The Aware Machine in Insurance

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Jul 31st, 2015

The topics of artificial intelligence, machine learning, deep learning, and cognitive computing have made their way into the popular business press. An insurance professional trying to stay informed of emerging technology may struggle to see the application of these technologies to their industry. A Celent new report, Machine Intelligence in Insurance: Designing the Aware Machine provides an explanation of this space and its opportunities in insurance. It describes a model named “The Aware Machine”,  identifies the characteristics of high-value problems best suited for such platforms, and suggests specific use cases to serve as proof-of-concept experiments.

The use cases include:

  • Analysis of legal circulars for impact: Continuously identify which regulatory changes will have a material impact. Involves teaching a system insurance law and providing it with a continuous feed of changing regulations.
  • Medical case management: Optimize treatment plans to increase recovery, return to work rates
  • Identification of underwriting leakage: Analyze insurance contracts at the clause level and compare them with each other across lines of business to enforce consistency of intent. Continuously monitor new contracts to ensure that appropriate wording is used.

We invite readers of this blog to submit their own candidates in the comments section and check back for updates. Let’s crowdsource suggestions and get some proof of concept experiments underway!

 

How to grow your book of business

Karlyn Carnahan

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Jul 20th, 2015

Most carriers in North America work with independent agents. Although the majority of premium for personal lines is written direct, that is largely concentrated in a few large carriers. Carriers who use independent agents know that high production from agents is correlated with strong relationships. However, beyond encouraging a strong personal relationship with an underwriter, what else can a carrier do to systematically build a stronger connection with an agent and grow their book? Celent surveyed a group of agents to understand those areas most likely to make a carrier the agents’ top choice.

The report addressed the following key research questions:

  1. When it comes to placing business with carriers, what criteria are most important to an agent?
  2. How are top carriers performing on those criteria?
  3. Where should carriers prioritize their investments in order to drive growth?

Key Findings

  • It is easy to think that price is the most important factor when it comes to where an agency chooses to place business. Competitive products and price certainly are important; however, even more important than products and price is the responsiveness of the underwriter. A fast underwriting decision is also quite important with over 60% of agents stating this is a must-have.
  • Money matters to agents although the specific components are not essential to all agents. The most important component is commissions. Interestingly enough, 40% stated that the commission rate does not necessarily have to be competitive. Only 30% said incentive compensation programs were must-haves – and 40% said they were nice to have or didn’t matter at all
  • Beyond that, agents also look for support in other areas. A strong brand is important, as it is easier to sell a company where the prospect already has an emotional connection. Marketing, training, and consulting support is seen as important by more than half the agents and especially younger agents who may benefit more from these types of services than older established agents may.
  • Mobile tools and social media support are generally not seen as important items to most agents – but there is a significant generational difference here. 25% of younger agents see mobile as a must-have compared to 4% of those over 60. Generational differences will become more important to carriers as baby boomer agents increase their rate of retirement and are replaced by GenX and Millennial agents.
  • Agents want carriers to invest in those tools that are most important in helping them perform their job of writing business and providing customer service to the policyholder. Most important to agents is continuing to build out both the integration with the Agency Management System and expanding the functionality of the Portal. Least important to agents are features such as mobile apps, online certificates of insurance, online commission statements, and access to marketing materials.

Looking ahead, the industry is likely to continue to experience increasing channel complexity and increasing regulation, which means there are opportunities both to improve the agent experience and to reduce costs along the way.  Carriers who are looking to drive growth by improving the agent experience should start by looking at their technology offerings and make sure they are delivering the functionality that is most important to their agents.

This report presents the results of an online survey conducted during May 2015 of independent insurance agents. It contains 13 figures and 1 table. You can find it here: Driving Growth by Optimizing the Agent Experience

UBI, personal data and the global implications of the European Union data directive

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Jul 17th, 2015

On Monday, I was asked to present at a UBS conference for investors on technology disruption facing the industry. It was far from Celent’s usual audience of business leaders and technologists, and as a result the questions being asked were quite different, sometimes challenging, however refreshing at the same time. One of the most interesting sections of the day for me was looking at the adoption of usage based insurance (UBI) across the industry and the implications for data protection.

Ever since personal data was first discussed as having the potential for emerging as a new asset class at the World Economic Forum in 2011, capturing and incorporating personal data into the proposition design has been seen as a potential gold mine, fueling the creation of many start-ups and, in our industry, propositions based upon understanding individual risk and investment behaviors. It’s hard to think of any digital proposition today that doesn’t require you to first mark a check-box to say that you’re willing to give up the rights to some of your personal data as part of standard terms and conditions.

When used well, it can enhance the experience enormously. As an avid Netflix ‘box-set’ watcher, I’m sure that I’d quickly get lost (or bored) without it for example. However, I’ve also learnt to be increasingly picky about who I let have access to my data and what links I click. I’m often amazed by how many apps want access to my location without seemingly having a purpose for it. What’s harder for me to know, however, is what happens to my data once I’ve given permission for where I can see it benefits me to do so.

At Celent, we’ve talked for quite a while about how personal data willingly shared could be a major asset in fuelling new proposition design and aiding risk avoidance. It’s not just UBI propositions that can benefit. The potential applies to all nearly all propositions – including commercial and specialty. Data sources such as LinkedIn, Twitter feeds, Glassdoor, and potentially even driving patterns could prove to be an interesting indicator of the quality and morale character of senior management teams for example. However, at the heart of these propositions or services needs to be an acute understanding of the legal implications and ethics around personal data use.

One related piece of upcoming legislation discussed that every insurer with operations in Europe needs to be aware of is the new European Union Data Protection Directive. This directive seeks to unify data protection laws across Europe and is due to be finalized later this year, with a likely implementation date set in 2016. One of its aims is to protect the consumer and, in doing so, strengthen the laws on security, privacy, residency, permitted use and portability. The maximum fine for a firm getting it wrong could be as large as 5% of global turnover. So, for example, if you’re a US or Chinese insurer with operations in an EU country that suffers from a data breach or allows sensitive personal data to leave permitted EU jurisdiction, then your global profits could take a nasty hit.

So, how does this relate to UBI and the use of personal data within the design of propositions and servicing? Well, apart from the obvious security, anonymity and archival implications, insurers will need to watch carefully what data they use and the permissions consumers have signed up for around its use, probably placing them squarely in control of it.

These changes will inevitably tip the balance more firmly in favor of the individual. Open, transparent, incentivized and positive engagement around the use of personal data will need to become the norm. The days of fortuitous use or situations where policyholders are unaware of how much of their data is being used to underwrite risk may be numbered.

Three things to consider when choosing your vendor partner

Colleen Risk

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Jul 6th, 2015

Choosing a vendor can make your head spin. There are so many things to consider. I know I have been tempted to create a dartboard and throw a dart to make the final decision. After hearing multiple presentations, most with similar pitches, the result can be “vendor soup.”

So how do you decide? There are three things that I consider when making a decision that have nothing to do with the system itself. It is important to keep in mind that each insurer is unique, and there is no single answer that is right for all. The goal is to find a partner who is a good match for you.

  1. Delivery Approach

Aligning on how the deliverables will be carried out is critical. Project success depends on having everyone on the same page. Some questions to consider are:

  • What is the project methodology?
  • What is the development methodology?
  • Do you want the vendor on-site during the entire project?
  • How involved do you want the vendor to be with requirements and user testing?
  • How involved do you want to be with construction and unit testing?
  • Will the delivery schedule match your in-house schedule – not too short or too long?
  • How often does the vendor provide fixes?
  • How will the vendor work with your current vendors and/or outsourcers?
  • What is the vendor’s experience providing system deliverables along with the existing business priority deliverables?
  1. Culture

Projects that appear headed for success can take a nose dive because of a mismatch between insurer’s expectations and what is possible based on the vendor’s culture. Culture cannot be changed in the short term so it is essential to ensure a good match.

Questions to ask:

  • What is the experience in the domain?
  • Are you more comfortable with a mid-size or large vendor?
  • Will the project team be dedicated to your project?
  • What is the profile of the staff who will be assigned to the project team? How deep is the bench?
  • What percentage is on-shore vs off-shore?
  • Will the project require 24×7 support to meet deadlines?
  • Who will be the main contact? How many domain experts are available?
  • What is the turn-over rate for developers, project managers, business analysts and business architects and is there a good mix of each of the skill sets?
  • What is the organizational structure?
  • What is the governance structure? How are issues escalated and resolved?
  • Are the vendor’s values and behaviours a match for your company?
  1. Industry Experience

Everyone enjoys a good marketing story. However, to run a successful project, it is a necessary to understand the vendor’s actual experience.

The following questions will provide a good assessment:

  • How long has the vendor been selling systems? How many similar sales has the vendor made?
  • Does the vendor have the capacity to run multipe projects simultaneously? Can the vendor provide successful references?
  • Does the vendor use system integrators?
  • Do the estimated time frames match the actual time frames for the implemented projects?
  • Do the projects expected benefits match the actual benefits?
  • Is there an active user group?
  • What is the vendor’s financial strength?
  • Will the vendor provide thought leadership and best practices from actual experiences?
  • Is there a five year roadmap? Is the roadmap innovative or does it reflect the addition of common features or functions?

There are no guarantees that the decision will be the right one. However, having a set of vendor specific questions and expectations will assist in highlighting the best choice for your company. One of the keys to program success is to choose the vendor understanding that delivery approach, culture, and industry experience are as critical as the features and functions of the system.

Ace buys Chubb: what it means for insurance technology

Donald Light

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Jul 1st, 2015

Today’s blockbuster announcement of Ace buying Chubb will have a lot of industry ramifications—some of which will play out in the IT sphere.

No doubt there has already been an IT assessment element in each insurer’s due diligence efforts. Between now and the effective date of the merger, there will be a lot of planning focused on:

  • Efficiencies and platform rationalization–aka “let’s figure out what is the right number of core systems, which core systems will be the survivors, and how data conversion and integration will work”
  • Cloud, SaaS, data management/stores, and analytics
  • Professional service and SI support capabilities that can scale to the new Chubb
  • Which systems will best support a digital roadmap

Some seemingly redundant systems may survive—at least over a 1 to 3 year period. For that to happen, the business (and/or various geographies’ compliance) requirements of the operating units using these system will be too divergent or too difficult to quickly build into a single surviving system.

All this reinforces the reigning market message to insurance technology firms. If you want to be around in 10 years:

  • Design highly configurable and agile systems that feature ease of integration
  • Have enough scale to meet the needs of bigger and bigger insurer customers—grow, merge, or wither

 

The changing demographics of the U.S. and how they affect insurance

Tom Scales

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Jun 26th, 2015

The U.S. Census Bureau recently released new information on the diversity of the population in the US and it is a fascinating read, at least for an insurance nerd like me.

Census Report

To summarize some key points for insurers:

  • For the first time, Millennials outnumber Baby Boomers. This means that your potential target market is more technology literate and less understanding of the weaknesses of your systems. No phone app? They’ll find the carrier that has it.
  • For the first time, more than 50% of youth (5 years and younger) are minorities. If you don’t have diverse marketing programs, this single statistic says you should, and will be reinforced below.
  • The 65 and older group grew to 46.2 million, a growth of over 1.5 million in one year. This group is also more technologically literate than ever before. Don’t underestimate this group’s expectations.
  • Only ten states have a majority male population, highlighting the need to market directly, and properly, to women.
  • All race and ethnic groups had more births than deaths except non-white, non-Hispanic, where the population declined, again highlighting the need for diversity marketing.
  • Hispanics outnumber Blacks 55.4 million to 45.7 million. While both should remain targets, specialized Hispanic programs make sense.
  • Asians represent 20.3 million, a growth of 3.2% in a single year.

For the most part, this information is of interest to the curious and to the actuaries, but it strongly reinforces the image of the United States as a melting pot. We’re diverse, we’re all both unique and alike, and the needs of our customers are rapidly changing. If you’re not offering new ways to engage, including Exchanges, Roboadvisers, Mobility and more, your company will be left behind.

All of this highlights a particular need – the need for Innovation. How do I connect this raw data to the need for Innovation? It’s simple. Our industry has a well-deserved reputation for moving slowly and for being behind other financial services companies. We are even farther behind companies in other industries. The barriers to enter our space have never been lower. Capital is cheap, technology is improving and the marketplace is shifting.

Which leads to the question: Has your company culture embraced innovation? Do you have a process to encourage experimention and fast failure? Do you have an approach to change that can bypass the traditional, and constraining, project gates to fast track new ideas?

Having discuss this topic with some many companies, it is clear that many, if not most, insurers have not reached this step. The desire is there, but that last leap to make it happen is often lacking. There are stellar examples of exceptions, but even more examples of the status quo.

My colleague, Mike Fitzgerald, has made innovation his primary focus for the last eighteen months and his research and his work is insightful. If you have not spoken to Mike, then I strongly suggest such a call is worthwhile. His insights into innovation in insurance are wonderful and can help you company overcome the barriers and hurdles.

It is an exciting time in our industry. Let’s all be part of the change.

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Open source, analytics and the pace of change

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Jun 26th, 2015

I love spotting ironies such as how this years Strata | Hadoop World conference (the UK one) spent more time discussing Apache Spark and whether it was a successor to Hadoop or another tool in the box than it did discussing Hadoop and it’s applications. It was great to see members of the insurance industry there amongst the retailers and banks as well.

“But wait?!?!!” I hear you say, “Hadoop isn’t all that old is it?” Herein lies the great challenge for the CIO faced with requests for open source tools. These are dynamic, social projects without the same stickiness as those legacy systems insurers spend time worrying about. Not only do users / consumers / fans of open source software shift between projects but the contributers / developers do too. With the rising use of tools like R, Python, Linux, GIT, Hadoop, Spark, Docker, Capistrano and all manner of wacky projects on the go and being adopted by insurers how should a CIO respond? Prohibition tends to lead to shadow IT and surprises down the line far more unwelcome than managing some new software. The key advice is to understand these types of projects can be more transient than other enterprise software. Experiment with them but be careful of expensive, enterprise installations that are hard to extract later down the line. In truth insurer adoption of some of these technologies will outlive the fashion for them but it still requires planning for their removal or worst case, their ongoing support.

I promised analytics in the title too didn’t I? Well Spark is all about real time analytics and is having an interesting impact in the machine learning and predictive modelling space. It gets around some of the issues with interacting with Hadoop while still delivering performance. With open source projects survival of the fittest is the order of the day, far more so than in classic insurance software markets. Hadoop has it’s place, with many insurers globally investing in it.We will see new fashions in analytics approaches and more opensource tools I’m sure. Some will follow the Dodo.

For those interested in Hadoop have a look at my report from 2011, when Hadoop was new and cutting edge. It seems it requires an update.

Listen up auto insurers. Driverless Cars? No Problem. Collision Avoidance Technology? Hold On!

Donald Light

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Jun 23rd, 2015

The just released report by the National Traffic Safety Board (NTSB) contains some important findings on collision avoidance systems’ potential to prevent or mitigate the severity of rear-end collisions.

Some of the data points are eye-popping: a predictive analysis found that this technology could prevent or reduce deaths and injuries in 87% to 94% of all accidents. A private study by the trucking firm Con-way found that these technologies reduced rollovers by 41% and rear-end collisions by 71%. Still impressive, but less startling, the Insurance Institute for Highway Safety found a reduction in claims frequency in three luxury models of 7% to 14% (without estimating changes in severity).

The good news for driver and passenger safety is that auto manufacturers are competing vigorously to offer these features in their new cars and trucks (The NTSB study has a 9 page Appendix listing these manufacturers and models).

The NTSB study may also nudge the National Highway Traffic Safety Administration to, someday, mandate these technologies in new vehicles.

The long term implications for auto insurers though are similar to the implications of autonomous vehicles: fewer and less severe losses, resulting in competitive and regulatory pressure which will drive down premiums substantially.

The auto insurance business is going to shrink. But the real question is how fast? Or to put the question more precisely, when will there be a critical mass of autonomous and collision avoidance-equipped vehicles on the road? The NTSB study is speeding up that timeline just a little bit.

Why I’m passionate about customer service in Life Insurance

Colleen Risk

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Jun 1st, 2015

Last week, I was watching the National Spelling Bee as they crowned two winners for the second consecutive year. What an amazing performance! One of the winners spoke of her passionate pursuit of winning the Bee. The comment made me reflect on a question I was asked during my interview with Celent. The question was whether I was passionate about life insurance.

I found the question quite interesting. I thought of two recent customer service experiences.  My father passed away a year ago and was smart enough to have protected my mother with life insurance. This is the whole point of our industry – to be there in the most difficult time of people’s lives. I’m pleased to say that the claims representative I spoke with was compassionate, efficient and knowledgeable. She obviously had a passion for helping others.

The second interaction was not as happy. A problem on a different insurer’s customer portal kept me from completing a desired change. I called the customer service number to complete the update. The customer service representative directed me back to the website. When I told her it was not working, she implied that I was the problem since it was working for everyone else. After a discussion about my perceived ineptness, she reluctantly made the requested change. She was disinterested, annoyed and uncaring.

With so much of the today’s interaction being digital, it is crucial that companies hire people with passion. The choices are too many and the personal interactions too few to not take advantage of every opportunity to build customer loyalty.

Anything worth doing should include a passion to become the best. Whether you are a spelling bee participant, an analyst or a customer service representative, passion drives the best results.   It was a good question, and I can firmly state that I AM passionate about life insurance.

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Striking data point from Mary Meeker’s Internet Trends 2015 report

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May 29th, 2015

I spoke this morning with an operations executive at a large insurer which distributes personal lines products through independent agents. He said that they are working feverously to deliver digital service tools to the customer service representatives (CSRs) at agents because they know that the average CSR is now 19 to 26 years old. This insurer is transitioning from a telephony-centered approach to one which includes chat, secure messaging, and intelligent avatars in order to meet CSRs’ expectations about how service should be done. As any insurer distributing through the independent channel knows, the company that keeps the CSRs happy wins!

In our innovation research, we repeatedly see the influence of Millennials’ expectations around the consumer experience, but a data point from Mary Meeker’s Internet Trends 2015 report identifies an equal, if not higher, motivator for change from workers. Millennials now represent the largest percentage of the U.S. workforce.

Take a close look at Slide 109. It shows that in 2015, for the first time, Millennials make up 35% of U.S. workers. Gen X and Boomers represent 31% each. The data signals a tipping point and it is pretty clear which way this trend is going to continue.

Watch as the buzzword “Worker Experience” is added to the already well-worn “Consumer Experience.” For insurers that want to gain an advantage with their own workers, and with their distributors’ CSRs, the field is wide-open. All they need to do is innovate, experiment, put some funds at risk, and transition to digital working.

KPCB