Archives for January 2010

Celent Model Insurer of the Year Awards

The fourth annual Celent Model Insurer Awards will be held tomorrow, January 28th, in New York City. We would like to thank all of the participants in this year’s process. It was extremely competitive, with a 70% increase in nominations over last year and only a 40% increase in awards. We invite carriers and vendors to nominate projects for the 2011 cycle. The call for nominations will be issued at the end of the 3rd quarter.

For 2010, we are pleased to recognize 28 companies for their outstanding efforts in realizing significant business value by applying technology to the insurance process. Many of the submissions this year dealt with growth initiatives. For example, the rationalization of automation across distribution channels was a common theme. We also observed a greater use of industry standards (ACORD, DTCC) to tie together partners in new, effective ways.

Celent is also proud to recognize Missouri Employers Mutual as the Model Insurer of the Year. Not only was their claims system replacement project brought in on time and on budget, but the initiative introduced multiple new capabilities to their IT and business organizations.

Details on the MEM implementation and on all of the Model Insurer designees are available on the Celent website at

Solvency II and Asterix the Gaul

Since the publication of my Solvency II report in April 2008, there have been a lot of discussions around the new set of prudential regulation currently in implementation in Europe. For instance there is a wave of criticism coming from France notably from major players on the market. According to Groupama, a few internationally diversified banks have nearly collapsed in the recent past, demonstrating that the Basel II regulation could not prevent even well-diversified institutions from experiencing solvency problems. Therefore, what happened to the banking sector with Basel II during the financial crisis should prompt a reconsideration of the whole set of regulation and approach of Solvency II. More recently a French association gathering mutual insurers called the “Réunion des organismes d’assurance mutuelle (Roam)” representing 7% of the French market (around 10 million insured) has launched a website called “” demonstrating that not only major French insurance players are worried about Solvency II and dubitative about the real benefits the new set of regulation can bring. Among others, what French insurers and mutual companies fear is that Solvency II could have potential negative consequences on future growth and consumers. They believe that consumers would not be more protected than they are today with the current solvency regulation, and in addition they think that Solvency II might trigger tariff increases and decrease the level of competition due to concentration or failure of companies. These actions led by French insurance companies could trigger new rounds of discussions and delay the effective implementation of the Solvency II directive. There is a country in the middle of the European Community, whose some insurance companies have decided to resist. This could be a new story of Asterix the Gaul.

Grappling with indemnity spend

The British property insurance market is a sizable one, and is the second largest sector in general insurance, after motor, with a reported premium of £12.1 billion in 2008. In the last five years, claims and expenses for the sector have risen by 22%, while premium (commercial, household, and domestic) has only grown by 15%. Extrapolate these growth trends, and it’s clear that the sector will face serious profitability challenges in the coming years.

In addition, these are not benign times for property insurers— increased flooding, aggregators, and fraud all pose challenges. Insurers remain constrained by a financially challenged government with overwhelming budget pressures with regard to flood protection. If the motor market is anything to go by, it will be very difficult to stop the erosion of premium by the aggregators. Continued investment in fraud detection processes and technology will help keep the fraud contained.

It will become increasingly important for insurers to have control over indemnity spending to reverse this trend. Celent believes that there are solid technology options to support the insurer in doing just this. The application of estimation tools can improve fairness, accuracy, speed, and consistency of claims.

Using technology, an insurer can anchor the claim at the point of FNOL and improve fairness, accuracy, speed, and consistency of claims. The claim handler can make better decisions about fulfillment choices according to insurer strategies. Case studies show reductions in indemnity spending of 10%, and a reduction in adjuster review time of 50%. These are precisely the types of improvements insurers need to seek in the coming years to protect their property book.

Estimation tools can help speed the process by providing quality data earlier in the process, and through automated assignments to field adjusters. The improved accuracy of the work required improves transparency for the policyholder and reduced overpayments by the insurer. These tools create a clear audit trail of how the claim has been handled, which can support an insurer’s efforts in TCF regulation.

Innovation in Sports Marketing

As a relative youngster and an American college football purist, I remember cringing when my employer, John Hancock, inserted its name in the official title of the bowl game that it sponsored. Overnight, the Sun Bowl became the John Hancock Sun Bowl, and the world of sports marketing was never the same.

Of course now the practice is widespread. In the marketing game that is measured in eyeballs, it makes sense to have your logo plastered just about anywhere viewers will look, in return for your massive sponsorship fees. And if a sports writer from Boise plays by the rules and writes something about the Tostitos Fiesta Bowl, that’s exposure for the Tostitos brand that money can (and just did) buy.

A skating and gymnastics show over the weekend, “presented by Progressive,” with Prudential as another prominent sponsor, represents a new twist for insurers. (In case you’re wondering, I’m not a big fan of either sport, not even in an Olympic year. My wife was watching, and I just happened to be in the room. No, really!)

The upside for Progressive looks like this. They got their name all over the ice, the walls, and the TV graphics. Even on the banner behind the teeny-bopper band that lip-synced the soundtrack to the event. They ran what seemed like 100 spots over the course of the show. They doubtless won the gratitude of fans of these relatively obscure sports, just in time for the Olympics, when interest is sure to peak. (I’m guessing Olympic ad buys were part of the deal.) If their intent with this effort was to build brand awareness among female insurance buyers, particularly younger ones, they probably did that fairly well.

The downside? Unless 13-year-old girls are now driving or influencing insurance purchases (“Why can’t we have a higher deductible like Alice’s family?! Please, mom, puhhhhleeeease?”), there were a lot of wasted eyeballs in the buy. And more importantly, from my perspective, there was a certain smarminess to the event. For example, most of the other sponsors—which included Musselman’s, Silk, MetaboLife, and Kentucky Fried Chicken—created heinous live product placement segments, wedged between athletic exhibitions. It turns out these professional and Olympic athletes just love popping supplements while sitting around munching on fried chicken and applesauce, and washing it all down with soy milk. Who knew?

These awkward endorsements, delivered by skaters and gymnasts that most viewers probably had trouble recognizing, may have hurt the brands more than they helped.

It is hard to imagine a way to do product placement with insurance that isn’t too jarring or unbelievable. Go ahead, try it. “When Uncle Chester died, I was sad. But I was the beneficiary of his insurance policy from XYZ Carrier, so now I can redo my kitchen!” “As a professional athlete, I’m worried that if I cause an accident I will get sued for all I’m worth. So my ABC Umbrella Policy gives me peace of mind…”

The good news here is that the insurer sponsors of this event didn’t try to get cute with their sponsorships. They just captured eyeballs, in a fairly innovative way. Did they build awareness of their brands and their current offerings? Absolutely. And they successfully leveraged the fact that the lines between sports, entertainment, and marketing are blurring.

The Importance of Price Optimization and Predictive Analytics in Online Insurance

For online insurance shoppers, price is the most important parameter and in mature markets aggregators exert strong pressure on insurers and online players need to improve product pricing. To do so, insurers should invest in pricing optimization and sophisticated analytic tools. Predictive analytics and price optimization both together support insurers’ capability to adapt to customer behavior changes, new pricing signals on the market and ranking on aggregators websites.

Price optimization helps insurers maximize data set to perform testing and refine models and pricing strategies. If there is a business sector where insurance companies can take advantage of price optimization, it is certainly in online insurance. Indeed, online sales platforms represent a great opportunity to gather instant information from the market. Implementing real time price optimization consists notably in performing real life field tests that allow insurers to capture trends in customers’ behavior directly from the market. Price optimization also contributes to shorten the time needed to implement new tariffs by using scenarios and pricing strategy models. Overall, real time pricing optimization engine allows for daily pricing scheme changes while helping insurers better capture market data and modify price strategies.

With the strengths of business analytics tools offered on the market, insurers are able to refine their analysis and the evaluation of certain risk’s elements. But the biggest value these tools bring to the industry is the democratization of risk evaluation principles (actuaries have no longer the monopoly of data and risk evaluation elements), which in turn contributes to generate more discussions about identification of new key parameters impacting the risk pricing. We are now in an era where specific teams are built within insurance companies, whose objective is to ask questions that have never been asked and then build models that include dynamic parameters (and not only static parameters) to improve pricing algorithms. According to me, time has come now for insurers to shift from a reactive analytics approach to a proactive analytics approach.