The major tech players are all betting that smart home automation and digital assistants will be the next big thing for consumers. Grange is taking advantage of this emerging area with their recent announcement that Amazon’s voice-controlled Alexa can now help users learn about Grange insurance or find local agents. It’s clear that the insurance marketplace has not always adapted quickly to improve the customer experience, so this is a great example of an insurer working to serve consumers in whatever way they prefer. It also demonstrates the necessity for insurers to think to the future when they modernize their back-end systems. Will a new core system support future channels? Over the last five to ten years insurers have poured a lot of time and money into building web-based consumer portals. Those that didn’t build for future flexibility had to start from scratch in order to create mobile-ready sites. Will they have to begin again to leverage voice-based home assistants or some as-of-yet unknown customer interaction? Insurers who are thinking in an omni-channel way will instead be architecting agile back-end systems that can support any number of channels and–just as importantly–can support transfers between channels when necessary.
A recent survey of younger agents highlighted a generally optimistic view of the future. In addition to reflecting positive sentiments about economic prospects, they also appear to feel good about the security of their positions, given the significant number of current producers that are expected to retire from the labor force. The average age of an agent in the United States is greater than 59 and there are forecasts of up to 25% of the current population of agents planning to retire by the end of 2018.
While there may well be room for optimism for those who properly frame a career in insurance distribution, the likely reality is that carriers will need far fewer agent relationships in the future. Increasing focus on self service capabilities, desires from consumers to be able to have direct interaction with the companies they do business with and greater commoditization will all put pressure on the industry to do things in a more efficient, less labor intensive, fashion. Distribution will hardly be the only function to experience this pressure. More automated underwriting and automated claims adjudication are two other examples.
This also ties to research Novarica recently competed on Millennial consumers. As a generation, Millennials will represent half of the US labor force by 2020. As a group, they have a strong preference for DIY capabilities.
This doesn’t mean that the agent role will become extinct but rather that it will morph and evolve. There are likely to be far fewer, but on average more highly skilled, producers in the future. They will be experts on dealing with complex and difficult situations which don’t lend themselves to a do it yourself model. That could be a very good place for producers to be, albeit with a substantially different business model, than is currently the norm. Carriers will want to be preparing for these changes sooner rather than later, given the speed with which consumer preferences can be influenced by the likes of Google, Amazon, Facebook and Apple.
Lemonade got some great press this week with their instant claims payment for a small property loss on a renters policy.
While Lemonade is spinning this a miracle of AI, it’s really more a miracle of intelligently-designed processes. Many insurers do rules-based, auto-adjudication for small property losses, but few have the ability to translate those automated decisions into real time payments.
The other thing that Lemonade has done successfully here is focus on the desired customer experience, and exploit the industry’s lack of willingness to do so.
Now if Lemonade can do the same thing with a $25,000 liability claim on a small renters policy, that’s a different story…
Just before the end of the last calendar year, the New York State Department of Financial Services announced changes to its new cybersecurity regulations, pushing back the date they will take effect to March 2017 from January 2017. In December, we held a working group on the imminent New York State cybersecurity regulations, then due to become effective on January 1, 2017, with no penalties for not complying until July 1, 2017. One of the attendees who had participated in a number of recent AIA calls and an in-person meeting on the law said that New York State was considering an additional 6 month delay beyond the 6 months after the law goes into effect to mandate deployment of multi-factor authentication, which was a huge issue for most carriers. Within that draft, encryption in-transit and at-rest was not going be required to be deployed for 5 years; however compensating controls would be expected in the interim. The conversation covered the cost to comply, how to make decisions on what to deploy vs. what can be skipped, and cloud; does cloud increase or decrease risk. There was a discussion of “accumulation risk” caused by a cloud; a hack of the cloud could automatically trigger a security event for everyone in the cloud. There was a large discussion around the responsibilities of carrier partners, whether they are MGA’s or agents on the distribution side or outsourcers and other service providers on the service side. There was a clear consensus that the carrier is responsible for security if they are manufacturing products that provide coverage (even if someone else has the right to underwrite and bind the policy). We had a good conversation around what will need to be reported to the CEO and Board (a high level dashboard supported by details). There were areas of concern around reporting; it would need to include both successful and unsuccessful security events. Things like attempted phishing attacks through email (even if blocked at the firewall) would have need to be reported under the regulations.
There was also a discussion around European security laws and how they overlap or are different with New York State laws. The revised regulations responded to these types of concerns and include easing some specific timelines and requirements, especially around encrypting data and multi-factor authentication. They also provide more time for compliance, expanding the transition window from six months to as long as two years for most items. The effective date will now be March 1, 2017. Although the easing of the regulations will take some pressure off, the need to do a NIST assessment, and the requirement to put in proper technical solutions, processes, procedures, metrics and reporting all remain.
The potential for wearables in health and life insurance has been hindered over the past few years by lack of standards and slowing adoption by consumers. This week, UnitedHealthcare and Qualcomm announced they have “enhanced and expanded” the employee wellness program UnitedHealthcare Motion. UnitedHealthcare Motion is making progress in wearables use for wellness programs by leveraging the advantages of using the Qualcomm 2net platform, a medical-grade cloud-based infrastructure for medical device applications, with enhanced security and flexibility provided by standardization of end-to-end connectivity for wearables. The ability to quickly integrate in the Fitbit Charge 2, first shipped to consumers in mid-September 2016, shows the advantage of a standard platform that can respond to changing consumer demands and device capabilities. As mentioned in Novarica’s report on “Internet of Things, Wearables and Insurance Customer Experience”, security and standardization as seen with the UnitedHealthcare Motion BYOD capability will enable faster adoption of wearables for use by insurers to improve customer experience.
The consensus among those keeping an eye on the development of self-driving cars is clear: Autonomous vehicles are coming, sooner rather than later. Still, all the analysis in the world doesn’t speak as loudly as one of the world’s premier automotive brands, BMW, announcing it is releasing a fleet of self-driving cars onto U.S. and European roadways this year. BMW says its goal is to train the cars, equipped with computing systems developed by Intel and Mobileye, to drive in urban areas, with an eye towards full autonomy by 2021. As the article points out, automakers who hope to compete in the autonomous vehicles market space have a long way to go to catch up to Google and Tesla, whose vehicles have logged 2 million and 1.3 billion self-driving miles on public roads, respectively.
BMW’s move offers an important lesson about innovation. When starting to innovate with a new product, or any new way of doing business, learning about the space you’re entering is often more important than getting it exactly right from the start. BMW has made the decision that, rather than ceding the ground of self-driving cars entirely to early entrants like Google and Tesla, the company is better served by looking towards the future and starting to play catch-up now while the technology is still being developed. When it comes to innovation, the first movers don’t always win. Getting engaged with the right mind set of learning from the experience and data gathered is the key to proper execution.
2017 has barely begun and the 2016 trend towards core system consolidation in the insurance industry is showing signs of going strong for another year. Duck Creek’s recently announced acquisition of Yodil comes as no surprise, as it both continues the willingness by Duck Creek to invest in broadening the scope of its offering as well as a growing focus on data and business intelligence across the industry as a whole.
This is another example of a multi-year trend towards consolidation in the P&C core system space, a direct response to insurer preferences for suite providers as opposed to best-of-breed. Even when insurers do seek out standalone components, they show a strong inclination towards vendors who will be able to provide additional components at a later date. Over the course of their history, Duck Creek has continued to grow their offering to satisfy more of an insurer’s technology stack, both through development and acquisition.
What’s notable here is that Yodil isn’t what the industry has considered standard insurer core component like claims or billing, but instead is a business intelligence and data management offering. This move by Duck Creek is likely at least partially in response to Guidewire’s multiple acquisitions of data warehouse and business intelligence solutions, with EagleEye (now Guidewire Predictive Analytics) the most recent example. It’s safe to say that BI and data warehousing can now be considered a core part of the insurance suite just like any other business process focused system. Insurers are increasingly budgeting more money towards the data arena, so other suite vendors will need to follow up with their own competitive BI and warehousing offerings either through development or M&A.
This week, Google announced it’s spinning off its self-driving car unit into its own standalone company, Waymo. Fundamentally, this is news about internal corporate restructuring that is mostly making headlines because we tend to be captivated about any news regarding Google and self-driving cars. Whatever Google chooses to call it, Waymo is still part of the overarching Alphabet corporate structure. The move does signify, though, that Google is positioning their self-driving vehicle technology for the marketplace, commercializing what has up until now been an ongoing research project. We can assume commercializing it has always been the end goal, this is just a step in that process.
When Google started developing autonomous driving technology, the company was ahead of everyone else in the field. Now, in late 2016, there are a lot more competitors in the space to contend with. Insurers need to prepare for the possibility that self-driving vehicles might be out on the roads sooner rather than later. As the technology first makes it out of the labs and into the real world, we’ll see a mix of self-driving and human-driven vehicles on the road, which could have unexpected effects on claims and premiums. What’s more, auto insurance won’t be the only line of business impacted by autonomous vehicles. There will be emerging opportunities to reduce risk at work sites, simplify delivery, and take advantage of overnight transportation across all of P/C, plus innovations in risk management and mitigation that no one can predict.