Top Stories in Life/Annuity for May 2015

Steven Kaye

We’ve just published our Novarica Industry Intelligence Brief for Life and Annuity for May 2015. These reports highlight some of the most interesting industry stories from the past month, and present them along with Novarica commentary. Commentary is available to clients only, but we’ve posted direct links to the stories below:

  • MassMutual is cutting the term life application process from weeks to minutes using third-party data and algorithms. Full Story.
  • The National Association of Retirement Plan Participants offers a ranking of plan providers based on how well they help employees save for retirement. Full Story.
  • Employers offering voluntary benefits recognize the importance of mobile enrollment, according to a LIMRA survey. Full Story.
  • John Hancock’s purchase of Guide Financial gives them AI and behavioral finance tools to help both advisors and their clients.Full Story.
  • Will employers see more lawsuits from employees over excessive fees charged for retirement plan investments? Full Story.
  • HR software provider Zenefits is threatening benefits brokers’ business – and the market is rewarding it handsomely. Full Story.
  • The SEC may require mutual fund providers to provide disclosures of the effect of rising interest rates on the bond holdings of investors. Full Story.
  • NAIFA is trying to block implementation of the Department of Labor’s latest fiduciary ruling, and there may be some hope. Full Story.
  • Legal & General America launched a website to educate consumers on the need for life insurance and its real costs. Full Story.
  • Behavioral finance is all the rage, and LIMRA used it to understand why consumers don’t buy life insurance and how they can be encouraged to do so. Full Story.

For Novarica commentary, clients can download the Brief at:
http://novarica.com/may-2015-novarica-industry-intelligence-brief-life-and-annuity/

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Previous Novarica Industry Intelligence Briefs for Life/Annuity

Top Stories in Property/Casualty for May 2015

Steven Kaye

We’ve just published our Novarica Industry Intelligence Brief for Property and Casualty for May 2015. These reports highlight some of the most interesting industry stories from the past month, and present them along with Novarica commentary. Commentary is available to Novarica clients only, but we’ve posted direct links to the stories below:

  • Munich Re and HSB are sponsoring the Plug and Play Accelerator’s Internet of Things Accelerator. Full Story.
  • Google Compare asks more questions of consumers, not less. But is this a good idea for carriers? Full Story.
  • Government-imposed limits on profitability – not just for health insurance anymore? Full Story.
  • Corporate risk managers expect widespread use of drones in ten years – or much less. Full Story.
  • Insurers offer savings to consumers in return for information shared from their iPhones, including location and vehicle make and model. Full Story.
  • GuideOne is installing sensors in insured properties to provide advance warning of equipment failure and resulting losses. Full Story.
  • Forget self-driving cars, what about self-driving trucks? Or planes? Full Story here and here.
  • ACE is providing predictive modeling and analytics to claims adjusters to help them nip potential high-severity claims in the bud. Full Story.
  • Chinese conglomerate Fosun follows its purchase of Meadowbrook by acquiring the remaining shares of Ironshore. Full Story.

For Novarica commentary, clients can download the Brief at:
http://novarica.com/may-2015-novarica-industry-intelligence-brief-property-and-casualty/.

Previous Novarica Industry Intelligence Briefs for Property and Casualty

Advice to Vendors Preparing for IASA

Jeff Goldberg

With the IASA annual conference rapidly approaching, we’ve been getting a lot of questions from core systems vendors about how to best present themselves at big events like this. The advice is not the same for every vendor, but there are some points that are true for just about everyone.

1. Your sales team will not convince an insurer to purchase a core system if they aren’t already in the market for one. That means your primary goal is to make sure that you end up on an insurer’s long list when the time for replacement does come (on their schedule).

2. Event attendees will be seeing a lot of booths and meeting a lot of vendors. The majority of them will not remember the details or nuance of your pitch and they will not read every word of a 5 page brochure. At most they will take away two or three key facts. What do you want those three facts to be? Decide ahead of time, and make sure you work to highlight them in your conversations and in your marketing material. What are you selling, who is your target client-base, and what key features makes your system stand out?

3. It’s hard enough to convey the full scope of your system’s functionality in an hour meeting. It’s even more difficult to give demos in an event scenario. Instead of trying to walk someone through your normal demo script, you should have multiple parts of the system staged and ready to go. Don’t waste time keying in policy data or document text; instead, have several tabs open in a browser with pre-entered information, bring up the right tab based on your audience’s interest, and show the relevant parts of the system in action without having to step through lots of pages.

4. Positive quotes from referenceable clients are better than any marketing text you can write.

Prediction: Insurer Investment in Reinsurance Management Systems Will Significantly Increase in the Next Five Years

Jeff Goldberg

As a follow up to Mitch’s blog post on reinsurance trends, I wanted to add some thoughts about the systems insurers are using to manage their reinsurance. Historically, insurers haven’t focused much of their budget in this area, and most are either using legacy technology or custom Excel spreadsheets to manage their reinsurance. But lately there has been increasing interest in modern ceded reinsurance systems, and it’s likely we’ll see further growth in spending over the next five years.

There has been pressure on insurers to “simplify” their insurance products in order to both appeal to millennial consumers and to better utilize online sales channels. As third party big data sources proliferate, it will be even easier to rate and underwrite products with less information gathered up front, meaning that move towards simplification is only going to continue. See Matt’s recent blog post for some examples on how this is materializing.

However, the inverse is true with reinsurance contracts. As the insurance products themselves reduce in complexity, relationships with reinsurers are increasing in complexity. It used to be the case that a reinsurance leader would dictate the terms of a contract for all reinsurers, but it’s now much more common for all reinsurers to negotiate individual treaty terms. And with reinsurers using third party data sources and better predictive analytics, they will want to take all of that into account and drive towards further contract complexity.

This change in approach to reinsurance means that it will no longer be feasible for insurers to manage cession with spreadsheets or inflexible legacy systems. While some may build the technology themselves, most will either search for a modern core system or look to their existing policy administration and claims system vendors for additional reinsurance components.

In general, the vendors selling standalone reinsurance management systems to North American insurers tend to either have (a) a large client base but legacy technology or (b) modern technology but a very limited North American client base. So in the next five years expect to see some interesting shifts in which vendor the industry considers the reinsurance management leader.

Major Trends in Global Insurance and Reinsurance and IT Implications

Mitch Wein

I recently attended the Insurance Insiders Conference in New York. The presentation and discussion panels focused on three major areas of disruption in the global insurance and reinsurance industry: capital and regulation, competition, and technology.

Capital and Regulation

  • Large parts of the world are awash with capital looking for a place to be reinvested. This includes a large increase in alternative capital (ex. Diversified pension funds, endowments). Diversified capital allocation models are guiding where the money is going.
  • CAT Bonds (risk-linked securities that transfer a specified set of risks from a sponsor to investors) are growing. CAT insurance pricing is at an all-time low
  • Increased global regulation may cause a retreat from long-term products since not all firms are being treated equally (ex. SIFI-systemically important financial institution)

Competition

  • Rate reductions are persisting, especially in Property. However, Professional Liability is stable. A low interest rate environment will remain in the short-term. There is more price decreases on new business vs. renewal. The will be continued activity in M&A in insurance. There has been an industry consolidation in the Lloyds Marketplace
  • Foreign Insurers are exiting the US because of higher capital requirements-especially in the US Life and Annuity segment
  • Opportunities are emerging to transfer risk from the public to the private sector.

Technology

  • Advanced predictive analytics in reinsurance is helping to optimize returns for strategic capital
  • Increasing amount, frequency and types of data is driving innovations in specialty lines like drone based claim inspection for catastrophes and crop damage
  • Cyberrisk mitigation is gaining in importance and has led to a focus on enterprise risk management. Related areas of growth are privacy liability and network security. However, the risks around cyber are not well understood by underwriters. Additionally there is a risk of duplicate and overlapping regulations in this area.

Even in the first two areas, technology’s impact is being felt. The use of new technology allows not only more scale, but also enables firms to diversify, triggering M&A’s to exploit synergies. What was very clear was that global insurers and reinsurers can no longer think of themselves as somehow insulated from the effects of the rapid changes in information technology that are disrupting the more consumer or commodity lines of the market. Global insurers and reinsurers need to incorporate a deep understanding of technology issues, both internal and external, into their strategic planning.

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

Predictions of Insurance Future from 2011 are Materializing…

Matthew Josefowicz

In January 2011, I wrote a post on this blog highlighting three glimpses of the future of insurance. The three issues I called out were:

  1. Underwriting without questions, as illustrated by the Aviva/Deloitte pilot project featured in the WSJ in November 2010
  2. Agents optional, based on general trends, with the specific example of the NAIC basically throwing agents under the bus
  3. Maximum profitability, as illustrated by the industry’s acceptance of the minimum Medical Loss Ratio provision of PPACA

I asked insurers to:

Consider a future in which:

  • Underwriting requirements come from third-parties, not your own efforts
  • Intermediaries are only one channel among many
  • Your total loss numbers are constant from year to year at a mandated level

Is that a future in which your organization could survive?

I believe the first two, which seem far out now, will be commonplace by the end of the decade. I will be happy to buy the drinks at the 2020 IASA show if I am wrong.

The third is much more contingent on political winds. But if health insurers capitulate on this point, P&C and life insurers need to clearly differentiate themselves from health insurers in terms of public perception or face the risk of operating with the same constraints[emphasis added].

As we’ve pointed out in recent posts, agents are already just one channel among many, even in previously unthinkable lines of business like small commercial. I also recently came across an example of underwriting without questions, MetLife’s Xcelerate system, as reported in IIReporter.

Perhaps most concerning for insurers, however, is a recent example that indicates the third item — government-mandated maximum profitability — is not too far off. The ban by Florida and several other states on “price optimization” is an indication that political pressures may bring a PPACA model to P&C.

However insurers choose to try to address these changes, they cannot ignore them much longer. The industry is changing rapidly, and insurers must ensure that they can adapt their business models and the technology capabilities that support their business models.

Novarica Research Update: M&A and Insurer Accelerators and VC Funds

Matthew Josefowicz

With investor money flooding the insurance technology sector and tech company M&A activity at a fever pitch, Novarica has published two new reports: “Insurance Software M&A Update 2015 Q2” and “Insurer Accelerators and VC Funds: Buying Innovation”.

With the recent acquisitions of Agile Technologies and Cover-All by Majesco, Oceanwide by Insurity, and CCC Information Services and Mitchell International by a private equity firm, as well as a slew of other acquisitions over the last 24 months, there is continued activity in this still highly fragmented sector

Novarica’s “Insurer Software M&A Update 2015 (Q2)” brief provides an update on the M&A in the insurance software sector with an overview of the main participants, information about recent transactions, and predictions for future activity. Solution providers discussed include: Accenture, Capgemini, Cognizant, Computer Sciences Corporation (CSC), Ebix, Guidewire, HP, IBM, iPipeline, Insurity, Majesco, Microsoft, Mphasis, Oracle, SAP, Sapiens, StoneRiver, TCS, and Vertafore. A free preview of this report is available at: http://novarica.com/manda2015/

Insurance Software Mergers and Acquisitions 2015

Insurance Software Mergers and Acquisitions 2015

Not to be outdone, several insurers have established either accelerators or venture capital funds in recent years. The idea of insurers with dedicated venture groups is not a new one. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. Insurers interested in establishing their own groups should be clear in what the goals and risk profiles of these groups should be.

Novarica’s “Insurer Accelerators and VC Funds: Buying Innovation” brief looks at current trends and issues in this space and provides a list of recent examples of accelerators, incubators, and insurer venture funds active today. The need to find alternative avenues for growth and for investment returns, combined with a fear of technology companies disrupting insurers’ business models, has led to renewed interest. A free preview of this brief is available at: http://novarica.com/insurance-vc-buying-innovation/

For more information about these reports, please contact us at inquiry@novarica.com

Group Benefits Solutions: Still a Work in Progress

Rob McIsaac

At our 8th annual Novarica Insurance Technology Research Council Meeting, the discussion was wide-ranging at the Life/Health/Annuities breakout session. The session focused on both Individual and Group product lines, with a particular focus on both Group and Voluntary benefits. For the Group space, after many years of depressed investment (no doubt fueled by the Great Recession), we’re now seeing carriers particularly focused on new capabilities that can help both defend existing market share while opening up new opportunities in the emerging areas of Worksite / Voluntary Benefits.

The Worksite/Voluntary space is also one that Individual insurance carriers are eyeing as an opportunity, which sets up an interesting “race” as companies prepare to face off in what may be a critical area for both lines of business in the future. In fact, competition and competitive capabilities were very much top of mind during these discussions. While Group and Individual Life carriers certainly see the Voluntary Benefits space as an area that they can gain leverage from current capabilities to build market share, there are other forces in the market that also see this as prime real estate for the future. Group Health carriers come to mind, for example, and we discussed the importance of being aware of alternative forms of competition that could make this space even more interesting in the coming years as the full impact of regulatory and demographic changes emerge.

In terms of capabilities that are high on the list of carrier concerns, the group had a wide ranging discussion that touched on electronic enrollment platforms and electronic signatures, consumer portals, approaches to integration with TPAs, death certificate processing, and group benefit enrollment vendors. The continued focus on electronic capabilities that effectively enable both a higher level of end consumer self-service and a great ability to support Straight-Through-Processing of transactions was central to the discussion. Better service can frequently be lower cost service too, when the functionality is available to allow both prospects and customers to handle transactions when they want, on the device they want, with other capabilities available to guide consumers through the navigation of options and features. Mindful that customer expectations around what a good experience should be are now essentially established in other domains (e.g., retail, banking), insurance carriers have some key focus areas to address in order to remain competitive.

Many participants were interested in digital channels, legacy system modernization or replacement, and especially the evolution of Group-oriented solutions. Handling different sizes of group cases was cited as a challenge with vended solutions, and several participants talked about using multiple solutions for non-core processes and systems. Private exchanges are not yet addressing their potential in the market, but carriers are watching them carefully. Each year, as the enrollment periods for benefits approach, the reality takes notable steps toward the promise of these platforms to deliver capabilities and plan sponsor/member access.

Customer experience remains a particular challenge, particularly when there is a need for carriers to span multiple internal systems and / or to integrate internal capabilities with functionality delivered through TPA’s or other third parties. This highlights the need to be thinking concurrently about both the desired user experience and the underlying architectural investments required to make “good experiences” a reality.

Discussion also explored the current state of commercial solutions available to cover a wide range of functionality to support Group insurance. While historically lagging behind Individual insurance alternative, the Group oriented capabilities are coming on quickly. A number of companies at the session are poised to make significant investment decisions in the near future.

The session also explored some of the differences in the challenges represented when addressing legacy core systems that come from a mainframe environment (1960’s to 1980’s technologies) when contrasted with the “legacy client server” and related solutions that date to the 1990’s (up to the present). While it is tempting to think of a correlation between the age of the systems and the magnitude of the challenge, this may simply not be true based on access to qualified resources and the stability of the underlying technology. In any case, there’s a clear understanding across participant carriers that getting after some of the aging foundation in the technology stacks will be critical if they are going to meet future state needs for flexibility, time to market and experiences that can support greater diversity of both customers and distribution channels.

The idea of a Special Interest Group (SIG) session, that would bring together Novarica Research Council members for a full working day that focused on specific lines of business, grew out of this session in 2014. Already this year, Novarica has hosted sessions focused on Group Insurance and Annuities. Another session, focused on Individual Life capabilities, is now scheduled for October 14th in Boston, MA (tentative agenda).

Anyone interested in this SIG event can let me know by sending me an email. As many carriers turn to start budgeting for 2016, things look both interesting and opportunistic for carriers and their IT organizations.

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:

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: