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.”

Insurers Need to Focus on Time to Value for Core System Replacements

Jeff Goldberg

Insurance core systems are not going to last thirty years anymore. That’s one of Novarica’s key messages about core system replacement. The pace of change, as always, is increasing, and a system an insurer puts in place today will have a lifespan of about ten years. Sometimes systems stick around longer than their actual lifespan–as a platform for legacy data or as a system that’s been offloaded to a BPO–but the new policies and claims will be flowing elsewhere.

At the same time, the time to implement new core systems has been increasing. Modern core systems have made huge improvements: they are configurable, have open architectures, accessible data, and help drive best practices at an organization. Unfortunately, insurers are spending years putting them into production. On average, mid-size insurers take 2-4 years (if not longer) for a complete implementation of all lines and states. These long timelines are partially driven by insurers looking to take a slow rollout approach to minimize risk. It’s also because insurers take too much advantage of the flexibility in configurable modern solutions.

Whatever the reason for these long timelines, it’s made more alarming when one considers the lifespan of the system. A system that will last ten years takes 4 years to implement? That means an insurer spends almost half the system’s lifespan putting it into production! This is not a sustainable trend.

What should an insurer looking to replace a core system do about this?

  1. Focus on reducing implementation timelines with the vendor. Push them for reasonable but aggressive milestones, but remain skeptical unless they’ve proven those timelines with other clients.
  2. Look at time-to-value. Understand the difference between getting everything into production and getting something of value. Even if there’s a longer timeline for the whole project, an insurer should be live and seeing real results early on in the implementation.
  3. Accept the system’s built-in best practices. Any time the team considers configuring the system away from its out-of-the-box behavior, someone should be pushing back and asking whether that change is really necessary.

There is some good news. When an insurer chooses a new core system, the goal isn’t just to find the best system for today but the best system going forward. A vendor will continue to improve and expand their offering, so understanding the product roadmap is just as important as understanding the current feature set. It’s the insurer’s job to work with the vendor to take frequent upgrades and keep the system up-to-date.

If an insurer follows the upgrade path, putting the time and resources into continual modernization, that means in ten years’ time the system they put in place today will hopefully have evolved and grown into a new system that reflects the latest trends and technology. So a ten-year lifespan doesn’t necessarily mean that an insurer will need to start a brand new vendor selection and replacement project. The new system in ten years might be with the same vendor they started. On the other hand, if the insurers hasn’t kept up-to-date, then they will find themselves running the next legacy system. The cost of upgrade will have grown so expensive that it’s as expensive as bringing on a brand new system. So either the insurer puts the time and resources into upgrading all along or they put that into another system replacement project in ten years.

This means an insurer looking to replace a core system should follow one more rule:

    4.Talk to the vendor about their upgrades and how to start on the right upgrade path early and often. If the overall implementation timeline is more than a year, then the insurer should go through at least one upgrade before that initial project is even complete.

As an industry we need to focus on getting a faster time to value for core system replacement projects. But we should also be making sure the systems we put in place today don’t become legacy before the system is even live.

News and Views: On-Demand Insurance, the DOL, Agent Licensing, Big Data

Novarica’s team comments on recent insurance and technology news

On-demand insurance startups are gaining traction.
One company, Slice Labs, has announced a partnership with Munich Re, and
the Chicago Tribune profiles four other startups in the space.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Pay per use insurance represents the coming together of big data, which supplies large amounts of data for underwriting in real time with the needs that an on-demand economy requires. For example, a Uber driver may need commercial auto insurance while acting as an Uber driver and personal auto insurance when driving the car otherwise, and another consumer might want coverage only while riding their bicycle or driving their car. The larger trend here is the digitization of the overall experience, enabled by smart phones and telematics, which we are seeing across all lines of insurance.” For more on startups and on-demand insurance, see our reports on telematics and VC funds and accelerators.

A new Florida law will allow college grads to waive the personal lines agent licensing exam if they complete the requisite insurance courses at an approved state college.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “The recent change to licensing regulations in Florida is the latest attempt to address the aging insurance labor force, particularly among agents. Beyond creating a short term bump in new entrant agents, however, this regulatory change does little to respond to fundamental changes taking place in the industry in terms of how products will be purchased by Millennials (and others) in the future. Personal lines P&C has seen a significant and growing shift toward a more direct to consumer model recently, and other lines will follow. To truly prepare a distribution force for the future, training programs will need to impart an ever-increasing degree of technical sophistication as well as an appreciation of the importance of Omni-channel capabilities that allow consumer to adjust channels of communication at their own discretion.”, a startup with the potential to disrupt big data, raised 14 M in Series A funding.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “The future of the insurance industry (and most industries) will revolve around getting access to and getting better insight from data. But this means something other than just an insurer doing more with what they have; it will require a combination of private and public data across many different sources. There will eventually be a race by insurers to find new predictive factors from a widening body of available data, even sources that seem tangential to the industry. The investment news about shows that the marketplace values this and is excited not just about data technology but the growth and handling of the data itself. To appeal to the corporate world, solutions and data hubs will evolve to allow businesses to blend their proprietary data with more public sources, and as long as they can maintain both security and ease-of-use it will have a transformational impact on private enterprise.” More from Novarica on data usage here.

The DOL posts technical fixes to the recent Fiduciary Rule.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “While some carriers continue to hold out hope that action in the courts will delay or modify the ruling, most presume the new regulations will go into force as they are currently written, and that changes will need to be in place by January 1st, 2017, notwithstanding the actual effective date for some elements being in April. This week’s technical correction represents a refinement that was already fully expected by the carriers involved and so has no meaningful impact on the trajectory for implementation. Furthermore, it does not clear up the uncertainty over how indexed annuities will be handled, since they are frequently sold by independent agents or other producers that are not necessarily subject to SEC / FINRA oversight. In these instances, it is unclear where fiduciary responsibility lies, and most manufactures appear unable or unwilling to assume it. The path forward for indexed products will be very interesting to watch.” More from Novarica on the DOL ruling here.

Pokemon GO has seized our nation’s cell phones. How can insurers seize the opportunity?

Harry Huberty

The augmented reality (AR) mobile game phenomenon Pokemon GO seized the attention and smartphone bandwidth of the entire country this weekend, adding upwards of $9 Billion to Nintendo’s valuation with a 23% jump in stock prices.

The game immerses players in an AR version of the real world, where their neighborhoods, parks, streets, commutes, offices, and homes become populated with colorful cartoon monsters. Geotagged locations (usually landmarks and local points of interest) offer in-game rewards to players who visit. A built-in pedometer tracks distance traveled to incubate “eggs” that hatch new Pokemon. The bottom line: users are highly incentivized to keep the smartphone app active at all times, an app that tracks their location and movements to a great degree.

First, the technological capabilities on display are astounding in their detail: Pokemon GO tracks users in real-time to within feet of their geographic location. And since game features require the app to be open to track steps and gain rewards, Niantic (the game’s developer, a Google spinoff) is capturing granular information about where players move, how they get there, and how long they stay. In a world in which insurers are considering using wearables like FitBit to validate claims data, apps like Pokemon GO offer the same data in much greater detail.

There are different ideas on how AR might be used in the insurance industry. Perhaps a form of live-advice that helps claims adjusters (or policyholders filing FNOL) know where to point their phone’s camera to take photos and videos of car or home damage, giving a real-time comparison to the “before” and “after” state. An augmented reality app might also help to prevent accidents, scanning a home or worksite and alerting the user to potential risks. And possibly an insurer will team up with a third-party to devise gamification methods of encouraging safer behavior. If nothing else, the mainstream success of Pokemon GO shows that augmented reality can be made usable and accessible through the device everyone carries in their pockets or purses.

Users are aware that these data are “the product,” and are savvy enough to understand the dangers of giving Nintendo and Niantic permission to monitor them so closely. Despite some discomfort, it’s clear many are willing to trade information about their habits for the fun of playing the game. As many insurers wonder how they might encourage policyholders to turn over automotive telematics data in exchange for rate adjustment, Pokemon GO shows that if the reward is attractive enough, people will bite. There’s another option, too: insurers could simply purchase user data en masse from providers who have developed games and other tools to sweep it up.

Such a tremendous data cache is an attractive target for potential hackers, and hot on the tail of Pokemon Go’s meteoric rise has been warnings of what damage could be done if so much specific, private data—much of it linked to users’ Gmail accounts—fell into the wrong hands. For insurers, it’s an important caution: as they handle an increasingly large amount of new forms of sensitive policyholder personal information—including movement and commuting information that, if lost, is not just an identity theft risk but a potential physical risk—they also grow as an attractive target to hackers. As the exposure of this information increases, so too does insurers’ responsibilities for safeguarding data responsibly.

The Salon Effect: What the Salons of the French Enlightenment Can Teach the Insurance Industry

Frank Petersmark

“Thanks to our sullen resistance to innovation, thanks to the cold sluggishness of our national character, we still bear the stamp of our forefathers.”
              -Edmund Burke, Reflections on the Revolution in France               (Burke, 1790: 64)

The twenty first century has been challenging for the insurance industry. Disruption has replaced the status quo as new technologies emerge and customer expectations shift. The industry is forced to change with the times or risk losing the one thing it can’t afford to lose – relevance in peoples’ lives.

While it is difficult to know how to proceed, historical parallels can provide some guidance. The French Enlightenment of the eighteenth century and the salons that fueled it questioned existing notions and paved a new way forward for European civilization. The open discourse of salons allowed the French Enlightenment to take shape, and they offer valuable lessons for modern insurers.

  • Democratization of Information: The salons of the Enlightenment demonstrated that it’s difficult to be truly innovative if information is restricted. Insurance companies are not known for unfiltered use of information across many constituencies, especially employees (boiler plate mission statements and strategic plans aside). This is ironic as employees are often the very people that insurers prod to be more innovative. Insurers need to be brutally self-critical and candidly share strengths and weaknesses with the people they expect to enable change.
  • Engagement of new stakeholders with fresh perspectives: It took many iterations to put aside entrenched European societal behaviors. The key was the fact the aristocratic women who hosted the salons ensured that everybody had an opportunity to speak without interruption. These women considered civility and decorum a point of personal pride, and subsequently created a model for civil discourse among diverse groups who otherwise had no reason to listen to each other. Similarly, insurance companies need to embrace diverse perspectives.
  • Cross-pollination of ideas: Existing power structures (the Church, the nobility, the monarchy) feared new ideas for the risk and dangers they brought. As Edmund Burke noted, the French Revolution was “a revolution of innovations.” The same is true today of many insurers who worry that change will inevitably create problems. The free exchange of ideas and perspectives in salons was critical to the new social, political, and cultural foundations of eighteenth-century France and Europe, and it is a model for today’s insurance companies.
  • Innovation through experimentation: It was expected that salon participants either argue the merits of an idea or point out weaknesses in its logic. This was not done to embarrass or personally criticize an idea’s author, but rather to create an open discourse. Not unlike modern incubators, they instilled a willingness to share perspectives, test different outcomes, and potentially fail. This same lesson applies to innovation efforts at modern insurance companies. Many insurance companies have created innovation centers, however few have produced innovative or interesting ideas. More often than not, the most impactful ideas come from outside the industry. Insurers often limit the circulation of ideas, and like the salons of the 18th century, they should instead promote unrestricted thinking and critique.

The impact of salons was felt even as their necessity was lost at the start of the French Revolution. Their lessons persist, especially around idea generation, critique, and community. As disruption continues and new challenges confront insurers, an eye toward the past can help organizations move forward.

Case Study Highlight: Enabling One-Day Health Claims Payments at Aflac

Matthew Josefowicz

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 this year’s impact award nominees share some common characteristics – the use of Agile methodology, a focus on communication, strong executive support, and planning for substantial user training as a key part of unlocking value creation.

This week, we look at an Aflac project to enable one-day health claims payments.

The One Day PaySM initiative was a response to a direct challenge from Aflac’s CEO to create a unique claims payment process. Aflac’s goal was to reduce average claims processing time from four days to one. Over the course of the 12 month project, Aflac used Agile methodology to ensure delivery and quality, which they credited with enabling their speedy delivery and enhancing collaboration between IT and business teams, especially when supported by co-location of IT and other business units. The lessons learned have since been applied to a full restructuring of the IT organization. The project has resulted in 87% of online claims meeting One Day Pay requirements—a year-over-year increase of 43%. Customers submitting claims online reported a satisfaction rate of 91%. The direct deposit capability also reduced the company’s carbon footprint, saving an estimated 16,000lb of paper.

For more detail on this project and more than 30 others, including cases from MetLife, Prudential, The Hartford, and Trustmark, see Novarica’s Best Practices Case Study Compendium 2016.

News and Views: Customer Experience, Digital, Drone Adoption, Reinsurance, and Insurer M&A

Novarica’s team comments on recent insurance and technology news

A new company in Brooklyn is offering “5-Minute Renters Insurance” and another one in Boston is selling Renters and Life via mobile.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “These are great examples of starting from customer need and re-engineering the process around that. Renters is one of the most undersold, most profitable businesses in P&C – we expect to see more players take this route. With a slick interface optimized for a specific set of buyers, these plays are great examples of how the New Entrants we discussed in the Novarica Nine for 2016 and Beyond are approaching markets differently, and the fact that All Business is Program Business.”

AIG has hired Michael Lewis from JP Morgan to be their new Chief Digital Officer.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “As a general rule, banks have been well ahead of insurance carriers in the move to leverage digital capabilities to improve and enhance operations and customer experiences. This pattern is, in part, the result of the competitive environments faced by these different players underneath the broader financial services umbrella. From our experience, banks can be in the neighborhood of 5 years ahead of P&C carriers in their leveraging of technology advances. To that end, bringing in this type of seasoned executive expertise can be an important way to increase organizational velocity for delivering new capabilities and creating better differentiation for AIG’s offerings in a highly competitive marketplace.”

Insurers are leading the way in drone adoption.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “A large percentage of P&C insurers have gotten approval or are pending approval for drone usage, with the intent to use them in property inspections. Not only will drones help reduce the risks inherent in this process, as we discuss in our recent report on the Internet of Things and other emerging technologies, but they will also allow a more efficient inspection and allow views and insight that humans can’t get alone. It’s likely that insurers will not only help push the adoption of drones via their own usage, but will also encourage policyholders to use them when drones can help mitigate client risks.”

S&P has a somewhat less than rosy outlook on hedge fund reinsurers.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Growing the top line at the expense of ignoring risk controls is always a bad idea. We learned this in the great recession of 2008. Smart insurers have always known this. But hedge fund reinsurers are trying to differentiate themselves in the marketplace by offering their shareholders greater returns that traditional reinsurers would. Reinsurance pricing has been soft in recent years. If the price hedge fund reinsurer charges does not make up for the risk and there is no underwriting profit, these companies will underperform the traditional players. If reinsurance prices continue to decline and investments do not cover underwriting losses, it will only get worse. As I stated earlier, growing the top line at the expense of ignoring risk controls is always a bad idea… always.”

TIAA buys FinTech firm MyVest in an effort to personalize service.

Rob McIsaac

Novarica comment by Rob McIsaac, SVP of Research and Consulting: “TIAA’s acquisition of MyVest is a great example of that desire to incorporate more robust and feature rich capabilities that can directly support a rapidly evolving individual consumer / investor set of needs. Another interesting aspect of this is that for companies that have historically had a very strong place in the institutional investment space tied to defined benefit and defined contribution retirement plans, there’s a growing need to expand capabilities to support individual investors who may or may not be a plan member for a traditional DC plan. Finding ways, such as advanced capabilities driven by improved end user experiences and functionality, can both facilitate attracting new assets while helping to minimize the “leakage” of assets as the employment situations of individual investors change. ”

Brexit May Revive the Celtic Tiger

Mitch Wein

With the United Kingdom leaving the European Union, there has been much discussion on whether London will retain it preeminent position as the financial capital of the world. While it is sometimes cited as #2 behind New York, in truth London has always been the capital for insurance, ever since modern insurance was invented there to help cover for financial losses from ships that sank crossing the oceans. London’s 21st century position as the gateway to the EU allowed multi-national insurers to set up there and then sell financial products across the continent. Even continental insurers made sure they had a large presence in London.

Now that London may not be able to serve this role, it opens up the opportunity for other cities in Europe. One of the most attractive options for many insurers may be Ireland. One may say I am biased because I was a CIO there and lived in Dublin. However, Dublin has much to offer:

  • It is English speaking (the commercial language of the world)
  • It is capitalist friendly
  • It has excellent network and transportation infrastructure.
  • Dublin’s cost of living is low (for now!)
  • Dublin’s corporate tax rate at 12.5% is much lower than the rest of the EU
  • It is part of the EU giving it access to the EU marketplace of 500 million people.

Dublin does have a few downsides; its airport is small (although US customs is there), and it does not have a direct train link to the continent like the Channel Tunnel. But with London’s future access to the EU in doubt, many global insurers may want to give Dublin a look.

If you are considering relocating there, let us know. In addition to helping navigate cultural and organizational issues, I can give you a good tour of the Irish pubs and clubs at Temple Bar!

News and Views: Electronic Persons, Parametric Coverage, Direct-Contracting, Brexit Updates

The EU proposes designating robots as “electronic persons” and subjecting them to employment law.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “When I read this article, I thought of the movie “Bicentennial Man” from the turn of the century, about a robot who strives to be a person over the few hundred years he exists. Through upgrades he becomes more intelligent and human until ultimately he becomes so advanced, he can die. Of course, reality is starting to catch up with Sci-fi and there will be more and more robots replacing human workers. The EU is concerned about the loss of tax receipts as more workers are robots, and has come up with the notion of an “electronic person” so the robot’s owner can pay tax based on the work the robot produces. This raises interesting questions from an insurance point of view. Can the robot “purchase” insurance for itself? If the robot is a “person”, can it be insured as a product with a notion of product liability if something goes wrong? What types of insurance products cover “electronic persons”, personal lines products or commercial lines products? It is clear that the insurance regulatory framework will need to be enhanced to support this legal notion, but we probably don’t need to worry about it until the 30’s.”

Online Chinese Insurer Zhong An launched parametric coverage that will compensate policyholders if they experience rain or high temperatures at Shanghai Disneyland.

Jeff Goldberg

Novarica comment by Jeff Goldberg, VP of Research and Consulting: “A new insurance product that will compensate visitors to Shanghai Disneyland for unpleasant weather conditions combines a lot of disruptive industry trends. It’s an example of a simple, specific, consumer-focused product, and Novarica expects to see more insurers experiment like this as they look to profit off of a highly-mobile and experience-driven consumer base. It’s an example of micro-insurance, where small payments cover either a single event or a single item rather than long terms or big coverages. It’s an example of just-in-time insurance, where a policyholder buys the product as it’s needed. And, finally, it’s a simple parametric trigger for a straightforward non-adjusted payment, the sort that Novarica expects to see eventually built onto blockchain for a fast, transparent claims transfer. So while this specific Shanghai Disneyland weather coverage may be a small, novelty insurance offering, it has all the features of a product we’ll be seeing more of in the future.”

Boeing becomes the latest of several large companies to bypass the traditional health insurance model.

Matthew Josefowicz

Novarica comment by Matthew Josefowicz, President and CEO: “Amazingly, when you put a floor on medical loss ratios of 85%, health insurers start exploring other businesses, like managing claims for self-insured large corporates. Meanwhile, large self-insured corporates find it easier to negotiate with an integrated provider system that covers a significant portion of their employees where they have more leverage. While this isn’t a new model, it’s interesting to see a major employer like Boeing take this step. Early pundits expected PPACA to push employers out of the health market, but moves like this may indicate that large employers may stay in the market, and push payers out instead.”

Brexit shockwaves continue to reverberate, and the final extent of the impact on Lloyd’s remains to be seen.

Mitch Wein

Novarica comment by Mitch Wein, VP of Research and Consulting: “Lloyd’s of London has worked in a single market, confirmed by the Solvency II regulations, for many years. The Prudential Regulatory Authority (PRA), a UK-specific regulator, has been allowed to regulate Lloyd’s across all of the EU countries through a “passport permission system”. This allowed Lloyd’s to write business but not keep funds and capital reserves in those other countries to meet future insurance liabilities in those countries. Using this approach, combined with Letters of Credit and Bank Guarantees acting as “regulatory capital”, actual capital can be placed in the most efficient way across the continent. Regulatory reporting just has to be done to the UK PRA, and not other regulators in other EU countries. This will all go away with Brexit unless a treaty is signed country by country to allow this approach. Even Solvency II itself may change when the UK designs its own specific version of the law, which it will have to do.” His full blog post is here.

Adapt or Die? Not Really.

Matthew Josefowicz

There’s a lot of hype along the lines of “adapt or die” when it comes to legacy systems replacement for insurers. Unfortunately, the urgency in this statement is misleading. Legacy systems are not a Y2K problem – there’s no ticking time bomb. And legacy systems or not, it takes an insurance company a long time to die. Policies are sticky. Renewal rates are high as long as you don’t raise premiums or stop paying claims.

A more accurate, but maybe less catchy, slogan might be “Adapt or Decline.” Without digital channels, effective data analytics, and agile core systems, insurers will face declines. Their agents and customers will first tolerate and then resent their poor communications capabilities. Their actuaries, underwriters, and claims adjusters will start to under-perform the market for lack of data and analytical capabilities. Their product freshness will grow stale compared to more agile peers as core systems inhibit speed-to-market.

Legacy replacement is not about avoiding death – it’s about making the hard decision to arrest the decline sooner rather than later.

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