Research Update: Distribution and Compensation Management

Mitch Wein

Insurance distribution is changing rapidly – not just because of new market entrants, but also because of rapid evolutions and changing needs in the hyper-competitive agent/broker marketplace. Many insurers find that their distribution and compensation management (DCM) systems are not up to the job of keeping pace with these changes.

Recently Novarica released two new DCM reports designed to get insurers up to speed on market trends and vendors in this key area:

  • Novarica Market Navigator: US Property/Casualty and Life/Health/Annuity Distribution/Compensation Management Systems is 85 pages long and includes similar detailed profiles of solutions from Aurea Insurance Solutions, CallidusCloud, CSC, FAST, IBM, Majesco, Oracle, Outline Systems, SAP, StoneRiver, Vertafore, and VUE Software. The report is available to Novarica clients and for purchase online at: http://novarica.com/nmn_dist15q1/
  • Novarica Market Navigator Distribution/Compensation Management Systems 2015

    Novarica Distribution and Compensation Management Systems 2015

  • Novarica Business & Technology Trends: Distribution and Compensation Management provides an overview of DCM business and technology issues, data about the marketplace and 16 examples of recent technology investments in DCM. The report is available to Novarica clients and for purchase online at: http://novarica.com/business-and-technology-trends-distribution-and-compensation-management/
  • Insurer IT Plans for Distribution and Compensation Management

    Novarica 2015 Insurer IT Plans for Distribution and Compensation Management

    DCM, although not as competitive as other categories within the insurance market, faces many of the same pressures and transitions. These reports are a great first step to help your organization move forward with its DCM initiatives. To set up a complimentary 30 minute consultation, contact us.

    5 Technology Initiatives for Specialty Lines Insurers in 2015

    Mitch Wein

    Yesterday Novarica published its latest report in its Business & Technology Trends Series focusing on Specialty Lines insurers. This report is based on the expertise of Novarica’s staff, conversations with members of the Novarica Insurance Technology Research Council and a review of secondary published sources.

    Below I just wanted to quickly highlight 5 key technology initiatives our research uncovered:

    1. New technologies such as IoT will begin to impact specialty lines carriers. Advances in sensor technologies have led to the embedding of sensors and networking of those sensors into a range of applications, with some insurers taking advantage of the resulting availability of real-time data.
    2. Billing efforts focus on handling both retail and wholesaler billing needs. Account billing is becoming a higher priority as part of a shift to a more customer-centric approach. Specialty carriers are building more support for large complex accounts.
    3. Carriers are pursuing long-term data strategies. They are starting with data quality initiatives and focusing on implementing data warehouses, operational data stores, and appropriate data marts. Carriers are prioritizing reporting tools to allow the business to run ad hoc reports and obtain insights. Predictive modeling has emerged as a key driver to better claims and underwriting outcomes.
    4. Improved underwriting and product development flexibility are key considerations. Carriers are continuing to upgrade to highly configurable policy administration systems to improve underwriting and enable product development flexibility to speed entry to profitable niches. Preferred solutions allow the definition of a variety of data elements with product configurators, simple rules and tools for launching new rating algorithms, and the ability for the business to make their own modifications.
    5. Specialty carriers are extending functionality to agents and policyholders in their agent and customer portal initiatives in order to drive revenue by improving ease of doing business and to generate operational efficiencies. Real-time capabilities such as policy inquiry, billing inquiry, and claim inquiry are typical features. Specialty agents would like faster risk acceptance decisions.

    In many lines of business, rates will continue to decrease, putting more pressure on insurers find efficiencies through business intelligence initiatives, policy administration & billing systems replacement and rating engines. For more information about this report, or to set up a 30 minute consultation, feel free to contact me.

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    Top Stories in Property/Casualty for March 2015

    Steven Kaye

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

    • Google Compare is now live for auto insurance comparisons in California. Full Story.
    • Carrier Plymouth Rock is backing InsuraMatch, which enables prospects to indicate their preferences in terms of carrier type, payment, price, service,
      and interest in usage-based insurance. Full Story.
    • The NAIC is offering two documents on cybersecurity up for public comment. Full Story.
    • The New York Department of Financial Services has released the results of its survey of over 40 insurers on their cyber security measures. Full Story.
    • Fitch Ratings notes that carriers lag other industries in taking advantage of big data beyond fraud reduction and telematics. Full Story.
    • The biggest challenge for drones in terms of FAA regulations may come from flights over areas with multiple properties, or future regulations to address accident scenes and catastrophes. Full Story
    • Carriers are writing coverages for drones, and having to come up with their own safety requirements before underwriting them. Full Story.
    • Towers Watson reports on P&C carrier adoption of predictive modeling. Full Story.
    • Several states are investigating the use of price optimization by carriers, defined as varying rates offered for reasons not directly related to risk of
      loss. Full Story.
    • Mitchell International presents future scenarios for the use of smartglasses in claims adjusting. Full Story.
    • Millennials are more prone to use smartphone apps during the rental research and application process, according to a study by Protect Your Bubble. Full Story.
    • Verisk Climate is taking advantage of improvements in radar technology to better map the location and severity of hail. Full Story.
    • ISO is now offering cyber liability coverages for small and midsized businesses, for carriers to tailor as needed. Full Story.

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

    Top Stories for Life and Annuity in March 2015

    Steven Kaye

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

    • Life insurers are broadening their range of products to include more investment products. Full Story.
    • California legislator Ian Calderon is proposing the state examine the feasibility of a state-run long-term care insurance program. Full Story.
    • Swiss Re is examining data provided by wearables to see if it can be incorporated into pricing and underwriting risks. Full Story.
    • V12 Group is partnering with Swiss Re to offer a private label cloud-based multichannel marketing solution to Swiss Re’s clients. Full Story.
    • Royal Neighbors of America has launched and patented a whole life insurance product with a waiver of premium rider for diagnoses of breast, cervical, or
      ovarian cancer. Full Story.
    • Apple and IBM have introduced Advisor Alerts and Retention as part of their first wave of enterprise mobile apps. Full Story.

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

    A Contrarian View on Self-Driving Cars – Beware the Unintended Consequences

    Rob McIsaac

    While I embrace many (most?) things with a technology flair, I have to admit to being a bit amused with all the recent breathless excitement exuded over the idea of self-driving cars. To be sure, technology is making them ever safer and more fuel efficient. It is also augmenting the driving experience so that paper maps are going the way of LP recordings and being “lost” is now something of a personal choice rather than a state of condition, but I suspect that the rush to sell ad space may have people overlooking a few practical realities that could lead to surprising, if not dire, unanticipated, consequences.

    I’m quick to point out, by the way, that driving my vintage BMW has a completely different set of experiences than driving a new one. No airbags, crash avoidance alarms, proximity radar or backup cameras. Driving it requires real and significant concentration and the consequences of an error can be real and immediate. While I’d never want to retrofit a blind spot warning system, I can appreciate the value. Heck, from the dark ages back in 1984, the vintage ride doesn’t even have a single cup holder.

    I can appreciate ABS brakes and traction control too. These technology dependent devices can make drivers feel invincible … or at least support the idea that training and engagement are less important than they once were, since mistakes can much more easily be recovered from. Further, I can also appreciate that under “normal” conditions while cruising down the Interstate and experiencing the commuter equivalent of the “Talladega Draft”, where any open space on the road is an invitation for someone to dive in for advantage, advanced computer control can stay on top of following distances and emergency braking procedures better than the average distracted commuter trying to manage the car, the coffee cup, the kids and the cell phone concurrently.

    No, my real concern will come about when we get to the point of auto-driver being a real possibility. At that point, under normal conditions, the onboard systems could handle all the easy stuff with a minimal amount of drama or trauma. Parking between 2 stationary objects? No sweat. Maintaining following distances at 70mph? Again, not much of an issue. The concern will emerge when bad or unexpected or unusual things happen and the computer control gives up and hands it back to the now, even more woefully unprepared occupant, under the tag line of “I don’t know what to do, you take it!”. A failed sensor, a set of road conditions that are unexpected, and a wide range of other factors could create scenarios where the on-board systems decide that they have reached max capacity. Or there’s just the Help Desk Rule #1 for electronic devices: when all else fails, reboot, and start clean.

    In other forms of transport, such as high-speed trains and airliners, there is significant control automation even for such dicey maneuvers as station stops and landings. In the main, it works great. But when it goes wrong, it can go spectacularly wrong.

    As a backup, these devices have alternative systems, called engineers or pilots, who are well trained and capable of taking over navigation in mid-transaction. They have a full training and testing regimen that they need to follow in order to maintain their certifications. When the training kicks in, the auto pilot comes off, and the results are generally good. Even at that, however, they aren’t perfect as some recent plane crashes have suggested. Training really does matter. A lot.

    Which gets back to the driverless car concept. If the occupants are going to be expected to “take over” at any point in the journey, where is the training and experience going to come from? How will they practice dicey moments to build an experience base rather than becoming unwitting guidance systems for land-locked missiles that run amok?

    Renting a car today can provide an interesting view if the future. Mastering such simple tasks as turning cruise control on and off varies so much between brands and model years that the first few miles out of the lot are like a training mission of their own.

    So, one consequence of increasingly automated vehicles could be fewer, but sadly more spectacular, crashes that are hard to pinpoint “blame” for. The conversation around who is liable in such circumstances could be both long and full of rich legal entanglements. Breathlessly talking about self-driving cars and the end of accidents as we know them may be both significantly premature and a preview to different and more nuanced or complex dialogue.

    Of course, on a weekend that required a surprisingly large number of re-boots to both my real world laptop and tablet devices at unfortunate moments, I find myself a little less concerned. If the technology crashes on an Excel problem, how can it possible handle a Jersey Jug-handle first time, every time? Or, maybe I should be more concerned. Time will tell. And that could be the actuarial nightmare scenario.

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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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    Dealing with the COBOL Brain Drain

    Rob McIsaac

    As Baby Boomer COBOL programmers increasingly have the opportunity to say “bon voyage” to working 9-5 and retire, some Insurance IT executives are having restless nights trying to figure out how they are going to address the resulting brain drain. Not only are insurers losing vast amounts of programming knowledge, but they are losing vital business knowledge as well.

    Documentation on aging systems in many cases is more akin to tribal knowledge than a true knowledge management “system”, and the potential for things to go bump in the night increases as these environments face generational transition. For example, one CIO recently shared a story about the transition of responsibilities for running an annual production job from one retiring individual to another programmer. The transition involved, by definition, a year between education and execution. And what was the final result?

    A minor error sent an entire production run of annual statements, totaling 400,000 documents, to a single address! Somehow “oops” fails to capture the full magnitude of such an event.

    The insurance industry isn’t the only sector trying to figure out what they are going to do next. Banking, retail, manufacturers and even the federal government will be looking to find new sources for COBOL talent as the generational transition accelerates. As of 2015, 10k boomers achieve retirement eligibility daily, so the issue won’t resolve itself easily or quickly. This will be the pattern until 2029, so “hope is not a plan” may have never been a more appropriate sentiment.

    With such a competitive marketplace to find COBOL programmers what can you do? Three options immediately present themselves:

    1) Moving off big iron platforms dependent on COBOL, Assembler, VSAM and related technologies
    2) Finding COBOL programmers offshore
    3) Leveraging COBOL programs at local universities

    For many entities, the first option really isn’t feasible based on economic factors alone. The business case for converting old blocks of business can be weak at best, leading carriers to conclude that these systems will be running for the foreseeable future in tandem with more modern capabilities designed to handle new products, channels and priorities.

    The second and third options, however, can offer some immediate relief for these legacy programming needs. I’m pretty sure most people have a good handle on offshore providers, but some IT executives may not be familiar with the third option and I’d like to tell you more about it.

    Currently, I’m on the Advisory Board for the Computer Science and Engineering Department at North Carolina State University which provides some interesting visibility into both the demand and the development of new onshore resources. We are certainly seeing training programs emerge that are intended to restock some of the lost talent in this space. We are also seeing some fascinating collaborations between educational institutions, private enterprises and technology providers as they look to address gaps. One example of this is a collaboration between IBM, Blue Cross / Blue Shield of South Carolina and the University of South Carolina. BC/BS has the need, USC has the capacity to train and IBM has been an active participant in framing the curriculum and capabilities. Other examples are emerging as well which provide an opportunity to collaborate with either traditional colleges and universities as well as technical schools. Junior / community colleges may also provide some interesting options. We also understand that some companies are reverting to a tried and true technique deployed in the 1960’s: internal development programs to build new skills around aging technologies.

    At the end of the day, if the only tool a CIO has in their toolkit is a hammer, every problem looks like a nail. In this case, it is incumbent on CIO’s to develop a broader set of tools that can allow them to creatively and effectively build up the talent pool required to keep aging platforms and systems functional until such time as they can be retired. The reality for many mid-career CIO’s today is that these platforms may still be running after THEY retire, so considering the options sooner rather than later may minimize pain points.

    If you would like to learn more, or share your own experiences in this potentially mission critical area, please feel free to contact me at email.

    Agile and Continuous Delivery in a Regulated Environment

    Jeff Goldberg

    Many insurers are interested in the modern development methodologies of Agile and Continuous Delivery, but worry about how those approaches will work in such a highly regulated industry. When done properly, using an Agile development methodology and/or a Continuous Delivery approach shouldn’t prevent an insurer from putting controls and reviews in place to satisfy external regulations (and internal rigor). A test-driven approach supports both Agile and Waterfall development efforts.

    First, just because a development team is doing continuous delivery or packaging releases into two-week sprints doesn’t mean that code is being moved to production. One of the points of this approach is that code is constantly being built and deployed to a test server and that smaller chunks of effort are packaged for business user review. This means that some of the API integration and build issues that often hold up a project at the end are being nurtured and considered the entire time. It doesn’t mean, however, that actual production releases can’t go through the same rigorous testing and sign-off before ever moving to production servers. You can take an agile approach to a project with two-week sprints that doesn’t actually go into production more than once or twice a year.

    (Note that some organizations do consider continuous delivery to mean that once code has been committed by a developer, it can be tested and moved to production at any time. While this is interesting in theory I know of very few organizations that actually do it this way, and none in the insurance industry that do. The idea to embrace with CD is that you have a production quality branch ready to go at all times, but that doesn’t mean you have to actually move that branch to production outside of a predictable schedule.)

    Second, when done well, an agile approach actually results in more business user review and testing of a system as opposed to less. Testing is spread out over the entire process rather than done in one large burst at the end. A key value of the “sprint” concept is a continuous involvement of business users. Engineers are supposed to be delivering something every single sprint that can be demonstrated and reviewed by stakeholders. Unfortunately, this is where a lot of organizations fail to properly follow the agile methodology. A lot of companies (not just insurers) who embrace the idea of a sprint, really just treat it like a way for developers to chunk up rapid milestones. Agile is not the same thing as Rapid Prototyping. Without the business stakeholders regularly reviewing the results, adjusting priorities, and signing off on items, it’s not really following the agile protocol.

    Third, there’s a misconception that requirements in an agile approach are highly fluid or not well defined. While an agile approach is supposed to allow you to make rapid shifts in priority, it doesn’t mean as an organization you have to do so. If there are a set of regulatory-demanded requirements for a project, those are going to be at the top or near the top of the priority queue, and no amount of flexibility will mean that they get pushed off the list. Until they’re implemented and signed off, the project isn’t going to go into production regardless of how many sprints have passed.

    While I’m a big fan of an agile approach, I don’t think it is right for all insurers or even right for all projects at an agile-minded insurer. If the executives at an organization feel uncomfortable without very detailed project plans and requirements documents, the culture may not be right for agile. If you want to make some important feature updates to a legacy core system, you’re probably going to want to take a waterfall approach of defining the changes, implementing, and testing them; it’s often very difficult to do the sprint method with systems like that. But if you’re building a new web portal and the culture supports it, an agile approach can work great, especially when UI development is involved. And sometimes a mix is in order: if you are implementing a new core system, even if you take an agile approach you’re probably going to want to have some major planning and requirements gathering sessions up front so that you can define costs and timelines with your vendor.

    If you’re interested in talking more about Agile, Continuous Delivery, or other approaches to development, please feel free to email me to set up a complimentary 30 minute consultation.

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    Special Interest Group 2015: Annuities

    Rob McIsaac

    Earlier last week, we hosted our first special interest group meeting focused exclusively on annuities. Increasingly we have found carriers value opportunities like this to spend dedicated time on very specific lines of business. We were certainly not disappointed this time! One carrier noted that “This is the first event I’ve ever been to that is focused only on annuities, and I’m very excited about that!” Indeed.

    For the event, we shared updated information from our Business and Technology Trends report series. The market continues to evolve as new products are brought to bear which improved competitive positioning for carriers but which may test existing technology infrastructures in ways that were not anticipated in the past. One of the key business drivers for the future is “time to market” for new and enhanced products and, in many cases, legacy systems are simply not up to the task of supporting new variations in product features or distribution channels. A variety of approaches for dealing with this were discussed by the group.

    Another key issue area relates to electronic applications and the broader subject of Straight-Through-Processing. We used the meeting as an opportunity to unveil new research that we’ve done highlighting carrier deployment patterns and experiences with both electronic applications and electronic signatures. This research will be part of a future Novarica publication but the preview at this session provided for a highly engaged interaction. One of the things that we were particularly pleased with was our ability to share “lessons learned” with the various vendors which can provide key information to other carriers as they put together their own implementation plans.

    Another area which prompted lively discussion was security. No doubt fueled by concerns associated with recent breaches at places like Target and Anthem, CIOs are acutely aware of the potential risks and challenges. In addition to talking through some of the characteristics of current environments, we explored a range of best practices which carriers can consider in their future investment plans. The use of ethical hacking as a means of exposing, in a controlled manner, important gap areas was particularly interesting.

    This was the third in our series of special interest group meetings and we are particularly pleased with the level of interest and engagement that they are providing. If you would like to review the agenda or discuss the research material we shared at the session, please let me know. You can reach me directly at email.

    Our next webinar for a specific line of business will be on Wednesday, March 18th at 2 p.m. (ET), and will focus on the business and technology trends we are seeing in the group insurance space. If you would like to participate, please make sure to pre-register today to secure your spot.

    This is also a good time to remind Research Council members that our annual meeting is coming up at the end of April in Providence, RI. We already anticipate that there will be time dedicated to a follow-up discussion between the annuity carriers that participated in last week’s session. We look forward to seeing you there!

    Webinar: Group Life/Annuity/Voluntary Benefits

    Rob McIsaac

    In my last blog post I wrote about seven key findings from our Business & Technology Trends: Group Life/Annuity/Voluntary benefits report. In this post I would like to quickly highlight some of the top technology priorities, which I will be covering in more detail during our webinar on March 18th at 2 pm (ET).

    Technology is playing an ever larger role in insurers’ ability to attract, retain and profitably serve clients in the group life, annuities and voluntary benefits space. Some of the top initiatives include:

    • Solid product design that attracts a broad audience
    • Tools to help plan sponsors or enrollers to sell, market, or enroll individuals
    • Robust flexible group administration capabilities
    • Multi-channel marketing and sales
    • Administrative capabilities such as the ability to quickly and efficiently process and post payments

    Novarica research has concluded that success for carriers will revolve around these technology priorities. To learn more about these initiatives in more detail, as well as the latest trends and issues in the Group Life/Annuity/Voluntary Benefits space, pre-register for our webinar on Wednesday, March 18th at 2 pm (ET). I look forward to seeing you there!