Policy Admin, Corporate Governance, and Disrupted Distribution

Matthew Josefowicz

Policy administration system replacement and evaluation activity is at an all-time high across the industry. Across both life/annuity and property/casualty, policy administration systems vendors are offering suites that include not just traditional policy and rating functions, but billing, claims, portals, documents, and business intelligence capabilities.

Yesterday, we published our 2016 Novarica Market Navigator on P/C PAS solutions (complementing the LHA edition published last month). This report covers more than 50 vendor solutions, with individual profiles averaging more 10 pages, providing detailed information on the functionality of all of the sub-components on the system. These reports also include single-page executive summaries for each vendor.

Together, they provide more than 900 pages of research on these important vendors. Jeff Goldberg and Tom Benton will review and discuss this research in a webinar on Wednesday at noon.

Large strategic projects like policy administration system replacement highlight the importance of corporate governance when it comes to technology strategy. According to our recent research, 89% of insurer CIOs say their board members don’t know the right questions to ask about technology, and end up overfocusing on risks rather than opportunities. Frank Petersmark and I will discuss this on a webinar on March 28.

Life and retirement board members will have a lot to think about as the new DOL regulations take effect, requiring sellers of retirement products to act as buyer fiduciaries, and completely disrupting distribution in this marketplace. Several large insurers have cited this change as the reason for divesting their distribution arms, and more change is afoot. Rob McIsaac has been discussing this with our annuity and retirement Council members, and shares his thoughts in a new executive brief.

The Future is in Better Products and Service: Thoughts from the Bay Area InsurTech Meetup

Steven Kaye

I recently attended a Bay Area InsurTech meetup, sponsored by AXA Lab, with the theme of “Millennials, mobile and the future of Insurance.”

The session started with an overview of findings from an AXA-Alpha UX survey. Notably, Millennials’ preferred method of interaction with insurers is in-person, and they view insurance as important for safety but not engaging; expensive, but necessary.

Next, speakers from three startups, moderated by Tuan Pham from Silicon Valley Bank, discussed both the survey findings and a broad range of issues ranging from how to design products to appeal to Millennials to establishing brands.

Automatic (https://www.automatic.com) offers an adapter that plugs into car’s ODBII ports, plus an app that displays info on your car and your driving habits. They offer everything from vehicle diagnostics to real-time driving feedback to finding where you parked your car to exporting data for T&E and taxes.

One Financial (really, their investment Bee: http://www.beecard.us/) reaches out to the unbanked, and has lower customer acquisition costs than banks because of use of kiosks. The company is building presence at farmers’ markets. Vinay Patel, One Financial’s CEO and co-founder, realizes banks can copy what he does, but by that time he’ll have built up a nice business.

Sure (http://sureapp.com/) offers what they call episodic insurance, which right now means being able to buy flight insurance on-demand from your phone. Wayne Slavin, the CEO and co-founder, discussed the importance of transparency, bundling opportunities, and the potential for outsourcing some function such as claims handling.

I was surprised at how conservative discussion ran, compared to invocations of disruption and touting of Uber and Zenefits at other locations. For example, there was a discussion on the importance of following regulations. Connected cars, UBI, and driverless vehicles were seen as transformative, but the real impact would not hit for twenty years or so.

A takeaway was that there was plenty of room for innovation in products and in engaging and serving Millennials, without startups seeking to be insurers in their own right.

To all Life insurers: I’m a target customer. How do you educate me about your products?

Thuy Osman

Even though I work in the insurance industry, I was never interested in buying life insurance. I always thought it was so morbid; like if you thought about death and plan for death, death will come. Of course we all know it comes eventually for everyone. But, is there something to be said about being prepared financially for it? I must admit, the thought never crossed my mind until I became a parent and the responsibility of someone’s life was placed in my hands.

Being a millennial, the first place I looked for information on life insurance was online. However, what I found on various websites was not useful, or compelling enough to get me to start the application process.

As a last resort, I called the agent who sold me my auto and home insurance (something I had never done before). In 15 minutes, the agent explained to me the various life insurance products, the cost and coverage of each, and the benefits of each, based on the goals I was trying to achieve with this product. He even did a sample illustration to show me the different options offered by various carriers.

Although the phone conversation was extremely helpful, I kept wondering: Why didn’t the agent call me to tell me about life insurance? He knows that I just moved, bought a house, and have kids. Why didn’t he try to sell me another product?

I’m sure there are many more 30 something year olds out there thinking about life insurance to protect their families, but not knowing where to start. If this group is a target market for life carriers, carriers need to think about what they are doing to reach out to this group to educate them on the products they offer, asap.

COLI / BOLI Special Interest Group Meeting Previews New Research

Rob McIsaac

On March 1, Novarica hosted our most recent special interest group meeting for insurance technology senior leaders focused on specific lines of business. The sessions, which provide an opportunity to share recent targeted research, also create an environment for significant networking between carriers, many of which are dealing with strikingly similar issues as they look to address both business and technology issues in very competitive environments. This week’s session was focused on COLI / BOLI, a niche space that is the domain of a small number of carriers offering highly specialized services which support the use of life insurance as an investment vehicle for funding specific types of benefits programs.

Complex Product Requiring “White Glove” Service

As became clear immediately in our discussions, these are complex vehicles that can generate notable top line premium volume, coming from a group of specialized and highly demanding producers. There is a notable amount of plan customization, generally with the degree of customization being highly correlated with the size of the individual cases. A number of the participating carriers noted that this is a “white glove” business that is characterized as a concierge oriented set of programs and business processes where relationships between the carrier and producer communities (as well as servicing TPA’s) are particularly critical for success.

Legacy Systems and Lack of Customer Intimacy Impeding Speed to Market

We also previewed an upcoming report which will be published in May through our Research Partners Program. From a technology platform perspective, this research highlighted the age of core systems (average PAS platform: 19 years old with a number now at 30+), which is creating both flexibility and speed to market issues.

While the number of truly new products in this space is sharply lower than it might be for consumer products lines such as personal lines P&C, these carriers face a truly interesting challenge. Since they have little or no direct interaction with plan sponsors, they take their market research queues from top selling producers and TPA’s. That makes modern analytics of generally limited value on the marketing and product development fronts and requires that product development investment decisions be based on relationships and “market feel.” With inherent inflexibility in systems, the recovery time for reading a market wrong can be substantially elongated.

Different Needs to Support Today’s Channel and Attract Tomorrow’s

With producers in this space also aging (note the average agent is now 59+) carriers face an interesting challenge. The self-service/digitally-enabled capabilities that may be of limited value to top producers today could quickly become table-stakes for attracting and retaining production capacity in the future. Our discussions generally confirmed the research which said that this is an important near term planning consideration for carriers looking to maintain or extend their position in this space. One of the key items that came from these discussions was the need to start to truly think bi-modally with respect to distributor support. In other words, continuing to cater to the needs of top producing (and more mature) agents may be an important near-term tactical mandate, finding ways to also engage younger and more digitally savvy producers who expect easy information access and mobility as the basis for considering the placement of business with a carrier may become a critical strategic capability in a surprisingly short timeframe. Some notable examples are now emerging of life carriers starting to mimic the experience of banking IT organizations which have them developing “mobile applications first.”

Security Even MORE Important Given Customer Profile

Another area of considerable concern for carriers is security. While security is generally a “hot topic” for carriers across all lines of business, and other research done by Novarica has highlighted this blossoming as a Board level consideration, the issue is magnified in this space. Particularly in the case of BOLI, with banks as customers, the security gauntlet is elevated given that banks are both particularly tuned into risks (given the nature and frequency of their transactions) as well as the oversight of their own industry regulators. These security concern elements lead to a direct impact on carriers looking to support BOLI business for these institutions.

This led to another fascinating discussion about handling suppliers that carriers may use for key functionality who do not, themselves, pass the security tests required by BOLI plan sponsors. We explore a range of remediation options that may exist for carriers concerned about both viability and liability.

More Special Interest Group Discussions at Novarica Council Annual Meeting

These sessions provide for a terrific exchange of information, both in terms of new research, and practical experiences as shared directly by carriers. We plan additional Special Interest Group sessions in the near future, with our Annual Research Council Meeting in Providence, RI on April 20-21 providing an opportunity for us to explore Individual Life, Group Life, Annuities, Workers Compensation, Personal Lines P&C and Commercial Lines P&C in more detail. In addition, we are planning a stand-alone session focused on Disability Insurance products that will be scheduled in Q3-2016.

In many ways, 2015 was the year that the future arrived. For carriers, 2016 is the beginning of what carriers need to do in order to respond effectively to a brave, new, transparent world.

Technology’s Changing Role for Group and Voluntary Benefits

Rob McIsaac

Today’s group insurance arena is a hyper-competitive sector, with technology playing an ever larger role in attracting, retaining, and profitably serving clients. Technology is also playing a pivotal role in allowing carriers to make the significant transition from the traditional group benefits model to one that requires the ability to concurrently support both group and voluntary benefits, allowing them to react to both an evolving regulatory environment and to fundamental changes in the demographics of the current labor force. To address these key considerations, carriers are moving to seek out more modern systems that can better support rapid product development and adapt to changes in products and pricing. Modern systems are also key to attracting and retaining top producer talent, given the need to provide increased transparency around key business processes as well as more real time access to self-service functionality.

Carriers in the group and voluntary benefits space often use technology platforms that are chronologically newer than the core systems in the individual insurance market. This actually masks issues with aging technologies, however, since many current group solutions tend to have their origins in legacy client/server and web-based systems. Ironically, these systems can actually have greater inherent risks than much older mainframe-based platforms, given that the technologies used to develop them had substantially shorter useful lives, which has a very direct connection with challenges in finding the talent to support them.

Many carriers are now looking to investment in technology replacement plans to solve this problem. Rather than pursuing wholesale conversion of monolithic existing platforms, carriers increasingly see replacements of individual legacy system components as a less-risky path forward. This creates an environment which allows IT organizations supporting these lines of business to build organizational “muscle” for these longer term transformation efforts by starting with key components outside of the core PAS platform. Underwriting, Billing and Claims are three examples of logical starting points on a measured multi-year journey to position carriers for long term success.

For carriers in the segment, there’s a growing competitive urgency for making key systems investments. While there is a very logical transition that carriers can make from group to voluntary benefit offerings, this is not a domain that is preserved for group life carriers alone. Facing changes in their own traditional markers, both individual life and group health carriers increasingly see the voluntary benefits space as offering an attractive component to their own growth strategies.

In our new Business & Technology Trends report, we explore these issues in more detail and offer examples of how group carriers are positioning their technology investments to support future growth plans.

Related Reports:

  • Business and Technology Trends: Group Life/Annuity/Voluntary Benefits
  • Policy Administration Systems: A Gateway to the Future

    Rob McIsaac

    With a rapidly changing and fragmenting market place for insurance, core replacement is becoming increasingly essential the L/H/A space.  Updating of legacy systems is important for capabilities like customer experience, BI/analytics, and product innovation which become key differentiators in an increasingly competitive, and transparent, world.

    In response, vendors for L/H/A policy administration systems are offering more options for implementation to lower risk and cost. However, so many options can make the selection process seem daunting.  Our most recent Novarica Market Navigator report provides an unparalleled 284 pages of detail about the current market and the vendors in it.

    When selecting a solutions provider for a policy administration system, there are a number of factors that carriers need to consider. A well-developed system should integrate downstream and back office systems. It can support either single or multiple lines of business, and it may also interface with single or multiple distribution channels. The system may also offer a suite of capabilities, and if it doesn’t, it should be designed to interface with solutions providing those other mission critical capabilities.

    The future has arrived, and L/H/A carriers have renewed their focus on policy administration system replacement in 2016.  Although there are many factors and options to consider the reality is that carriers across most lines of business now are recognizing that the technical platforms that have served them well in the past simply lack the flexibility or capacity to deal with an evolving economic environment.  This new Market Navigator report can be a “must read” for those developing strategic plans for the future.

    Related Reports

  • Life/Health/Annuity Policy Administration Systems 2016
  • Google learns selling insurance on commission is hard; industry rejoices prematurely

    Matthew Josefowicz

    According the the WSJ and Insurance Journal, Google will announce today that it is suspending Google Compare for all financial services including insurance.

    It turns out, selling insurance for commissions through comparison sites is much harder than it seems. This was obvious to anyone who read InsWeb’s 10Ks from 15 years ago. Comparing rates doesn’t necessarily lead to buying directly from the site that lets you compare rates. Google seems to have figured out that it can make a lot more money selling advertising to insurers than selling insurance on commission.

    It’s an interesting example of how innovation works in the Valley. They tried something, it didn’t work the way they wanted it to, they learned something, and they shut it down.

    Unfortunately, some industry observers are drawing the wrong lesson. An industry source quoted in Insurance Journal says “U.S. consumers are still enamored with their agents.” But it’s pretty clear that the massive growth of direct personal lines and the current investment in direct commercial lines shows this is at best an overstatement.

    Again, the lesson is not “the old ways are best.” The lesson is “new market dynamics mean new models.” Commissioned sales is less remunerative than selling ads. Google learned their lesson. They’re moving on.

    Blockchain’s Growing Reach

    Jeff Goldberg

    As we covered in our 2015 report on Bitcoin and insurance, Blockchain has far-reaching implications for the insurance and financial services industries. At a basic level, Blockchain enables the creation of trusted contracts in a publicly-verifiable setting. Since insurance policies are a form of trusted contract, many people have envisioned a future where those policies are moved into Blockchain’s decentralized and public exchange.

    A number of financial services companies have adopted the technology as a means of recording transactions cheaply and securely on Blockchain’s distributed ledger. Accenture recently announced the launch of its Blockchain practice within the financial services industry and its resulting partnership with Digital Asset Holdings. Under this new alliance, Accenture and Digital Asset Holdings will work together to provide consulting and services to institutions implementing Blockchain solutions.

    Expectations should be that any industry relying on trust-based contracts between individuals will see some disruption in the future. The Internet of Things is nearly ubiquitous, and automated self-reporting devices continue to grow in popularity. Blockchain leveraged as an open and distributed system for keeping digital records can simplify management of these large quantities of data and transactions. Most insurers will choose to wait, but all would do well to monitor the evolution of this space and prepare for a future where Blockchain technologies play a larger role.

    Related Reports:

    The Impact of Impact Awards

    Frank Petersmark

    My colleagues and I recently had the opportunity to present some of the 2015 Novarica Impact Awards to worthy winners. The goal of the Impact Award is a straightforward but powerful one: recognize those insurance technologists (and their business colleagues) who have made a qualitative and quantitative impact at their company.

    For 2015, just a handful of winners were selected from nearly forty submissions. The winners ran the gamut across the insurance spectrum in terms of size, geography, and business spread. However, they all shared a few things in common:

    • Clear articulation of expected business value
    • Consistent executive sponsorship
    • Consistent and frequent communication during the project, with an emphasis on newer software development methodologies like AGILE
    • Close coordination with vendors
    • Clear use of success metrics

    The common denominator between all these elements was something that has proven difficult for IT groups historically: being collaborative and communicative partners with the business and with any other key stakeholders. Each of the 2015 winners did this exceedingly well, and in the process built an effective and sustainable model for future business technology efforts. That’s important stuff.

    When I had the pleasure or presenting two of these awards recently, both of the award winners I visited spoke more about the impact and value their efforts brought to their respective companies than they did about any particular technologies or solutions.

    Me presenting an Impact Award to Fidelity and Guarantee Life for launching their e-app

    Me presenting an Impact Award to HCC for launching their new product line and portal

    My colleague Chuck Ruzicka recently visited Ameritas to present an award for the company’s use of a project execution framework. There, the drive for business models was also apparent. As CIO Richard Widenbeck said, “Ameritas understands the value of executing projects and making well informed decisions. By creating and maturing this process foundation, we believe we can drive value-based outcomes, align risk and investment levels, and improve execution excellence in a way that creates sustainable advantage. We are thrilled to receive this award.”

    Chuck Ruzicka presenting an Impact Award at Ameritas

    My colleague Robert McIsaac also had a chance to present an award at Tokio Marine North America for their deployment of analytics to improve agent performance management.

    The Tokio Marine Impact Award Presentation

    In all the award-winning organizations that we have visited so far, the emphasis on creating an effective model for all business technology efforts has been clearly evident. This should be the focus of all carriers in 2016. If there’s a project at your company that deserves recognition, there’s still time to submit information for a 2016 Impact Award.

    One start-up’s stumble does not signal an end of disruption

    Matthew Josefowicz

    The insurance industry enjoyed another collective moment of schadenfreude yesterday when Zenefits’ CEO resigned after the company was found to have bungled agent licensing. But here’s something that appeared in no headline:

    Zenefits bungles licensing; insurer customers go back to preferring inefficent processes and bad buyer experiences.

    Just because Zenefits stumbled doesn’t mean they will fall. And even if they do, it doesn’t mean someone else won’t pick up the ball and give customers what they need. Maybe a company from inside the industry. Maybe not. Maybe a combination of both.

    For example, on the same day that Zenefits announced their problems, P2P start-up Lemonade announced relationships with several top-tier reinsurers.

    For those of us old enough to remember the first dot-com boom and its impact on the insurance industry, there’s an interesting difference this time around. Back in the 90′s, the aspiring disrupters were ahead of the market. This time, they’re in sync with the market and ahead of the regulators. Like Uber and disrupters in other industries, they’ll struggle with regulations. But if they create enough customer value, eventually they’ll win those struggles.

    And as the DOL is proving, sometimes regulators can disrupt markets all by themselves in an attempt to be more customer-centric.

    Insurers need to keep these external market shifts top of mind when making IT plans and decisions. External pressure, customer expectations, and innovation and putting new pressure on insurers’ data, digital, and core processing capabilities. IT leaders have a critical role to play in positioning insurers for the future that’s already here.