On the Internet, No One Knows You’re a Small Insurer

Tom Benton

Recently, Chuck, Thuy and I attended the IASA Boot Camp in Hilton Head Island, SC. The event was started a few years ago by IASA to provide vendors with education and training on the industry, as well as networking and discussing IASA’s events and opportunities. This year’s sessions focused on learning more about how to better engage insurers and understanding their processes for vendor selection and solution purchase decisions. I had the opportunity to speak to the attendees about the challenges facing small carrier technology leaders.

Smaller insurers, typically with less than 25 IT staff and with net premium in the low $100M’s, face the same challenges as their larger peers: modernizing aging core systems, improving customer experience and finding ways to better leverage analytics. These and other concerns are more difficult for smaller carriers since they have fewer resources to dedicate to solutions. As vendors have matured their products and implementations in recent years, they are looking for ways to better meet the needs of smaller insurers.

The Boot Camp also featured presentations on how carriers make purchasing decisions, and on the second day there were lively roundtable discussions on topics that included RFI (Request for Information) and POC (Proof of Concept) processes, and how to better approach the sales process, including demos. I was part of an interesting session that included consultants that have coordinated RFI and POC processes, including me at Novarica, and vendors who have been through various processes from carrier-led to consultant-led. The key takeaway was that frequent and focused communication plays a key role in the success of the process, in particular when the process is used to prepare both vendor and carrier for a partnering relationship.

If you’re interested in learning more about our work with smaller insurers, please feel free to contact me directly

The Future is in Better Products and Service: Thoughts from the Bay Area InsurTech Meetup

Steven Kaye

I recently attended a Bay Area InsurTech meetup, sponsored by AXA Lab, with the theme of “Millennials, mobile and the future of Insurance.”

The session started with an overview of findings from an AXA-Alpha UX survey. Notably, Millennials’ preferred method of interaction with insurers is in-person, and they view insurance as important for safety but not engaging; expensive, but necessary.

Next, speakers from three startups, moderated by Tuan Pham from Silicon Valley Bank, discussed both the survey findings and a broad range of issues ranging from how to design products to appeal to Millennials to establishing brands.

Automatic (https://www.automatic.com) offers an adapter that plugs into car’s ODBII ports, plus an app that displays info on your car and your driving habits. They offer everything from vehicle diagnostics to real-time driving feedback to finding where you parked your car to exporting data for T&E and taxes.

One Financial (really, their investment Bee: http://www.beecard.us/) reaches out to the unbanked, and has lower customer acquisition costs than banks because of use of kiosks. The company is building presence at farmers’ markets. Vinay Patel, One Financial’s CEO and co-founder, realizes banks can copy what he does, but by that time he’ll have built up a nice business.

Sure (http://sureapp.com/) offers what they call episodic insurance, which right now means being able to buy flight insurance on-demand from your phone. Wayne Slavin, the CEO and co-founder, discussed the importance of transparency, bundling opportunities, and the potential for outsourcing some function such as claims handling.

I was surprised at how conservative discussion ran, compared to invocations of disruption and touting of Uber and Zenefits at other locations. For example, there was a discussion on the importance of following regulations. Connected cars, UBI, and driverless vehicles were seen as transformative, but the real impact would not hit for twenty years or so.

A takeaway was that there was plenty of room for innovation in products and in engaging and serving Millennials, without startups seeking to be insurers in their own right.

To all Life insurers: I’m a target customer. How do you educate me about your products?

Thuy Osman

Even though I work in the insurance industry, I was never interested in buying life insurance. I always thought it was so morbid; like if you thought about death and plan for death, death will come. Of course we all know it comes eventually for everyone. But, is there something to be said about being prepared financially for it? I must admit, the thought never crossed my mind until I became a parent and the responsibility of someone’s life was placed in my hands.

Being a millennial, the first place I looked for information on life insurance was online. However, what I found on various websites was not useful, or compelling enough to get me to start the application process.

As a last resort, I called the agent who sold me my auto and home insurance (something I had never done before). In 15 minutes, the agent explained to me the various life insurance products, the cost and coverage of each, and the benefits of each, based on the goals I was trying to achieve with this product. He even did a sample illustration to show me the different options offered by various carriers.

Although the phone conversation was extremely helpful, I kept wondering: Why didn’t the agent call me to tell me about life insurance? He knows that I just moved, bought a house, and have kids. Why didn’t he try to sell me another product?

I’m sure there are many more 30 something year olds out there thinking about life insurance to protect their families, but not knowing where to start. If this group is a target market for life carriers, carriers need to think about what they are doing to reach out to this group to educate them on the products they offer, asap.

COLI / BOLI Special Interest Group Meeting Previews New Research

Rob McIsaac

On March 1, Novarica hosted our most recent special interest group meeting for insurance technology senior leaders focused on specific lines of business. The sessions, which provide an opportunity to share recent targeted research, also create an environment for significant networking between carriers, many of which are dealing with strikingly similar issues as they look to address both business and technology issues in very competitive environments. This week’s session was focused on COLI / BOLI, a niche space that is the domain of a small number of carriers offering highly specialized services which support the use of life insurance as an investment vehicle for funding specific types of benefits programs.

Complex Product Requiring “White Glove” Service

As became clear immediately in our discussions, these are complex vehicles that can generate notable top line premium volume, coming from a group of specialized and highly demanding producers. There is a notable amount of plan customization, generally with the degree of customization being highly correlated with the size of the individual cases. A number of the participating carriers noted that this is a “white glove” business that is characterized as a concierge oriented set of programs and business processes where relationships between the carrier and producer communities (as well as servicing TPA’s) are particularly critical for success.

Legacy Systems and Lack of Customer Intimacy Impeding Speed to Market

We also previewed an upcoming report which will be published in May through our Research Partners Program. From a technology platform perspective, this research highlighted the age of core systems (average PAS platform: 19 years old with a number now at 30+), which is creating both flexibility and speed to market issues.

While the number of truly new products in this space is sharply lower than it might be for consumer products lines such as personal lines P&C, these carriers face a truly interesting challenge. Since they have little or no direct interaction with plan sponsors, they take their market research queues from top selling producers and TPA’s. That makes modern analytics of generally limited value on the marketing and product development fronts and requires that product development investment decisions be based on relationships and “market feel.” With inherent inflexibility in systems, the recovery time for reading a market wrong can be substantially elongated.

Different Needs to Support Today’s Channel and Attract Tomorrow’s

With producers in this space also aging (note the average agent is now 59+) carriers face an interesting challenge. The self-service/digitally-enabled capabilities that may be of limited value to top producers today could quickly become table-stakes for attracting and retaining production capacity in the future. Our discussions generally confirmed the research which said that this is an important near term planning consideration for carriers looking to maintain or extend their position in this space. One of the key items that came from these discussions was the need to start to truly think bi-modally with respect to distributor support. In other words, continuing to cater to the needs of top producing (and more mature) agents may be an important near-term tactical mandate, finding ways to also engage younger and more digitally savvy producers who expect easy information access and mobility as the basis for considering the placement of business with a carrier may become a critical strategic capability in a surprisingly short timeframe. Some notable examples are now emerging of life carriers starting to mimic the experience of banking IT organizations which have them developing “mobile applications first.”

Security Even MORE Important Given Customer Profile

Another area of considerable concern for carriers is security. While security is generally a “hot topic” for carriers across all lines of business, and other research done by Novarica has highlighted this blossoming as a Board level consideration, the issue is magnified in this space. Particularly in the case of BOLI, with banks as customers, the security gauntlet is elevated given that banks are both particularly tuned into risks (given the nature and frequency of their transactions) as well as the oversight of their own industry regulators. These security concern elements lead to a direct impact on carriers looking to support BOLI business for these institutions.

This led to another fascinating discussion about handling suppliers that carriers may use for key functionality who do not, themselves, pass the security tests required by BOLI plan sponsors. We explore a range of remediation options that may exist for carriers concerned about both viability and liability.

More Special Interest Group Discussions at Novarica Council Annual Meeting

These sessions provide for a terrific exchange of information, both in terms of new research, and practical experiences as shared directly by carriers. We plan additional Special Interest Group sessions in the near future, with our Annual Research Council Meeting in Providence, RI on April 20-21 providing an opportunity for us to explore Individual Life, Group Life, Annuities, Workers Compensation, Personal Lines P&C and Commercial Lines P&C in more detail. In addition, we are planning a stand-alone session focused on Disability Insurance products that will be scheduled in Q3-2016.

In many ways, 2015 was the year that the future arrived. For carriers, 2016 is the beginning of what carriers need to do in order to respond effectively to a brave, new, transparent world.

Technology’s Changing Role for Group and Voluntary Benefits

Rob McIsaac

Today’s group insurance arena is a hyper-competitive sector, with technology playing an ever larger role in attracting, retaining, and profitably serving clients. Technology is also playing a pivotal role in allowing carriers to make the significant transition from the traditional group benefits model to one that requires the ability to concurrently support both group and voluntary benefits, allowing them to react to both an evolving regulatory environment and to fundamental changes in the demographics of the current labor force. To address these key considerations, carriers are moving to seek out more modern systems that can better support rapid product development and adapt to changes in products and pricing. Modern systems are also key to attracting and retaining top producer talent, given the need to provide increased transparency around key business processes as well as more real time access to self-service functionality.

Carriers in the group and voluntary benefits space often use technology platforms that are chronologically newer than the core systems in the individual insurance market. This actually masks issues with aging technologies, however, since many current group solutions tend to have their origins in legacy client/server and web-based systems. Ironically, these systems can actually have greater inherent risks than much older mainframe-based platforms, given that the technologies used to develop them had substantially shorter useful lives, which has a very direct connection with challenges in finding the talent to support them.

Many carriers are now looking to investment in technology replacement plans to solve this problem. Rather than pursuing wholesale conversion of monolithic existing platforms, carriers increasingly see replacements of individual legacy system components as a less-risky path forward. This creates an environment which allows IT organizations supporting these lines of business to build organizational “muscle” for these longer term transformation efforts by starting with key components outside of the core PAS platform. Underwriting, Billing and Claims are three examples of logical starting points on a measured multi-year journey to position carriers for long term success.

For carriers in the segment, there’s a growing competitive urgency for making key systems investments. While there is a very logical transition that carriers can make from group to voluntary benefit offerings, this is not a domain that is preserved for group life carriers alone. Facing changes in their own traditional markers, both individual life and group health carriers increasingly see the voluntary benefits space as offering an attractive component to their own growth strategies.

In our new Business & Technology Trends report, we explore these issues in more detail and offer examples of how group carriers are positioning their technology investments to support future growth plans.

Related Reports:

  • Business and Technology Trends: Group Life/Annuity/Voluntary Benefits
  • The Parallel Paths of Data Strategy

    Jeff Goldberg

    Data strategy at an organization follows multiple paths:

    > Data Governance and Definitions
    > Data Process, Quality, and Augmentation
    > Data Warehousing
    > Reports, Dashboards, and BI
    > Predictive Analytics
    > Big Data and External Data Sources

    When I talk to insurers about their data strategy, I like to assess how far along they’ve progressed on the above paths. The exact breakdown (or naming) of these data strategy paths can vary from company to company depending on priorities and opinion. But the key is that they all matter and, just as importantly, that they happen in parallel rather than in series.

    There are two problems I find when diving into the strategy details. Either (a) some of the critical paths of data strategy have been ignored or, the opposite issue, (b) some of the incomplete paths are being treated like roadblocks to other progress.

    The first problem is pretty easy to understand. If an insurer focuses on just data warehousing and reporting (one of the most common scenarios) the data will never really represent a single-source-of-the-truth, the reports and other BI will always be in contention, and there will be lots of greater values left on the table. For another example, if an insurer puts all their effort into predictive modeling, those models will never be as deep or precise as they could be with better data for analysis. It’s not a surprise, though, that this kind of uneven approach happens all the time; a balanced data strategy is difficult and few insurers have the resources or skill in all areas. The different paths require various technological expertise, while still others require political will.

    The second problem, on the other hand, requires rethinking how these different data strategy paths interact. Up above I’ve lined them up in what seems like a natural order: first you need to have some kind of governance group that agrees on what the data means, then you need to have a process to clean and flow the data through the different systems, then you aggregate the data into a warehouse, then you report on it, then you analyze it and build predictive models, and only then do you think about bringing in big data to the picture. It makes logical sense. But it’s also wrong.

    The reality is that an insurer can work on all of those paths in any order and/or simultaneously. You don’t need a perfect data warehouse before you start thinking about predictive modeling (in fact, there are plenty of third-party vendors who help you skip right to the predictive models by using industry data). You can run reports directly off your claims system even if it’s data in isolation. Nowhere is there more proof of this than the fact that most insurers hardly have any data governance in place but have still moved forward in other aspects of their data strategy. That doesn’t mean a company should ignore the other paths (that leads to the first problem), but it does mean progress can be made in multiple areas at once.

    What’s important to understand is that all these different data strategy paths enhance each other. The further an insurer is down all of them, the stronger each one will be, leading to the best decision making and data-driven actions.

    So it’s always good to step back and take a look at the data across an organization, assessing each of these paths individually and seeing what can be done to move each forward. A good data strategy has a plan to advance each path, but also recognizes that no path needs to block another depending on current priorities.

    Managing Chaos in the Reinsurance Industry

    Jeff Goldberg

    While insurers talk about simplifying products to appeal to consumers and maximize online channels, reinsurers are going the other way. As insurers decrease complexity for customers, they increase the complexity of their reinsurance relationships. Reinsurers are also facing severe pressure from legacy issues like mold, asbestos, and other mass torts, as well as professional liability/malpractice issues. Emerging hazards such as terrorism, climate change, pandemics and nanotechnology are further creating new challenges.

    These difficult conditions force reinsurers to adapt and come up with creative solutions. For most, this means investing in BI, data analytics, and sophisticated modelling tools. Once some reinsurers begin to revamp their processes, the others must follow. Failure to do so is likely to result in adverse risk selection and loss of market position.

    The technology solutions in place at reinsurance companies tend lag behind other areas of the insurance industry. Millions of dollars of business are often still managed via Excel, often on individual laptops. Before they worry about next generation capabilities, reinsurers need stable and robust systems that can support their current business.

    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:

    Analytics: A Route to Growth for Insurers

    Steven Kaye

    The idea of uses for analytics beyond claims and underwriting fraud detection isn’t new to carriers. Progressive’s growth in part was due to being able to profitably underwrite customer segments that had been dismissed by others, such as motorcycle drivers. Analytics-driven products can aid carriers in pursuing growth, rather than just trading market share back and forth or raising rates. Or, as I once titled a blog post, in finding gold in a tough market.

    Two factors holding back the uptake of cyber liability insurance are the difficulty of underwriting and the resulting wide variation in coverages and in pricing. The news that AIR Worldwide, Lloyds, and RMS are agreeing on common data requirements, as covered in several outlets, may lead to convergence in underwriting, and therefore fewer gaps in coverage and less variation in pricing. The standardization of policies in turn may lead to increased uptake – the demand is certainly there already.

    Related Research:

    For Safe Driving, the Future is Arriving

    Jeff Goldberg

    Access to cheap, connected sensors and smart devices means companies can leverage data in innovative and meaningful ways. This new use of the Internet of Things will lead to changes in how and what insurance products are sold. In the automotive industry, services analyzing telematics data to recommend safer driving routes and encourage better driving behavior will become the norm. Liberty Mutual recently debuted RightTrack, an in-vehicle mobile application developed in collaboration with Subaru. The application provides real-time feedback on driver performance in order to educate and correct, and as a result make insureds safer.

    In the future, consumers will buy insurance from insurers not just for the indemnification or risk but for additional risk mitigation services. Risk is never going completely away, but in different areas it will be greatly reduced (with automotive being the most obvious example). Claims and corresponding losses will go down, and rates will need to follow. This shift from indemnification to mitigation is a move away from how insurers have done business for hundreds of years, but it’s also in the best interest of the insured and a great opportunity to provide more and better service.