Reflections from the Digital Insurance Agenda, Amsterdam

Earlier this month Craig Beattie and I ventured off to Amsterdam to attend the Digital Insurance Agenda (DIA), where we also delivered a keynote. This was the event’s second year and, within just 12 months, it has grown significantly to around 850 people – attracting insurers, innovative technology players (from both the establishment and budding entrepreneurs), and investors from across Europe and beyond. The format is a sprightly mix of keynote presentations, panels, and live demonstrations. And, like last year, it was another great mix of people and ideas, each focused on driving change in customer engagement across the industry through technology.

(Venue: Gashouder at the Westergasfabriek. An impressive venue – with Celent on stage somewhere up there at the front :-))

Key take-aways for me were:

  • Distribution and front-end engagement remains a strong area of focus for innovation. However, unlike recent history where investment has been heavily channelled into mobile or touch-enabled browser experiences, the presence of chat and other app-less modes of interaction were strongly evidenced throughout most of the live demos. This has been a hot trend over the last 12 months, and where Celent has explored both insurer and consumer attitudes towards it (see Celent report: Applying Conversational Commerce to Insurance: Aligning IT to the Machine World). Given the issues that many insurers have had with trying to encourage customers to download their apps and engage with them through them, it’s not hard to see why 'smart chat' is being pursued so aggressively.
     
  • Heavier focus on the use of data for risk profiling and the application of emerging AI techniques (beyond chat use-cases). Personally, I find it incredible just how low the entry barriers have become for experimenting with data and AI. The perfect storm of huge compute power via the cloud, open-source and pay-per-use models for advanced technology enables those with relatively modest means and a great idea to get started. For me, this continues to be one of the most interesting areas in our industry for mining value. It’s also an area that insurers still find a challenge (see Celent report: Tackling the Big Data Challenges in Global Insurance: Differences Across Continents and Use Cases).
     
  • Celent has been tracking the development of innovation partnerships across the industry for a number of years (see Celent report: Insurer-Startup Partnerships: How to Maximize Insurtech Investments). At DIA, it was easy to see this in action. The vast majority of firms presenting were not a direct threat to the industry at large, but instead were exemplars of better ways of doing things through the use of smart technology. It’s not hard to envision that a few of the firms demonstrating at DIA will walk straight into pilots following the event.

The event was closed with a keynote from Scott Walcheck of Trov. Scott shared openly some of the progress that they have been making – which, to me, feels impressive. For example, they now have ~60-70 engineers working on the team and claim to be growing revenue by ~44% month-on-month (albeit from a starting position of zero).

Out of all of the insurtech start-up activity globally, there are just a handful of firms (in my opinion) who have the potential to really shake things up – and Trov is one of these.  They now have the capital, the engineering capacity and the partnerships to do some truly incredible things – if they choose to.

I also found it interesting to hear that they have started to evolve their business model into three focus areas, being: (1) Trov as a direct brand; (2) White-labelled Trov; and (3) Insurance-as-a-service, where they will rent their platform to partners – plus with an aspiration to evolve it into auto, home and other lines.  Given Celent’s focus on technology research across the industry, this last model-type is of keen interest. Trov’s engineering capacity is already a similar size to (and in some cases larger than) many mid-to-small insurance carriers. It is also larger than some of the traditional independent solution technology providers out there. Could they be the next big technology player on the scene in addition to their existing branded business?  Only time will tell, but it is clear they are already demonstrating how insurtech represents a new way of delivering insurance product development.

For more commentary on DIA, see Craig Beattie’s Moments on Twitter.  Also, keep checking the DIA website as they will shortly release some of the videos from the event.

Closing the deal with e-signature

E-signature has become such a part of my life that I am surprised when I am asked to provide a wet signature. I sign for credit card purchases, deliveries and legal documents, even my tax returns (!), using a click or a digital signature pad. But, if I want to change my beneficiary for my life insurance, I have to download a .pdf, sign the document with a pen, and mail it to the insurer. Insurance has been a slow adopter of e-signature. However, as the process of buying life insurance and receiving post-issue service is becoming increasingly more digitized, insurers are working to remove paper from everyday processes.

The adoption of e-applications, web portals, and mobile technology is helping to drive the change, but it is my belief that it is primarily driven by customer expectations set by other industries offering easy-to-use digital processes. Consumers expect companies to be easy to do business with and will choose the company they purchase goods or services from based on the ease of use. E-signatures provide a way to offer a digital experience that is easy to use, fast, and secure.

In our new report, Putting a Lock on Straight Through Processing, my colleague Karen Monks and I profile 11 providers of e-signature technology for insurance. This is the final report in a series that began last year.  During the year, we looked extensively at new business acquisition and the technologies that power it. We wrote reports on solution providers for illustrations, e-application, and new business and underwriting in addition to e-signature. Along with the vendor reports, the series included two benchmarking reports and a report in which insurers compared their level of automation to Celent's automation capability matrix to determine if they are minimally, moderately, or highly automated.  

With the increased emphasis on cycle time and cost, e-signature is being increasingly being adopted as a way to check the box on making processes fast, flexible, and efficient. E-signature software frequently integrates with other solutions to support new business acquisition as well as post-sale service.

The ability to collect an electronic signature for a new application at the time of sale providing the legal authorization to obtain underwriting requirements and evidence from third party providers has enabled straight-through processing and the ability to provide a decision to the applicant within minutes, instead of weeks.

Common e-signature use cases for life insurance:

  • New policy application
  • Disclosure delivery
  • Agent licensing and appointment
  • E-delivery of policies
  • Beneficiary change and other policy servicing
  • Premium payments

Life insurers that investigate e-signatures will be pleasantly surprised by how quickly and relatively inexpensively e-signature can be implemented as well as how easily and securely a paper signature process can be automated. I am a big fan, as I’m sure you are, of less paper and more automation!

 

A cautionary tale of legacy technology or how to avoid a major meltdown in your organization

Were any of you flying Delta from April 5 to April 9?  If so, this story will be no surprise to you.  For the rest of you, you may remember it was spring break and terrible weather pounded Atlanta. The severe weather caused a five–day meltdown across Delta’s flight network and over 4,000 flights were cancelled. During those five days, Delta struggled mightily with two basic functions of its business – flying airplanes and accommodating passengers. The weather is, of course, out of Delta’s control, but the response and the ensuing chaos was amplified by something insurers understand all too well — the lack of modern technology. 

According to a Wall Street Journal article, the root of the problem was a telephone busy signal. An internal investigation found the biggest problem was that Delta’s 13,000 pilots and 20,000 flight attendants calling in for a new assignment couldn’t get through to the people in Atlanta who were rebuilding the airline schedule. Computers told gate agents rescheduled crews would be there, but the flights would end up canceled for lack of a crew member who was lost in Delta’s communication fiasco and unaware of the assignment.

I have to confess, my first thought when I read this article was to wonder how on earth a major company like Delta can be so lacking in modern technology. My next thought was wow, this is true for the insurance industry as well. While life insurance companies don’t have the challenges of rescheduling thousands of flights, a negative change in the stock market can create thousands of customer calls. And when a major catastrophe occurs, property casualty insurers can also be inundated by phone calls.

Delta’s response was to double the size of the crew-tracking team, dramatically increase the number of phone lines by June; and hope to have a system which will be able to send crews information about their trips electronically by August.

Rather than relying on hope, following are suggestions for insurers so that they can avoid the type of meltdown experienced by Delta:

  • Self-service portals or apps where customers can check their balances, make changes to their policies, and communicate with their insurer.
  • Chatbots that can provide answers to questions without human interaction.
  • Text messages to keep insureds informed.
  • Webchat to allow communication via the website.
  • Omni-channel support to allow seamless switching between devices.

We can’t control the weather or the stock market.  Unexpected events will happen.  But, how an insurer responds to them can have a significant impact on the customer experience and the customer long term relationship with the insurer.  In a hyper-competitive market, customer experience is a key differentiator.

If you are interested in building a better customer experience, here is a report you may find interesting, Standing Out in a Bland World: Global Life Insurance Customer Service Strategies.

The Death of Processes and the Birth of High Frequency Underwriting

Let’s consider a car insurance market where all new contracts go through online aggregators. Let’s assume all the car’s information (vehicle brand, type, category, plate number, etc.) and potential insured data (driver’s name, age, address, historical claims, etc.) is standardized, packaged to include all relevant information needed by an insurer to price a motor insurance risk, and instantaneously electronically transferred to an aggregator as soon as the car is purchased (payment triggers the packaged data transfer, quoting, binding, and contract sealing). With today’s technology and connectivity, this quote and bind process can be done in less than a second.

In insurance, a process is a series of tasks to turn raw data into valuable information to make a business decision. In other words, a process requires time between its inception and its end and almost always human intervention. Indeed, today’s quote and bind process captures relevant data about a car and a driver through a questionnaire. Then insurers need to evaluate the risk involved and price it before a quote is given and potentially accepted by the driver. Even though many digital interfaces can be offered to perform the whole process, the potential customer still has to respond to a set of questions and click on a button to accept a proposal. In our extreme digital example, all the tasks are reduced to a minimum of time and fully automated; the driver doesn’t even have to fill in a questionnaire since all relevant data is packaged, transmitted, analysed, and sealed into a new car insurance contract in less than a second as soon as the car purchase is triggered. Can we still call it a process when there is an instantaneous business decision (underwriting and pricing) made and an outcome (contract sealed) produced, and this without human intervention? Well, I think with extreme digital, processes as we know and define them today are dead.

The next question is: How can insurers differentiate in a world where customer engagement is nonexistent? One might think that it would be price. Actually, it is speed. Indeed, I think that the ability to match a specific demand faster than competitors will allow an insurer to win the deal. To do so, they’ll need to support what I call high frequency underwriting in order to have their quote matched with the demand side within milliseconds (faster than competitors’ quotes). Indeed, for the same price, the fastest proposition will win the deal.

Now, let’s get back to my initial assumption: all new contracts go through online aggregators. Let’s consider an aggregator owned by an insurance player. If this insurer can get time advantage versus other insurers feeding its aggregator, it will be able to adapt its quote to optimize its margin using competitors’ information and leverage the speed advantage, even though it is about milliseconds.

This scenario is not unrealistic, because high-frequency trading is about milliseconds. So, who knows, maybe one day we will see insurers not thinking much about processes, but focusing more on speed.

The Real Value from Insurtech — A New Way to Develop Products

The long-term sustainable value from insurtech lies in its ability to change how insurance products are created. The economic model behind how startups bring their products to market is bending — no, breaking — the traditional development cost curve. Insurers which recognize this dynamic and adjust their innovation activities accordingly will create more value form insurtech than their competitors.

Insurtech has already gone through at least two iterations in its short lifespan. A little more than a year ago, the market was abuzz about widespread disruption. Now that it is recognized that there is value in integrating insurtech, partnership is the rage. The next phase will see an increase in greenfield operations. Over the next 12 months, the economics of insurtech development will result in a significant increase in spin-offs and stand-alone propositions.

The reasoning is this – economics will motivate different behavior. Traditional insurance product development is typically characterized by these approaches/tools/techniques:

  • Product or process-centered design
  • Waterfall development (although agile techniques are catching on)
  • Centralized, on-premise infrastructure
  • Package or custom-built software
  • Periodic release and control procedures
  • Service-oriented architecture (SOA) integration

Contrast that with insurtech operations. They are typically characterized by these approaches/tools/techniques:

  • Customer-centered design focused on delivering a minimal viable product as quickly as possible to the market
  • Agile development using small teams
  • Cloud infrastructure
  • Microservices architecture
  • Use of DevOps to control updates
  • Use of open source software
  • API integration

Here is where the economics comes in. Without reading ahead, answer the following question:

If you spend $1 delivering a specific set of functionality in the traditional approach,
what amount would be needed to deliver exactly the same functionality using the new development approach?

I have been asking this question for the last two months. It is a tricky one, because the best input comes from the limited number of people who have delivered insurance products in both the traditional and the new development approach. These few professionals have “lived” both environments. My sample size is small so far, but I have polled about 30 people.

The answer ranges between 20 and 30 cents on the dollar. So, call it a quarter. That means that a $4 million dollar project delivered with the traditional approach is only $1 million using the new tools/techniques. Or, better yet, entire propositions, which include changes to both the insurance product and a new automation platform, can be delivered for under $4 million. (For more on this, see the @Celent_Research report Slice Labs: A Case Study of Insurance Disruption.)

With this cost profile, a greenfield startup approach becomes much more attractive. Investing in a new product/market approach is much less risky given the smaller level of investment. If we marry this with the innovation fatigue expected as incremental efforts fail to deliver sufficient value to the core business, the environment is ripe for spin-offs.

This is not to say that the current “partner with a promising insurtech firm” or the “we want to make innovation part of our culture” approaches will go away. However, expect to see significantly more stand-alone efforts than we have seen in the past.

Immediate adjustments to this opportunity include:

  • Insurers should include multiple start ups in their innovation portfolios
  • Insurance software/IT services providers and venture groups should help both insurers and insurtech firms to set up greenfield propositions
  • Insurtechs should look beyond incremental solutions and apply their talent and techniques to entire insurance propositions

As some of the spin-offs succeed (and most of them fail), insurers will learn how to develop in the new environment and will transfer these techniques to their core business. As a result, the true value of insurtech will not be an either/or choice, but change through absorption of new approaches and techniques.

Insurtech = new way to develop insurance products

Slice Labs Case Study: New Economics at Work

Just published: a detailed case study on the first year of Slice Labs. (see @Celent_Research http://bit.ly/2pgJ65b ) This insurtech delivers a tailored insurance contract to sharing economy operators on a digital platform. Homeshare coverage is live in production in multiple states and rideshare was just released to pilot. The experience of Slice Labs provides a valuable benchmark against which insurers, insurance technology providers, and insurtech firms can measure their innovation efforts.

Truly disruptive insurance innovations are rare. Most insurtech propositions are service improvements for current products in existing markets.  Slice Labs is disruptive in that it targets an underserved customer niche with a proposition that involves changes to the core insurance product using new technology tools and development methods. The solution was delivered to pilot within one year at a predicted and managed cost within the limits of their initial capital raise. This combination of insurance expertise, new tech skills, and dev ops processes illustrates a new model for insurance development.

Some of the key lessons from the case study include:

  • A one-year timeframe and an accurately predicted investment delivered a minimum viable insurance product and IT platform. This low-cost threshold and speed challenge in-house insurance innovation approaches and argue for wider use of greenfield initiatives.
  • The effort and elapsed time necessary to identify a risk sharing partner are significant and should not be underestimated.
  • Affinity groups/communities of interest can create significant pull demand.

This model is repeatable. The challenge for incumbent insurers is to develop approaches which allow them to benefit from the new economics at work in insurance product development.

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