an insurer puts in place today will have a lifespan of about ten years. Sometimes systems stick around longer than their actual lifespan–as a platform for legacy data or as a system that’s been offloaded to a BPO–but the new policies and claims will be flowing elsewhere.

At the same time, the time to implement new core systems has been increasing. Modern core systems have made huge improvements: they are configurable, have open architectures, accessible data, and help drive best practices at an organization. Unfortunately, insurers are spending years putting them into production. On average, mid-size insurers take 2-4 years (if not longer) for a complete implementation of all lines and states. These long timelines are partially driven by insurers looking to take a slow rollout approach to minimize risk. It’s also because insurers take too much advantage of the flexibility in configurable modern solutions.

Whatever the reason for these long timelines, it’s made more alarming when one considers the lifespan of the system. A system that will last ten years takes 4 years to implement? That means an insurer spends almost half the system’s lifespan putting it into production! This is not a sustainable trend.

What should an insurer looking to replace a core system do about this?

  1. Focus on reducing implementation timelines with the vendor. Push them for reasonable but aggressive milestones, but remain skeptical unless they’ve proven those timelines with other clients.
  2. Look at time-to-value. Understand the difference between getting everything into production and getting something of value. Even if there’s a longer timeline for the whole project, an insurer should be live and seeing real results early on in the implementation.
  3. Accept the system’s built-in best practices. Any time the team considers configuring the system away from its out-of-the-box behavior, someone should be pushing back and asking whether that change is really necessary.

There is some good news. When an insurer chooses a new core system, the goal isn’t just to find the best system for today but the best system going forward. A vendor will continue to improve and expand their offering, so understanding the product roadmap is just as important as understanding the current feature set. It’s the insurer’s job to work with the vendor to take frequent upgrades and keep the system up-to-date.

If an insurer follows the upgrade path, putting the time and resources into continual modernization, that means in ten years’ time the system they put in place today will hopefully have evolved and grown into a new system that reflects the latest trends and technology. So a ten-year lifespan doesn’t necessarily mean that an insurer will need to start a brand new vendor selection and replacement project. The new system in ten years might be with the same vendor they started. On the other hand, if the insurers hasn’t kept up-to-date, then they will find themselves running the next legacy system. The cost of upgrade will have grown so expensive that it’s as expensive as bringing on a brand new system. So either the insurer puts the time and resources into upgrading all along or they put that into another system replacement project in ten years.

This means an insurer looking to replace a core system should follow one more rule:

    4.Talk to the vendor about their upgrades and how to start on the right upgrade path early and often. If the overall implementation timeline is more than a year, then the insurer should go through at least one upgrade before that initial project is even complete.

As an industry we need to focus on getting a faster time to value for core system replacement projects. But we should also be making sure the systems we put in place today don’t become legacy before the system is even live.

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…

Slide10

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

Slide19

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.

Slide22

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
  • 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

    It’s About Time for a New Board Committee

    Frank Petersmark

    Most IT leaders have experience with the various committees that are part of a company’s Board of Directors structure. It’s common for IT leaders to have to report to a board audit committee on security or other issues, or to a board finance committee as a prelude to asking for a large IT investment. Besides those two committees, many boards have several other committees, including ones for compensation, legal, nominating, governance, and sometimes even one for enterprise risk management, which is usually more focused on financial risks than anything else. What most boards don’t have, though, is a committee that focuses on what many now believe to be the most impactful company function of all – technology.

    That seems short sighted and odd at best, and something else perhaps at worst. In nearly all of the current research and surveys of business executives, including Novarica’s, technology is nearly universally identified as the driving force in the company, for better or worse. Most business executives seem to believe that the very future of their company – its product portfolio, market position, and overall profitability – depends on the company’s ability to effectively master and leverage the right technologies for their business. That begs the question of why more companies do not have standing, board of director level technology committees to oversee nothing less than the future of the company.

    Part of that answer might lie in the fact that old habits die hard, and traditionally that kind of board committee has just never existed. It might also be the case that many companies have IT executive or steering committees already established. Those are generally comprised of the CIO and/or other IT leaders, business function executives, and maybe a sitting board member. However, neither of these are enough of a reason for companies and their boards to ignore establishing this critical function at the highest management and oversight level of the company. In fact, companies who don’t strongly consider the establishment of a board technology committee may soon find themselves at a serious competitive disadvantage.

    And why should be this be so?

    First, the technology investments that most companies consider and ultimately make, certainly rise to a level of materiality so that direct oversight is required. It also makes sense to have technology investments considered independently from the board’s finance committee, whose purview is the entire company, but whose membership often lacks the experience and perspective required for important technology investments.

    Second, the potential for resource impacts across the entire company as a result of technology initiatives certainly rises to the level of materiality where direct and knowledgeable oversight is warranted. Consider the recent trend of core systems modernization occurring at most insurers over the past several years. Often the most under-considered part of these initiatives is the widespread impact they have on resources in almost all of the functional areas of a company. This causes, among other things, resource conflicts and tensions that often lead to diminished productivity and customer facing impacts.

    Third, most technology efforts are not about the technology ultimately, but are about the process impacts on the organization. Sticking with the core systems modernization example, new systems often replace decades’ worth of functional processes – and the cultural biases that have evolved with them – and the degree to which employees and customers are willing and able to adapt to the new processes has a major impact on a company in the short and long term. That is the definition of materiality.
    Fourth, nearly all technology initiatives nowadays are somehow related to market competitiveness. Whether the technology enables mobility to improve customer acquisition and retention, or improves processes for efficiency, or allows for the rapid development and implementation of new products, or enabling the levers required to turn information into action, it has an impact on the company’s ability to compete in their marketplace. Once again, that’s materiality.

    For all of these reasons and more, it is actually past time for companies to implement a technology focused board committee. The fact that it exists at very few companies in the industry only means that the industry, survey responses to the contrary, has not really made the executive management connection to the materiality and impact of technology, as other industries clearly have. That sounds like an opportunity for some insurers to get a jump on the competition.

    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.