Archives for March 2009

Wisdom From South Park

Fans of the TV cartoon South Park were treated to a comical scene this week that resonated with me. The episode raises an intriguing question: Can there be rational thought behind some of the decisions being made about the economy and financial institutions?

Stan (a normal kid from Colorado, for those of you who don’t watch) sneaks into the U.S. Treasury offices. He’s wondering how Treasury officials make decisions about saving troubled institutions, and here is what he sees: One official chops the head off a chicken and throws the bird onto a giant horizontal wheel sectioned off in bright colors, with each section labeled as a potential option. Another official spins the wheel. A third takes out a kazoo and performs circus music while the bird lurches around crazily, spewing blood. When the headless bird finally expires, the space on which it falls lights up with a game show flourish of beeps and the decision is made: “BAILOUT!”

I’m quite certain that Treasury officials have other tools at their disposal. (Ping pong ball lottery machines instead of chickens?) But the broader point is that there are so many unknowns right now that we might as well be using the chicken method. We simply don’t know where this is all going.

At Celent, we’ve been blogging and writing and speaking about related issues for several months. But for me, there are at least as many questions now as when the crisis began in the fall. So what’s an insurer to do? First of all, don’t focus on the unknowns, as they will drive you crazy. Second, keep doing the things that seemed like good ideas before this all began. Invest in technology, improve your infrastructure, and keep asking questions about how you can make things better for customers and agents. Finally, don’t get too caught up in the prognostication. As anyone who grew up in the country can attest, chickens are surprisingly resilient, even minus their heads.

Celent's Green IT Survey

Celent’s latest survey is aimed at understanding where insurers are in their attitudes and perceptions to Green IT. It may seem like a strange topic in the current crisis but Celent believes there are many green driven initiatives that can bring cost saving to the company. Nothing more relevant than a tactical cost reducion project. So, if you have 5 minutes, please Click Here to take survey. We will keep you posted on the results.

Why Buy When You Can Just Take?

I had a very interesting conversation with a couple of executives at a leading Property / Casualty company this past week that gave me a very different perspective on future mergers and acquisition activity.

They work for a Tier 1 player — not one you hear a lot about in the news because they are doing pretty well. Sure, they have their asset impairments like everyone, but they are not in financial crisis.

So, I asked “Who are you guys going to buy when you are convinced that valuations have hit bottom?” Their response: “Why would we buy when we are going to take their business anyway? When our competitors go to a B-rating, their customers will move, and we are confident that we will get the more than our fair share.” (Machiavelli would be so proud!)

It turns out that their submission volume has doubled in the past few months over what it was last year, and this increase is from a high base – from multiple tens of thousands to 2X multiple tens of thousands.

The story gets better. A few years ago, this company began to implement automated rules based underwriting and sophisticated predictive model pricing technology in their commercial lines business. This was well before these technologies were anywhere close to maturity in this space.

The result — they are handling the submission increase (remember – double) so far with NO increase in headcount.

For me, this is a striking illustration of the payoff and power of “betting on the come” with an investment in IT, business process change and making it happen through superior execution. Also, I realize that there may be less M&A activity than previously thought because of the “flight to quality” that is already happening.

The Web 2.0 Attitude

More than technology, Web 2.0 is an attitude. A short Q&A session helps us understand what Web 2.0 means:

Where?

“Everywhere”: Getting access to social networks or being able to communicate from anywhere in the world have become an important aspect of today’s communication. The Web 2.0 attitude requires low restriction in terms of communication capabilities. In terms of technology, portable electronic goods such as mobile phones, portable media players and extra-light laptops are the tools of mobility.

When?

“Immediately”: Impatience is one of the key elements of the Web 2.0 attitude. People need information more quickly but they also want to share it more rapidly. In terms of technology, systems allowing instant communication like chats, Instant Messaging (IM), Really Simply Syndication (RSS) and to a certain extend SMS and Voice over IP (VoIP) are the drivers of spontaneousness.

What?

“Everything (or whatever)”: People have an increasing need to share all kinds of information with others. This propension for openess sometimes includes also very private information. In terms of technology, the need for more transparency is supported by the increasing number of social networks and communities as well as blogs on the internet.

To whom?

“Everybody (or I don’t care)”: There is a social focus in the Web 2.0. attitude. People like sharing information and opinion but they require collaborative actions in order to feel part of a community. In terms of technology, platform allowing free change of information content such as Wikis and blogs or other types of collaborative online sites emphasize collaboration.

How?

“The easyiest way”: Web 2.0 has a specific focus on usability and any kind of technologies enabling or easing interactivity improve usability. In this context, AJAX, Flash, Flex, Tagging or Mashup represent key enablers for improved usability.

The Web 2.0 attitude is a real challenge not only in business but in our day-to-day personal life. Insurers have already launched interesting initiatives in that domain but it seems that some of them fail to capture their real strategic impacts. I am currently reviewing a few Web 2.0 projects implemented by European insurers and I am planning to describe them in a report to be published by Celent in Q2 this year. Web 2.0 interests European insurers but some of them have failed to make their initiatives pay-back. Reviewing successes and failures will certainly help insurers better understand where is the real value of Web 2.0.

Blurring the lines: Business Processes instead of Core Systems

As Catherine discussed in her post on Monday, Celent is in the midst of writing several 100-plus page policy administration reports. Aside from the sheer size of the task, an added complication this year is the difficulty defining what the term “policy administration” even means. Each time Celent reports on the topic, the scope of policy administration grows, until it seems to cover all of a carrier’s core systems. This is all part of a positive trend in the space (even if it makes Celent’s job a bit more difficult). Each year it becomes harder to bucket projects and systems into discrete categories. More and more policy administration vendors include billing and claims as part of their solutions, agent portals tie directly to underwriting, rating and product configuration intertwine with rules and workflow, and insurers think about projects as reaching across the entire infrastructure. The lines are blurring across systems as the focus shifts from individual systems to business processes. Why has this shift begun? It’s partly an opportunity brought about by technology. With many vendor systems and insurer infrastructures embracing a service-oriented architecture, it’s easier to orchestrate a true functional flow across multiple areas of the business. But, more importantly, it’s a change in mindset. Carriers who focus on business processes rather than systems build better, more lasting solutions. There are two major processes that stand out. The first is new business automation, which follows a submission from the agent entering data into a web portal, to a set of automated underwriting rules, to human review and approval, to the generation of policy documents, and on to the policy administration and issuance. The second is the product definition lifecycle, in many ways the opposite of new business automation. The product definition lifecycle follows the business users who define and alter insurance products by designing the product data, modeling rates, building underwriting rules, and creating production document templates. For different insurers there are different steps, but the singular point is that no one system can truly modernize the business if entire processes cannot be redesigned. Some technology-leading insurers have approached this by working with vendors who provide end-to-end solutions. Others have taken a best-of-breed approach and integrated across multiple systems themselves or with professional service partners. While the technology is important, it’s the new approach that matters most. By thinking in terms of cross-enterprise processes, insurers see their relationship to vendors changing. It’s not enough to provide a specific set of functionality; instead any new system must fit into its place in a larger operation.

Four calm thoughts about AIG

At long last, Washington has found an issue with truly bi-partisan appeal — doing something about those awful bonuses at AIG. While it is gratifying to see both parties, not to mention the White House and any number of executive agencies, lined up behind one simple goal–it would be good to keep a few points in mind. First, AIG is a bunch of insurance companies, as well as a beleaguered holding company. No one in the insurance companies has been cited as benefiting from pay for bad performance. Second, if we (the citizens who effectively own AIG) want to get back as much of the bail-out as possible, we should be doing everything we can to retain and properly motivate the good managers in the insurance businesses–because that is where the bail-out payback will be coming from. Third, in retrospect it is clear that whoever designed and approved the incentive compensation plans for the financial services group, should be accountable for how those plans did not include consequences for horrific (or even bad) performance. Fourth, we all benefit from living in a nation of laws and due process, and not in a country where laws or administrative action can be turned at will at whoever is gathering the day’s worst headlines.

Celent’s War and Peace – An epic in the making

If you listen carefully you will hear the crunching and churning of the cogs and wheels of Celent’s most ambitious bi-annual report – the policy administration report. It’s hard not to be overcome by superlatives when describing this research. This year, we’ll publish 7 reports, each likely to run well over 100 pages in length. Given their complexity and multiple moving parts, we run them as projects imposing deadlines upon all in our path. This year’s global reports will involve six senior analysts, one editor, and two junior staff who assist with the administration. Each report takes about four months from issuing of the RFI to the vendor to publication.

You may wonder what we do in those four months. We contact around 160 vendors, receive approximately 130 completed RFIs. And then the work begins. For each vendor, we schedule a follow-up call and a 1 hour demo. For each established solution, we schedule 2-3 customer references. Extrapolate that out and we’re talking over 90 hours of demos, 180 customer references, and enough emails to clog a high-speed ADSL connection!

The demo of each full-profiled system is a requirement we added in 2007. The vendor is given an hour to run through a very tight script focusing on usability and functionality for brokers, internal staff and IT. It’s tricky to know what to cover in this hour and just as challenging for the vendor to get their message across in this limited time. My colleague, Donald Light, had a terrific way of explaining to vendors how to approach this:- “I sometimes use the analogy that you (the vendor) has put us (the analysts) in the cockpit of a new commercial jet — your job is to show us the controls and instruments and explain how they will make flying the jet better — we do not take off and fly the plane.”

So what’s new this year? Four years ago, we introduced our ABCD grid — a visual representation vendor in four factors (technology, breadth, clients, and depth of services). This year, we’ve revised that methodology to better reflect capabilities in a more objective manner.

We’re also very excited to be producing PAS reports for Asia for the first time. We have in the past published a report on China but this time we will look broader across the region for both sectors. We expect several vendors from Europe and North America to appear in this report alongside some interesting local players.

So, if you head is spinning at this point, I invite you to sit back, and relax as Celent undertakes the critical the task of creating a navigation tool for the insurance core systems market. All things going well, expect to see the North American P&C and European GI reports to be published in May this year. Asia reports and the companion Life/Health/Annuities/Pensions will be published in summer.

2008 P&C Results

An article pubished by SNL Financial this past week summarized the 2008 results for the P&C industry. Three dynamics drove the negative results – after-tax realized capital losses, declining net written premiums and a net underwriting loss. The overall combined ratio for the year of the 2,200 companies included in the data was 102.7%. In the fourth quarter, net written premiums declined 2.4%. This puts a number on the forces at work described in the previous blog posting “Ebb and Flow in Property Casualty”.

Look for these forces to continue into the results for the next few quarters. If equities recover, capital losses might be mitigated, but the loss and premium trends will continue.

Two Fruits: “Miracle Apples” and “Business Renovation Project”

This week, Celent is pleased to feature an article from guest contributor, Hiroshi Yokotsuka, Managing Director, Member of the Board and CIO of the Tokio Marine & Nichido Fire Insurance Co., Ltd.

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Hiroshi Yokotsuka

Hiroshi Yokotsuka

Today, I’d like to share with you a story that happened in Japan called “Miracle Apples” and Tokio Marine & Nichido Fire’s project called “Business Renovation Project.” Adam and Eve, the discovery of gravity, William Tell, and the iPod. have brought various challenges, discoveries, emotions, and pleasures to human beings. Another miracle was created by apple trees and an old man at the north end of Japan. Today’s apples are different from the one Newton saw. With generations of breeding improvement and sophisticated anti-pest methods, apple trees can bear big, sweet fruits. High-end apples in Japan are twice as big as the ones you see in the hotel lobby. But apples became very vulnerable. They can’t live a year without a substantial amount of agrichemicals, fertilizers, and careful weeding. There was a strong belief that it was impossible to grow apple trees without agrichemicals and other artificial materials until Mr. Kimura challenged it. Mr, Kimura, age 60, began his attempt of pesticide-free apple production 20 years ago. Kimura-san knew it wouldn’t be easy. But the hardship was far beyond his imagination. Eliminating thousands of worms by hand and disinfecting with vinegar or Wasabi water did not work, and apple leaves were devoured by insects. Kimura-san tried everything he could think of, but despite six years of effort, apple trees were weakened and dying even without flowering, and needless to say bearing not a single apple. Out of ideas and exhausted physically, mentally, and economically, he finally decided to conclude his unsuccessful life by killing himself. He walked deep into the mountains to find his final place. What he saw there were vital forests full of life. Trees spread their leaves and roots vividly, without any help from humans. Apples are made by apple trees, not by human beings. Kimura-san spent six years realizing that obvious truth. A human being cannot live alone; neither can an apple tree. Trees in a forest live with harmful insects and beneficial insects (and these are the human definitions of them), weed and fungus, worms, frogs, snakes, and animals in harmony. Completely forgetting what he had come to the place for, he rushed back and began to reconstruct his field to make apple trees comfortable. In that field, various plants sprouted and various insects, reptiles, and animals lived with the trees. The field became a very comfortable place for both apple trees and humans. The apples grown there are incredibly flavorful and nutritious. It became very hard to get the apples. A restaurant that serves apple soup using those apples is booked for a year in advance. Tokio Marine & Nichido Fire sells insurance 100% through its agencies. But it was just recently that TMNF realized the obvious fact that it is agencies who face customers and sell insurance products. Before that, agencies were compelled to sell the complicated insurance products designed for company’s sake, following the cumbersome processes designed by the company, not agency-friendly computer systems. The “Business Renovation Project,” started in 2004, focuses on how to make agencies feel comfortable through the business process. We cut insurance products and special clauses by half, refined and simplified the business process thoroughly, and rebuilt the computer systems, from the agencies’ point of view, from scratch. Now, a harmony of renewed insurance products, business processes, computer systems, support from TMNF’s employees, and above all agencies’ autonomous efforts create a very comfortable business environment. That, no doubt, results in comfortable experiences for their customers. In this way, TMNF’s “Business Renovation Project” bears fruit as delicious as Kimura-san’s Apples. About the author, Hiroshi Yokotsuka: [Read more…]

2つの果実:「奇跡のリンゴ」と「抜本改革」

今回は、東京海上日動火災保険株式会社の常務取締役でCIOの横塚裕志氏より、セレントのブログに寄稿いただきました。
 
To view the English version of this article, click here. 
 
Hiroshi Yokotsuka

Hiroshi Yokotsuka

 
 本日は、日本で「奇跡のリンゴ」と呼ばれる物語と、東京海上日動の「抜本改革」の話をしたい。
 
 
 
 
 

 アダムとイブ、万有引力、ウイリアム・テル、iPodなど、これまでリンゴは人類にさまざまな試練、発見、感動、楽しみをもたらしてきた。今また一つ、日本の北のはずれのほうで、リンゴの木と一人の老人が新たな奇跡を起こした。

 今日のリンゴは、ニュートンが見たそれとは全く別物である。数世代にわたる品種改良と優れた病害、害虫対策により、立派で、甘く、大きな実をつけるようになった。特に日本で作られている高級なリンゴは、皆さんが欧米のホテルのロビーで見かけるものの倍近い大きさがある。

 その代償として、現在のリンゴは大量の農薬、肥料、丁寧な除草なしでは、1年も経たないうちに枯れてしまうほど脆弱なものになってしまった。リンゴを無農薬で育てるのは不可能であるというのが農家の常識であった。少なくとも木村氏が挑戦するまでは。

 木村氏は現在60歳。20年前にリンゴの無農薬栽培という、当時の常識からは無謀とも言える試みを開始した。

 その困難は、木村氏の想像を遙かに超えていた。手作業で害虫を取り除き、消毒薬の代わりに酢やワサビの溶液を撒いたが、葉は害虫に食い荒らされた。

 6年間、考えられることを全て試してきたが、リンゴの木は実を結ぶどころか花を咲かせることもなく、衰弱し、枯れていった。

 万策尽き、精神的にも経済的にも消耗しつくし、ついに自殺を決意して山中深く分け入った木村氏が見たものは、農薬も肥料も与えないのに力強く育っている木々の姿だった。

 リンゴを作っているのは人間ではなくリンゴの木である。人間の都合ではなく、リンゴの木が本当に気持ちよく実を作れる環境が必要だ。この当たり前のことに気づくのに6年かかった。人間が一人では生きていけないように、植物もそれだけでは生きていけない。森の木々は、害虫も益虫も(これは人間の定義である)、雑草も雑菌も(これも人間の定義である)、ヘビも蛙もミミズも一緒になって、絶妙のバランスを保って生きている。

 木村氏は自分が何をしにここに来たかもすっかり忘れて畑に走って帰り、それからはどうしたらリンゴが気持ちよく果実を作ってくれるか、それだけを考えて畑を作り替えた。その畑は様々な草が生え、多くの虫やヘビやカエルや動物が棲む、雑然とした、しかしリンゴの木にとっても人間にとっても大変心地よい環境になった。そこで創られるリンゴは言葉では言い表せないほど滋味に溢れ、現在では入手が非常に困難である。そのリンゴを使った料理を出すレストランは、1年先まで予約が埋まっている。

 

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東京海上日動は、その保険のほぼ100%を代理店が売っている。しかし、お客様と接し、保険を売っているのは代理店であるというごく当たり前のことに気がついたのは、つい最近のことである。それまでは代理店は、会社の都合で作られた複雑な保険商品を、会社が考えた煩雑なプロセスで、社員の目線で作られた使いにくいシステムを操作しながらお客様に販売していた。

 

2004年にスタートした「抜本改革」は、代理店がいかに気持ちよく仕事ができるかを徹底的に追求したプロジェクトである。会社の都合で複雑化した保険商品・特約を半分にそぎ落とし、プロセスを根本から見直し、代理店の目線でシステムを全面的に作り直した。

 

現在では、商品、業務プロセス、システム、社員のサポート、そして代理店自身の自律的努力が絶妙に調和し、代理店にとって心地のよいビジネス環境が生まれつつある。それは、言うまでもなくお客様にとっても心地よいカスタマー・エクスペリエンスを提供する原動力になっている。

 

東京海上日動の「抜本改革」もまた、木村氏のリンゴに優るとも劣らない果実を実らせつつある。