News and Views: Data and the Small Carrier, Customer Experience in the C-Suite, and Cyber-Risk Scoring

Novarica’s team comments on recent insurance and technology news

GuideOne’s CEO says their exit from personal lines was driven in part by an inability to keep up with the data demands.

Jeff Goldberg

Novarica Comment by Jeff Goldberg, VP of Research and Consulting: “GuideOne’s CEO attributed their decision to exit personal auto, in part, to trouble keeping up with big data needs. Any insurer with a small book of business understands the difficulty in trying to use that limited data set to extract the same kind of insight compared to large competitors. Some utilize third-party data providers who aggregate larger sets of contributory databases across many insurers, allowing participants to position against those Tier 1’s. But access to the broader data doesn’t translate into the right skills for big data insight. Novarica often refers to data technology as an arms race: as long as your competitors aren’t doing it, you don’t have to do it either. But as soon as someone else adopts a new approach to make better pricing/underwriting decisions, you need to follow or else face adverse selection. Big data technology hasn’t always been common enough to cause these problems. But now, especially in personal lines auto, big data and big data tech is becoming so prevalent that insurers feel the pain if they ignore it. It’s another example of insurers needing to “Adapt or Decline.”

 USAA has named a chief technology and digital officer (CTDO), a newly created position responsible for information technology, digital strategy & operations, and experience design.

Chuck Ruzicka

Novarica Comment by Chuck Ruzicka, VP of Research and Consulting: “The USAA, which has been a leader in technology and innovator in the insurance industry, made a significant statement today by appointing a C-level executive with an explicit mandate to oversee and improve their overall customer experience. This ‘voice of the customer’ has long been lacking in the C-suite, and while other companies in other industries have started to bring that voice into the room, insurers are only now beginning to do so. The USAA, at least, is clearly banking on the idea that offering a world-class customer experience will enable them to thrive in an increasingly challenging marketplace.” Novarica will be publishing a report on best practices in User Experience later this month.

A new startup is grading Fortune 500 companies on cyber risk “credit scores” 

Mitch Wein

Novarica Comment by Mitch Wein, VP of Research and Consulting: ”UpGuard’s Cyberrisk score factors in public, web accessible reviews of a company’s IT environment (strong ciphers, using up-to-date software, using valid certificate authorities, applying phishing protections, etc.) to create a FICO like score.  This score can then be used by an underwriter to help price cyber risk.  The problem of how to price cyber risk is very real, in part because of the very recent emergence of demand for this type of coverage and the lack of loss history over time and because third parties can introduce cyber risk into the company requesting the coverage.  The problem is that this type of score, while a good preliminary indicator, is that it over-simplifies the issue.  Human behavior is a primary cause of security risk (putting a thumb drive into a computer, clicking a phishing link on an email, letting someone come into the office that they don’t know).  This score will not be able to factor this in.”

Less than 4 months before many firms are going live with the new DOL regulations, more than half of advisors surveyed are unaware of their firms’ plans for compliance

Rob McIsaac

Novarica Comment by Rob McIsaac, SVP of Research and Consulting: “As we approach the 4th quarter of 2016, the efforts to prepare for the implementation of the DOL Fiduciary Rule changes are clearly accelerated across the value chain. While the “real” effective date for key elements of the rules isn’t until April of next year, there is a growing consensus that distributors and manufacturers both anticipate having key changes implemented by the end of 2016 to avoid a “split year” scenario that will be difficult to manage. However, many producers are still unclear on what this brave new world will mean for them. Most importantly, there’s a lack of clarity on how certain things like the Best Interest Contract Exemption will be implemented and how their sales practices will be altered by the changes.

While the study is interesting, it doesn’t address demographic differences in the distributor force. With the average agent age now 59, understanding how the more mature producers react may be a key to future state planning. It’s plausible that older producers will simply turn attention to other product sets to simplify their own business models if the changes appear to be overly daunting. Carriers may find this yet another example of an area where the need to think bi-modally in order to maximize their chances of success.

Effective communication, support mechanisms, and a focus on being “easy to do business with” will  be critical for carriers hoping to preserve product shelf space with key distribution partners. We fully expect the pace of activity to sharply accelerate as carriers recognize there’s little more than four months left before their ’go live’ date.“ More from Novarica on the DOL ruling.

 

Case Study Highlight: Self-Service for Claimants & Partners at Homesite

Martina Conlon

As we approach the announcement of the Novarica Impact Awards in the fall, we will be highlighting one Impact Award nominee each week on our blog. The Novarica Impact Awards are voted on by over 300 members of the Novarica Insurance Technology Research Council, making them the only purely peer-reviewed awards program in insurance technology.

The 2016 Impact Awards nominees consistently cited cross-functional teams, with resources familiar with multiple business areas, and the use of Agile methodology as keys to a quick and successful delivery. Many projects focused on self-service capabilities, multi-channel applications, and data infrastructure to facilitate cross-departmental access.

This week, we look at a Homesite project that enabled self-service for claimants and partners.

Homesite wanted to provide better service to claimants and partners during catastrophe events, with the goal of improving customer experience, operational efficiency, and cat resource capabilities. The project built a strong relationship between IT and business units, which the team credits as a key success factor. Homesite also cites collaboration between the company and its vendors and business partners as crucial. The lessons learned from the project helped team members focus scope and understand industry standard technologies. It also eliminated manual rekeying associated with 33% of incoming FNOL volume and increased scalability during times of high claim volume. The project is ultimately expected to save the company $1 million over the course of eight years.

For more detail on this project and more than 30 others, including cases from AIG, MetLife, Heritage, and Glatfelter, see Novarica’s Best Practices Case Study Compendium 2016.

News and Views: Vendor M&A, FAA’s Revised Drone Rules, the DOL, Wearables in WC, Cat Bonds, Telematics, and the Life Industry

Novarica’s team comments on recent insurance and technology news

Consolidation of software vendors continues, most recently in benefits management with the acquisition of benefitsCONNECT by benefitexpress.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “By inserting themselves between employers and carriers/brokers, benefits providers have provided employers with a one stop shopping approach for benefits. Many employers like this approach since it is much simpler than maintaining separate relationships with multiple carriers. Consolidation of the sort represented by this merger, is likely to accelerate in the future. A product that is not only an enrollment platform but an engagement solution integrating products from several carriers is not just an employer portal but also a new distribution channel for carriers. For many carriers, the group and voluntary benefits markets are key to their financial success. They will want to remain vigilant to how the competitive space is changing and aware of what they need to do in order to effectively adapt.” More from Novarica on M&A in the insurance software market here.

Low interest rates and Brexit continue to force organizational changes at MetLife, and pressure to lower costs will mean job cuts.

Don Metz

Novarica comment by Don Metz, VP of Research and Consulting: “Recent earnings results continue to emphasize the difficult headwinds facing the life insurance industry. Persistent low interests, foreign exchange rate volatility and continuing turbulence in the domestic equity markets continue to drive thin profit margins, while sluggish sales growth compounded by regulatory challenges, such as the recent DOL ruling, may further impact short term sales. Many insurers recognize the need to innovate and transform to drive growth and open new opportunities. But, the dual pressures of needing to invest in innovation and technology modernization while also maintaining aging legacy systems and processes will continue to challenge insurers, and carriers without a holistic approach to IT modernization will find themselves without the tools to cope as the competitive environment gets tougher.” More from Novarica on IT modernization and program management here.

Cat bonds are upsetting profits for reinsurers, showing that the insurance industry doesn’t have a monopoly on risk transfer.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “Catastrophe bonds now account for 12% of the overall reinsurance market, a number that is triple the level projected for 2016 in by a Guy Carpenter report from 2012. Advancements in information technology makes it possible to better understand and price risk, meaning that insurers no longer own this type of risk transfer. The insurance entities that facilitate risk transfer- distributors, resellers and carriers of risk, and others- are vulnerable to disruption and disintermediation if they can’t justify their existence by adding value to this process. More from Novarica on risk transfer in the insurance industry.

Six IMOs have filed for exemption to be defined as “financial institutions” to comply with the DOL’s Best Interest Contract Exemption (BICE).

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “One of the great questions facing annuity manufacturers now, particularly for those involved with Indexed products, is exactly how they and their distribution partners will comply with the Fiduciary Responsibility component of the DOL ruling which is slated to go into effect next year. In reality, many are facing the prospect that the real go-live date could be 1/1/2017 for many changes, since distribution partners are unlikely to want to run 2017 on a “split basis”.

In any case, for variable annuity products, part of the compliance model has relied on the governance controls provided by retail Broker Dealers. This does not currently exist for the Indexed product set. As a result, evaluating different options becomes critical for the entire value chain. Some interesting developments highlighted this week, including the potential direction of an increased number of IMO’s moving to become Broker Dealers.” More from Novarica on the DOL ruling here.

The FAA’s revised drone rules will allow insurers to take full advantage of the technology for inspections and data capture.

Chuck Ruzicka

Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “Insurers sitting on the sidelines wondering about FAA drone regulation have had one major obstacle removed. Now that the FAA has removed most of the regulatory burden of simple drone operations, we expect most P/C carriers to be keen to exploit the numerous operational advantages it can bring. However, to fully leverage drones and the data they can supply, insurers also need to have prepared the necessary technical resources, the data absorption and data analysis capabilities, and prepared their claims departments for the potential impact of new data sources on adjusting and litigation. Permission to take off is only one part of getting off the ground.” More from Novarica on drones and IoT here.

Wearables to manage workplace injuries are poised to reduce risk and cost in workers’ comp.

Tom Benton

Novarica comment by Tom Benton, VP of Research and Consulting: “Wearable devices have the potential to quantify many variables for personal health: movement, heartrate and even more specific items like blood sugar levels for medical monitoring. Consumer adoption has been rapid with fitness bands and smartwatches in the last few years, but insurers have struggled with how to leverage the massive amounts of data that are becoming available. Specific use cases are hard to find, but as the article points out, wearables can make an impact on workers compensation (WC) claims. Injured employees can be better monitored to track recovery to decrease the time away from work, and possibly increase the likelihood of returning to their job. As Novarica pointed out in a report earlier this year, wearables and other IoT devices face significant long-term challenges for insurers such as regulation, adoption, standards and other issues. However, application to workers comp could provide a use case that has near-term impact and measurable benefits to WC insurers.” More from Novarica on wearables and IoT here.

The spinoff of Allstate’s telematics company, Arity, signals intent to sell data and analytics knowledge to competitors and other industries.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “This announcement shows that leading P&C insurers are not going to be content to have their fortunes completely hostage to a low margin, commodifying business like mass market personal auto. They are going to look for new services that they can offer based on their extensive knowledge of risk. Whether insurers will buy services from a company owned by a competitor is another question.”

Case Study Highlight: Infrastructure Optimization at the Hartford

Don Metz

As we approach the announcement of the Novarica Impact Awards in the fall, we will be highlighting one Impact Award nominee each week on our blog. The Novarica Impact Awards are voted on by over 300 members of the Novarica Insurance Technology Research Council, making them the only purely peer-reviewed awards program in insurance technology.

Many of the 2016 Impact Awards nominees cited cross-functional teams, with resources familiar with multiple business areas, and the use of Agile methodology as keys to a quick and successful delivery. Common among many projects was a focus on operational transparency, overcoming internal challenges, improving relationships, and cost savings.

This week, we look at The Hartford’s initiative to optimize application infrastructure.

The Hartford Group Benefits division needed to optimize application infrastructure in order to decrease the total cost of maintaining the environment. The project team faced disparate data sources, an outdated application inventory, and lack of standardization within the application infrastructure. Tracking templates and assigning support helped to overcome these issues, as well as improvements in resource time and commitment to the application environment. The team cites the ability to quickly identify and execute opportunities and the savings to come from future investments in the infrastructure as further success factors. The resulting application infrastructure improved the TCO/lifetime value of the environment and reduced storage and server costs by 8% annually. The migration to a private cloud model saved 2-3%, and decommissioning physical servers saved an additional 2%. Finally, database optimization saved the company 3-4% annually.

For more detail on this project and more than 30 others, including cases from MetLife, Tokio Marine HCC, Prudential, and Unum, see Novarica’s Best Practices Case Study Compendium 2016.

What to Expect When You’re Expecting (Your Software Vendor to Be Acquired)

Matthew Josefowicz

Another day, another suite vendor buys another small independent component vendor. This time, Guidewire bought FirstBest Systems. The Age of Suites is certainly upon us, and the suite vendors are taking their cue from Pokemon Go. Gotta catch’em all!

As we wrote in June, there are three major trends driving M&A in insurance enterprise software these days: verticalization, suites, and portfolios.

Three Trends in Insurance Enterprise Software M&A

For insurers who rely on systems from independent software vendors, it’s time to think about the inevitable. What would it mean for your favorite vendor to get rolled in to a suite or a portfolio?

Back in 2008, we wrote an executive brief on this topic called What to Expect when You’re Expecting Your Core Systems Vendor to Be Acquired. We’ve updated it and republished it today.

Insurance Industry Doesn’t Own Risk Transfer

Matthew Josefowicz

Interesting article in today’s WSJ about the impact of Catastrophe Bonds on the insurance industry. According to the article, cat bonds and similar investments now account for $72 billion in risk transfer, equivalent to 12% of the $562 billion in the overall reinsurance market. This is triple the level projected for 2016 by Guy Carpenter in a 2012 report.

As information technology makes it more possible to understand and price risk, insurers are losing their monopoly on this kind of risk transfer. At its core, insurance is a very simple industry. There are some entities with more risk than ability to bear it, and there are pools of capital that will take that risk on for a fee.

Novarica Presentation for PCI Tech 2014

All of the entities that facilitate that transfer — whether they are distributors, resellers of risk, carriers of risk, or others — are vulnerable to disintermediation and disruption if they’re not adding sufficient value to justify their existence.

Related: Novarica’s 2014 Webinar on Technology in Insurance: Change, Legacy, and Disparity

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

Novarica’s team comments on recent insurance and technology news

Predictive analytics reduces risk in Workers’ comp.

Jeff Goldberg

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

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

Chuck Ruzicka

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

SAP will start integrating with Blockchain.

Mitch Wein

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

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

Rob McIsaac

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

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

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

Steven Kaye

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

Case Study Highlight: Rapid Product Launch at Legal and General

Tom Benton

As we approach the announcement of the Novarica Impact Awards in the fall, we will be highlighting one Impact Award nominee each week on our blog. The Novarica Impact Awards are voted on by over 300 members of the Novarica Insurance Technology Research Council, making them the only purely peer-reviewed awards program in insurance technology.

2016 Impact Awards nominees consistently cited cross-functional teams, resources familiar with multiple business areas, and the use of Agile methodology as keys to a quick and successful delivery. Many projects focused on systems consolidation and speed, combining disparate core systems to improve product development and time to market.

This week, we look at a Legal and General initiative to enable rapid product launch.

Legal and General sought to expand the reach and market presence of its pension risk transfer product within the United States. Legal and General updated existing systems to include 90% of the most common retirement and annuity products in just 100 days. Agile methodology and program structure created a common team understanding of the initiative, and both were critical to the rapid delivery of the project. The team also notes that internal communication was always open, frequent, and responsive, and that executive support from the project sponsor was consistently supportive. Subject matter experts that provided user feedback were also valuable assets to the project. The finished project includes improved payment processing, new business onboarding, and product build-out. Despite its short timeline, the project remained on budget at $1 million and also changed 80 COBOL and 150 Delphi programs. Since its delivery, the new system has allowed for the addition of over $500 million in new business within six months.

For more detail on this project and more than 30 others, including cases from Aflac, Heritage, Michigan Millers, and Trustmark, see Novarica’s Best Practices Case Study Compendium 2016.

News and Views: The “Uninsuranble Underclass”, Startups, Brexit, Annuity Sales, and AI

Novarica’s team comments on recent insurance and technology news

Advances in FinTech and analytics could lead to the creation of an “uninsurable underclass”.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “As more customer data sources become available—social media, telematics, wearables, sensors, and drones—at what point do insurers have enough real-time information to switch from a demographic-based risk-pooling model to true individualized pricing? A new report questions whether such advanced analytics could lead to an “uninsurable underclass.” The insurance industry has always tried to assess the risk of a potential policyholder to the best of its abilities, but limitations in technology and data had a secondary impact of allowing a socially beneficial distribution of risk across larger pools of people. Does the industry have a social obligation to maintain some abstraction between its customers and its risk/pricing analysis in order to maintain this approach? If insurers move too far down this path, or start eliminating broad communities of people from affordable coverage, it’s likely the government will step in with healthcare-like regulations.”

Oscar, a health insurance startup, announces cuts in coverage.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “This story has been covered with a certain amount of gloating that self-proclaimed disruptors are not immune from the pressures faced by traditional providers. We saw a similar tone in the media, especially the trade media, when Zenefits stumbled on regulatory compliance. But none of this voids the fact that consumers are eager for the ease of use and customer-experience focus that these companies are trying to deliver, nor does it change how dissatisfied customers are with the experience that traditional players offer. On the bright side for incumbents, it may be easier for them to improve their customer experience than for new entrants to effectively operate in the insurance industry.”

Hiscox may set up an EU-based insurance firm in the wake of Brexit and the future loss of “passporting” rights.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Hiscox is thinking of setting up an EU based Insurance Subsidiary. This is important since today Hiscox has access to the continent from the UK through the “passporting” rights that allows regulatory capital for product reserves to be in any EU country and the regulatory oversight to be in the EU country of origin, historically the UK since they sell their specialty products through Lloyds of London. In the near future, when the UK is not in the EU, they would lose access to EU countries for their products since “passporting” will no longer be applicable. As I have discussed in a number of blogs on the topic, we expect many carriers to set up EU companies in places like Frankfurt, Paris or Dublin to retain access to EU markets.” More from Novarica on Brexit.

Annuity sales plummeted in 2016.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “While much of the reporting on the precipitous fall in annuity sales in 2016 seems to focus on the impact of the Department of Labor rules announced earlier in the year, the actual causes of the sales decline are likely more complex. Market volatility earlier this year, the election year, and other influences, some of which would actually tend to increase annuity sales, are all having an effect.

A more important question is how the Fiduciary responsibilities will be delivered to the market for indexed annuities. Since these are frequently sold by agents who are not themselves registered reps, the broker-dealer structure for variable products does not universally apply. This could force notable changes in how indexed products are distributed in the future or in the willingness of carriers that manufacture these products to step into the breach to provide support for the fiduciary function. This will be an important element to watch over the balance of 2016.” Here is another perspective on declining life/annuity sales. More from Novarica on the DOL Fudicuary Ruling here.

Fidelity officially launches robo-advisor platform, and the Economist has more to say about AI in general.

Don Metz

Novarica comment by Don Metz, VP of Research and Consulting: “The long awaited promise of AI may finally becoming a reality as significant progress has been made utilizing a new technique called deep learning. Taking advantage of extraordinary advances in computing power and data storage and the increasing availability of large quantities of data, large neural networks are now beginning to learn rather than just process information. This deep learning technique has the potential to enable new disruptive capabilities in the insurance industry, impacting areas such as data analytics, actuarial modeling, underwriting, and predictive analytics.”

Sun Life announces a new partnership with Plug and Play.

Steven Kaye

Novarica comment by Steven Kaye, Associate VP of Research and Consulting: “As noted in our report Buying Innovation: Insurer VC Funds and Accelerators One Year Later, more carriers are launching corporate development programs and venture capital groups, as well as serving as mentors to startups lacking insurance industry know-how. Carriers can also offer startups capital and partner networks, while in turn benefiting from a chance to get ahead of innovations rather than reacting to them. Startups can provide carriers an outside-in view of their processes. Novarica regularly attends events in Silicon Valley, and talks to accelerators, carriers, and private equity and VC firms on an ongoing basis.” More from Novarica on innovation and Silicon Valley

News and Views: The US Treasury’s 2% Rule, Workers’ Comp, Direct Small Commercial, UBI

Novarica’s team comments on recent insurance and technology news

As the Worker’s Comp line reports significant profits for 2015, a class action lawsuit alleges that women receive fewer Workers’ Comp benefits than men for the same injuries.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “A recent class action lawsuit alleges that women are being systematically awarded lower disability payments for Workers’ Compensation claims than men for similar injuries. Without getting into the merits of this particular case, it does raise an opportunity to discuss how insurers can use analytics across their business to do more than just optimize pricing and risk selection. Insurers want to thread the needle of remaining profitable while also best serving their policyholders, and no insurer would set out to intentionally under-indemnify a particular group of people. But, if unrecognized societal bias results in individuals making biased decisions at an institutional scale, proper business intelligence would show these kinds of trends and allow a company to put policies in place to rectify them. Whether an insurer has a legal obligation to apply data analytics to identify such trends is a matter for the courts, but–even if the courts say no–it would certainly allow an insurer to make better long term decisions and, just as importantly, improve their service and their ethical standing with clients.”

Forbes profiles another startup trying to disrupt insurance distribution, this time from insurance veterans rather than the startup world.

Martina Conlon

Novarica comment by Martina Conlon, SVP of Research and Consulting: “As we note in our recent Business and Technology Trends report on Commercial Lines, direct small commercial is a market with great potential for a company that can reach small home office businesses and provide a swift and seamless process for potential policyholders to close. This isn’t about coming up with a great new idea for how to sell insurance, it’s about racing to be the first company to provide a really easy, efficient customer experience for small business owners.” More from Novarica on direct online small commercial.

Another insurer has rolled out a UBI based offering, this time based on incentives rather than pure discounts.

Chuck Ruzicka

Novarica comment by Chuck Ruzicka, VP of Research and Consulting: “Answer Financial’s innovative Streetwise Driver club has the potential to energize policyholder’s and change the tone of insurance company conversation in social media. As we note in our recent report on Telematics and UBI, a purely discount-based approach is unlikely to generate substantial market penetration beyond the current, low levels. Some insurers seem to be reaching the same conclusion, but a scheme like this is still essentially financial in nature – the next step will be to find ways for telematics to drive service differentiation and customer engagement.”

The US Treasury has adopted a formula defining a threshold of 2% of community median income for Auto Insurance Affordability,.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “While this ruling on affordability has no direct impact, insurers are not unreasonably concerned that, having quantified an affordability problem, the next step would be to address it. Whether this will be through subsidies, mandated rates, or other methods remains to be seen. As we noted in January 2011, once the industry accepted minimum medical loss ratios under the Affordable Care Act, the door would be open to additional intervention in insurers’ operating models in the name of consumer protection and preserving accessibility.”

The IAIS is moving towards a Global Capital Standard, but US insurers are resisting the move.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “The Switzerland based IAIS has recommended a risk-based capital standard that conflicts with a US Federal Reserve Capital Standard that was proposed last month. The IAIS has 140 member countries, many of which are outside Europe, so this effectively means the US and the rest of the world are moving towards different capital standards. Capital standards drive product mix and type/configuration, since different types of products require different levels of reserves. Additionally, liability valuation has been different in Europe which uses Market Adjusted valuation vs. GAAP in the US. The new proposals compound this difference, adding complexity to global insurers financial accounting and decision making. Global software deployments for PAS and GL will need to take these differences into account. The global patchwork of insurance regulations does not look like it’s getting simplified anytime soon.”