Today’s IPO for Guidewire is important for Guidewire, the insurance software sector, and for insurers that buy new software. 

 

For Guidewire the IPO will provide access to public equity markets and working capital—as well as funding additional internal development in its products and technology. As Guidewire is now a publicly traded company, its customers and prospects will have more visibility into its financial status.

 

For the insurance software industry, the IPO highlights the importance of modern software as an enabler of growth and competitive advantage for property/casualty insurers facing a tough global economic environment.

 

The listing may also attract more investor interest from private equity, venture capital, and institutional investors in the entire insurance software sector.  The very active run of acquisitions and spin-offs we’ve seen for the past 18 months will continue, and perhaps accelerate.

 

A higher profile among investors and more money invested will make the insurance software sector stronger and more competitive, and should lead to more innovation and value delivered to its customers, the insurers.

Today, the U.S. Supreme Court issued a very interesting decision which identifies, but does not resolve, the complicated issues of privacy in the digital age (U.S. v. Jones, opinion found at http://www.supremecourt.gov/opinions/11pdf/10-1259.pdf ). The case deals with the use of a GPS monitoring device to gather information about a suspect.  A concurring opinion issued by Justice Sotomayor foreshadows the work that will eventually need to be done regarding the privacy conundrum in the age of smartphones, blogs, and big data mining.  She recognizes that, in the past, the Fourth Amendment protection against unreasonable search and seizure has assumed “secrecy as a prerequisite for privacy.” She points out that, in today’s society, we all provide data in public exchanges of emails, social network postings, etc., when we engage in commerce, communication, or for convenience.  However, her opinion is that persons providing data in this manner may not want the data used for broader purposes. The current law of the land as interpreted through past judicial decisions does not limit the use of the data if it was voluntarily (eg. not secretly) given / obtained.  She, and other justices on the court, use the Jones decision to highlight the need to bring clarity to privacy issues in the digital / mobile age.

These decisions will directly impact the use of data in insurance transactions such as claims investigations and underwriting.  Not being a lawyer, I cannot weigh in with an informed prediction about which way the court will rule, but my intuition is that it is going to be difficult to establish a standard of privacy that can be applied based on the intent of the person offering the information.  When and where we can expect privacy is very different in this age of digital communication and I can tell that the issue will be difficult to resolve.

With the Facebook IPO looming thoughts are returning to how social websites will actually generate money. Sure, Facebook is used globally, has an extraordinary number of users and is the top social network in a growing number of countries – but how is it likely to make revenue? Advertising revenue has always been the principle answer here, whether it’s Twitter, MySpace or any other social network. It worked for Google and it could work here too – couldn’t it?

I think it’s interesting that the revenue model for LinkedIn is quite different. There is advertising there but the main focus is around recruiting people and getting recruited. Those people who want to find the best talent pay a little extra to access features that make it easier to do just that – find the best talent.

For Facebook however, people use the site for lots of different purposes so it’s harder to hold back such targeted functionality. Actually I think Facebook could learn from Apple and Blizzard – the games company behind World of Warcraft. Blizzard made $1 million in 1 hour by selling a flying horse in their game. The horse was actually no better than ones you could find in the game, and you already had to be able to ride one (so probably had something similar already) in order to buy. It was kind of pretty and just a few dollars so, despite offering no value or advantage in the game millions of players bought it for real world dollars. Zynga and a number of other social game developers have taken this further with the possibility of playing games for free, but paying a little cash to be able to play the game faster or have that one extra thing that looks quite pretty. Virtual goods available at a low price are now a huge market.

What does this mean for Facebook? There’s a scam going around on Facebook at the moment promising to be able to turn your Facebook page pink rather than the usual blue. People are clicking on it because they want it – I have little doubt that if Facebook charged $0.10 to change the colour of Facebook profiles we would see them make $1m in less than an hour. Actually though, that’s not even the sweet spot here. If Facebook were able to control the payment method as Apple does in the App store then they could take a little revenue from everyone using their platform, from all the virtual purchases (again, as Apple does on all those little purchases through apps and in the app store). Facebook is starting to do this already - this is what Facebook credits are about.

In my view it’s not in Facebook’s interest to offer Facebook branded products (save except for caps or t-shirts possibly), but rather to corner social commerce, to create a platform where it’s easier and more convenient to purchase items in Facebook credits – all the while seamlessly sharing the purchases and implicitly recommending products to their friends.

What does this mean for insurers?

One is do the virtual goods need insurance? Personally I’m not sure about digital equine & aviation insurance in World of Warcraft or virtual farm insurance in Farmville, but Eve Online did have space ship insurance built in. Does anyone remember Second Life and the virtual businesses operating in it?

The second and more important one is that Facebook will become a platform for doing business. The infrastructure is already in place, the opportunity is too great and the current client base too large for this to be ignored. Today Facebook credits are just for games, tomorrow why wouldn’t young drivers top-up their pay-as-you-go car insurance on Facebook? All the while sharing the product and provider with their friends as they do it.

Facebook isn’t going to be the next virtual shop on the high street, it will be a new high street on which established brands and new brands build their shops.

Is it just me, or are most commercials for property/casualty insurance on American television really dumb, pointless, and worst of all ineffective?

 

I’ll assume that everyone reading this post knows something about insurance products and the process of selling those products. So take your own “Is It Just Me?” test. 

 

After you watch the next five or ten insurance commercials on the tube, ask yourself a few questions.

·         What are they selling?  Does this commercial actually identify an insurance product?

·         Have they given me some good reasons for buying that product?

·         Do they show prospective buyers and customers as intelligent and sympathetic–or as stupid and/or overweight and/or ridiculous?

·         And if the latter, why should I want to do business with a company that has such a low opinion of its customers?

 

There are exceptions of course. Some commercials are both entertaining and informative (think GECIO and AFLAC).  But all too many, apparently have two goals:

·         Demonstrating how clever (or worse edgy) the people who made the commercial are

·         Making insurance as obscure and offensive as possible

 

Is it just me?

The Securities and Exchange Commission (SEC) announced yesterday that they have brought charges against a broker dealer for offering fictitious securities for sale on social sites.  There are several good messages involved with this announcement.  First, the person charged was caught before completing a sale.  There is no more proactive protection than that.  Second, this demonstrates that the people responsible for overseeing financial transactions are active on social media and that they are “listening”. I continue to be concerned that budget constraints will negatively affect social media monitoring and enforcement.  Finally, it is a chance to reinforce the regulations that FINRA already has in place for the use of social media for legitimate purposes.

The announcement is located at http://sec.gov/news/press/2012/2012-3.htm The posting also includes a useful summary of compliance issues for companies to consider regarding social media (a National Examination Risk Alert titled “Investment Adviser Use of Social Media”).

I wish the authorities all the best in continuing to be successful in these endeavors.  If there is a next Bernie Madoff, let him do his damage outside the realm of social sites.

Almost with the end of the year around the corner we are yet immersed in some very important reports for all of us which, by the way, will be produced integrally with Latin American focus for the first time. The CIO Report and the Policy Administration System ABCD Vendor View Report are on their way. 

From our past and recent discussions with Insurers and Vendors about different topics around technology, architecture, trends, features and functionality something has been driving my attention: It seems to be a gap in the perception about usage and adoption of SaaS models and Cloud Computing in Insurance, at least in Latin America. While the detailed reasons and how large is the gap between Insurers and Vendors will be part of a report next year, initial findings point in the direction that Vendors perceive more benefits from adopting these models while Insurer’s CIOs do not feel the pressure and do not have it as a priority.  

A SaaS approach, applied to a Policy Administration System for example, appears as a perfect fit to the business model of many Vendors. SaaS enables Vendors to target small and medium Insurers as they can consistently manage a single scalable version of the solution and offer support very cost effectively with prices that fit smaller Insurers wallets. 

On the other side, CIOs seem to feel more comfortable with on-site, self-controlled environments. Hardware and communications prices are more accessible to them providing more processing power and bandwidth for their dollars that a few years ago. In some countries even regulation presents a challenge to these type of offering as regulators still question where the system and the data needs to reside.  

Something to consider is that Insurers in this region have yet not been exposed to much SaaS and Cloud offering so the perceived associated benefits and the price difference between traditional on-site and the new alternatives is still a discussion to mature.  

Another aspect that might help to build the bridge and cross the gap is that core system replacement is starting to show increased trends and it will expose Latin American Insurers to new architected solutions with technology and functionality much more flexible and robust but at the same time more complex to administrate. Specially smaller Insurers will need to consider how to remain competitive, improve processes and deliver better quality products and services through diverse and new distribution channels at a cost they can bare. 

Interesting times to come as we unveil what to expect in the region. In the meanwhile if you are interested in participating in the Latin America CIO Report or the Policy Administration System Report please let me know. Also feel free to reach me at jmazzini@celent.com with your comments and thoughts around SaaS and Cloud Computing usage and adoption. 

Happy Holidays!

 

Last year we offered a Christmas Carol themed post summarising some thoughts on the past, present and future. This time around I figured I’d go for one of the end of year top ten style posts that pop up as folks take a moment to look back at the year. So here I present a view on the top 10 searches insurance folks made on the Celent web site.

10. Model Insurer (Click on the words to do the search)

In at number 10 are explicit searches for the model insurer series of reports. We’re still working hard on this years but here’s some links to last years and the one the year before. This year we’ll be holding the Model Insurer event in Boston along with our insight and innovation day.
The model insurer reports can’t be beaten for offering a view of successful investment in change and technology across the insurance industry.

Also take a look at the Model Insurer Asia report and 2012 event.

9. Fraud

Sadly as pressure increases on the financial system, on wallets everywhere then the propensity for fraud increases. 2011 has seen an unprecedented rise in ill-feeling towards the financial services sector as a whole so it’s no wonder that fraud is on everyone’s agenda. Look out for work by Donald Light and Nicolas Michellod in 2012 on modern fraud systems across the globe.

• Insurance Fraud Mitigation Technology: Beyond Red Flags
• Celent Model Insurer 2010: Case Studies of Effective Technology in Insurance
• Emerging Insurance Technologies

 

8. CRM or Customer Relationship Management

Insurers have made great strides in moving from policy and agreement centric thinking to a more rounded view of the customer. With ever increasing ways of reaching customers and intermediaries, of simply transacting business this focus on technology to support the customer relationship is clearly still a focus.

7. Claims

Clearly a key focus for any insurer, from the systems supporting claims to the latest trends in claims analysis. In 2011 Celent examined the impact social media was having on claims and how insurers are interacting with claimants. We also looked at location intelligence solutions and below are just some of the reports looking at various angles of this key function. Look out in 2012 for the XCelent reports on claims system vendors.

• Using Social Data in Claims and Underwriting
• Understanding the Value of Location Intelligence Solutions
  
• Personal Injury Claims Market in the UK
• Claims System Vendors: North American P/C Insurance 2011
• European Claims Vendors in 2010

 

6. Outsourcing

2011 has seen a more pragmatic approach to outsourcing in the insurance industry globally. Strategic outsourcing is still a key tool for any large organisation and this is reflected in the term appearing in our top ten. The CIO survey series of reports (which will be refreshed in the new year) offer insight into CIO’s views on outsourcing globally.

• North American Insurance BPO Market Study
• Outsourcing Trends in Indian Life Insurance
• 2011 US Insurance CIO Survey: Pressures, Priorities, and Practices
• 2011 Asia Insurance CIO Survey
• Insurance in the United Kingdom 2011: The CIO Perspective
• Insurance in France 2011: The CIO Perspective
• IT Services Vendors Solutions Spectrum: North American Version, 2010
• IT Services Vendors Solutions Spectrum: EMEA Version, 2010

 

5. Policy Administration

Ah the big core system question. What was interesting to me was this wasn’t number one, still number 5 is pretty high up the list. Searches in this area were looking for advice on the core systems themselves, building a case for them as well as general trends. This year we published the 2011 reports on policy administration systems around the globe, each offering a different perspective on what’s available as well as what’s required.

• North American Policy Administration Systems 2011: Life, Health, and Annuities ABCD Vendor View
• EMEA Policy Administration Systems 2011: Life and Pension ABCD Vendor View
• Policy Administration System Vendors: North American Personal P/C Insurance 2011
• Policy Administration System Vendors: North American Commercial P/C Insurance 2011
• Policy Administration Systems for General Insurers in Europe 2011
• Deal Trends in Property/Casualty Policy Administration Solutions
• Reviving the Insurance Core Systems Business Case

 

4. IT Spending

In at number 4 is IT Spending – how are folks splitting their hard earned currency between projects? A key question on the minds of CIOs and others. A key insight into this is offered in the CIO interview series of reports as well as our emerging technology report – aimed at identifying technology gaining interest and investment from the insurance industry – take a look.

• Emerging Insurance Technologies
• 2011 US Insurance CIO Survey: Pressures, Priorities, and Practices
• 2011 Asia Insurance CIO Survey
• Insurance in the United Kingdom 2011: The CIO Perspective
• Insurance in France 2011: The CIO Perspective
• China Insurance Market and Technology Trends 2011
• Thailand Insurance Market and IT Overview
• P&C Insurance Technology Trends in India

 

3. Asia - or rather searches for India, China and Japan

A significant number of searches were for specific countries, the three top countries were India, China and Japan. Asia is a very diverse market and there is a great deal of opportunity in the region, not only financially but also in learning how insurance problems are being solved in these very different markets. Personally, I find one of the great things about working for a global company like Celent is the breadth of view it affords.

• 2011 Asia Insurance CIO Survey
• Model Insurer Asia 2011: Case Studies of Effective Technology Use in Insurance
• Cloud Computing in the Japanese Financial Services Industry
• IT Spending Trends in the Japanese Insurance Industry: 2010
• China Insurance Market and Technology Trends 2011
• Thailand Insurance Market and IT Overview
  
• P&C Insurance Technology Trends in India

 

2. Social

Number two in our list is social, social media and social networks. Technology is helping people to interact and changing the way they communicate. Customers, agents and members of insurers staff all expect very different things from an organisation now in a Twitter and Facebook world than just 10 short years ago. In addition, the relationship between the insurance industry and the vendors and service providers supporting it is changing.

In all this newly collected and aggregated information there lies privacy and brand-busting dragons but also great opportunity for those intrepid enough to sail the social seas.

• Using Social Data in Claims and Underwriting
• Mining the Chatter: Optimizing Social Media Monitoring
• Digital Marketing in Insurance: A Partnership with Potential
• Leveraging Social Networks: An In-Depth View for Insurers
• Big Insurance Data: Drawing Lessons from Amazon, Google, and Facebook

 

1. Mobile

I recently tried going around London for the day without my phone – it was hell! The debacle this year regarding the Blackberry outage created a wave of such feelings, although raised some counter blog posts as journalists recounted how they spent more quality time with their family without answer emails. Regardless of for better or worse, humankind has wed itself firmly to being constantly connected through mobile devices. This is a global phenomenon from geeks seeking the latest 4G android handset, executives and music lovers with their iphones or Kenyan farmers with simpler phones, mobile has changed the we communicate, interact with technology and each other and will continue to do so – the insurance industry is still feeling the impact and in many cases still leading the charge in changing peoples lives for the better through mobile technology.

• Mobile Technology for the Life Insurance Producer: Is It a Fad or the Future?
• So What If There Is An App? A Survey of Insurance Consumers
• North American SnAppshot, Life Version: Mobile Apps for Life Insurance and Annuity Consumers
• E-Business Strategies for a New Mobile World: Considerations for Insurance
• North American SnAppshot: A Look at Mobile Apps Aimed at Insurance Consumers

 

So there it is, a top 10 for you. I haven’t included links to the webinars, peer networking events and other events through the year but the links to each of the search terms will provide you with those. It’s been a phenomenal year of challenges, change and interesting times.

Have a Merry Christmas, a Happy New Year or indeed just a great season - depending on what you’re celebrating this Winter. We look forward to working with you in the new year and beyond.

Oo, look, I wrote an end of 2011 post without mentioning the Euro crisis - oops…

Insurance companies have always been risk averse to quickly adopting new technologies.  It is not uncommon for technologies to be mature in other industries and still be low on the adoption scale within insurers.  However, as the rate of change has rapidly accelerated over the last decade, carriers are in the uncomfortable position of having to determine much faster which new technologies to invest in, and which to continue to watch.  Unfortunately, the window to watch has dramatically shrunk before an insurer is playing catch up and has lost market opportunities.

Celent recently hosted a Creative Disruption workshop which focused on how insurers can more quickly adopt and leverage new approaches to solving existing problems, basically changing the behavior in thinking about, solving and implementing new solutions to existing and novel opportunities.  It was highly recommended that insurers include in the their project portfolio projects that included some of the less mature, emerging technologies, as well as the changing roles and organization structures that would be needed to gain the maximum benefit of the new paradigm shift. (See “Stirring the Creative Disruptive Pot” http://insuranceblog.celent.com/2011/11/stirring-the-creative-disruption-pot/)

In order to help Insurers better understand which emerging technologies have the greatest potential, it recently released its inaugural Emerging Insurance Technologies report (http://www.celent.com/reports/emerging-insurance-technologies) which provides a snapshot of the adoption rate of 24 technologies that insurers are implementing or evaluating. It breaks down the emerging technologies into 4 quadrants, namely, Growth and Retention, Risk and Compliance, Efficiency and Expense Control and Claims Indemnity Control.  While many of these technologies will have impact on several of these business areas, each has a primary impact on one of them.

In addition to the Emerging Technology Report, Celent has also just published “Big Insurance Data: Drawing Lessons from Amazon, Google, and Facebook” (http://www.celent.com/reports/big-insurance-data-drawing-lessons-amazon-google-and-facebook), which is one of the fast growing technologies and potentially largest impact to insurers as the amount of data continues to grow exponentially.  As more data is machine generated, as opposed to human generated data, through mobile appliances, third party data, web logs, etc., the ability to mine the data and find useful business insights becomes very expensive and/or time prohibitive.  This report looks at three leading big data users, Amazon, Google and Facebook, to provide learnings and benefits to carriers through their successful use of these technologies, such as MapReduce and Hadoop.

Celent claims that the game has changed and the old ways of looking at issues and opportunities will not work going forward for insurance technologies.  The rate of change has progressed to uncomfortable levels, forcing carriers to react faster than they are used to.  In addition, the technology changes are affecting roles, such as more configuration changes and setups to applications being done by the business instead of mostly or totally by IT and affecting organizational structures as well.  Knowledge is the greatest asset going forward as it has always been - it’s just the use of it is on hyperdrive.

Google recently received a patent for a driverless car that can handle the challenges of the open road. (Story: Google Granted Patent for Driverless Car Technology) I love this story, and the implications.

The NTSB’s proposed ban on texting will require a rewrite. Unless my autopiloted car and my smartphone are sharing computing power or connectivity, I’m assuming my texts sent while underway won’t impact safety. Of course, by the time this system is operational, texting will most likely have become passé.

The field of play for telematics is about to get more complicated. Sure, you can track where my car went. But was I at the helm, or was my car driving itself? And what if I get out of the car to let it park itself? Does that still count as me driving, for insurance purposes?

If my car can drive itself, under what circumstances will I even decide to go with it? For example, for many daily errands (e.g., picking up the dry cleaning, grocery shopping, taking the kids to football practice) the main value-adds I bring are navigation and execution of the route. Take those away, and I might choose to do something else.

We’re one step closer to answering one of life’s Big Questions. Namely: Are men or women better drivers? The answer may turn out to be neither, assuming that Google gets the product right. With R2D2 as our chauffeur, my wife and I will have to find something else to debate. Related question: Will my autopilot car stop and ask for directions when it gets lost, or will it just drive around hopelessly? For tradition’s sake, I propose to make that a user-configurable feature. I’d hate to have my car out-perform me in such an obvious manner.