I have frequently provided my personal view in this forum about the economic situation insurance companies have been facing since the emergence of the financial crisis back in the end of 2007. I published a post in November last year titled “Time is passing, uncertainty remains“, in which I exposed my view on 3 important lessons that manifestly are proving to become reality as time passes: nations are here to stay, democracy always wins, and we cannot solve a credit problem with more credit.

But today I would like to get back to an interesting figure published yesterday demonstrating that the financial industry in Europe is in a deep transformation phase that could take more years before the industry gets back to a better shape. This figure is the recent estimation of the jobs lost in the City of London published by the Centre for Economics and Business Research (CEBR), who said that City roles were down by almost 100,000 since the recession so it means we are talking about one-in-three City jobs axed since recession (more from The Telegraph). This impressive number is among others the consequence of a fierce competition that is currently happening between the main international financial cities. On the UK life insurance side, we have seen big changes too as shown in the following chart, demonstrating that the life market has gone through difficult time over the past five years:

In France, the growing uncertainty surrounding financial markets has had an impact recently on how life insurance is perceived within the French population, explaining why life and pension product withdrawal (buyback of insurance policies) increased in 2011. Without saying that insurance ROEs have dropped across the board in comparison to the pre-crisis times penalizing the main bancassurance groups in 2011:

In summary, uncertainty remains and getting back to the three key lessons explained in November 2011, I think the near future will remain tough for financial institutions and insurers. Indeed, the recent presidential elections in France and the parlamentary elections in Greece have demonstrated that:

1) There is a gap between what the European Union institutions think about the future of nations and what specific populations think is good for them. This is without saying that more integration between State members part of the EU forms part of the solution to the sovereign debt crisis but populations seem to be against this idea.

2) While austerity is needed, policy makers are now talking about growth programmes triggering confusion if not conflicts with the country producing the effort to keep the whole Euro-zone construction afloat (Germany) and without saying that austerity has not really been even tried as it is brilliantly demonstrated by Veronique de Rugy:

In the light of what I observe day by day I can only repeat what I have written last year. I think that we have reached a point where the magnitude of the Euro-zone problem is too big for policy makers ability to find a successful plan. To me the time has come to plan the end of the Euro-currency under its current form and the more we wait the more difficult it will be. For insurers, there is more uncertainty ahead and I would encourage them to prepare contingency plans as Zurich Financial Services is doing.

Celent facilitated another Insurer Peer Networking Event at the headquarters of New York Life Insurance Company.  The discussion was the liveliest yet, with every company contributing significant learnings about their experience in straight through processing and product development in Life and Annuity Insurance.  Here is a brief overview of those lessons.

There was general agreement that companies are experiencing a greater than 65% NIGO rate with a paper process. For one insurer who has implemented electronic applications in annuities and for part of their life book, NIGO drops to 10% in an automated submission environment. 

Most who had implemented in production or in a pilot agreed with one participant that “STP is a journey, not a destination”. A common development approach is to look for what steps can be automated now and build a roadmap that supports continual refinement and technology introduction.

The main key success factors that emerged were:

·Straight through cannot be technology led; if it is, it will fail. Support must be championed by the Business and reinforced in sales meetings, communications, incentives and in design and implementation decisions which are taken throughout the project;

·The STP experience must be superior to the paper experience in order to create the pull necessary for wide adoption.  This design philosophy extends beyond the agent to company service personnel;

·The insurance industry is holding itself back regarding Esignature.  The legal issues have been resolved; 

·The change management issue in the service center is huge and should not be underestimated.  One company identified it as their “biggest challenge”. The work change at the desk level for service employees is critical if the benefits of STP are to be realized.  Getting staff to work on an exception basis and not look at the full case for every (or most) of the submissions is a significant adjustment.

The group participated enthusiastically in a rich discussion about how to change incentives and performance measures to make a successful transition on both the agent and the company side. The major take away was that STP must have a technology plan supported by a change management approach in order to reach the level of success needed to deliver the substantial benefits that are possible.  

In the afternoon, the insurers reviewed their product development processes with a goal of identifying what approaches lead most frequently to an increase in speed to market.  A few common themes emerged.

First, those reporting the most progress started with measuring the current process.  Simple metrics were developed regarding how many departments are typically involved in a major product change, how long (elapsed time) it takes to implement a change, etc.  One such review identified that 86 separate teams were involved to some degree in the development and production of a major change – a much higher number than was expected.

Another common element among the insurers who have improved speed to market is a focus on building and improving business analysis skills and tools. One organization discussed their center of excellence for Business Analysts.  Another company described an estimation tool to assess priorities and determine trade-offs.  This insurer reported an increase in process flexibility and improved communication between Business and IT as a result of the use of the tool.

The open discussion and practical nature of the suggestions made this a very worthwhile exchange.  Thanks to everyone who attended and contributed!

Over one hundred years ago, Jung predicted man’s struggle with his humanity in the face of industrialisation. He wrote quite eloquently about the rise of depression resulting from us struggling to redefining our self-worth having lost our sense of purpose to the rise of the machines. A century later, we face another wave of technological change that will surely deeply impact society. The Economist outlines the case for the third wave of industrialisation with the introduction of 3D printing in manufacturing. Here at Celent, we’ve been pondering the wonders (and impact on insurance) of growing your own clothes and flying cars.

We should take the time to celebrate and marvel at the ingenuity of man to continuously drive such innovation. Man’s innovation has opened up new ways of working as a society and new opportunities for the individuals within that society. More recent innovation has brought us new ways of communicating, and new tools to do it with.

But Sherry Turkle *, MIT professor makes a great case for the true price of this connectedness. In her research, she interviewed a 16-year-old boy who relies on texting for almost everything says to her, “Someday, someday, but certainly not now, I’d like to learn how to have a conversation”.

Skype has recently pushed out a huge ad campaign throughout the London tube highlighting where we could use Skype calls, and making digs at Twitter (“140 characters doesn’t equal staying in touch” and my favourite “”When did it become okay to text Mom Happy Birthday?”).

When did we lose the courage to have conversations face to face? As Ms Turkle says, human relationships are messy and demanding but who hasn’t felt the joy of having a truly open and honest conversation with another human being. It’s a poignant moment in mankind’s evolution when we reflect on just how much time we spend giving the right/perfect impression of ourselves to the outside world. Technology allows time to fine tune what we say, to reflect only the joyful and perfect moments in our lives.

I’ve seen this in other aspects of my life and in many ways these are more egregious points. I expect these are familiar to you too:

1. 1. The HR department who makes an announcement of significant organisational restructuring via a group email – and only via email. (When did it become OK to end personal or professional relationships via email or texts?)
2. The Divisional head who lambasts his team via email for bad behaviour when it’s really only directed at one team member. (When did it become ok to use technology to be a lousy manager?)
3. The family at the restaurant who don’t talk to each other over dinner as they are too busy typing into mobile phones, or watching TV on tablets. (When did it become ok not to talk to each other at dinner?)

Another beautiful point made by Ms Turkle is that face to face conversation unfolds slowly and this teaches us patience. It worries me that our attention span seems to get shorter as the years go by. Information needs to be delivered in short sharp chunks otherwise boredom sets in. Can we truly absorb what is going on around us with one eye on the TV and another on the Blackberry?

I expect this post is not what you might expect from a technology analyst. And you are wondering the link to insurance – a mandatory requirement in most of our blogs. But my point is just that – insurance is about personal relationships, about people often in times of crisis. This is personal. Life is messy and imperfect – let us not use technology to recast the world into something it is not. Let’s not trade our humanity for progress.

* Sherry Turkle is a psychologist and professor at M.I.T. and the author of the fascinating “Alone Together: Why We Expect More From Technology and Less From Each Other.” Check TED.com for her presentations.

In our recent work in Latin America, it is clear that in the process of selecting core systems for countries such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, Insurers have been more focused on delivery and support capabilities than in the product.

All vendors claim quick time to market, low TCO, quick ROI, strong product configuration capabilities and more. And when dealing with the top vendors, there is little material difference in features and functionality. Although functional requirements account for most of the items in a RFP the weight of non-functional requirements including delivery and support capabilities has matched and even surpassed the first. This is an approach that we have been advocating in other regions.

Functionality is now an arms race. Insurers, even in emerging regions like Latin America, must invest more in evaluating service and delivery capabilities.

With a plethora of new vendors in the region offering solid solutions proven elsewhere in the world, regional insurer have three important questions that vendors need to address:

1 . “Will the vendor have the capabilities to deliver and support the product in this region? “

2. “What will I need to change (people, process) in order to take advantage of these new highly configurable systems that promise to put everything, well almost everything, in hands of the business users?”

3. “How do I really validate that the product will support our lines of business, the products we sell and the channels and processes we want to have in place to better serve our distribution channels and customers?”

In response to these questions, there are several interesting points to make.

It is clear that vendors in the region bring a wide range of different business models. Insurers in most Latin American countries have been used for decades to have local/regional support from vendors which acts as a high entry barrier for new participants. While some of the new players have decided to work through system integrators or implementation partners, they still need to demonstrate how successful those relationships can be to deliver in the short term and to supersede in the long term. Insurers are looking for credible relationships (between vendors and partners) and processes in place in advance for knowledge transfer. Domain expertise, sufficient trained staff and delivery capabilities in similar projects are key aspects they will consider when evaluating the local/regional partner. Finally, how involved is the vendor going to be in the implementation process is also under consideration. Vendors who are amongst the first to prove some track record in the region will be the vendors who succeed in the future.

When it comes to validating the product against the insurer business model, Celent points insurers to the process of the RFP. There are smart ways of validating and engaging with vendors early in the review process to strike a balance between what the solution is capable of and the organizations willingness to change its business model. This new approach focuses more on system review in early stages of the process and making stakeholders and users engage in the quest of understanding what is possible and the transformation required within the organization since start.

This focus on service delivery and business transformation over functional requirements is the new reality in Latin America and one that Celent will continue to support.

This week, the Celent team have been developing the content for a workshop that we will take to our clients to explore what the world of insurance could like in 2022 once the disruptive effects of today’s technology evolutions take hold, such as cloud, ‘Big Data’, and SoMoLo (Social, Mobile and Local).   

Although sometimes in this industry you can feel more like a museum curator than an innovator (especially if like me you focus on the Life, Annuities and Pensions market!), this is genuinely an exciting time to be in insurance technology.  Some of these developments are simply explosive and have the potential to change the way the industry operates forever.   Of course, with all innovation comes risk, and I suspect that we will see a few expensive failures littered along the way to adoption (and then quickly swept under the carpet) as insurers try to navigate their way through the hype.

For me, however, it’s not just the technology that’s going to force the change.   Over the next 10 years, we are going to see a fundamental shift in demographics and with it consumer expectations that will see the coming of age of Generation Y.   By 2022, the first wave of Generation Y consumers and workers will hit their 40s.  They are likely to be at a key pivotal point in their careers and earning potential, making them a clear target for many marketeers.  They are also likely to hold key positions within their organisations – including your own.  This is a generation that has grown up with a high exposure to media (sometimes dubbed as the ‘MTV Generation’), convenience (especially when it comes to food), on demand services, and heavy use of technology.  Simply put, they will expect more of everything, and they will not be willing to wait.

What could this mean for the industry?  At a minimum, I suspect that Generation Y will expect insurers to have a coherent customer engagement model (that incorporates a great user experience with accessibility from anywhere, and a social dimension), propositions that target them specifically (through unique insight, mass customisation for delivery, and the ability to source their information directly so that they don’t have to find it), and service excellence (i.e. immediate resolution with the insurer doing most of the work).  Many of the technologies described at the start of this blog will be at the heart of turning this expectation into a reality.

So, when you come back to work next week, why not start by asking yourself the question “What am I going to do to prepare my organisation now to take on the opportunities presented by Generation Y in readiness for 2022?”

Oh, and a word of caution, it doesn’t stop at Generation Y.  Some commentators are also now talking about Generation Z.  These are the babies, toddlers and young children running around our feet who know of no other world than one with high speed broadband, touch devices, and instant connectivity.  If you would like to understand what their expectations will be, then it’s probably a bit too early to guess.  However, this popular YouTube clip may give you some insight.  So, are your applications up to it or will you be left holding the ‘magazine’?

Once again, Celent has teamed up with the Insurance Times for the 2012 Technology in Insurance Awards. These awards are the only dedicated insurance technology awards in the United Kingdom for general insurance. Last year’s awards were a huge success in recognising some terrific successes in our industry. We had 140 people attend a cocktail award’s ceremony in the iconic Gherkin building. LV=, Chartis, Ingenin, and HOV Global services were just a few of last year’s winners. Judges included Google, CEO of RSA, Editor of Insurance Times, and your own Celent analyst, myself.

This year, we have a two new categories which reflect the changing nature of technology:

- Best use in Social media

- Best use of analytics

So the important dates for your diary are:

• 11th May - Deadline for submissions (Go to Insurance times website for details on how to submit)
• Award ceremony 20th September in London

We look forward to this year’s interesting and exciting nominations, and recognising the superstars and stellar effort that is made every year in our industry. Good luck!

In a webinar on March 13th, Craig Weber and I presented our predictions for the North American Policy Administration system market.  We also identified some the trends we’ve seen in the market as it relates to deals.  A quick recap shows that we believe the NA PAS market will have a slight dip in 2012 relative to 2011 sales, which is driven by the fact that many of the larger insurers already have PAS systems in place and few large insurers have plans to buy a full new system.  Instead we believe the market will be buoyed by the larger insurers upgrading and enhancing their current systems because many are using older versions of vendors’ systems.  We also believe that the market will see middle tier insurers picking up the pace on buying vendor systems as competitive pressures and efficiency mandates are now being applied to them.  Several of the vendors in our recent report, North American Policy Administration Systems 2011: Life, Health, and Annuities ABCD Vendor View, are beginning to target this cadre of insurers.

Our webinar produced a great number of questions from the audience.  I’ll recap a few here.

Question: Your data suggests that large carriers will actually be building new policy admin systems using vendor software. But traditionally, that has not been true. Is something happening to drive this change?

Answer:  We do see that insurers have been moving towards vendor systems.   (Our data points to the fact that over nearly 50 percent of larger insurers have at least one vendor system in production.) 

Question: What are the top 3 decision drivers for insurers and are there any key decision driver differences in each of the three tiers?

Answer: The big one is Agility . . .  followed by the need to provide end customers, agents and policyholders the ability to work more easily with the insurer.  The fact that many of the vendor systems are now offering greater flexibility and more user friendly GUIs points to the need for the insurer to provide the policyholder with a timely, error free and positive experience with the insurer. Some carriers have also expressed concerns about ongoing resource availability to keep their legacy systems running, though this seems to be a secondary issue to the others.

In terms of differences by tier of carrier, the first two drivers are universal. Large carriers are typically in more lines, and have a more differentiated distribution footprint. But small carriers also need agility to move with their markets, and in fact have the advantage of being organizationally limber.

Question: Is the data presented include conversion costs or pure implementation costs (new business) ?

Answer: Our data presents only the first year license and implementation costs of vendor PAS system.  It is based on the average license fees and first year costs given to us in our vendor RFIs for our report.  We use three different number for first year expenses based on the size of the insurer: Large (>US$ 1 billion), Medium and Small (< US$ 500 million) insurers.

Question: Do you find that the predominant strategy is replace or modernize?

Answer: We have seen that the trend is to modernize even if it means taking the long upgrade path towards modernizing.   We incorporated that trend into our estimates for our analysis.   We have found that through discussions with vendor clients, particularly ones on older systems, and our associated research in the PAS market that clients often opt to stay with their existing vendors and modernize in lieu of starting over with a new system and vendor.

In a counter to our finding, we received the following comment from an attendee that we thought we’d share: “Modernization may not always be possible with the current vendor particularly if there is a growing need for agility as Craig mentioned.  Carriers may be looking for ways to inject agility into a legacy solution by employing, for example, a new calculation engine that interfaces with the PAS and other core systems or a product configurator that can facilitate rapid change by producing artifacts a legacy system can consume.   This way they are protecting their existing investment, are by no means doing a rip and replace, and provide themselves with a roadmap to future replacement.”

Questions: Any specific trends in the closed book of business when it comes to package / software implementation? Especially, do you see any insurers implementing a packaged solution for small closed block of business?

Answer: We did not ask specifically about whether the systems were being used for closed books of business in our vendor RFIs. Nor did we ask the clients using the systems if the books were open or closed.  However, Jamie MacGregor in Celent’s London office and I (Karen) are currently researching a series of reports specifically about closed books of life insurance. Our reports will discuss closed books in both US and the UK. It will address the reasons why insurers opt to close books and the challenges facing them once they decide to close the blocks of business.  We will lay out the options available to insurers such as outsourcing, selling off businesses to other insurers or aggregators (UK), keeping the business inhouse and the additional options available for that strategy, etc.  When legacy platforms are involved, this leads us right back to the question of what to do with an older system, especially if the system administers closed blocks, doesn’t it?   Look for that series of reports beginning in late April 2012. 

Last week, the Hartford (USA) announced that it was refocusing its business strategy.  The immediate impact of this change was to place its annuity business into runoff, and to initiate a search for a buyer (or strategic alternative if a buyer cannot be found) of its Individual Life, Woodbury Financial Services and Retirement Plans.  In addition to this news from the Hartford, earlier this month we also saw the Prudential (USA) announce that it was going to discontinue the sale of individual long term care products. 

In mature markets around the world, there appears to be a growing demand to either find new homes or alternative strategies for long-term business that no longer fits with the business strategy of insurers.  In Europe, for example, Solvency II and local market reforms (such as the Retail Distribution Review in the UK) are acting as a catalyst for insurers to re-evaluate the economic viability of running these blocks as they reduce in size with age, and also with a view towards releasing capital.

So, if you’re an insurer with large block of non-strategic long-term business, what are your options?

The most obvious option, and preferred by many, is to find a buyer for the block.  Although strategically, this can be the cleanest option for the insurer, it comes with two big risks.  The first risk is brand reputation.  Even though the products within the block may be viewed as non-strategic by the insurer, it is unlikely that the customers holding those products see them that way.  Ultimately, these same customers may also be good prospects for other financial products and services.  The second risk relates to transition.  Ideally, the buyer of the closed block needs to be able to absorb the business into its existing operation without a drop in service quality or benefits to the customer.  Typically, this will involve some level of convergence on processes and platforms with other similar blocks – not an easy task, and it is likely that the biggest share of the reputational risk associated with any failure still lies with the insurer who sold the block!

Other options range from financial restructuring through to outsourcing through to internal transformation.  No option is straight forward, all involve some level of balancing the cost to serve with the reducing size of book, and all attract risk.  Arguably, at the heart of any good strategy for closed blocks, should be an understanding of the value of the end customer holding the product, and how further value can be extracted from the relationship to the benefit of both parties (regardless of who manages / owns the block now).

At Celent, we are researching the options open to insurers for managing closed blocks and also strategies for maximising the value of the customers held within them.  If you have an opinion on what the best strategy is for managing these old discontinued blocks of business, then we’d be keen to hear from you.

Some insurers are starting to launch e-reputation insurance products for individuals. Indeed, in France Swiss Life started to launch last year an insurance product targeting students about to start a professional career or any persons worrying about all data and information about them on the web. Very recently Axa France also launched a similar insurance product.

While it’s been a while that we have been speaking about how insurers can leverage social network data in claims or in underwriting, it seems some of them just apply the simple rule that consists in recognizing these types of data just represent a new business opportunity. With the importance taken by the notion of self-image and reputation in the public (not only the young one), I tend to think this is an interesting field to investigate. In the case of Swiss Life, the insurer uses a dedicated e-reputation agency called Reputation Squad and, for a bit less than €10 a month, the insured can action the insurer’s e-reputation agency, who will try to put pressure on website or social network owners and ask them to erase data using the threat of a battery of juridical means. Of course, it’s almost impossible to erase all kinds of data related to a person from sites and social networks on the net and it is here that the real issue appears. Actually if there are still data left after all the juridical measures have been triggered, the insurance service proposes to flood existing data with a massive positive information and data content about the insured.

While I think there is certainly a need to fulfill when insurers propose specific juridical assistance to erase data about their insured from social networks and specific Internet websites, I think flooding the web with exclusively positive information about a person demonstrates how harmful open data on the web can be. It raises two simple but important questions for insurers:

Can we trust information publicly available on social networks?

If external sources - in our case here insurers in the frame of their obligation towards insured with regard to e-reputation insurance products but we can assume insurers are not and will not be the only external sources playing a role in here - start flooding the web with biased data about individuals, is it really a case to leverage social network data for claims and underwriting in the long run?

Addressing these questions should be according to me the starting point of an evaluation to invest in technologies whose objectives are to leverage social network data.

I was recently talking to a past colleague over lunch and he reminded me of a concern I had a couple of years ago that seems to be descending on insurers in the next 2-5 years. Architects are usually considered valuable internal resources within carriers (for good reason if they are good) along with PMs and BAs. Carriers have been outsourcing more and more development work over the last decade and reducing their internal developer footprint. For many insurers, this has proven a cost effective endeavor, albeit not without its bumps.

In addition, more modern vendor insurance solutions, namely core systems, data mastery (BI, analytics, DW/DM, ETL), case management, BPM, Rules, Portal, etc., have become much more configurable and have enabled business users to take on more of the development and maintenance of these systems. While this has again been viewed as forward progress by analysts and insurers, it again has reduced the IT developer footprint.

The typical career path for most architects in insurance has been developer, senior developer, technical lead, architect, solutions architect, enterprise architect. While different companies may have slightly different names for the stages in the architect career path, and while there have been some exceptions, for the most part, the pipeline for architects has traditionally been from their (or other insurance companies’) development teams. As a developer, one would become very knowledgeable of the carriers systems, especially with respect to legacy systems. While some insurers may have training programs, most of the learning and knowledge was acquired through project experience and shadowing architects on projects if they were tapped as future architects for the company. Architects for many insurers continue to be the first group assembled to resolve major crises and failures for insurers due to their deep knowledge of the systems and ability to diagnose problems.

Obviously, as the architect pipeline dwindles due to a much reduced insurance developer pool, the number of available architects will likewise dwindle, but the need will not. Top level architects will be even more necessary going forward as insurers take advantage of Cloud and SaaS solutions as they mature. Knowledge of the impact of using a Cloud/SaaS solution on existing systems and analyzing the risks and benefits will fall squarely on the shoulders of the architects. While this development may make IBM, Oracle, Accenture, TCS, Cognizant and others smile since they have architects, the internal knowledge and insurance industry knowledge will be lacking (maybe not missing, but definitely lacking) and the cost will be high. This will create an opportunity for some one/group, I’m just not sure who at this time.