Archives for July 2010

Adapting to distribution changes

My recent discussions with CIOs of general insurers in Europe have demonstrated that distribution remains an important topic. European insurers need to understand the changes affecting the distribution channel landscape and build in appropriate supports to leverage them. Among others, I would recommend insurers to consider the following considerations:

The direct channel requires an appropriate front end: To take advantage of the growing adoption of the direct channel, insurers have to emphasize low cost, highly automated flexible processes on a scalable platform. This goal can be best achieved through the implementation of open and flexible front end systems facilitating interactions with potential customers, integrating modern communication tools for call center officers and allowing a high level of reactivity in terms of product, pricing and discount changes.

Communication with aggregators is key: With the growing adoption of online insurance, aggregators gain more importance and insurers need to make sure that communication with aggregators is optimal (for more on the importance of aggregators, read the following Celent report “The Perils of Success: Rethinking the Maturing Online Insurance Market in Europe, February 2010”). There are two alternatives that can be chosen from. The first one consists in letting online shoppers fully perform the purchasing process on aggregator’s websites. With this alternative, customers and quote data are transferred to insurers via XML files on a periodic basis either daily or weekly following a batch process agreed between the aggregator and the insurance company. The second alternative consists in directing shoppers automatically onto the insurance online platform to perform the last step of the buying process (the effective purchase of the insurance product and its payment). This alternative requires an instantaneous transmission of customer and quote data by aggregators to insurers. I consider the latter alternative to be preferable for online insurers.

Insurers need to improve integration of affinity and bank channels: Banks and affinity channels tend to deal with more complicated insurance products. They offer specific advice to customers through in-person meetings. To leverage the value generated by these types of channels, insurers need to implement relevant portals allowing management and process of sophisticated insurance products.

Use brokers and agents in specific customer segments: Brokers and agents have still an important role to play. However it is important insurers use these channels for specific segments of customers requiring particular attention, products and services. To promote a frictionless communication with brokers and agents, I recommend insurers to implement sophisticated portals with rich functionality to provide point of differentiation.

Responding to multi-channel management: The changes affecting the distribution landscape make it more difficult for insurers to apply an efficient multi-channel management strategy. I believe insurers should prioritize sophisticated portals providing a single view of the customer based on service oriented architecture (SOA) with high level of automation. In addition, as the multi-channel environment evolves, it is important insurers implement all on a scalable infrastructure.

As the insurance distribution landscape is changing fast and drastically, I expect this topic to be part of the European insurer’s top priorities in the coming years.

The Whipcar use case for policy admin systems

As we all know, legacy IT systems are the major stumbling block to new initiatives from our business folk. And I was reminded once more this week how the business can ask some pretty crazy stuff from IT. Here in the UK, there is a new business called Whipcar, which is a crowd-sourced rental car model.

Reduced to it’s basics, you rent a car from a street near you through this intermediary website. The model is about leveraging spare capacity in the existing car market by renting the car out when it’s not needed. This works well in large metropolitan cities such as London when a car is seldom used on a daily basis. With Whipcar, you can “sweat your asset” for the periods when you don’t need the car. One of the principles is that you are likely to be more careful with your neighbours car than with some faceless global car rental company and so the rentee has little to worry about. But insurance is still a requirement.

So how does insurance work? As the car owner, you will already have a car insurance policy in place. Whipcar has negotiated an agreement with a London Market insurer to provide an overlay to that insurance policy whilst the car is being rented out. This is a unique product (variable time for the policy, insurered value variable, billing requirements variable) that would test any current policy admin application.

So my challenge to you is this. You may be well down the path of legacy simplification or modernization, or you may be still considering how best to approach it. I would propose that in ascertaining if your target (or new) application stack is fit for purpose, the small case study of Whip-car is an interesting little use case scenario. Let us know how it goes.

It's A Small World, After All

It was in 1964 that Walt Disney first told us in song that “it’s a small world, after all.” As we apply the concept to insurance in 2010, it is clear that Walt was well ahead of his time. The opportunities and challenges for today’s insurers around the globe seem to transcend time zone and cultural differences.

I recently spent a week in Tokyo, in part for the Celent Insurance Roundtable. (No, I did not go to Tokyo Disney.) To be successful, a trip like this has to include some very fresh sushi, and a flurry of fresh perspectives. Thankfully, I found both.

In our roundtable discussion and in my conversations with Japanese clients I was struck by how similar Japanese insurer concerns are compared to those of North American insurers. Common themes included finding the right levers to drive company-level growth despite flat industry-level demand, concerns over outdated IT approaches, and the challenges associated with optimizing short- and long-term strategies simultaneously.

Comparing Tokyo consumers to their counterparts in North American cities of similar size is also interesting. Looking around a Tokyo Starbucks, I saw that same curious mix of eccentric 20-somethings and 40-something professionals that I see in New York. Most were on laptops or smart phones, enjoying high speed connectivity to stay in touch with friends or to crank out emails from their virtual offices. The Japanese may still have more affection for their keitai (cell phones) than do North Americans, but the gap is clearly closing.

Another symptom of our rapidly shrinking planet (where is Al Gore when you need him?) is that global competition is no longer limited to the manufacturing sector. Looking at the names on Tokyo buildings tells the story. IT services firms are aggressively building out their presence in new geos. Insurers are buying companies halfway around the world. Software vendors that got their start in one country are now reaching critical mass in others. While I typically preach focus for any firm that haven’t mastered its “home” domain, I think that expanding the vision to new countries is essential for successful firms that have high growth ambitions. Good ideas, powerful tools, and game-changing strategies are welcome visitors to just about any country.

As a futurist and as an entrepreneur, Walt Disney dreamed big dreams. We may not be commuting to work by personal jet pack (yet), but otherwise Walt had it about right. It’s a small world, indeed.

If You Build It, Will They Come?

What is the link between improving service technology and improving sales incentives? This was the topic of a very insightful conversation that I had recently with an insurance CIO. It highlighted how interrelated the processes are in the insurance value chain. Investments can be made in one area, but if other, correlated areas do not receive attention, the benefits from the initial investment may be less than expected.

The two areas in question are policy administration and distribution management. This company has determined that the key to managing their profitability properly is the ability to change their mix of business in order to respond to market conditions. This strategic imperative led to a recent investment in best-in-class rating technology to increase the responsiveness of product updates and the speed of new product introductions. The company also upgraded their BI and analytic capabilities, allowing their actuaries to develop new discounting and pricing methods.

The CIO shared that they were pleased with the cycle time reductions and productivity increases that resulted. However, he reports that they only got full benefits they sought after they updated their compensation system. They needed to be able to change incentives in line with product modifications in order to effectively modify their portfolio and manage profitability. In other words, they had to be able to give their distribution force a reason to sell the new products, not just deliver product changes.

This was a twist on the phrase “if you build it they will come” and a reminder to be sure and consider the interplay between separate processes when evaluating investments. In constructing a product administration roadmap, an assessment of incentive management should be made. Incentive system upgrades may be necessary in order to fully benefit from administration enhancements.

Social Media so hot, Ben & Jerry's email marketing melts

The story that Ben & Jerry’s are dropping email marketing in favour of social media hit something of a sweet spot with me. Not only do I not like trawling the ever increasing mass of emails each day but I also have a keen interest in how the Internet is evolving and a highly developed sweet tooth. The story is quite interesting as it tracks some of the trends Celent observed in our Digital Marketing in Insurance report. For many insurers email marketing and communication is the primary digital method of reaching consumers, however most insurers saw social networks and social media as becoming an increasingly important channel to market. Perhaps Ben & Jerry’s move is both a little early and a sign of things to come. This also comes at a time when rumours abound regarding yet another social network set to come from Google, possibly to be called Google Me. Indeed there are stories that disenfranchised companies working with Facebook may already be signed up to work with Google Me. A slide show published by a user experience researcher at Google offers some insights into the key issues with current social networks, how the new social network will look and the features it will offer businesses. For insurers looking at social networks as a medium to customers or looking at how they can expand their use of social networks Celent’s report on the subject may well be of interest. Addendum: Also making waves in social media is the old spice campaign on YouTube. Effective use of this style of campaign is discussed in our report but it is particularly well executed here.

8.10-11.10: Celent Insurance Webinar: Distribution Trends in the Asian Insurance Market

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.

7.27-28.10: Celent Insurance Webinar: Asia Insurance—The Year Ahead: The CIO Perspective

Celent analysts Wenli Yuan and KyongSun Kong 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.

10,000 Actuarial Students!

Several forces are underway that will result in significant changes in the way that insurance companies use actuarial resources. An increase in qualified actuarial resources and a need to move company actuaries into more strategic activities will offer opportunities that have previously been unavailable. The exact timing and pace of this change is uncertain, but the economics are so compelling that I think it is not a question of if, but when, a new model will prevail.

First, over 10,000 people in India are currently sitting for the actuarial exams. As the result of the growth in the knowledge worker outsourcing industry and the privatization of the Indian insurance industry, actuarial studies are now much more attractive to qualified students. Scarcity (read price), will be reduced as a result of this increasing supply of expertise.

Second, companies increasingly need to apply their internal actuarial talent to more strategic activities such as sophisticated price modeling and risk management. Predictive modeling and multi tier pricing require constant attention and monitoring. Existing regulation in Europe regarding Solvency II consumes increasing amounts of resource. Both of these activities are best performed in-house.

Leading companies will recognize that the traditional insurance product pricing process can be separated into separate activities, some of which can be outsourced. For example, the development of loss triangles and the updating of price indications are examples of discrete, measurable work that can be effectively performed remotely. Once these tasks are complete, internal actuaries can then review them and make final, proprietary pricing decisions. Moving the tactical work offshore lowers costs and frees company resources to focus on higher value activities.

There are barriers to this transition. Tradition and inertia will slow adoption. It may take seven to ten years, but the cost advantages and a need to redirect company talent will eventually result in a shift the norm to a multi-source, onshore / offshore actuarial model.