News and Views: Predictive Analytics, Mobile for Claims, Blockchain, Distribution Startup

Novarica’s team comments on recent insurance and technology news

Predictive analytics reduces risk in Workers’ comp.

Jeff Goldberg

Novarica Comment by Jeff Goldberg, VP of Research and Consulting: “Workers’ comp carriers are prone to high claims associated with complex injuries and medical handling, and also frequent claims fraud. So any technology that reduces the risk and uncertainty associated with claims is going to be enthusiastically embraced by carriers in this line. Predictive analytics solutions are being used to predict claims severity, to increase reserving accuracy, and identify fraudulent activity. While most insurers have not fully adopted predictive modelling, it has the potential to become a centerpiece of data strategy.” Novarica will be publishing a Novarica Market Navigator™ report on predictive analytics solutions in the coming week. For more Novarica vendor analysis, see http://novarica.com/vendor-analysis/.

Two insurers have started to use IBM MobileFirst for claims handling – Amica in the US, and RIMAC in Peru.

Chuck Ruzicka

Novarica Comment by Chuck Ruzicka, VP of Research and Consulting: “Amica’s adoption of IBM’s MobileFirst claims app is a timely reminder that it’s not just policyholders who are affected by a carrier’s technology choices, but staff as well. Creating a richer mobile workflow for claims adjusters isn’t just going to improve adjuster productivity or the customer experience for policyholders, important though these are. Amica is explicitly doing this in part to match the way the millenials entering the workforce are used to interacting with technology, and ensure they are able to recruit and retain a younger generation of claims adjusters.”The “Novarica New Normal for P/C Insurers” benchmarking study found that 20% of large PC insurers have some mobile field adjuster app deployed today, and another 30% have current or planned pilots.

SAP will start integrating with Blockchain.

Mitch Wein

Novarica Comment by Mitch Wein, VP of Research and Consulting: “We have previously suggested that blockchain distributed ledgers could allow for claims settlement where an uninterested third party provides key data that can be used to trigger a claims payout. SAP, as part of its new blockchain strategy, is doing just that, designing a system for farmers’ weather insurance that would pull rainfall data from sensors in the field (or perhaps the weather service), then automatically inform insurers if there’s a drought that would trigger a payout. If SAP successfully integrates blockchain with HANA, insurers could start storing key transaction and GL activity in this format, potentially creating an unprecedented level of straight-through processing. This is a clear signal that use of blockchains in insurance is only going to become more widespread.” More from Novarica on Blockchain.

The CEO of Principal Financial estimates the price of the DOL Fiduciary Rule Change to be $1 Million per month, and some analysts believe the ruling could set indexed annuity growth back by a year.

Rob McIsaac

Novarica Comment by Rob McIsaac, SVP of Research and Consulting: “Carriers and distributors alike continue to prepare for the significant changes that the DOL Fiduciary ruling will bring to the annuity business in 2017. For carriers, as reflected by Principal Financial’s comments, there may be significant business process and technical changes that will be required to meet the needs of their broker dealer and other distribution partners. One of the key issues facing many companies now is getting clear business requirements from distributors, a particularly daunting challenge since many distributors want to have any changes impacting compensation and recognition programs in place by the end of 2016.

One might suspect that the adverse impact of the rule changes could actually be more significant on the indexed products than it will be on their variable annuity counterparts. For registered products, the broker dealer infrastructure and compliance capabilities provide a framework for managing rule changes as defined by the DOL. For many producers who are not securities licensed and therefore not affiliated with a retail BD, the implications of the rule could be far more significant. Some manufacturers are beginning to contemplate how they could step in to take on the Fiduciary responsibilities associated with the rule changes, but it is too early to know at this date how, or even if, that would be implemented. This could have a further dampening issue on sales for these products in the new year.” More from Novarica on the DOL ruling.

A former executive at a disruptive insurance distribution startup has founded a slightly less disruptive insurance distribution startup, with MassMutual among the investors.

Steven Kaye

Novarica Comment by Steven Kaye, Associate VP of Research: “Through its funding of Apliant, MassMutual not only gets to shape the future of distribution, but has the potential to make itself more attractive to independent agents by offering a distinctive technology platform. Novarica has said there will continue to be a place for agents in insurance distribution, and the more promising distribution startups empower agents to provide better service. As we keep saying, ‘cyborgs beat robots.’”More from Novarica on VC funds and accelerators.

These are not the droids you’re looking for…

Matthew Josefowicz

According to FinTech marketers, the “robots” are coming. Robo-Advisors will help clients optimize their investments, and Robotic Automation will remove cost from cumbersome back-end processes.

But we’re not talking about C-3PO working in a call center. Robo-Advisors means improved analytics, better customer self-service, and automated rebalancing of portfolios to align with pre-set customer goals or company-determined algorithms. Robotic Automation means using screen scraping, rules engines, machine learning, and scripting to integrate poorly automated processes without re-engineering client-based software.

All of which is fine, but using the term “robots” to describe it just makes it harder for customers and executives to understand what’s really going on.

Notably, the biggest “Robo-Advisor” firms don’t use that term in their marketing. They know it doesn’t have anything to do with customer benefits, it just describes their delivery methodology. Services firms that offer Robotic Automation should follow their lead. Like the insurers they serve, services providers need to change their mindset and think Outside-In.

Insurance Tech Trends 2016: SaaS & Mobile Go Mainstream, Big Data Tech Grows (for “Medium Data” challenges)

Matthew Josefowicz

We recently published our 3rd annual look at “Hot Topics” in insurance IT: social, mobile, analytics, cloud, big data, and digital.
I’ll be presenting this study in a webinar next week on January 20th. You can pre-register here to attend.

These six areas share two main characteristics:

  1. They enable potentially disruptive changes in one of more areas of the insurance value chain or traditional company operating models
  2. They are still discussed more than they are embraced or understood

Other than that, they share little in common, despite the fact that they are often lumped together. They cross consumer media and communications (Social), technology platforms (Mobile and Cloud), tools (Analytics some parts of Big Data), and strategy (Digital). While they are sometimes called “emerging” technology areas, many of them are fairly well-established, at least in other industries.

As the chart below shows, there has been significant growth in several of these areas since our first study in 2014
htimage

Of particular note is the growth in use of Big Data technologies. But rather than using these technologies to analyze external big data sets, many insurers are leveraging their capabilities to analyze their own enterprise data, or what is now being called “medium data.”

The report paints a clear picture of the emergence of haves and have-nots in usage of modern technologies. These areas are rapidly losing their specialness and becoming mainstream. But a significant number of insurers have yet to apply them to their businesses.

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Four Obstacles Annuity Providers are Facing in 2015

Mitch Wein

Recently Novarica hosted a Special Interest Group Meeting in Boston for Annuity providers. The meeting was well attended with four key themes emerging:

  • Product Time to Market
  • Straight-Through-Processing and Related Issues around NIGO
  • Electronic Signatures
  • Security

The executives in attendance were looking at how technology can solve problems and enable capabilities. What struck me was the paradox of technology providing better and better ways to reach the customer, while at the same time introducing new issues that didn’t exist earlier. One participant noted that “Annuities are sold, not brought”. This comment provided insight into this area of insurance and why it is unlike other area. Clearly the customer and agent experiences are very important. How analytics and mobile can help is still being explored by the carriers.

Another area of keen importance is the product itself and the ability to modify or introduce new products quickly. We talked about innovations that are on the horizon, especially around customized product offerings that can be assembled in real time out of product features that have already received regulatory approval. Yet, today’s existing legacy systems can’t support these types of time to market innovations. A third area of importance is the ease of doing business for the agent & broker. E-app, illustration and e-signature have been deployed to facilitate straight-through-processing but in the non-captive third party distribution channels, the effectiveness has been more limited. Security is the overlay on top of everything. Carriers feel they are in a good position but noted breaches in firms like Target and Home Depot indicated that what they perceive may not be accurate. We talked about ethical hacking and proactive penetration testing as mechanisms to validate assumptions. All-in-all a terrific an interesting session.

Our next special interest group will be taking place June 25th in Boston, MA. This meeting will be geared towards Regional P/C carriers. If you or a colleague would like to attend, please feel free contact me at email.

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Seven Key Findings About the Group Life/Annuity/Voluntary Benefits Sector

Rob McIsaac

With plan sponsors becoming increasingly price-conscious, the group life, annuities and voluntary benefits sector is turning to technology to help them attract, retain and profitably serve clients. Across the industry, insurers continue to make investments spanning the Novarica Insurance Core Systems Map.

Group Life Annuity & Benefits Heat Map

Novarica has identified seven key findings in its Business and Technology Trends: Group Life/Annuity/Voluntary Benefits report. If you’re not familiar with this report, it provides and overview of group benefit providers’ business and technology issues, data about the marketplace and 57 recent examples of technology investments by group benefit providers.

Key Findings

1) Top technology initiatives for group and voluntary insurers include agent and customer portals (including enrollment) and core policy administration, including benefits administration. The need for effective sales and marketing tools across multiple channels is key to drive enrollment, and robust flexible group administration is also vital. Carriers are opting for incremental upgrades over “big bang” core system transformations. Vendors must grow their understanding of individual markets, as well as the linkages between billing and enrollment.

2) True sales growth is a challenge in group business, with much activity consisting of carriers trading business or increases in group term life face amounts rather than cases or lives covered. Group annuities reportedly also saw declining sales. At least one carrier is experimenting with offering cheaper long-term care insurance coverage for lower benefits in an attempt to drive uptake.

3) Private exchanges are emerging as a new distribution channel for voluntary products, though enrollment is modest to date. The need for brokers to make up for caps on commissions and high deductibles for traditional health coverage may lead to more activity in this arena.

4) Group annuity contracts are seeing increased interest as some carriers are offering US employers the chance to offload some or all of their defined benefit plan liabilities in exchange for purchasing group annuity contracts.

5) Lower priority technology initiatives include billing, BI, claims, CRM, distribution management, document creation and management, rating, underwriting workstations, and specialized components. While lower priority, many of these components can contribute both cost savings as well as more efficient handling of transactions and payments. The lower priority of investment in BI should not be read as an indictment of its potential, as plan sponsor reporting and analytics capabilities, the ability to analyze participation, and understanding channel and producer productivity and profitability remain important.

6) Mobile devices continue to make inroads. Both members and plan sponsors see benefits, such as the ability to submit claims or view policy information.

7) Critical success factors for carriers continue to be sound product design; better tools for enrollment, marketing and sales to individuals; powerful and adaptable administration systems; marketing and sales across multiple channels, and continuing improvement of administrative systems to drive cost savings and efficiency.

With customer expectations changing across the industry, driven by changes in the technology ecosystem within the industry and across the economy, insurers need to plan to incorporate these paradigm shifts into their business and technology strategies for 2015. Or else plan to be taken by surprise! If you have any questions or comments, please feel free to send me a note at email.

Ten Statistics About Social Media, Mobile, Analytics, Big Data, Cloud and Digital Technologies in Insurance for 2015

Matthew Josefowicz

It can be hard for Property & Casualty and Life/Annuity insurers to sort the hype from reality when it comes to areas like social media, mobile, analytics, big data, cloud, and digital capabilities.

Recently, Novarica released its “Hot Topics” report which is designed to show adoption rates and provide insurance carriers with insights on six “hot topic” areas: social media, mobile, analytics, big data, cloud and digital. This report is based on a snap poll conducted in November 2014 of 90 members of the Novarica Insurance Technology Research Council, a moderated knowledge-sharing community of insurer CIOs and senior IT executives.

Deployment-Hot-Topic-Areas-Insurers

As you can see from the chart above, deployment rates have grown in the year since Novarica’s last study on these topics. Big data deployment rates, while still under 20%, have more than doubled over the past year, and mobile has increased in every category, with the largest percentage increase in deployment for policyholders. Analytics usage in modeling has increased by nearly a third, but there’s still a persistent gap in analytics usage between large and small insurers. Some other relevant statistics of note include:

1.) 40% of respondents have deployed social media in some areas of marketing

2.) 27% of respondents have active or planned mobile pilot projects for distributers

3.) 44% of respondents have deployed analytics to provide real-time scoring in some areas

4.) 16% of respondents have active or planned pilot big data projects

5.) 18% of respondents have deployed in some areas SaaS for core applications

6.) 72% of respondents said Agent e-business was part of their digital strategy

7.) 67% of respondents have no formal ROI for analytics already deployed but its value is widely recognized

8.) 10% of respondents have well deployed and widely understood mobile plans

9.) 29% of respondents have deployed digital or digital strategy in some areas

10.)36% still trying to understand the value of social media data analysis

The six “hot topics” included in this report share two main characteristics. First, they enable potentially disruptive changes in one of more areas of the insurance value chain or traditional company operating models. Secondly, they are discussed more than they are embraced or understood.

As we noted last year, today’s “Hot Topics” are tomorrow’s basic capabilities. Increased, but still uneven, deployment rates in mobile, social, big data, and other areas indicate this evolution is continuing, and that some companies are evolving faster than others.

For more information about the latest “Hot Topics” download a free preview or contact me via email for a complimentary 30 minute consultation.

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Peer Review: What areas are insurance CIOs focusing on in 2015?

Staying on top of the latest Property/Casualty and Life/Health/Annuity insurance technologies and trends can be a pretty daunting task. In order to provide our clients with more insight into what their peers are focusing on in 2015, Novarica has compiled a list of its top ten most downloaded reports for the year to date.

There are two main benefits of this top ten list: it will save you time by highlighting only the hottest topics, and it allows you to see if your organization is on track with its IT strategy or if something is being overlooked. The top ten list below covers a variety of topics in critical areas, including: digital, reinsurance, policy administration systems, social, mobile, big data, analytics and much more.

Top Ten Most Downloaded Reports

1.) Life/Health/Annuity Policy Administration Systems
2.) Property/Casualty Policy Administration Systems
3.) Preparing for Digital Transformation
4.) Benchmarking the “New Normal”: 50 Advanced Capabilities for P&C Insurers
5.) “Hot Topics” for Insurers: Social, Mobile, Analytics, Big Data, Cloud, and Digital
6.) Report Rationalization: A CIO Checklist Report
7.) Internet of Things Update: An Executive Brief
8.) US Insurer IT Budgets and Projects 2015
9.) Architectural Governance: A CIO Checklist
10.) Business and Technology Trends: Reinsurance

In 2014 alone Novarica released over 30 reports. If you’re a Novarica client, downloading reports from list above is a great way to get up to speed on the latest trends and guidelines. For more information about Novarica’s published research, visit our online library or contact email.

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Finding Gold in a Tough Market

Steven Kaye

An article in PropertyCasualty360.com points out the benefits to carriers of adopting by-peril rating, which allows carriers to understand the interrelationships of various perils and property-specific risks. Homeowners has traditionally been a notoriously volatile line of business, so anything carriers can do to smooth out profitability and losses is a significant win. By-peril rating can be used to cherry-pick more attractive risks, or to do a better job of weeding out undesirable risks, up front. Carriers can offer lower rates for properties built according to more modern building codes, or with risk mitigation measures in place. They can more precisely target their marketing initiatives as well. ISO research showed carriers using by-peril rating both grew their market share and had lower loss ratios than peers not using by-peril rating. With preliminary financials for 2014 indicating a deterioration in P&C underwriting results, the potential softening of the commercial lines market, and personal lines arguably being a commodity business, carriers must seize on any advantage to grow profitable exposures.

Carriers, particularly smaller ones, should not underestimate the challenge of obtaining data of sufficient volume and granularity. They should line up and verify potential data sources, ensure that data and related services are compatible with their business processes and systems, and compare vendor service levels and check references.

For more of Novarica’s thoughts on the use of master data management and analytics in personal lines insurance, or by insurers generally, check out some of our related research or send us an email.

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2015 Tech Trends: Thoughts for Insurance CIOs

Tom Benton

As I was preparing a blog post on technology trends for 2015, I came across Chris McMahon’s article in INN, “Top 5 Tech Trends for 2015”. The five he chose were: core systems modernization, analytics, mobile computing, the Internet of Things and the digital customer experience. These are certainly great choices, so here are some further thoughts on these trends and their impact on the insurance CIO.

Core Systems
As mentioned in the article, interest in core system modernization remains strong for 2015. A survey of Novarica’s Research Council members last year (with results presented for both P&C and LHA insurers) found that the trend is toward faster deployments via SaaS or hosted solutions using an iterative deployment approach. Vendors are developing track records of implementation completion and are finding ways to reduce the risks of these large implementations. CIOs who are considering core system replacements should get an update on potential vendors and their current offerings, and Novarica’s latest Market Navigator reports will be available in February for LHA and P&C policy admin system vendors. 2015 may be the year to consider a replacement and prepare using lessons learned from previous successful implementations at other insurers.

Analytics
Analytics continues to be a hot area of discussion at insurers. Novarica’s report “Big Data Technologies for Insurers” notes that insurers should focus on the need first, based on business demands and strategy, before investing in specific technologies. While there have been some initial uses of big data for analytics at insurance carriers, few have integrated analytics into core insurance processes like underwriting and claims. Insurance CIOs should work with business leaders to define a strategy and the “big questions” that need to be answered by improved analytics capabilities.

Mobile Computing
Novarica’s report on “US Insurer IT Budgets and Projects 2015” noted that mobile technology is still considered an “emerging technology” area at many carriers. Insurers are struggling to leverage the “3 C’s” of mobile technology (convenience, camera and coordinates) to provide better engagement with producers and customers. CIOs need to look beyond specific mobile strategy to consider flexibility of their systems for the next wave of mobile technologies, including wearable and Internet of Things, along with the analytic capabilities needed to leverage the data these systems will generate.

Internet of Things
Just as 2014 was the year of wearables as a consumer focus, 2015 promises to be the year of Internet of Things, including connected home products, drones and smart devices. The key for CIOs is considering what data from these devices can be leveraged for improved insurance products and operations. Information governance will be a key capability for 2015 and into the future.

Digital Customer Experience
Interest in engaging customers through digital technologies is driving insurers to reconsider their customer engagement and digital strategies. Novarica’s report “Preparing for Digital Transformation” provides a checklist that includes reviewing current capabilities, strengthening project prioritization and other best practices, and adopting an appropriate culture for transformation. Many customer-focused organizations outside of the insurance industry are creating Chief Digital Officer (CDO) roles to lead these efforts. In essence this move is to provide a focus for meeting the demand for improved customer engagement using technology tools. CIOs should consider taking the lead in efforts that a CDO role would address – CIOs with a good track record of meeting business needs through effective technology deployment should be in good position to do so.

These five technology trends provide a good starting point for discussing your IT strategy for 2015. As always I welcome your feedback. To send me a note or set up a complimentary 1 hour consultation, contact me via email.

Lessons from Peter Drucker

Paul Ptashnick

As I was reading our latest report: Benchmarking the “New Normal” 50 Advanced Capabilities for Property & Casualty insurers, it reminded me of a few famous quotes from management consultant, author and educator Peter Drucker. Below I have highlighted a few of his quotes and how they relate to the insurance industry.

“The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”

As technology evolves it’s going to have a revolutionary impact on the insurance industry over the next few years. Some of these areas include the “Internet of Things,” Social Media, Big Data, Cloud, Mobile, Security and Digital. With the rapid changes in technology-enabled capabilities, it’s imperative for organizations to have access to the latest research and subject matter experts to stay on top of the latest trends.

“The best way to predict your future is to create it”.

We’re seeing larger insurers creating their own future by widening their lead in advanced capabilities in analytics, data, digital channels, modern applications and innovative business practices. In addition, some midsize insurers are also creating their own future by deploying more advanced capabilities than their peers.

“What gets measured gets improved”

As saavy insurers start deploying new capabilities in underwriting, product, distribution, analytics, etc., it’s vital for them to be able to track their own progress. Novarica is helping insurers to “measure and improve” their own initiatives with our new benchmarking tool.

“The purpose of business is to create and keep a customer.”

Technology is playing a vital role for Property & Casualty insurers in creating and keeping customers. Below are a few advanced capabilities being deployed by insurers in 2015 to help with these efforts.

  • Customer: Mobile app to view customer relationship details, balances, key documents, etc.
  • Distribution: Mobile app/mobile optimized web for producers to provide access to customer, book of business, or sales materials
  • Product: Analytics-driven product design
  • Product: Products designed to optimize buying/selling experience through one or more of the following: (a) use of pre-fill data, (b) elimination of unnecessary questions, (c) streamlined underwriting process matched to control of risk/coverage levels
  • Distribution: E-Signature
  • Underwriting: Predictive scoring based on models leveraging internal and third-party data
  • Marketing: CRM-driven campaign management that shares information across distribution, underwriting and service channels
  • Billing: Electronic bill presentment and payment
  • Analytics: Self-Service analytics based on verified and accessible enterprise data
  • Analytics: Use of Big Data tools to mine enterprise data effectively (Hadoop, NoSQL, etc.)
  • Claims: Mobile FNOL with video/GPS data capture and pre-fill

“If you want something new, you have to stop doing something old”

The capabilities listed in our Benchmarking the “New Normal” 50 Advanced Capabilities for P&C Insurers are widely available to insurers and are deployed more or less widely by them today. These advanced capabilities are being driven by a combination of five elements: analytics, data, digital channels, modern applications and innovate business practices. Successful organizations in the future will re-imagine and re-conceptualize their product, service and operation strategies in light of technological changes.

As always I welcome your feedback. Send me a message at email or to learn more about Novarica’s Benchmarking the “New Normal” 50 Advanced Capabilities for P&C insurers, download a preview

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