Archives for April 2009

Promise of Leverage: Automation in a Commodity Line of Business

Celent just completed a survey of Medicare Supplement providers concerning market issues and technology usage. The results reflect a commoditized product that is poised for growth, but supported by sales and administration technology which is limited in its functionality. Without automation implementation, Celent expects costs to increase proportionately with the future increase in business. For some companies, system investment and effective implementation will yield valuable leverage in this space.

Medicare Supplement (Med Supp) insurance covers medical costs that are not typically paid by traditional Medicare program. The Federal Government sets basic standard policy conditions, individual states regulate the product and distribution, and the private sector sells the coverage. According to a America’s Health Insurance Plans study, Med Supp is purchased by 29% of Medicare beneficiaries (Medigap: What You Need to Know, 2008).

The Celent survey was sent to approximately 200 attendees of a conference on Medicare Supplement insurance. Over 65 responded – most of them were independent agents or insurer employees involved in sales.

Regulation constantly changes the product and the respondents expect upcoming modifications to both complicate the contract and increase sales. However, the existing technology does not appear to be positioned to help support this increase. When asked about current sales and issuance activities, 60% said that less than half of the process was automated. Fewer than 25% policies are now handled using straight through processing (STP). Interestingly, when asked, a majority felt that over 75% should go through via STP.

Given the product and demographic characteristics of this marketplace, winners in this space will leverage technology to drive down unit costs and support their marketing efforts.

And the winner is…

It is in difficult times that we identify the best managers. In good times it is much more complicated to find out which insurers have outstanding executives since the whole industry tends to show strong figures not only in terms of sales but also in terms of profit. According to me an outstanding Chief Executive Officer (CEO) should gather – among others – the following skills: Humility: Managing an insurance company (of any kind, midsized or large) is a complex mission and nobody can achieve great performance alone. Therefore CEOs need to structure their organization optimally and find the right people for each strategic position. The choice of adequate human resources is particularly important in core areas such as risk management and IT since the main business of insurance consists in managing different types of risks and analysing risk requires mastering data qualitatively and quantitatively. Vision: The most important key role of a CEO consists in defining a relevent strategy, communicating it appropriately at each level of the hierarchy and delegating optimally the implementation of corresponding actions. There are many ways to define a strategy but there are not many executives combining outstanding reasoning ability with a deep vision of the future. Understanding (or feeling) what the future holds is a strength that only a handful of CEOs in the insurance industry have been able to demonstrate in the past decade. Focus: As soon as a long-term strategy has been determined and appropriate goals defined, CEOs should keep focused and avoid changing their perspectives if no external factors alter significantly their actions plan. Of course, a high level of reactivity is necessary when parameters influencing a business model become very volatile but overall insurance companies that have meticulously evaluated all external factors through different scenarios do not generally need to change drastically their plans but will be just required to proceed with tactical adjustments. “Focus” means also being determined to achieve long-term objectives. In other words, CEOs should avoid getting trapped in a logic consisting in guessing only what the company figures will be at the end of the next financial quarter. This is certainly one of the most difficult constraints today’s CEOs in all industries have to face: impatience of shareholders. In summary, a great CEO should be at least a great visionary demonstrating outstanding skills at finding the best people and appointing them where they can bring the highest value for the organization. In addition, he/she should demonstrate a strong ability to articulate logically a strategy and to communicate it appropriately down the hierarchy levels. Finally, he/she should keep a strong focus on established plans and long-term objectives. Since the beginning of the financial crisis back in autumn 2007, I have been thinking many times about which financial companies will get out of this crisis as the winners and the losers. As months have passed, we have seen many CEOs in the financial services industry being under pressure, stepping down or even being sacked. Even though it might be too early to give awards taking into consideration that the economic crisis we are currently experiencing could generate additional surprising news, I strongly believe that Zurich Financial Services (ZFS) is one of the insurance players that have managed to take advantage of this difficult and uncertain environment so far. According to me, its CEO – James Schiro – represents a good example of an executive demonstrating a high level of humility, vision and focus.

How to get the best out of your analyst relationship

As a vendor or solution provider, you don’t have to have a large analyst relations department to get the best out of the analyst community. If you understand what motivates the analyst, you’re in a better position to make it work for you.

I offer up some key insights into the minds of the Celent analysts:

  • Analysts like to know what there is to know. The main job is about maximizing that left hand quadrant of the Johari window. See us as the trawler’s of many haystacks looking for several needles. Almost all of our activities are focused around uncovering and understanding our specific areas.
  • Analysts can be terrier-like in their focus. Most analysts have areas of specialization – be that policy administration, or application of web services in insurance. Much of their research and even consulting work is focused on extending and deepening this knowledge. If your proposition falls outside of this area, its best to ask who the appropriate analyst would be for a briefing. Foist briefings upon analysts at your peril.
  • Turn up at the party if you get an invitation. This point is related to the one above. If in the search for more information about a certain topic, the analyst stumbles across your company, take this as an opportunity to position and market your company. If the timing doesn’t suit you (closing a deal? Submitting that RFI?), then discuss a more appropriate timing.
  • Make sure you dance at the party. Leading on from the party invitation, know that an interest from the analyst firm is your opportunity to show your product and your company. Take this as an almost-free (ok, so it takes up some of your time) chance to market yourselves. It may be that the analyst is profiling companies, or perhaps looking for non-report based information. Either way, another influencer in the market who understands your company and your vision is another channel to market.
  • There’s public and private information and the analyst will understand the difference. Sometimes, your story is better told by sharing information that is confidential or not for public consumption. Make clear to the analyst what is off the record. The analyst’s reputation is dependent on keeping certain things confidential. Clearly, this level of openness will develop over time but feel free to share with a degree of comfort.
  • It’s a two-way street. You may have noticed but analysts like to talk. So once you’ve shared your story, feel free to ask some questions. They may have some unique insights into the industry or may know of interesting opportunities in the market. Whatever it is you are interested in, the analyst is likely to be happy to share.

Software Application Testing in Insurance, Part IV: Best Practices

Previous posts about testing Topic 1: Automated Testing Topic 2: Getting Test Data Topic 3: Test Environment Topic 4: Best Practices in Application Testing: It’s been a while since I’ve blogged about this subject, but I think the previous three posts could use some follow up. After talking about the need for testing, getting the test data, and setting up a test environment, we need to actually do the testing. The best practices for software application testing are not easy to set up and maintain, often requiring one or two full time IT resources with a test development specialty (often called a Software Test Engineer, or an STE). Not many technology vendors follow these best practices, let alone insurers, and the expense and effort might not be practical or possible for every insurance company. However, by understanding the best practices an insurer can at least take steps in the right direction. The ideal scenario is an automated system that is able to clean itself to a standard state before and after each test. For example, if the QA team wants to run manual tests for software application ABC, they would run a script that would:
  • Drop all the tables in the database, recreate the tables in the database for ABC, and populate it with the same set of start data.
  • Clear out any existing application code, then get and install the latest application code from development.
  • In extreme cases, the entire test server OS will be reinstalled from scratch, though that is likely unnecessary for this level of application testing.
Later, if a different QA team wants to run manual tests for software application XYZ, they would run a similar process. Both teams are guaranteed a stable, repeatable base from which to begin their testing. By recreating the database and the application each time the tests are run, there is no need to worry about maintaining the database in a certain way, and multiple users can work with the same servers. Preparing to run the Automated System Tests should behave in a similar manner, with the reminder that the order of tests shouldn’t matter. That means it might be necessary to REBUILD the database between some automated system tests. In the case of Unit Tests, the ideal test environment should go one step further. Each unit test (and in many cases automated system tests) should contain its own code to add the data to the database needed by the test. Since unit tests are intended to be very focused, the typical test just needs a few rows of data. After the test is complete, it should clean out the data it just added. Since these are written by developers, there should be an application specific API for helping developers do this quickly, written by the IT resources devoted to test development. It’s a lot of effort, and each IT group needs to determine the level they are willing to go to achieve the best possible test practices. As with the previous topics, however, once the intial set up is complete, following the best practices becomes easy and natural.