Engaging the NAIC on Emerging Insurance Technologies

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Nov 24th, 2014

“If the regulators aren’t with you, expect insurance innovation to take longer and cost more.” This comment surfaces repeatedly in Celent’s research. We believe this is true and have seen this occur in the past (credit scoring, predictive analytics, telematics). In order to address this issue, we at Celent have begun to proactively engage regulators around emerging technology topics.

Last week, I presented at the fall annual meeting of the National Association of Insurance Commissioners. Addressing the Property & Casualty Committee, the topic was “Emerging Technologies and Their Potential to Impact the Insurance Industry”.
I observed that regulators are eager to receive information about this topic. This is understandable, as budget constraints make it very difficult to divert resources from the day-to-day crush of filing and approvals to concentrate on the future. However, mentioned in the session, it does the industry absolutely no good if the first time a regulator learns about a new technology is in a new filing!
Celent is tracking several technologies with the promise to change insurance proposition in important, fundamental ways. For example, digital capabilities allow customer engagement to shift from periodic (only at time of renewal or a claim) to continuous (daily lifestyle suggestions). Another trend we see is a movement from “pay as you rate” to “pay how you use”. The introduction of telematics in the Auto line is the best example of this.
Several case studies from around the world were used to illustrate how, in other regulatory environments, technology is being applied to insurance. The digital customer experience platform built by Tokio Marine was shown as an example of continuous customer engagement. AXA’s use of public and private data sources to change the FNOL reporting process was offered as a case of a transition from reactive to proactive claims management.
Celent will continue to be involved in briefing regulators on these issues. We encourage insurance technology providers to do the same. We are all on this journey together and will get their faster and more effectively if we communicate actively.

What if someone Kickstarted an insurance company

Tom Scales

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Nov 10th, 2014

As analysts in the insurance industry, Celent spends considerable time and effort considering new and improved ways to do business. Much of this emphasis is on technology and where our customers, and the industry, are in their efforts to improve and what still needs to be done.

Our industry is evolving and implementing new innovations, particularly focusing on the customer experience, including the web and mobile. Many, if not most, companies are hampered by aging technology in their back-end systems. This is certainly true in the P&C and Health industries and particularly true in the Life industry. Life insurance is inherently a contract that extends over a significant period of time. Therefore, many insurers are using systems that are 20, 30 or even 40 years old. Let’s assume that a system installed in the 1960s does not play well in an Internet connected world.

So the question for this post is about disruption. While Kickstarter or other crowdfunding methods are unlikely, it is interesting to think about how an insurance company would be formed and implemented if it was a new company formed today.

What would we need to start this mythical company?

1) Would you need any employees?

This is the first fundamental question. Many insurers are large employers with a significant investment in people and facilities. If you were starting from scratch, would you hire industry veterans, trying new employees and open up a big office?

Possibly not. Once you have capital, virtually every other function could be outsourced. There are solid Sales and Marketing companies with licensed agents to service both web applications and call centers. Reputable Third Party Administrators exist that can handle every operations functions. Good actuarial firms can be contracted to design the product. Reinsurers can not only take risk, but in many cases provide Underwriting guidelines (and technology). Financial management requires a solid accounting firm. The list goes on, but it is an intriguing question.

Building a virtual company has never been easier.

2) Would you need any agents?

Again, possibly not. Starting from scratch, the company could be entirely on-line, backed up by a call center. As mentioned above, there are many companies that can provide this service. Of course, they’re still agents, just not the traditional independent or captive that sells locally.

3) What about capital?

This might be the biggest barrier for entry. Money isn’t as available as it once was and, notwithstanding the title of the post, crowd funding isn’t designed to raise the amount of money required for an insurer.

The purpose of this post is not to suggest that the reader run out and start a company, although let us know if you do. It is more for the existing insurers that are not able to be as nimble and change with the marketplace as quickly as they might need. Even the largest brick and mortar insurer can innovate.

There are companies, large and small, in our industry that are truly innovating. If this post intrigued you, or even if it didn’t, but you do not have any formal innovation process, then perhaps you should. Your competitors are staffing dedicated innovation labs to stretch themselves, and the industry. They’re trying new things and failing fast.

What new idea will be born in your company today?


For Halloween: The Tricks to Get Innovation Treats

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Oct 29th, 2014

Innovation is not witchcraft but, when done successfully, there is a touch of magic. The magic happens when innovation becomes “part of the way we do things around here” (read: corporate culture). When people across the firm approach their jobs constantly through the lens of “how do I change my job so that I deliver more value to my customers?”, magic can happen.

We discussed this in a webinar this week (Innovation in Insurance: Differences across Continents). The point was made that there are specific actions (tricks!) that prepare a corporate environment for magic. Specifically:

  • Establish a common language around innovation; what is it? what is it not?
  • Revise reward systems, especially around encouraging “fail fast” behaviors
  • Develop a communication plan around innovation – leverage Corporate Communication expertise to sustain a messaging effort around innovation
  • Tune existing governance structures to handle innovation initiatives differently than run-the-business projects

The message coming through in Celent research is that innovation is more process, sweat, and political capital than black art. So, try these tricks in your organization so that you (and your customers and teammates) can enjoy some innovation treats!

A Prototype of the Successful Innovation Leader

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Oct 21st, 2014

Innovation is all about building prototypes, making them fail, adjusting them, and moving on quickly. So, what is the prototype for the successful senior innovation leader? How can this profile be used to make better selections when hiring for these critical positions?

Continuing the Celent innovation research theme of how to make innovation work, we asked attendees at two innovation conferences to rank the critical success factors needed in senior innovation leadership positions. The purpose of this research effort was to assist with the “how” of choosing a successful innovation leader.
There were four areas in the on-line survey:
1. Technical business skills
2. Leadership qualities
3. Personal attributes
4. Previous job experience.

Ninety-one innovation professionals responded, 30% from financial services firms. Note that this is a very specialized respondent pool. These are the opinions of innovation practitioners about key success factors reflecting their experiences. Their outlook has been shaped by their own efforts which undoubtedly included both successes and failures. (The full report is available for download for Celent subscribers at http://celent.com/reports/leading-innovation-keys-success.)

The top items in each area are displayed below.

leader skills

The innovation conference attendees made some important observations about these results. First, the top ranking in the Technical business skills area was assigned to strategic planning. Innovation practitioners clearly value the cerebral activities such as reading the external environment, identifying patterns, and matching this analysis with company capabilities to determine a plan of action. In two other areas, Leadership qualities and Personal attributes, however, the more extroverted activities of vision and inspiration rose to the top. It is often difficult to find one person with such a broad range of skills and attributes. However, the conclusion based on the opinions of these innovation veterans is that the process should include an evaluation of candidates’ capabilities in both of these “head and heart” areas.

A second observation dealt with Previous job experience. Previous innovation leadership experience was ranked higher than start-up and operations management experience. Practitioners place high value on the practical wisdom about innovation which is learned “on the job”. Celent expects that the number of financial services companies implementing innovation programs will increase in the near term and, consequently, the value of professionals with successful, previous senior level innovation experience will also grow. Pay levels, work environment and other incentives must be calibrated accordingly.

How can these results be used in innovation programs? For individual leaders, this can be used as an input into their personal development plan. As an example, if they are strong in strategic planning, but weak in inspirational leadership, coaching activities may be worthwhile. In organizations with established core innovation teams, this can be used to evaluate the strengths and weaknesses of the entire group. For example, in situations where a leader lacks a critical attribute, the team may be able to compensate with increased contribution from other members. Finally, these results can be shared with a H.R. department to develop a data-driven selection process for senior innovation leaders.

FYI — Topics such as innovation leadership development are discussed at our Innovation Roundtables. The next session is scheduled for November 20 in New York City. Senior innovation leaders from Banks, Insurers, and Security Firms are invited to join us. The registration details can be found here: https://www.regonline.com/builder/site/Default.aspx?EventID=1623753


How to Innovate in Financial Services Companies

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Oct 16th, 2014

‘Tis the season for vendor conferences and this year innovation is the hot topic. Many speakers are making a strong case for why financial services firms need to innovate – customer expectations being shaped by conveniences such as the Amazon One-Click, demographic changes bringing the millenials into the consumer age, opportunities emerging in predictive analytics, customer service capabilities using location sensing technologies, etc.

In some of the presentations there is even some recognition that innovating in existing (read legacy) businesses is much harder than in start-ups and greenfield operations. But, I have noticed that beyond the major themes, there is not much information about how established financial services companies innovate successfully – lots of why, but not much of how.

But, the “how” is of critical importance to innovators. Celent knows this because we asked. In order to build the agenda for four of our Innovation Roundtables, we asked the registrants to choose the topics they wanted to discuss from a list of 27 items. Thirty-four people voted, reflecting a very specialized respondent pool. These are all professionals who are charged with driving innovation in financial services companies. Their top ten areas are displayed below.

tis the season grphic

In looking at the data, over half of the items fall in the broad category of leadership / culture. Process is the second most frequent group and, interestingly, technology figures only once (in the category dealing with social technologies for innovation). This prioritization held up in the amount of time spent in discussion during the face to face sessions. The conclusion is that tech can be bought, but leadership has to be built!

But, getting back to the how, given that culture and leadership is so important, how does a company choose leaders which can successfully deliver innovation? What technical business skills, personal attributes, previous job experiences are critical in an innovation leader? Celent has also surveyed innovation practitioners about this and I will blog about these results next week.

By the way, our next Innovation Roundtable is scheduled for November 20 in New York City. Senior innovation leaders from Banks, Insurers, and Security Firms are invited to join us. The registration details can be found here: https://www.regonline.com/builder/site/Default.aspx?EventID=1623753



From Her to Watson, and What’s Next?

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Oct 9th, 2014

Her is a 2013 American science fiction romantic comedy-drama film written, directed, and produced by Spike Jonze. The film follows Theodore Twombly (Joaquin Phoenix), a man who develops a relationship with Samantha (Scarlett Johansson), an intelligent computer operating system personified through a female voice. Jonze conceived the idea in the early 2000s after reading an article about Cleverbot, a web application that uses an artificial intelligence algorithm to have conversations with humans.

I spent an entire day with Watson last Tuesday along with my colleague Dan Latimore (should read his blog about it! http://bankingblog.celent.com/2014/10/08/spending-a-day-with-ibms-watson/) and I could not avoid the resemblance, though IBM’s Watson is much more focused on the business side of the machine/human interaction and collaboration.

Watson is a learning system that scales human expertise by extending our abilities to perceive, reason, and relate:

  • Perceiving: Watson understands the world as we do; it interprets sensory input beyond traditional data. Understands natural language; reads manuals, social data, blogs, consumer reviews, etc.
  • Reasoning: Watson thinks through complex problems; it deepens our analysis and inspires creativity. Makes inferences, evaluates pros and cons, and finds relationships between terms and concepts
  • Relating: Watson understands how we communicate, and personalizes its interactions with each of us. Responds in natural language, personalizes the interaction and provides reasons
  • Learning: Watson learns from every interaction, scaling our ability to build experience. Trains with experts and improves with feedback.

Imagine that you can take your best employee, your best agent, your best underwriter, your best adviser, your best risk manager and teach Watson, so it could be then supporting any other employee, business partner or even a customer,  24/7 across your organization. It is the most closer to cloning I have seen lately, without the moral dilemmas.  What if, based in its huge computing capacity and the ability to crunch and interpret TB of data in a very short time-frame it could provide you with more hypothesis and evidence than any human being you can hire? Imagine how accuracy and timeliness could save lives, assess risks better, lower your costs, provide a better understanding of what is going on, even under different circumstances. Watson’s aim is to become the best adviser to your employees, customers and partners while doing their job by leveraging the power and strength of search, analytic and cognitive capabilities.

There is a real opportunity here to:

  • Amplify human cognitive strengths
  • Enable a deeper level of reasoning
  • Make decision trade-offs with higher levels of confidence
  • Democratize experience and knowledge within your organization and value chain

Financial institutions around the world are already working with IBM to make Watson smarter, covering more use cases and more languages. IBM has already made available and continues to work on content and APIs business ready on the cloud to make it easier for its ecosystem and clients to embed Watson services in their applications. IBM is already working on having Watson available for Japanese, Spanish and Brazilian Portuguese natural language interaction, and we should be hearing soon some news regarding the 1st Watson Client Experience Center in Latin America, replicating the one IBM has just inaugurated in New York’s Silicon Alley. IBM plans to open these centers in Melbourne, Sao Paulo, Dublin, London and Singapore.

IBM’s Watson has already come up with a book of recipes and while I think it is true that the best way to a man’s heart is through his stomach, I don’t expect to fall in love with an avatar powered by Watson as in Jonze’s Her (I am happily married, thank you). I would like though to see soon how it helps me decide what are the best investments given my risk aversion profile or which is the best type of insurance (and coverages) I need given my needs and concerns. I would certainly love to see how underwriting capabilities improve and processes become more accurate and efficient, hopefully expecting better results for me, for the financial services institutions and why not expect to see some savings passed along to consumers?

Today Watson is here; what’s next?



Data Initiation Helps Define Digitization in Insurance

Oct 9th, 2014

My colleague Karen Monks and I have published a report on digital transformation in insurance recently. The main objective of this report was to identify differences in terms of digital transformation in insurance between different continents. However we have quickly noticed that the term “digitization” can generate confusion in insurance professionals’ mind.

Celent defines digital transformation as the strategy of transferring as many manual tasks as possible into digital activities. This strategy can be achieved through different ways, including:

  • Process automation.
  • Selling products online.
  • Leveraging mobile devices and mobile technologies in general.
  • Dematerialization of documents and communication materials.

In addition, we believe that data gathering through all sorts of tools, and therefore data management and analytics, play an important role in digital transformation efforts.

This been said I personally think there is a priority insurers should define when embarking in digital transformation initiatives. First of all I recommend them to set up a basic constraint as the corner stone of their digitization initiatives portfolio prioritization: data must be entered into their information system only once (not two, three times but only once). With this in mind they should reexamine all their core processes and find out where data leading to the same information is entered more than once. When this analysis is done they can start defining initiatives that will reduce these repetitive tasks. You’ll be surprised to see how this simple principle can generate drastic improvements to processes and drive higher automation, efficiency, etc.

When doing this, I also advise insurers to question whether the unique initial data entry into their information system can be done differently. With this advice I am trying to get them think of what I call the second wave of digitization. Indeed, to me digital transformation initiatives nowadays assume that human action is the initial generator of new data within an information system. However with the Internet of Things concept that my colleague Donald Light explained in two reports recently (here and here), insurers can also automate the initial data entry by leveraging connected objects. No need for human action any longer then!

To me there is a digitization sequencing insurers need to respect between these two phases. Indeed I think it is easier to generate value from the Internet of Things concept if an insurer has already well thought how to minimize repetitive tasks consisting in entering new data within their information system. Therefore I do think that insurers who have already done a great job at minimizing these tasks initiated by human action and who have an appetite to leverage the Internet of Things will be the leading insurers going forward.


Vendors Embrace Mobile Technology

Karlyn Carnahan

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Sep 18th, 2014

The adoption of mobile technologies is accelerating. Smartphones rocketed from a 10% adoption rate to 40% in just two and a half years, faster than any technology except television, and tablets are moving even faster, blowing away all previous adoption standards. Carriers are increasingly turning to their software vendors to create mobile access to core functionality for employees, agents, and customers. But where are the vendors? Do all vendors have mobile applications? Are they aligned with carriers on the importance of mobile apps? What challenges do vendors face and what are their plans for the future?


I surveyed 39 vendors to provide answers to these questions as well as to understand pricing models, platform investments and their expectations of where the market is going. This report examines mobility attitudes among vendors, the status of mobile solutions, the methods and staffing models used for deployments, statistics around marketing including typical pricing models, and an assessment of the significance of the challenges vendors face as they move into the mobile market.

IT leaders at software firms clearly recognize the importance of mobility to drive their businesses forward. Almost 70% see mobility as mission critical or important to their organization today.

Today the majority of vendors do not generate revenue from mobile applications. Many are not yet charging for mobile solutions but include the product in the overall price of the software. Vendors clearly intend to change that practice. More than half expect mobile to generate 1-20% of their overall revenue within the next three years. This may be optimistic, but clearly, vendors see strong growth and market momentum for their enterprise mobility business.


However, the explosive growth in the mobile technology landscape has created unmistakable challenges for vendors entering this market. Challenges fall into three categories – those related to the technology and the devices themselves; those that relate to the organizational changes and cultural issues inherent in mobile such as obtaining staff and managing changing organizations; and challenges that are focused on market acceptance and pricing models


Increasingly, carriers are asking about mobile capabilities as part of their evaluation process when selecting new vendor solutions. Vendors looking to move into the mobility market can learn from those who have gone before them. Those who have not yet put their mobile plans together may want to begin to build a roadmap for the future.



A Value Roadmap: Don’t implement a new core system without it

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Sep 16th, 2014

I’m sometimes asked, “What is the worst error an insurer undergoing replacement of its core solutions can make? And how can that pratfall be avoided?”

There are a lot of candidates for this honor: for example poor governance, inadequate project management, underestimating the complexity of data conversion and or integration, incomplete knowledge transfer—the list goes on and on.

My nominee is: Failure to define and follow a Value Roadmap as part of the implementation and near term post implementation process.

Conceptually, a Value Roadmap identifies the specific types and sources of value which the new system will provide. If the insurer has already developed a good business case for the new core system, the Value Roadmap will address many of the cost reduction and revenue enhancement elements of that business case. In addition, the Value Roadmap will place these benefits on a timeline which could start (to a limited degree) during implementation, and definitely starts when the new system goes live.

If the insurer does not have a reasonably complete business case for the new system (and yes that does happen); the Value Roadmap allows senior management (C-Suite and/or the Technology Governance structure) to:
**  Document for future ROI and performance analyses the business and competitive rationale for the project
**  Provide guidance for the remaining implementation period
**  Focus on realizing value through new offerings, processes, and organizational structures

Note: an earlier version of this blog appeared on the Insurance Technology Association website.

Is that a computer on your wrist?

Tom Scales

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Sep 16th, 2014

Just a follow-on to Donald Light’s post about the newly annouced iWatch.

I’m very curious to see if Apple can again legitimize a new market segment. They didn’t invent the wearable watch, but they have introduced a modestly attractive watch and have a market impact that is impressive.

As a part of Celent’s Life and Health team, I see so many uses for the information that could be provided by a solid entrant in the market.

I have personally been watching the space for awhile. There are many entrants in the space — Samsung alone has introduced four watches in the last year. I am also a true geek and love new toys.

But I don’t own a wearable yet.

My fundamental problem is that none of them are really very good watches. They fail every test I have, particularly the size test. I am old school and like watches, but I lean more towards a small, thin Skagen. Even the smallest of wearables, to me, would be like strapping an iPad to your arm and calling it jewelry.

We are starting to see some innovation here. The Moto 360 is beautiful, but still huge.

Let’s hope Moore’s law kicks into the space soon and we see a sleek, attractive, useful product. Maybe it is the iWatch.

We’ll see.