Archives for March 2010

About Density and Penetration of Life Insurance in Europe

We are currently looking at the life insurance market in Europe and more specifically saving and retirement solutions involving wealth management by insurance companies. In the frame of our initial work, we have tried to identify the differences between the main European markets comparing each of them in terms of density and penetration: Life insurers have suffered since the financial crisis and the economic downturn and it is difficult to predict what is going to happen to this market in 2010 and maybe in a longer period. But based on this analysis there is at least two observations that can be drawn in today’s context: The unbalanced UK economy: Since the 80s and under Margaret Thatcher, the UK has operated a drastic shift in terms of economic focus neglecting the industry to concentrate on financial services. This explains why life insurance premium represents more than 10% of the UK GDP right now. We believe that the lack of balance of the UK economy has been a major weakness recently as it obliged the UK government to take drastic actions to help financial institutions in difficulty during the financial crisis at an unprecedented level in comparison to other European countries. The level of debt and deficits have worsened and the strong emphasis in financial services remains a threat for the UK economy. The bancassurance model does not bring the same success across geographies: Banks are the most important intermediaries in terms of life insurance distribution in Spain, France and Italy. However, it is important to point out that life insurance density is much higher in France than in Spain and Italy. This difference cannot be only explained by the difference in GDP ranking between these countries. Following our discussions with French insurers, we have noticed that the French bancassurance model remains an example worldwide and it seems that Italian and Spanish insurers have not managed to take full advantage of the banking network to leverage potential synergies. Our objective is to understand the differences between the main European insurance markets and then anticipate how they might fare in the coming years taking into consideration the current macro-economic environment. There are plenty of uncertainties right now but asking the relevant questions is already a good step towards the right direction.

4.20-21.10: Celent Insurance Webinar: After the Flood: The Financial Tsunami and the Insurance Market in Asia

Celent senior analyst, Wenli Yuan

This event is free to attend. Celent clients and the media will have access to the webinar’s PowerPoint presentation after the event.

Please click here for more information.

The Promise of End User Maintenance – Billing Systems

Continuing the series on end user involvement in system changes, we asked reference accounts how involved business staff is in maintaining billing systems. As shown in the graph below, a great majority of them only barely or moderately have moved these activities into business areas. In conversation with vendors and insurers, most often these tasks involve creating and modifying bill plans. Note that our research does not ask how much an insurer wants to move to the business areas. In the case of billing and financial transactions, and unlike policy and rating administration, this relatively low level may be desired for control reasons.

"Why are you doing that like that?"

One of the phrases I often hear just before a business takes a step forward in efficiency or innovation is “Why are you doing that like that?”. The phrase can be uttered by an expert in an application sitting next to a novice and leads to a greater understanding in the novice and hopefully updated operational guides. Another valuable time this phrase is uttered is when the designer, architect or business analyst is sat with a novice. In this case it teaches the professionals specifying the system that something that is obvious to them is not always obvious to someone just learning the system. Finally the times when I’ve heard this phrase and seen the greatest positive impact in the shortest time is when the builder of the application sits next to the person who’s livelihood depends on using the application effectively. This is the time when “why are you doing that like that?” can yield insights into how the application is really used. Such insights can demonstrate how certain shortcuts can fool the commission system for instance, how a feature actually gets in the way of efficient use of the application or even demonstrate that the way customers interact with the organisation is just not what was expected. The response from those who built the application when faced with this is often swift and full of energy. Sometimes they simply know a better way through the system and that can lead to massive savings. Failing that they invariably can think of a shortlist of 5 quick fixes that would make the whole interaction more efficient. In many mid to large size organisations these days the folks on the front line talking to customers are often in a very different part of the organisation to the folks who built their applications – sometimes the only common manager is the CEO. Despite these differences and hurdles – regularly getting someone who supports and maintains your key applications to sit and watch an expert user will frequently yield greater efficiencies for the organisation and greater understanding in both parties. Actively seek to create moments where one member of your organisation asks another, “Why are you doing that like that?”

Lessons for IT Service Vendors: Get to know your clients

IT Service vendors play an important role in the insurance industry. In a world where the internet makes it easy to have customer service representatives half way across the world or developers in remote locations, insurance companies like many other 21st century organizations look to vendors to meet their IT needs in lieu of hiring people or buying systems and hardware. IT Services vendors provide expertise to insurers in areas such as writing, modifying, testing, and supporting software. The vendors help plan and design computer systems that integrate hardware, software, and communication technologies. This is especially important with the frequency of mergers and acquisitions. IT Service vendors provide on-site management and operations of insurers’ computer systems and/or data processing facilities. They provide outsourcing of key processes and they give professional and technical computer-related advice. Celent’s forthcoming report about ITS vendors provides a detailed spectrum of over thirty IT Service vendors in North America. The report profiles each vendor in relation to the services it provides, the skill sets of their insurance vertical staff, details of their client base, and customer feedback related to the services provided. Celent has other regional reports in the pipeline. There are several reasons why an insurer may look to an IT Service vendor for their offerings. Many insurers, when facing shrinking margins, look to an IT Service vendor to improve the efficiency of their operations. ITS vendors help insurers pursue strategic agility. ITS vendors enable insurers of any size to tap into a global labor pool to find the skills they need at potentially competitive rates. Celent’s recent blog post highlights several of the business drivers for outsourcing. For whatever reason they choose to buy IT Services, insurers have key reasons why they choose one vendor over another. Over the years, service offerings have evolved from the labor arbitrage offering to that of a possible partnership. Feedback to Celent in CIO discussions and responses from clients in Celent’s ITS vendor survey shows that the factors related to choosing an ITS vendor are not merely based on price, although price is still a big factor. Based on the Celent survey of ITS vendor clients for the North American ITS Vendor Spectrum Report, clients want a vendor to be responsive to their needs and to really know their business. And overwhelmingly, almost 80% of the clients were looking for long term partnership potential. When it comes to knowing the client’s business, for the most part, IT Service vendors are meeting the needs of their clients. Nearly 60% of the respondents said that the vendor either knows the client’s business very well or as well or better than the client. The flip side is that almost 40% do not do a very good job of learning the business of the client, or at least to the satisfaction of the client. What does this mean to the IT Services vendor? Get to know your client, its needs, its business, and its people. Make sure your proposition matches their requirements, and evolves alongside the client’s changing needs. Those clients that were most happy with their IT Service vendor felt they had a true partnership with the vendor. Those that were less happy felt that the knowledge of the IT Services vendor should be greater than the client’s and the vendor should be flexible and willing to going beyond what has been done before. The IT Services vendor should have knowledge of best practices and use the experience they gained from other implementations or projects to improve their project’s outcomes. As this feedback demonstrates, insurers are looking for partners in their delivery of IT, not just low cost services. Look for more on this topic in Celent’s upcoming North American ITS Vendor Spectrum Report.

Customer loyalty – the holy grail in UK personal lines insurance

The topic of customer loyalty made an unsurprising appearance at recent conference of UK senior marketing executives. In several conversations, and breakout groups, the executives mused how different business might look in the UK if the consumer wasn’t very unloyal. Growth is an important factor for UK in 2010, and the aspiration for lower customer churn is not surprising.

So how did we get to a point where most consumers know it’s better to change insurer every year? Well, the consumer has learnt that loyalty is usually rewarded with a hike in their premium. I’ve experienced this first hand, finding out with some on-line research that my same insurer would take me back as a “new customer” at a lower rate than their renewal offer to me.

The internet has democratized the renewal process. Given some time, access to the internet, the consumer can check across the market, with the use of one or two aggregator websites. And they do use more than one – research suggests most use 2.8 – 3 aggregator websites to find the best price. This is an extraordinary investment in time to get a better deal. It also highlights the very “grudge” nature of an insurance purchase.

The aggregators appear to have caused the insurers to jump into the dire race of competing purely on price. Whilst many aggregators defend their position of being able to offer comparisons in more areas than price, my straw poll of friends shows that they look for a recognised brand in the top 5 i.e. cheapest.

The visual comes to mind of the cartoon sheep/dog/coyote racing over the edge of the cliff, taking a few seconds to realize where they are, and looking down at the vast blue space beneath them. It strikes me that’s where UK insurers are today – realizing they have run out of cliff and it’s an awful long way down to the dark blue sea.

These sentiments were re-iterated at the marketing conference. “This has to end,” said one Chief marketing officer, “it’s just not sustainable.” A US colleague told an amazed audience how her insurer had covered the whole family (motor, house and term life) since she was in college. They now insurer her college-aged daughter, and offer her a discount because she get’s good grades (proven link between claim propensity and grades apparently!). The family was a real fan of this large insurer.

There were no shortage of good ideas to encourage and reward customer loyalty. But the clear risk that remained unanswered was that any insurer taking a line contrary to the market was likely to be punished by the consumer in the short term. In the medium to long-term, lower customer churn would be better for their profitability, but a listed company performing to quarterly and annual reports can be very limited to any long-term plays such as this.

I hope the UK insurers crack this tricky problem. If for no other reason, then I find it tedious investing 2-3 hours a year looking for a new insurer. And the larger message to other markets who are moving steadily towards the low-cost producer model :- watch your feet, you may find yourself running out of runway before you know, and it’s very painful to claw your way back.

The Promise of End User System Maintenance

One of the benefits of investing in modern, configurable software that is often sought is the ability to move creation and maintenance of systems to the business areas. The premise is that transferring these functions to users will increase quality and reduce costs. In Celent’s discussions with insurers and observations, this is often a goal which is more aspiration than realization.

Our research has begun to quantify the extent to which functions are transferring within various solutions. For example, the graph below details the responses from U.S. insurers using a stand alone rating engine when asked what percentage of work is being performed in their business areas:

Surprisingly, create/change workflow rules are performed more often than change rates. This reflects the expansion of stand alone raters beyond simple arithmetic calculators that was reviewed in the Celent report Future-Proof: Considerations in Choosing Rating Solution Platforms. Not surprisingly, deployment to production is often held in the IT area. For more details, reference the report: US Property/Casualty Rating Systems: ABCD Vendor View, 2009)

We are continuing to collect such data across different software platforms in order to quantify the “promise” of end user maintenance.

New Faces On Celent Insurance Team

Is it true that you can never have too much of a good thing? That’s my take when it comes to staffing the Celent insurance team. I’m pleased to introduce three new team members who will make our strong team even stronger.

Craig Beattie joins us as an analyst in the London office. Prior to joining Celent, Craig was an Applications Architect with Royal Bank of Scotland, working extensively with RBS Insurance. He held roles in strategy and architecture during mergers within the division and consulted on a number of internal divestment opportunities.

Karen Monks is a North American analyst with 12 years of financial services consulting experience. Previously, she worked for a Celent competitor in the analyst space, John Hancock Financial Services, and Coopers & Lybrand. She also completed General Electric’s Financial Management Program.

Finally, Jim Pelis joins the team as an account manager, based in the Boston office. Jim most recently worked for Datamonitor, and he has experience from Collective Next, IANS, and Forrester.

I’m excited to have you meet Craig, Karen, and Jim because I’m confident that they will carry on the Celent tradition of delivering value for our clients.

Social Search Engine Optimisation? Google's Buzz is part of a bigger strategy

Just before the Google Buzz announcement (and associated bad press) Google announced a change to its core search product. This is a potentially huge change and a pointer to Google’s broader strategy. Given the annual budgets aligned to SEO (Search Engine Optimisation) for Insurers, IT Vendors and brokers alike, this change deserves a closer look. Social search was originally announced last year as an experiment and then released as part of the core search product this year. In brief, social search uses a persons connections to personalise the search results. So for instance, if you search for Car Insurance and your friend Bob has something to say about Car Insurance on a blog or Twitter – then you will see a link to that in your search results along with a summary. For example in my Twitter feed I follow Aleksandr Orlov – the meerkat character used in’s advertising campaign. In my search results for Car Insurance I see an update from Aleksandr suggesting I go to In effect free advertising for that brand. Of course if one of my friends has had a bad experience with a particular insurer the details of that will be visible to me in the search results too, and I would likely get in touch with them as a result to understand the issue. It becomes clear where Buzz fits in with Google’s strategy – Buzz is less about creating a new Twitter or Facebook, but more about getting users of Google’s products and particularly the search product to provide more, rich information about their own content and their network of friends. Why is Google introducing this change? The Guardian newspaper in the UK recently reported that more twice the number of people were coming to news organisations web sites from sites like Facebook and Twitter than from Google News. This demonstrates a huge shift in the way people are interacting with the Internet. In the last decade people went to a portal or plain search engine web site and keyed in what they’re look for. In this decade people are being fed relevant links from their network of contacts. This again places Buzz as a core part of Googles strategy to remain relevant on the Internet. What does this mean for insurance? Simply, the automation of word of mouth. It means that the various social network sites will become increasingly important. Many Insurers are already investing time in a Twitter and Facebook presence and must continue to do so. Not only will Twitter updates and Facebook updates appear in front of people when they use those websites but increasingly these updates will appear in search results. Positive comments about the company should be repeated and lauded. Negative updates from customers will appear in their friends search results, responding directly to criticism where possible and stating your brands position will become increasingly important. Of course, you could take this approach and ask your customers to ask their friends about your product. Look out for Celent’s upcoming report on Digital Marketing. Feel free to add your comments below too.