Consider the Future when Evaluating Today’s Insurance Systems

Chuck Ruzicka

Over the past few years, I’ve worked with many insurers on core policy administration vendor selection, and I’m excited to have joined a team with so much existing experience in this area.

While most selection processes focus heavily on features, configuration tools, architecture and implementation methodology, it is equally important to understand the vendor’s upgrade process and history. Since business needs and technology continue to change rapidly, a key selection factor for a vendor partner is their ability to evolve to support tomorrow’s needs, and not just today’s.

One predictor of the future is the vendor’s record for helping customers migrate to newer versions of their software. The decision to upgrade can be impacted by factors outside the control of the solution provider such as:

  • Business priorities like entering new states, deploying new products or an acquisition
  • Budget constraints due to poor underwriting results
  • Complexity of multi-year implementation of business transformation projects

Regardless of these external factors, upgrades are most likely to be dependent on the vendor itself. In Novarica’s most recent Property/Casualty PAS Market Navigator report, one key difference that emerged between solution providers was the percentage of current clients on versions of systems that were three years old or older. The reasons for these vendor solution differences should be investigated and assessed as part of the software evaluation process. Prospective clients should consider the following:

  1. Value of roadmap items. Does the vendor’s solution roadmap suggest enough new capabilities or improvements with each upgrade to warrant implementation? Well-architected and mature systems may have much of the desired functionality and integration capabilities such that upgrading becomes less important. Even if this is the case, this difference is still relevant due to changes in infrastructure components and the risk of technological obsolescence. Ease in upgrading is more critical if a vendor is catching up or building out new competitive capabilities.
  2. Solution provider release strategy. Some solution providers incorporate all minor releases into the scope of their implementation projects. Others hold back release updates until the system is fully implemented. What is the impact of delaying the incorporation of new functionality during the implementation? Competitors who have already implemented a new system may be leveraging those new roadmap features before you complete your initial implementation.
  3. Velocity of change. Frequent and material releases will drive a higher need for related regression testing capabilities and possible infrastructure upgrades. How will your organization respond to those demands? How will your QA organization manage release (regression) testing along with functionality testing?
  4. Upgrade accelerators. Does the solution provider offer adequate guidance regarding how to configure and manage the system to facilitate future upgrades? Do they have the tools and a proven methodology to make this process easier and less painful?
  5. Upgrade barriers. Potential clients should ask longer term clients either why they haven’t upgraded versions in several years or conversely, what did it take to implement the most recent upgrade. Project team size, duration, challenges and available assistance should be understood. While it is always useful to talk to new clients about methodology, new features and configuration tools, existing clients should also be contacted.
  6. Impact of configuration upgrades. If solution providers have improvements to their configuration tools in their roadmaps, be sure to ask if products implemented in prior versions will automatically roll forward or if a conversion effort is required. You may be surprised by the answer.
  7. Value of more frequent upgrades in a managed service agreement. An additional consideration is whether or not you will get earlier benefits realization from a managed service agreement. SaaS installations tend to be on more current versions of the software. If your organization does not have a disciplined program for upgrading software components, you may benefit from a SaaS implementation.
  8. Selection criteria weights. Given all that you learned by considering the prior seven items, should your selection criteria weighting be altered? Does it give enough weight to differences in upgradeability?

No one wants to be buying a system that will become out of date and require a large scale replacement project in the near future. One way to avoid this is to purchase a system from a solution provider that invests in the future and has a clear and cost effective methodology for managing software upgrades.

Please don’t hesitate to contact me at cruzicka@novarica.com to learn more about our policy administration and other core system vendor selection services. You can also check out:

2015 Year in Review

Matthew Josefowicz

The Year the Future Arrived

At the spring meeting of our Research Council of insurer CIOs, we predicted that 2015 would be “The Year the Future Arrived” in insurance. New entrants, new expectations, and customer-centric innovation are starting to change the game for the industry. All of this is creating new challenges for insurance IT leaders and their teams.

More than One Hundred Insurers

Throughout the year, our team has helped more than a hundred insurers make better decisions about technology projects and strategy in this new environment. Our retained advisory clients call on us to help them understand new trends, issues, vendors, and best practices. Our research covers all these areas and more, with more than thirty new reports and briefs published this year. And we delivered dozens of strategy consulting engagements, ranging from vendor selections to project assurance for transformation programs, analytics strategy development, enterprise architecture review, and more.

Council Meetings and Community

Our annual Research Council meeting brought together more than 60 insurer CIOs in a private, sponsor-free, knowledge-sharing environment. And our Special Interest Groups brought together dozens more members in smaller, focused meetings of hard-to-find peers like those writing annuities, specialty P&C, or COLI/BOLI.

We’ve shared our insights with the industry at large, recording more than ten webinars, speaking at more than twenty conferences, and being quoted in more than two hundred press articles.

Expanded Team

As our business has grown, we’ve expanded our team with two new vice presidents and five new staff members. Our senior team now includes former executives from AIG, AXA, Liberty, Guardian, Marsh, Progressive, and Prudential. Our staff includes a diverse group of associates with degrees in classics, linguistics, economics, international relations, religious studies, and visual arts.

Celebrating the Year

We recently had a chance to celebrate our great 2015 results together at one of the several restaurants owned by our very first staffer-turned-restaurateur Tse Wei Lim, who created a custom cocktail menu for the occasion.

Cocktail_Menu_2015_Holiday_party

Looking Forward

As we head into 2016, we are grateful for the chance to work together, for the the trust that our clients place in us, and for the opportunity to help the industry adjust to the future that’s finally arrived.

Divisional CIOs: A Guide to Serving Two Masters

Chuck Ruzicka

Often standardization of common services or platforms does not yield improvements in functionality or capabilities in the short term. Divisional CIOs need to balance the corporate oversight desire for centralization of services and standardization with their business unit needs to improve agility and capabilities. Failing to do both can cost them their jobs. So how do successful CIOs navigate these often conflicting priorities?

  • Build business cases aligned with business unit strategies – Providing a cost benefit to justify an initiative is important. However, creating linkage to key business strategies takes it one step further. This helps functional leaders advocate the initiative within their own corporate governance structure.
  • Chose battles wisely – All CIOS need to be strategic in their sourcing strategies. This same thought applies to the service offerings available from corporate organizations. If corporate can provide competitive service at competitive prices, why not migrate to these service models? It is important to understand what items are non-negotiable. One of the worst ways to start a new relationship is to raise issues already resolved by prior management that have previously been a sore point.
  • Articulate needs in terms of service – By stating requirements in terms of service levels, the dialogue moves from a turf issue to a discussion of capabilities and needs. This goes a long way towards insuring that the needs of a business unit are understood and met.
  • Measure services provided – Centralized service groups need objective feedback on their performance. Divisional CIOS have a fiduciary responsibility to hold service provides accountable. Anecdotal evidence is not adequate. Put the proper measure in place.
  • Understand cost allocations – Expect and demand transparency. If a CIO doesn’t know how and what a business unit is being charged, a realistic understanding of the perceived value of IT is not possible. No one likes surprises.
  • Over-communicate – Working from a plan is better than reacting to needs as they arise. The best way to engage Corporate to meet needs is by reviewing the application portfolio plan with Corporate CIOs, indicating where gaps in services exist and where the most compelling needs are from a business unit perspective. Making sure that a business unit understands the plan, the service levels, the capabilities that are currently provided and how needs are addressed is also critical. Divisional presidents can partner to drive approval of divisional initiatives.


  • When in doubt, don’t do what people want you to do; do what you think is right for your business unit. Divisional CIOS must provide leadership and leverage their intimate knowledge of their business units needs with their knowledge of technologies and vendor capabilities.

    To discuss this topic further, please email Chuck Ruzicka at cruzicka@novarica.com

    Related Reports:

  • CIO Checklist: Multi-Divisional IT Strategy
  • Centralized and Federated IT Models
  • Top Stories for Life/Annuity for November 2015

    Steven Kaye

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

     

      • With growing state approval of medicinal or recreational use of marijuana, the life insurance industry faces the question of how to rate users who are applying for policies. Full Story.
      • The final version of the Department of Labor’s fiduciary rule could even include indexed annuity products, currently experiencing strong sales growth. Full Story.
      • Fidelity slashed Zenefits’ valuation following claims of missing sales targets and hiring freezes. Full Story.
      • New York state regulators are contemplating cybersecurity requirements for financial institutions. Full Story.
      • A bipartisan group of U.S. House representatives introduced legislation to replace the Department of Labor’s proposed fiduciary rule. Full Story.
      • Foreign acquisition of U.S. insurers continues, with Chinese insurer Anbang Insurance purchasing Fidelity & Guaranty. Full Story.
      • The Treasury Department myRA retirement plan for those without a retirement plan through work launched. Full Story.
      • Aegon has been made a Global Systemically Important Financial Institution by the Financial Stability Board. Full Story.
      • Three subsidiaries of Kemper Corporation have sued the Illinois state treasurer over his attempts to gain access to their life insurance policy records
        as part of an investigation into unclaimed death benefits. Full Story (Registration Required).
      • The U.K. and U.S. governments are planning a joint exercise to test communication and coordination between their governments, regulatory bodies, and financial services firms, though individual firms’ responses will not be assessed. Full Story.
      • Dell is making its Statistica software free for U.S. college students and teachers to help promote preparedness for and interest in careers in analytics. Full Story.
      • The SEC has finalized rules allowing non-accredited investors’ participation in equity crowdfunding. Full Story.

     

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

    Previous Novarica Industry Intelligence Briefs for Life/Annuity

    Top Stories for Property/Casualty for November 2015

    Steven Kaye

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

     

      • The Utah Department of Transportation and other agencies across the U.S. are testing vehicle-to-vehicle communications technology that would enable
        trucks within 40-60 feet of each other to accelerate, brake, and react to road hazards in unison. Full Story.
      • The Insurance Research Council has found that consumer skepticism regarding carriers’ ability to secure their data is holding back adoption of
        telematics-based products. Full Story.
      • American Modern Insurance Group has constructed a smart home as part of its claims training center. Full Story.
      • New York state regulators are contemplating cybersecurity requirements for financial institutions. Full Story.
      • Hartford Steam Boiler has invested in Augury, a provider of smart device technology for diagnosing heating, ventilation and air conditioning systems
        using analytics, machine learning, and ultrasonics. Full Story.
      • Allianz Insurance plc and BMW UK have partnered to offer seven days’ free coverage to buyers of BMW’s electric cars, with an option after seven days to
        discontinue coverage, convert to a mileage-based policy, or choose standard comprehensive coverage. Allianz has experienced a 51% conversion rate for those choosing the mileage-based option. Full Story.
      • The U.K. and U.S. governments are planning a joint exercise to test communication and coordination between their governments, regulatory bodies, and financial services firms, though individual firms’ responses will not be assessed. Full Story
      • Dell is making its Statistica software free for U.S. college students and teachers to help promote preparedness for and interest in careers in analytics. Full Story.
      • The SEC has finalized rules allowing non-accredited investors’ participation in equity crowdfunding. Full Story.

     

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

    Previous Novarica Industry Intelligence Briefs for Property and Casualty

    For Life Insurers, the First Step is Admitting there is a Problem (in this case, with Customer Experience)

    Rob McIsaac

    I had a chance to speak at the recent North Carolina CEO summit and one of the key takeaways was that one of the hardest things for companies in any industry to do is adjust their business processes to reflect appropriately on the challenges and opportunities made possible by new technology and changing consumer expectations. This is especially true in insurance. The majority of carriers have perfected looking at the world from the inside out, which may be fine in an era of limited change, but it is exactly the wrong response in a period of dynamic activity and shifting expectations, punctuated by the threat of new market entrants.

    This inside out thinking leads companies to focus on service-level agreements and other metrics which completely miss the importance of getting the actual customer experience right. Companies may well understand the correlation between poor customer experiences and financial outcomes (e.g., poor persistency rates or a failure to loss of assets under management), but they seem to fail routinely in understanding what the root cause events are driving these results.

    A personal customer experience with business as usual

    As a case in point, I recently went through a series of unfortunate customer service events with a large, national, life insurance carrier. The start came through a phone call to one of their support centers. This particular facility was in Ireland and their function was limited to letting callers know that the company was closed in the evening and would be open during “normal business hours”. Of course, “normal business hours” turns out to be the same hours when most consumers are at work, making it remarkably inconvenient. On the next day, a call during normal business hours and was routed to a call center in Manila. After almost an hour on the phone I discovered that this operation was only able to deal with non-registered products; that issue wasn’t picked up by the VRU when I dialed in. Once we got past that confusion, the call was routed to another call center in the Midwestern United States. At that point, a knowledgeable representative walked through the issue but concluded that since the transaction spanned multiple internal business units there was nothing he could do. The best response was to have an agent call me. The SLA for a call was 24 to 72 hours.

    The empowered customer finds an alternative

    Two weeks later, when no call came, I gave up and went looking for an alternative company to manage the assets. The multiple contracts involved were 30 years old, so this was not a new customer issue. It was however a life event issue which a new financial institution was happy to address. In this case, the company in question was a brokerage firm who happens to sell life and annuity products on behalf of a range of manufacturers. They were happy to set up the new accounts and handle the 1035 exchanges and had the experience wired before the original life carrier understood what had happened.

    So, from a customer standpoint, I was quite happy. I was able to move the funds into an experience where there was a knowledgeable entity on the other end of the wire; the account opening experience was very Amazon-like, inasmuch as routine updates on the status of the transactions came to me in my preferred channel of communication.

    Too little, too late

    That might’ve been the end of the story except that the life carrier now seemed spurred into action. However, the action invoked processes that are little exercised and had unintended consequences. For example, multiple conservation letters were received offering to discuss options for keeping assets at the original carrier. Unfortunately, the conservation letters arrived after the proceeds had already been distributed to the new financial services company. Another bit of detective work found that the time lapse between producing (and dating) the letters and their actual delivery was 10 days. Based on the postmark, it was six days between the production of the letters and having them sent. They came via a bulk mail rate resulting in further delay.

    The operation was successful, but the patient died

    Through this whole effort, it is possible that the service-level agreements for every component in the process were met. The whole of the experience was very different than the sum of those parts, however.

    Fixing this kind of problem doesn’t need to be particularly difficult or expensive. It does require, however, the recognition that there is a problem. One approach that we see taking hold now is the introduction of the position of Chief Customer Experience Officer. Frequently coming from outside of the insurance industry, from banking or consumer products, the individuals taking these roles have a charge to look at the carriers “from the outside in”. This is a promising development that many more carriers should consider as they kick off 2016.

    To discuss this topic further, please contact Rob McIsaac at rmcisaac@novarica.com

    Why Aren’t Insurers Doing More With Their Data Strategy?

    Jeff Goldberg

    While the business intelligence space has matured greatly in the last decade, it has been and remains an area where insurers need to work with a variety of platforms and tools to build out their capabilities. This requires a mix of technical skillsets, business expertise, and vendor relationships. While few efforts at an insurer are more complex or time consuming as a core system replacement, a major BI initiative will eventually touch all aspects of an organization. I will be presenting more on this topic in a webinar on December 1, 2015.

    Today there are more vendors that provide a full business intelligence suite which includes the data layer, the industry-specific data models, the presentation and visualization tools, and the pre-built insurance reports and dashboards. But these suites still need to be tailored to and integrated into the rest of the insurer’s environment. Some policy administration system vendors are either pre-integrating with or releasing their own business intelligence suites. This does simplify the deployment but adds another variable to the “suite vs best-of-breed” decision, and until these options have more production exposure most insurers are still opting for best-of-breed.

    For now, most of these approaches don’t provide some of the ancillary but very important data and analytics areas such as predictive modeling tools and the models themselves, the use of aggregated third-party data sources, or the emerging area of big data. And no matter what approach an insurer takes, it is a near-universal condition that there will be siloes of historical data that need to be considered with or migrated into the new BI solution, and that will take time and effort.

    So despite plethora of vendor options and the general acknowledgement across the industry that good business intelligence is key to ongoing success, why aren’t more insurers further along in their data strategy?

    1. Most insurers struggle with multiple legacy systems and siloes of disparate data, and they are still at the first steps of bringing that data together.

    2. The data that does exist in the organization is of variable quality or completeness. New systems don’t immediately solve that problem without a broader plan in place.

    3. Insurers and core systems have traditionally looked at data from a policy view, complicating the effort to move to new models that tend to take a 365 degree customer view.

    4. Many insurers still have no formal data governance in place and lack organizational agreement on data definitions.

    A good vendor partner can help put the framework and some tools in place to solve the above four roadblocks, but it requires more than just technology. It requires process and cultural change, which can’t be driven solely by IT.

    Many insurers are still looking for a data champion to help push a strategy across the organization and get buy-in from other business leaders. As organizations mature, this data champion role is often formalized as a Chief Data Officer (CDO), and that person typically has a strong data background. But for insurers who are still looking to get a data strategy off the ground, it’s most important to find a leader who is respected in the organization and who is passionate about the value that good business intelligence can bring, even if they have little data experience themselves.

    Related Reports:

  • Business and Technology Trends: Business Intelligence
  • Novarica Market Navigators: Business Intelligence Solutions
  • Top Stories for Life/Annuity for October 2015

    Steven Kaye

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


    • Senator Elizabeth Warren’s office has released a report alleging carriers are offering non-cash incentives to producers for selling annuities, without revealing those incentives to their customers. Full Story.
    • Knip’s mobile app analyzes clients’ existing coverage to identify gaps and makes recommendations. Full Story.
    • NAIFA has threatened to support legislation cutting the Department of Labor’s funding, in retaliation for the Department’s proposed fiduciary guidelines. Full Story.
    • Employers interested in private benefits exchanges and expressing a preference preferred carrier-run exchanges, according to a survey. Full Story.
    • The EU-US safe harbor for data sharing is overturned, with a few months for a workable solution or solutions. Full Story.
    • InforcePRO, a provider of a policy monitoring solution for life insurance policies, raised $4 million in VC funding. Full Story.
    • The IAIS announced new capital requirements for insurers deemed to be systemically important, with increases averaging ten percent and ranging as high as almost twenty percent. Full Story.
    • For Novarica commentary, clients can download the Brief at http://novarica.com/october-2015-novarica-industry-intelligence-brief-life-and-annuity/.

      Previous Novarica Industry Intelligence Briefs for Life/Annuity

    Top Stories for Property/Casualty for October 2015

    Steven Kaye

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

     

      • Knip’s mobile app analyzes clients’ existing coverage to identify gaps and makes recommendations. Full Story.
      • Buying and selling smart homes means taking precautions – like closing out your smart device accounts, or changing the passwords if you’re a buyer. Full Story.
      • KPMG suggests autonomous vehicles, ridesharing, and new safety technologies may drastically shrink the auto insurance market. Full Story.
      • The US government plans to establish a registry for drones. Full Story.
      • AIG’s new Commercial Lines Chief Underwriting Officer has a data science background, not an actuarial one. Full Story.
      • The School of Business at Butler University in Indianapolis is establishing a student-run captive insurer to provide insurance industry experience to students.Full Story.
      • A new homeowners insurance product protects home buyers’ down payments should they be forced to sell their homes at a loss.Full Story.
      • New automotive safety features may reduce claims frequency and lower premiums – but it would help if dealers demonstrated them to car buyers. Full Story
      • State Farm has patented the use of automotive and biometric data to generate impairment scores for drivers, as well as methods for using stimuli to calm drivers. Full Story.
      • Volvo announced it will accept liability for driverless vehicles, but also called for federal regulatory standards to protect R&D efforts from multiple state regulatory standards. Full Story.
      • The IAIS announced new capital requirements for insurers deemed to be systemically important, with increases averaging ten percent and ranging as high as almost twenty percent. Full Story.
      • Progressive provided details on its analytics strategy at the Insurance Analytics Symposium. Full Story (registration required).
      • The EU-US safe harbor for data sharing is overturned, with a few months for a workable solution or solutions. Full Story (registration required).

     

    For Novarica commentary, clients can download the Brief at http://novarica.com/october-2015-novarica-industry-intelligence-brief-property-and-casualty-2/.

    Previous Novarica Industry Intelligence Briefs for Property and Casualty

    From The Road…Oracle OpenWorld

    Rob McIsaac

    Last week’s Oracle OpenWorld event in San Francisco was interesting (and valuable) on a number of levels. I’d never been to an event with 60,000 attendees before that didn’t somehow involve a professional sports team. The size and scope of the proceedings are impressive. Once you get past the impression that you’ve landed at someone’s house party on steroids, however, there was a wealth of good content to explore and consider.

    Cloud

    The overall theme of the event was, effectively, “all cloud, all the time”. From podium keynotes to smaller / more intimate discussion sessions, it is clear that this is the Big Bet that Big Red has placed for the future and they are happy to talk about it with customers, analysts and the financial community at length. Mark Hurd’s presentations elaborated on this as being a strategy that would allow customers to run workloads on the platform of choice and that their R&D spending would continue to support localized decision making. He also noted that, as a vendor, they didn’t want to box customers in on their decisions, and that they fully expected the move to cloud-based solutions with a fairly logical progression of functions, likely starting with QA / testing.

    To help make that point, the CIO from GE presented an overview of their game plan for the manufacturing oriented conglomerate. With a clear mandate from above, they are driving as much as they can toward the cloud in an aggressive (and well-funded) 5-year plan

    Security

    A major issue with cloud-based solutions continues to be security. Larry Ellison chose that as a focal point to address during his keynote. He noted that for best in class cloud solutions, the security offered could now meet or exceed what many companies are able to do on their own. That is certainly consistent with what we see and hear from the insurance carrier community; an increasing number of carriers have noted this to us and specifically identified a “point of view” on who those best in class providers are.

    Ellison went on to note that they’ve seen a trend of security related “issues” where customers have failed to properly implement capabilities inherent to their offerings. To address for the future they plan to default enable these capabilities on the theory that this will help reduce self-inflicted wounds. Be interesting to see how that plays out.

    New “Horsemen” of Enterprise IT?

    Larry went on to highlight who Oracle sees as the prominent players for key capabilities in the future. His current list includes the likes of Salesforce and Workday; the only traditional competitor he sees making a coordinated and effective drive from the past and into cloud based capabilities is Microsoft. Notably missing in his analysis were companies that have 3-letter names.

    Though I walk through The Valley…

    In an era of accelerating change and increased awareness of the importance of finding ways to generate competitive differentiation through technology, this was a fascinating event. Many of the leading edge showcase items from retail or consumer products don’t have a direct insurance tie … except that they are helping to reframe customer expectations. For carriers that’s a key point. Regardless of the tech stack used, moving to address new paradigms will be key to maintaining relevancy in the future. A stop at the Silicon Valley Innovation Center served to emphasize that point. 2016 will be an interesting year. Buckle up.

    Our own Jeff Goldberg will be presenting at the upcoming Insurance Disrupted conference in Palo Alto later this month. More information is online here.