Archives for August 2011

Insurer Perspectives on Core System Modernization and Cloud Computing

The fourth Celent Peer Networking Event was held last Friday at the headquarters of Allied Insurance, a division of Nationwide, in Des Moines, Iowa. Thirty people from eleven different insurers contributed their experience with evolving cloud computing and legacy modernization strategies. As with other events, the discussion was open, active and focused on practical steps that can be taken to transition insurance automation to new platforms.

A review of recent Celent research kicked off the meeting, with Mike Fitzgerald, Senior Analyst, presenting survey data on core systems modernization and on the business case for updating legacy systems. Data from a 2011 Celent report, Still Seeing the Shadow: Groundhog Day for Legacy Modernization (Still Seeing the Shadow: Groundhog Day for Legacy Modernisation (P&C Edition):http://celent.com/reports/still-seeing-shadow-groundhog-day-legacy-modernisation-pc-edition Still Seeing the Shadow: Groundhog Day for Legacy Modernisation (Life and Health Edition):http://celent.com/reports/still-seeing-shadow-groundhog-day-legacy-modernisation-life-and-health-edition) illustrate that the rate of transition to new insurance platforms has increased in the past two years. The group validated that this was the case with their organizations. Approaches, risks and issues highlighted by the study were discussed in turn, with the loss of legacy analysis skills receiving a significant amount of discussion. Several attendees shared steps that have been taken in their shops to address the gap between the supply of, and the need for, analysis and programming skills. A partnership with local colleges and universities, described by one company, was particularly useful. Data from an upcoming report, Reviving the DOA Core Systems Business Case, were also covered and attendees had an opportunity to compare their alternative approaches to justifying a modernization effort.

A panel discussion concerning the use of a rationalized application portfolio followed. Dan Drabenstot, Principal Enterprise Architect, Mutual of Omaha, Ray Wasilewski, Vice President Technology, FBL Financial Group, and Ben Moreland, Senior Analyst, Celent, shared their experiences in using a portfolio approach to plan legacy modernization. They offered several examples of how a system inventory improved communication between business and IT areas. One participant detailed a scoring methodology that prioritized automation projects and highlighted tradeoffs in decisions concerning alternative implementation paths.

In the afternoon, Vijay Gopal, Enterprise Chief Architect, Nationwide Insurance and Ram Rao, Commercial and Specialty CTO, Allied Insurance facilitated a discussion concerning the implementation of a cloud computing platform. Alternatives were identified concerning initial projects involving cloud technology. The consensus of the group was that, eventually, most companies will employ a mixed approach that will include both public and private clouds. Participants mentioned that they currently are choosing specific systems to experiment with in order to learn the skills and processes needed to successfully manage the new environment. A key point was made that any vendor of cloud services to insurance companies must be able to meet the regulatory constraints of the industry.

Celent would like to thank all the attendees and the presenters for their participation in making this a successful event. We look forward to hosting the next Peer Networking Event: Enterprise 2.0: The Social, Mobile, Connected World at Allianz Life headquarters in Minneapolis, MN on Friday, October 7th, 2011 (for information, please visit October 7, 2011 | Insurer Peer Networking Event: Enterprise 2.0: The Social, Mobile, Connected World: http://celent.com/node/29031).

9.14-15.11: Celent Insurance Webinar: China Insurance Market and Technology Trends 2011

Celent Senior Analyst Wenli Yuan This event is free to attend for Celent clients, flex-plan clients, and the media. Non-clients can attend for a fee of US$195. If you are unsure of your client status, please contact Chris Williams at +44.20.7228.4432 or cwilliams@celent.com. Please click here for more information.

10.7.11: Insurer Peer Networking Event: Enterprise 2.0: The Social, Mobile, Connected World

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.

I never predicted a riot – The English summer that proves the value of location intelligence tools

In the usually quiet English summer, the country has been hit by a series of riots in several major cities. Whilst politicians and social commentators offer up the analysis of how it all happened, and homeowners and small business clean up the chaos, insurers are counting the costs. There are estimates of £200 million in claims to be picked up by the sector but the true cost of this wont be known for some months.

If there was ever a business case for the use of geographic information systems in insurance, this must be it. In the UK, the top 10 insurers in commercial and personal property together earn approximately 85% of the premium in this sector. This is huge exposure indeed. Unlike several other areas around the world, the UK is not known for large natural catastrophes. So riots and the occasional flood are the country’s reminder to insure.

In the Bunsfield oil depot explosion which impacted a large area of neighbouring commercial and residential properties in London, RSA was able within a few days to estimate the damage to their policy holders and the likely payout in claims.

Months later, with all claims finally in, the estimation was within a handful of percentage points of the actual amount. This accuracy is important to policyholders and shareholders alike. It means accurate allocation of reserves and not holding up capital unnecessarily.

GIS systems or location intelligence solutions provide valuable data at the point of underwriting and claims assessment at a portfolio level. For the commercial property underwriter, the solution provides maps highlighting other insured properties in the area. Depending on the appetite for new risk given the aggregate risk for the area, the underwriter can then decide to proceed or not. Making this decision without the support of spatial data would be nigh on impossible.

For assessment of likely claims, GIS systems offer similar strong business advantage. Plot the area of impact of the riot or flood, and the system is able to sum up all current exposure in that area. This assessment of the aggregate risk can also include items not typically post coded such as bridges and public toilets which large property insurers.

GIS solutions have already proven their value to the insurance sector. Some of the systems are out of date or not integrated to underwriting systems to support real time decision making. With legacy modernisation imposing a major drag effect on insurers IT budgets, GIS solutions may have to wait some time to attract the correct level of investment.

In the coming quarter, Celent will publish a report on GIS vendors in the insurance sector.

10.18.11: Celent Insurance Webinar: Underwriting and Policy Administration System Segmentation: Implications and Trends

Celent senior analyst Nicolas Michellod 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.

Vertafore’s Move Helps Insurers Gain a Bigger Piece of a Smaller Pie

Vertafore’s purchase of Kaplan Compliance Solutions is another step towards delivering on the ease of doing business promise to insurance distribution professionals. It is an indication of the consolidation of vendors along vertical lines as providers deliver solutions that can solve multiple problems in producer management.

Managing the insurance distribution chain involves disparate administrative functions such as configuring compensation plans, administering payment and reconciliation, registering and licensing of producers and tracking education requirements. To a producer, all of these tasks are part of a single process — maintaining and growing a critical relationship. However, in a many insurance companies, multiple departments perform separate tasks in the chain. Systems and work processes have been separated according to history and habit.

When service issues arise, agents are not interested in knowing that different people are handling different parts of the process using systems that do not “speak” to one another. They would like their commission or licensing or education inquiry to be resolved immediately with as little time investment as possible.

In the New Normal environment of a low-growth economy, it is critical to increase production within existing agents (keep them happy), necessary to expand into new channels (bring them onboard quickly and with minimal hassle), and essential to monitor performance of all sales activities (know who is doing what and take action appropriately). Celent believes there is an opportunity for insurance companies to gain market share through the execution of a strategic approach to producer lifecycle management. Carriers can gain competitive advantage in their distribution efforts if they bring together and consolidate these various processes to create an integrated approach that delivers higher quality service, more reliable information, and lower costs.

Accomplishing this goal will require process optimization and integrated automation. In order to meet these objectives, leading insurers will manage producer relationships in a more holistic manner. Vendors will continue to consolidate, form partnerships, and build solutions which facilitate these process changes.

Are You an Advocate for Creative Disruption?

In the technology world, there’s always talk about “disruption.” This refers to new or innovated technology or business models that fundamentally change the world to which they are applied. Advocates for disruption take pride in their achievements, and rightfully so: driving productive change–rather than simply reacting to the changing world around you–is difficult and often risky work.

The problem with disruption is that it appeals to the free thinkers in a group and scares the pants off everyone else, including (at times) those in the C-suite. This leaves potentially valuable ideas without sponsorship, which means they are likely to wither and die.

The Celent view of core systems technology and services is that they have reached critical mass in their capability to support disruption. There’s always more to come, but what is out there, right now, is sufficient to rock our world.

The availability of highly configurable, highly functional platforms that offer all the modern bells and whistles through a variety of delivery options means that buy-inclined carriers should reconsider their long-term core systems strategies. Build-inclined carriers have a host of modern tools for creating, testing, and integrating custom systems, and vendors that specialize in this approach. In addition, BPO offerings have matured tremendously, providing another solid option. In sum, platform changes that were unthinkable a few years ago might now make sense.

But there is another, necessary ingredient to making effective platform changes, beyond leveraging raw disruptive technology capabilities. It’s bringing a new sense of creativity to the game, asking, “What if…?” and truly letting the process flow from there. Are we ready to blow up processes and start over? It’s time. Are there new business models lurking in our collective brains? We need to let them out and explore them fully.

As an industry, we need to aim higher, think bigger, and expect more. Leveraging a combination of tools, vendors, and creativity is the only way we’ll get there.

Please note: We like the theme of creative disruption for core systems so much, we’re hosting a content-rich, one-day workshop that explores the concept. It’s November 3rd in Boston, and we hope you’ll consider joining us there. For more information, click here.

Changing the Priority of Social Media Tools

I received a tweet from @stnickmedia with a link to the article titled “Executives Fail to Focus on Social Media Marketing Strategy” http://www.emarketer.com/Article.aspx?R=1008503. Some of the comments about the article took issue with the fact that leaders “still weren’t getting it”. I have a different opinion. I can completely understand why social media marketing strategies are not a current priority with many at the senior level. I don’t believe that social media efforts have “earned” their attention yet, but, I think they will as the use of social information moves from marketing into operations and begins to increase revenue and decrease costs.

We have a report that will be issued this week on social media monitoring tools and the vendors that supply such automation. In it, there are multiple examples of how social media data can impact operational results at insurance companies. Given the limits of a blog posting, here are only a few examples:

  • Improve loss ratios through more accurate and automated reunderwriting of risks at renewal: Consider the enterprising underwriter who happened to find a YouTube advertisement for a general contractor who was an existing client. The video enthusiastically described the superior roofing services that the company provided. Given that their general liability policy was rated for a general contractor, the description of operations was changed at renewal (after an active discussion, I imagine, between the company’s risk manager and the underwriter!). This one individual case happened to be found through a manual search by a single person. As the ability of monitoring tools to interpret unstructured text improves, running continuous, automated scans looking for similar information on existing customers should give underwriters additional sources of information from which to accurately assess the on-going risks in their accounts.
  • Increase revenues by providing qualified leads to distribution channels: With some few exceptions, agents do not have the scale or expertise to take advantage of automated social media monitoring tools. However, insurers that have already invested in them (usually to scan sites in order to protect their brand), can easily turn them to social sites look for postings that proudly tout new car purchases, or announce new additions to the family (births or adoptions). Agents prospecting for new accounts, or who want to provide proactive service to existing accounts, will greatly appreciate learning about such developments.

As social media monitoring tools continue to evolve in marketing and move into operations, their impact will increase in direct, meaningful ways. Look for the top executives to increase the priority as this happens. I expect to see a pattern similar to the early days of the internet, when websites were first a curiosity for a company to have, then a profit center (eg. on-line banking) and now continually deliver new ways for companies to both engage and service their customers.

MphasiS to aquire Wyde

Today’s announcement by MphasiS an HP company, to acquire Wyde (with its Wynsure policy admin offering) highlights the continuing emergence in the insurance industry of globalization and the mutual dependence of software and delivery capability. While Wyde’s presence is strongest in the US and France; it also has been building its footprint in Bermuda, the Caribbean, Asia and North Africa.

Celent sees increasing demand for alternative hosting and delivery options (traditional BPO, SaaS, Cloud in all its variations)—not only in smaller and emerging markets, but in certain segments of mature markets as well (e.g. greenfield startups and new initiatives in established companies. This acquisition will also build MphasiS’ own applications, BPO, and delivery capacity.

Coming right on the heels of Accenture’s acquisition of Duck Creek, it looks like some key global players are stretching out.