Top Stories in Life/Annuity for September 2015

Steven Kaye

We’ve just published our Novarica Industry Intelligence Brief for Life and Annuity for September 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:

  • The AARP has launched a $40 million venture capital fund to promote better access to healthcare and better home-based services for seniors.Full Story.
  • The Federal Insurance Office has warned of the potential for federal standards for annuity suitability if states do not make progress on more
    uniform standards.Full Story.
  • Almost 100 House Democrats signed a letter to the Department of Labor calling for a more principles-based approach to the Best Interest Contract
    Exemption portion of its proposed fiduciary rule. Full Story.
  • An American Century Investments survey found advisers were able to add roughly $1-5 million or more of new business by leveraging social media. Full Story.
  • John Hancock has launched an innovation lab and is partnering with a startup accelerator and The Startup Institute. Full Story

For Novarica commentary, clients can download the Brief at

Previous Novarica Industry Intelligence Briefs for Life/Annuity

Next generation agents – Daniel Pink offers some advice

Tom Benton

Day 2 at the NAMIC Annual Convention began with a keynote from Daniel Pink, author of “Drive”, “To Sell is Human” and other New York Times bestsellers. His message for the NAMIC attendees was about selling, with what he called a “1-3-4″ message: 1 big idea, 3 principles and 4 takeaways.

One Big Idea:  Seller Beware

After pointing out that sales is generally viewed as negative and pictured as a slimy sales man (almost always a man) selling a used car, Pink pointed out that this view is from a time in the past, a time of “buyer beware” when customers had little information, few choices and limited ways to talk back. However, times have changed: instead of information asymmetry with sellers owning most of the information, we live in a new world of information parity where consumers have all the information, have many choices and multiple ways to talk back. In this new paradigm of “seller beware”, we need to reconsider how sales are done.

Three Principles, Four Takeaways:  Summary

Pink then proposed three principles to selling in this new world, and four takeaways based on current research on behavior in the new world. Here is a summary of thoughts from this part of his talk.

Much of our thinking about who is best at sales is not true – we picture the ultimate salesman as highly extroverted, but in fact they are no better than ones that are highly introverted. Research shows that “ambiverts” are best – they are able to be introverted or extroverted based on context. We also assume that a direct approach is best for persuading customers to buy, but in fact research shows an interrogatory approach, asking questions, can be more effective when based on facts. Also a small, honest blemish on an otherwise strong offering can increase it’s attractiveness, another counter-intuitive result from research. Finally, giving the information a customer needs to make the sale easy, rather than trying to persuade them to change their minds, is effective. Pink presented his findings in a humorous but very informative presentation.

What does this mean for the insurance industry?

As good as the main presentation was, the real gem came in the last question of the Q&A session at the end of the keynote. A participant asked a great question: in an industry where agents are an aging population and we’re finding it difficult to find, train and make successful a new generation of sales professionals, who should we look to hire? Pink talked about avoiding strong extroverts and look for a few qualities that can be measured and correlate with successful sales candidates: ambiversion (as described above) and conscientiousness (shows ability to follow up, make calls, and stick with the sale). Pink observed that the new work generation grew up in households where they were served a “heaping bowl of self-esteem”, and didn’t learn how to handle rejection. He said this generation responds well to being trained in how to handle rejection, that it’s part of the process to encounter failure. They can be taught that sales is not just a transaction, but a way to help people and make a difference – values are important to the new millennial agents.

Pink’s presentation offers important advice to developing the agent force for insurers. In a new world where consumers have an advantage of knowing about the products and services we offer, insurers need to look for and train a new generation of agents that are equipped to succeed by better knowing how to fail. Contact me if you’d like to discuss Pink’s presentation and how it can be applied to insurer distribution networks.

Where will insurance disruption come from? Erik Wahl may have an answer…

Tom Benton

At the NAMIC opening keynote this year, Erik Wahl impressed the attendees with his graffiti art and thought provoking message – how we need to Unthink (title of his book) and unleash our creativity.

Wahl encouraged the attendees to think differently, going back to the creativity we displayed younger in life, but that has been minimized as creative abilities atrophy while we learn to limit our answers to one best practice or one “right” answer. We learn to avoid risk and go with what we find most comfortable. Wahl illustrated his points by painting portraits of Lincoln, the Statue of Liberty, then finally unveiling a portrait of Albert Einstein by turning his final creation upside down.

For some time there has been concern that disruption will only come from outside of our industry. The argument usually includes the thought that insurance executives and “forward thinkers” are only capable of incremental improvements, and they are so risk-averse in their thinking that transformative changes will only come from outside the industry from innovators like Google, Apple, Facebook or Amazon. It’s generally accepted that those “big four” are the only companies that have the resources and innovative thinking required to change a risk averse industry.

Wahl encouraged the attendees to step back and look at the industry in a new way, taking the creativity we knew as our younger selves and apply that to our industry. After all, every kindergartner believes he or she can draw, but by the time we reach the end of our education Wahl claims only 8 to 10 percent of us believe it. He challenged industry leaders to not fear failure, but look to expand and contract opportunities to consider new ideas rather than get stuck in a laser focus on what we know – and that failure is a matter of opportunities and not of loss, limits or weakness.

He compared our fear of failure to learning to paint. While the vast majority of us would say we cannot draw, Wahl asserts that being an artist is a practiced and disciplined skill – that we can learn to be creative and innovative through the same practice and discipline that artists apply to their craft. The message then is that we can create innovative solutions in insurance without facing disruption from outside the industry.

This is a radical thought for an industry struggling with how to define itself in terms of new customer engagement expectations in the new “social, mobile and connected” world. Wahl spoke passionately about connecting with our customers emotionally, and illustrated this connection through his art.

While we’ve been watching for disruption from outside the industry, Wahl tells us that we need to look within to consider how to better connect with our customer emotionally and “unthink” our long-developed risk aversion and return to creative thinking and solutions. If Wahl is right, we may already have what we need to innovate and disrupt the industry, and won’t have to wait and watch those outside the industry lead that disruption.

What do you think? Can the industry learn to innovate, by looking at the issues differently and in a practiced, disciplined way? Or will disruption come from outside the industry and leave traditional insurers behind? Contact me if you’d like to talk about innovation and how to use Wahl’s thoughts to enable disruption within your company.

Hello from NAMIC – San Diego

Tom Benton

This week I’m attending the NAMIC Annual Convention in San Diego. NAMIC expects this year’s Convention to include over 2000 attendees from over 250 Property and Casualty Mutual companies from the United States and Canada, along with a large number of vendors serving this market. This year marks the 120th anniversary of the organization, which represents the interests of mutual companies through advocacy and other services provided by the national organization and in state chapters.

Many of the Mutual companies that are part of NAMIC are small carriers, insuring farms or other properties and equipment in rural communities, with a few larger national companies. From the discussions I’ve had with various mutual executives since arriving here yesterday, there are a few common issues that they are facing:

  • IT Strategy – many need to determine a strategy to update technology to meet the increasing demands of customers, including the increased use of independent agents by many mutual insurers.
  • Regulatory concerns – smaller insurers in general are facing issues keeping processes and systems up to date with current regulation changes, and potential changes from congressional pressure being placed on federal agencies in response to international regulatory changes.
  • Reinsurance needs – many mutuals are dependent on reinsurers due to lack of capital, but feel somewhat restricted in terms of product changes and supporting their customer base.

In general, I’m hearing many of the same technology challenges as other small carriers I’ve talked with in the last few months.  For more on challenges and best practices at small carriers, see my webinar recording on Novarica’s website.

The NAMIC Annual Convention has a different atmosphere than many conferences I’ve attended – this is a very important event to mutuals and is attended by many CEOs/Presidents along with representatives from their Boards of Directors.  There is a high level of engagement on the vendor floor as these executives and their key stakeholders look to technology and services to better meet the needs of their organizations.  The keynote presentation on Monday by Erik Wahl was very different… more on that in another blog post soon.

Maturing Slowly but Surely…

Thuy Osman

In 2010 the insurance industry in Latin America was in the early growth stage. There was limited IT infrastructure and technology maturity level was low. The main vendors in the space were local providers. Yet, given the obstacle of the foreign and developing landscape, Latin America was an attractive market because the region was experiencing a sustained period of strong economic growth compared to the relatively static growth in the more developed markets.

Fast forward five years and the economic growth rate that was attracting insurers and software vendors to the market is no longer the main focus. In fact, economic growth actually slowed in Latin America in the last few years. But, although the growth rate has leveled off, a long period of growth created an expansion of the consumer classes, along with an increase in disposal income, and hence, a higher demand for insurance products. To meet the growing demand, carriers are slowly evaluating their technology environment and thinking about how they can better attract, service, and retain their customers to remain competitive.

Global carriers are expanding their business in Latin America and bringing their software providers from matured markets to the region to work on projects such as CRM, analytics, digital capabilities, and in some cases core systems. The presence of these international vendors adds experience, expertise, and availability of mature software options to the market. Instead of an environment where all development is done internally, or done by local providers, companies are increasingly outsourcing their application development and maintenance to international vendors from matured markets.

So, even though economic growth prospects in 2015 are not as attractive as they were in 2010, the market for insurance and insurance software in Latin America has gotten more interesting and will only become even more so in the years to come.

For more detail, see our new Executive Brief,”Latin American Insurance: Market and Technology Issues”.

Up-to-date Agent Portals: Table Stakes, Not Differentiators for Carriers

Steven Kaye

Half of insurers are planning to replace or significantly enhance their agent portals. While vended solutions are correspondingly gaining complexity and strength, many carriers still use homegrown systems.

The use of agent portals, although near ubiquitous, is also uneven. Specialty lines, as well as some of the more complex commercial lines, lag behind their more straightforward counterparts in transactional capabilities, but have been innovative in using agent portals for education and outreach to potential customers.

In this environment, it’s no surprise that many insurers count enhancement or replacement of agent portals as top priorities for upcoming IT projects. Interestingly, this percentage is approximately double the percentage of respondents who believed their current systems were “poor’ or “very poor,” leading one to assume that up-to-date agent portals are quickly being viewed as table stakes, rather than competitive differentiators.

For more, see our new report, Business and Technology Trends: Agent Portals.

3.5%? Really?

Frank Petersmark

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

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

Novarica PCI Tech Presentation 2015 Slide IT Budgets

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

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

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

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

The future has arrived for insurance, but have insurers arrived in the future?

Matthew Josefowicz

The good news from the recent PCI Tech Conference is that futurists like Vivek Wadhwa give the insurance industry at least three to five years before it is disrupted beyond recognition by data, analytics, the internet of things, self-driving cars, 3D printing, hyper-aggressive technology companies, and essentially free energy.

The bad news is, many large insurers are still planning five year technology transformation initiatives to shed their legacy burdens and take advantage of today’s technology.

Insurer CIOs understand the challenge. They need to mitigate the effects of yesterday’s inheritances. They need to address today’s business needs, and they need to prepare the organization for tomorrow. They need a deep understanding of all three timelines, and the ability to help others understand.

This requires a new set of skills and new kinds of relationships. As one speaker put it, CIOs need to be communicators and story tellers as well as effective managers. They need visionary business executive partners who are willing to embrace the opportunities that technology creates in their ability to deliver innovative products to changing markets. CIOs also need technology partners who will not just deliver today’s solutions but co-evolve with them to meet tomorrow’s challenges.

“I will invest in any technology initiative that increases our agility,” said one insurer CEO who understands. But far too many CEOs are still at a loss as to how to quantify the value of technology and continue to manage their technology investments as if spending more than 5% of premium on IT were a greater sin than letting the future pass them by.

Meanwhile, while the conference was in session, Google Ventures announced an investment in innovative health insurer Oscar. The clock is ticking in insurance, and it’s not counting down anymore. It’s counting forward.

Emerging Cyber Threats

Mitch Wein

I recently attended the IASA Mid-Atlantic conference in Atlantic City. This conference had a lot of business people from insurance, particularly from areas like regulatory reporting, accounting, audit and legal. Many topics that you would expect like GAAP and tax reporting, Economic Outlook for 2015, reporting under the Affordable Car Act were covered.

However, what was notable for a conference with almost no IT people was that almost half of the discussions were about cyber-security and cyber risk management. Acting as a communication vehicle to the board, the NAIC cyber security principles, emerging compliance coming from NAIC and FINRA requirements, user behavioral analytics and even security war games were covered.

The FBI did an excellent briefing on the type of cyber threats there are as well as the scam patterns that have emerged in recent years. This covered areas addressed by their Cyber division including infrastructure defense, nation state attacks, hacktivism, espionage and terrorism coordination through social media. This also covered the scam areas addressed by their criminal investigation division including the counterfeit check scam which targets attorney’s and CPA’s, the account takeover scam targeting business and individuals after personal information compromise, and business email compromise targeting businesses working with foreign suppliers and/or performing wire transfers.

We have written before about the importance of cyber security especially as insurers transition to a digital future and retaining insured and agent trust. It was obvious to me that every business person in insurance needs to understand cyber security and what they need to do relative to their job functions and roles. Every insurance company is now a combatant in a war against criminals and terrorists. This is the new normal.

Note: I’ll be presenting my recent work on IT Security Frameworks for Insurers on a free webinar on Sept 30 at 2pm. Pre-register here.

Related Research

IT Security Frameworks: NIST and SSE-CCM
IT Security Issues Update

Workers’ Comp Insurers Look to Analytics and Core Systems

Jeff Goldberg

In our most recent Novarica Council Special Interest Group meeting, several Workers’ Compensation CIOs discussed core systems replacement strategies and long-term visions, as well as emerging uses of mobile, analytics, and end-user-facing technologies.

All the attendees were in various stages of core system replacement—ranging from just-completed to the initial stages—so they were eager to learn from others’ experiences, and to gain perspective on their own challenges. Everyone agreed that a flexible, modern core system was at this point table stakes, hence the flurry of transformation activity. A minority of companies are changing appetite, but the vast majority of P/C insurers are looking to grow by moving into new territories. To do that a modern, flexible system is absolutely necessary.

The shrinking lifespan and growing price of core systems was another area of concern. Everyone agreed that that new core systems are increasingly costly to implement, and that they must be replaced more frequently than older legacy systems. Gone are the days that a core system lasted for 40 years. Some participants also noted that many strategic business initiatives—like new product deployment—must be put on hold during a multi-year implementation project, increasing the indirect costs of the implementation.

As an antidote to this gloom and doom, the CIOs in attendance were confident in their strategy to overcome these obstacles. Core systems today are much more flexible than legacy systems, relying on componentized architectures and configurable logic, meaning that the next round of replacements (and possibly even conversions) should be easier. More importantly, past lessons have been learned, and both insurers and vendors know how important it is to avoid custom coding and to stick with a vendor’s upgrade path. If those rules are followed, ten or fifteen years down the road the insurer’s system will be “new” even if they’ve stayed with the same vendor and system all along! It’s critical to choose a vendor who acts as a long-term partner and not just a one-time purveyor of a technology.

Of all the strategic considerations discussed, one of the most important was a concrete plan for data conversion and sun-setting old systems. One participant shared that if he could go back in time, he’d focus much more on a transition plan, so as not to lose the project’s momentum after go-live. Other attendees described the challenges of data conversion and new data warehouses, and the legal and data integrity-related risks of fully sun-setting old components.

Attracting and retaining good talent was another concern for many of the attendees. One insurer reported being well ahead of their Guidewire implementation schedule, due to a concerted effort to focus talented IT and other business unit resources on the project. Several attendees noted that the structure of their projects—agile, waterfall, or a combination of the two—was much less important than the staffing and communication strategies of those projects. When agile first started becoming prevalent in the insurance industry, carriers all over the country were told it might be the answer to all their project/logistical problems. But that’s not how software works. Everyone in attendance was reminded that there are rarely, if ever, silver bullets for these huge problems.

Related Research:
Business and Technology Trends in Workers Compensation