Archives for September 2011

11.9.11: The Inaugural Asia Insurance Technology Awards

Celent Senior Analyst Wenli Yuan Nominations are currently being accepted, but they close on Friday, October 14, 2011. Please click here for more information.

3 For 1: Increased Profits, Employee Retention, Service Quality

I participated in a very interesting discussion concerning work-from-home customer support professionals at last week’s LOMA Polilcyholder Service Conference. Approximately 30 customer service executives and managers shared their best practices in call center management.

One of the more striking conversation threads was the experience companies are having with home-based service representatives – call center employees that provide customer support from their homes . The most common approach mentioned is to use this model selectively, with proven high performers and as a motivation and retention tool. But, it was also clear from the specific examples that there is meaningful business benefit to be gained. Here are a few selected comments:

· The consensus in the room was that work-from-home reps were 25% more productive than their office-bound counterparts. Call center monitoring tools allows service work to be measured very precisely, giving this estimate a high level of credibility.

· Although not as scientifically-based, there was agreement that the quality of home-based workers was higher. Some of this may be attributable to the fact that those chosen for this model are star performers to begin with.

· One regional, Philadelphia-based insurer reported that their distributed workforce allowed them to remain in operation during last winter’s snowstorm. Their physical call center was closed for two days.

· The cost to the insurer of a home technology set-up averaged around $5,000. At one company, the employee bore the entire expense of needed equipment.

· Companies reported that they managed expectations and clarified responsibilities through the use of a formal, written contract signed by the employees participating in the program.

This was a powerful example of the combination of technology and flexible workforce management that leads to decreased costs, increased quality, and decreased operational risk.

10.13.11: Celent Insurance Webinar: Reviving the Business Case for Insurance Core System Modernization

Celent Senior Vice President Craig Weber and Analyst Karen Monks 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 Game Has Changed. Why Haven’t Insurance Companies Adjusted?

I find it somewhat amusing and somewhat frustrating that insurers are still trying to solve their business problems with new technologies using antiquated methods. It is analogous to trying to use a 1950’s football strategy of just giving it to the running back and banging it up field. They seem to assume that because the players have newer uniforms and better equipment, the old playbook will still work. Other industries have realized that the “west coast offense” is much better, but insurance fails to recognize this. The West Coast offense was first used by the San Fransisco 49’s football team to utilize short passes to replace the running game to control the ball in the mid 1980s. It totally changed the approach to winning football games. Insurers need to realize that the old playbook that they continue to use will only net a few yards with a lot of effort. Newer playbooks exist that allow carriers to move forward at 20, 30 or more yards a clip. It’s time to rethink how to attack your IT problems.

Several carriers have already started to leverage new approaches to technology with great success. The first example is Tokyo Marine. Tokyo Marine a few years back moved away from a committee decision process in which little gets done because committees rarely make big decisions. They took on a strong leadership and accountability approach and used a “Bappan Kaikaku” approach to their IT strategy which means “going back to the root”. They didn’t use the old playbook to solve current problems. They addressed current problems by evaluating root issues and moved forward incrementally from there. Their focus was on simplifying products and processes, in addition to renovating agency and employee systems. When the tsunami hit and caused the great damage in Japan recently, they were able to quickly acquire 1400 terminals and provide immediate support for their claims process due to their investment in mobile and cloud technologies. They never would have been able to respond to this disaster as effectively if they had not taken a new approach to IT years before the disaster hit.

A second example can be seen through FAST company’s approach to addressing IT gaps and core system modernization/replacement. They do not approach the problem with the typical platform solution approach, incrementally rolling out lines of business over the years, hoping to eventually retire the legacy system with the new modern one. They provide a strong BPM/SOA approach to building services, implemented in Java or .NET, (vendor’s choice) to fill the business gaps and replace parts of the legacy system that are bottlenecks to meeting the business goals. The new solution is designed so it may be replaced itself (or parts) easily at any point in the future when better IT solutions come along. The old components can be swapped out with newer, better solutions without impacting the overall system. Several other vendors are also taking framework solutions to allow more flexibility in complimenting, supplementing and/or replacing legacy systems. The systems can now be designed in the first place for retirement. This should be a key principle of any enterprise strategy.

Cloud computing provides another new approach carriers are just beginning to explore. Celent believes every application developed internally or from a vendor should be cloud based. Even if a carrier hosts the application on premise, the application should be more easily upgradable, as well as replaceable later if desired. Also, if the situation changes and hosting externally becomes a better option, the effort to do so will have been minimized.

The old insurance IT playbook was focused on decisions by committee; internal development with a lot of customizations; tight coupling or IT system dependencies between systems resulting in high integration and maintenance costs; line of business centric solutions and approaches; and from an IT perspective, the playbook called for long and expensive rip and replacement projects. We still see many carriers still using this approach to the annual projects.

The new “West Coast Offense” for carriers is focused on agility, speed to market and lower TCO (total cost of ownership) options. The plays that are being successfully employed today to better achieve the desired results include: strong, enterprise leaders (not business segment, committee decisions); SOA approaches focused on location independence (Cloud/SaaS), implementation independence (focused on business function), component-based or framework solutions that allow for flexibility (as opposed to rip-and-replace solutions), and design for retirement from the beginning (as opposed to the traditional design to last forever – because they tend to do just that!). The new West Coast Offense for carriers still allows for planning for replacing or modernizing core systems, as the run was still employed in the football version. It just becomes more effective.

The Build vs. Buy Debate: An Update from the Insurance System Landscape

Celent will publish soon a research updating a report published in 2007: The Build vs. Buy Debate. This report will draw the result of a survey we launched earlier this year in order to gather a perspective from insurers regarding the build or buy question for different types of system and components, that cover the full spectrum of the insurance system landscape from the front-end to the back-end. The survey results demonstrate that insurance companies are going to prioritize the buy approach in the future and this not only for core systems but also for certain non-core systems. Actually, there are four methods that are still to be considered by insurers when replacing a system:

  • Build. There will always be insurance companies who prefer building applications internally and we think these companies will look for accelerators or frameworks from third parties. It is important to understand that the build approach is commonly used in continental Europe in all size of insurers.
  • Wrap and extend. This approach assumes some re-usable legacy code, which is wrappered and exposed to an enterprise service bus. Wrap and extend is typically used to keep back office functionality and radically update new business capabilities. Mid-size insurers in both the US and UK where there is not a large legacy estate tend to use this approach in addition to French mutuals.
  • Best-of-breed package. Nowadays many insurers want to choose components that are best-in-class. These companies prioritize functionality richness over cost of integration. This approach requires strong IT skills in integration and clear enterprise architecture. It is a common approach in North America and increasingly so amongst large insurance companies in Europe.
  • End-to-end package. The priority with the end-to-end package approach is cost of IT over functionality. This is a typical choice of small and mid-size insurers in Europe.

A combination of risk appetite and quick benefit is leading to a best-of-breed approach in the long run and insurers are part way through legacy modernization programmes that will ultimate address their system segmentation approach. For more details about this topic I invite you to read the report we are going to publish on our website and whose title is: The Build vs. Buy Debate: An Update from the Insurance System Landscape.

Guidewire files for an IPO

Guidewire’s September 2 announcement that it has filed a registration statement with the SEC for an IPO, answers one of the insurance software industry’s long-standing questions: when and whether Guidewire would be publicly held. The number of shares to be offered and the price range remain to be determined. This announcement caps years of strong growth in the US and several other geographies.

IBM acquires Algorithmics

Yesterday’s announcement by IBM, to acquire Algorithmics demonstrates the trend towards more concentration on the risk management vendor market. Algorithmics has been a successful IT vendor for many years taking advantage of new regulations such as Basel II and Solvency II to gain traction within the financial industry and IBM remains an IT infrastructure and core system development player benefiting from a strong reputation.

Following the mergers of Towers Perrin and Watson Wyatt to form Towers Watson and then the acquisition by the company of EMB, we think that the risk management vendor landscape is reproducing what is currently happening in the insurance policy administration system vendor market and we expect more concentration going forward.

For insurers working on Solvency II preparation programmes the merger of IBM and Algorithmics could be a great opportunity to consider a strong offering not only on the software side but also on the delivery aspects.