Archives for April 2011

EC2 Troubles Must Be Taken in Context

Proponents of cloud computing aren’t going to like the fact that Amazon had issues that resulted in outages among its EC2 customers’ sites. The know-it-alls out there are probably already saying, “If Amazon has issues like this, imagine what would happen if you placed your bet on a less-experienced cloud vendor!” The gravitational shift toward the cloud for both core and non-core systems has surely slowed down.

But the fact is that most insurers have their own outages when they host applications internally, in some cases with more frequency and severity than we’re seeing here with Amazon. It’s interesting to note how some of the customers who are known to be affected have reacted. “We wouldn’t be where we are without EC2,” said one. So despite the horror of having their public-facing site go flighty for a day (or two–we’re hearing the problems are not completely resolved), there’s apparently a reserve of goodwill that has built up over many months of near-flawless operation.

Instead of putting the industry on red alert, Celent believes this event should focus the discussion on the relative reliability of various approaches, and the tradeoffs between them. Should you know your vendor’s architecture and reality-check their DR and failover strategies? Absolutely. You should also run the business case for change, especially if gaining scale quickly, moving nimbly into new markets, or handling seasonal spikes in activity are issues for which you have few answers. Outages caused by a vendor are never a good thing, but they are probably not your biggest, baddest problems either.

5.6.11: Celent Peer Networking Event: ECM and Digital Commerce: Digital Approaches to Content Management and Insurance Transactions in Hartford, CT

Celent senior analysts, Insurance Group Registration is open to INSURANCE CARRIERS ONLY and is free, but space is limited. Please click here for more information.

Debunking myths: What is that senior person doing on-line?

It is widely agreed that baby boomers and seniors are increasing their on-line presence. On multiple occasions, I have heard this observation made, followed by a statement to the effect that “they want to keep up with their families and post pictures of their grandchildren”. Data from Pew Research actually shows that these groups are participating in a much broader set of activities. As the chart below shows, boomers are at least as active as younger groups when it comes to non-trivial tasks such as getting financial information, and buying products. The 45 to 64 age group is even more active than others when it comes to rating a product, service or person.

The Pew Research data also shows that, in the past two years, participation in social networking sites has increased the most in the boomer groups (by over 30%). Companies seeking to increase their online channel and/or build advocates and fans using social media need to target older, as well as, younger age groups.

Insurance and Japan

One might naturally assume that the tragic events in northeastern Japan would also be devastating the Japanese insurance industry. By the beginning of April some 320,000 P&C claims related to the disasters had already been filed with insurers. After the Kobe earthquake of 1995, when many home and business owners discovered their policies did not cover the damage, people got in the habit of buying earthquake / tsunami insurance. So fortunately more properties were insured on 3/11 than may have been otherwise. In conversations with Japanese carriers, however, Celent has found that insurers are remarkably sanguine about the likely effect on the industry here. Firms say they have adequate reserves set aside precisely to cover an event of this magnitude, which has long been predicted. As a result, Celent expects that major Japanese insurers will continue to invest in strategic initiatives to boost competitiveness and lower costs in this very crowded market. IT spending growth at Japanese insurers, which has been close to flat for years anyway due to the maturity of the market, will suffer a modest dip in the short term. Smaller insurers are likely to put off renewal projects for a while. Pressure to merge will increase at some firms, but again the industry has seen a spate of consolidation activity in recent years already. The recent events are likely to encourage Japanese insurers to accelerate their international expansion efforts, which are already underway. Carriers have been looking abroad for growth opportunities, especially to the Asia Pacific region but further afield in the Americas and Europe as well. In Tokyo, along with the concern, there is a new competitive spirit in the air. April is the start of Japan’s fiscal year and businesses look determined to find ways to grow even as the economy is forecast to contract. The insurance industry would be no exception. For example, the past year has seen the emergence of new internet and mobile based distribution models and products, approaches which seem almost tailor-made for the post-3/11 era. Technology suppliers will want to know that amplified interest in business continuity is leading insurers to think seriously about cloud computing. The blooming sakura and early spring sunshine might be distracting me from some of the harsher realities of 21st century Japan. But certainly a little optimism is not misplaced in what is after all one of the world’s major insurance markets.

Data, Data Everywhere and Not a Drop to Think

Insurance carriers are inundated with data. Data from their policy admin systems, financial systems, CRM systems, claims systems, etc. Because most carrier’s IT systems grew up in siloed business units, there was little to no sharing of data across departments. Business would ask IT to provide enterprise views, but IT would come back with very expensive programs to prepare the appropriate data model, cleanse the data, migrate and transform the data, mine the data and finally provide a report that was out of date because the data was days or weeks (or months!) old. This lead to the businesses creating massive numbers of Excel spreadsheets or Access database reports that were/are very myopic and semantically inconsistent with their peers, who were doing the same task.

Many carriers have tried their hand at MDM (Master Data Management). They spent tens of millions of dollars to try and get the uber insurance data model correct and consolidated (and of course cleansed and migrated to a data warehouse) before they could produce any meaningful reports that provided business insight. Basically they were trying to perform the proverbial “boiling the ocean” and many programs failed under their own weight.

With the economic and competitive pressures carriers are under today, they are again looking at BI (Business Intelligence) or BA (Business Analytics) to provide business insight to allow them to make better business decisions. While vendors vary on the precise definition, most define BI as historical business analytics, while BA covers BI, predictive or future looking analytics as well as self service analytics. Most insurers are still trying to get value out of BI and view predictive analytics and modeling to be future state. BI and analytic projects rated 3rd highest in priority in our most recent CIO report (2011 US Insurance CIO Survey: Pressures, Priorities and Practices).

Carriers need though to learn from the mistakes of the past. Boiling the ocean and trying to get everything right before getting any business value failed and will fail again. Carriers data mastery approach to enterprise reports and dashboards must take an incremental value add approach and be driven by the business. I do not mean the traditional business defines the requirements and gives them to IT with an approved budget, but the business actually takes accountability of the success of the project. While this may cause friction between business and IT in some carriers, they will find themselves falling farther behind their competition. We see the barriers between business and IT breaking down within many areas of insurance companies. There isn’t a more important and more valuable time for this to continue in their BI initiatives. IT needs to encourage the business to take this level of ownership and accountability or it might find the business outsourcing these tasks to someone who will.

Paris and San Diego in the Springtime, and London in the Fall…

For the Celent insurance team, May appears to be all about events. We will be hosting the “Celent Insurance in France: The CIO Perspective and Adoption of Social Media by French Insurers” in Paris on the 19th May. We have an exciting line up of hearing views on the value of Social networks for insurance from Generali, and then Google’s view on the Consequences for French Insurers’ Marketing Strategies. This will be followed by a panel discussion. The event will be in French with simultaneous translations. If you can’t get to Paris, perhaps San Diego is a possibility. The Celent team will be in full force at the ACORD Loma 2011 conference in San Diego this year. We’d love to catch up with you there at our booth, or around at the show. We all look forward to the new venue this year. And if “Spring has sprung, and the grass has riz” and you’ve no time to get to Paris or San Diego, there is always London in the fall. The Celent and Insurance Times UK GI Tech awards will be held at the Gherkin in London on the 22nd September. We look forward to catching up with you at one of these events.

The Hippogryph – a blend of two old beasts to help insurers fly

In a few unrelated conversations last week the question of configuration and business design came up. In each case the conversation was related to modern policy administration or product specification systems used in the insurance industry, with a back ground of legacy applications still hanging around. The conversations inevitably turned to the experience and skills profile required by someone who configures modern systems to the business requirements. Whilst the different insurers concerned used different names and had slightly different purposes the base requirement was for someone very familiar with how the insurance business ran, but with the engineering discipline and experience an IT background gives. Increasingly we’re observing that modern insurance systems allow for configuration. Configuration can stretch from ticking a box on a form, to updating a table of figures used in a calculation through simple formulas all the way to full blown scripting languages. This trend isn’t just present in insurance systems, in business intelligence the use of Python and other scripting languages have long been used to clean up and prepare data. In both cases the question arises – is this an IT job or not? Herein we see on a small scale the change that has been brought across all of our society, where programming skills previously the sole purview of the IT department now may sit with underwriters, curators of an insurers content and analysts reviewing a wealth of data. What has not migrated out of the IT department yet is the discipline born of years of painful implementations – discipline around correct specifying the problem, testing the result and planning for failure. As it happens most insurers come to rely on a mixed and experienced team form both an IT and an insurance background. Each member of the team fills the gaps in other team members and together, processes are established. Some vendors are now providing training courses for configuring their platform but even the vendors I’ve spoken to admit this can be hit and miss, “Some people just aren’t cut out for writing and testing business rules”. Until universities and schools start producing candidates with a mix of insurance awareness and IT discipline insurers will have to continue to rely on a mix of internal staff experience in order to move forward with legacy and modern core systems. In Harry Potter we see the young wizard take to the skies on a hippogryph – part eagle and part horse. The hippogryph takes the best of each creature to allow harry to fly through the air as easily as riding a horse. Insurers are finding that they must create a new role in their organisation, merging IT discipline and business know-how to allow them to meet their lofty goals.