Archives for March 2012

Deal trends and predictions in North American Life Insurance Policy Administration System market: Q&A Session

In a webinar on March 13th, Craig Weber and I presented our predictions for the North American Policy Administration system market. We also identified some the trends we’ve seen in the market as it relates to deals. A quick recap shows that we believe the NA PAS market will have a slight dip in 2012 relative to 2011 sales, which is driven by the fact that many of the larger insurers already have PAS systems in place and few large insurers have plans to buy a full new system. Instead we believe the market will be buoyed by the larger insurers upgrading and enhancing their current systems because many are using older versions of vendors’ systems. We also believe that the market will see middle tier insurers picking up the pace on buying vendor systems as competitive pressures and efficiency mandates are now being applied to them. Several of the vendors in our recent report, North American Policy Administration Systems 2011: Life, Health, and Annuities ABCD Vendor View, are beginning to target this cadre of insurers.

Our webinar produced a great number of questions from the audience. I’ll recap a few here.

Question: Your data suggests that large carriers will actually be building new policy admin systems using vendor software. But traditionally, that has not been true. Is something happening to drive this change?

Answer: We do see that insurers have been moving towards vendor systems. (Our data points to the fact that over nearly 50 percent of larger insurers have at least one vendor system in production.)

Question: What are the top 3 decision drivers for insurers and are there any key decision driver differences in each of the three tiers?

Answer: The big one is Agility . . . followed by the need to provide end customers, agents and policyholders the ability to work more easily with the insurer. The fact that many of the vendor systems are now offering greater flexibility and more user friendly GUIs points to the need for the insurer to provide the policyholder with a timely, error free and positive experience with the insurer. Some carriers have also expressed concerns about ongoing resource availability to keep their legacy systems running, though this seems to be a secondary issue to the others.

In terms of differences by tier of carrier, the first two drivers are universal. Large carriers are typically in more lines, and have a more differentiated distribution footprint. But small carriers also need agility to move with their markets, and in fact have the advantage of being organizationally limber.

Question: Is the data presented include conversion costs or pure implementation costs (new business) ?

Answer: Our data presents only the first year license and implementation costs of vendor PAS system. It is based on the average license fees and first year costs given to us in our vendor RFIs for our report. We use three different number for first year expenses based on the size of the insurer: Large (>US$ 1 billion), Medium and Small (< US$ 500 million) insurers.

Question: Do you find that the predominant strategy is replace or modernize?

Answer: We have seen that the trend is to modernize even if it means taking the long upgrade path towards modernizing. We incorporated that trend into our estimates for our analysis. We have found that through discussions with vendor clients, particularly ones on older systems, and our associated research in the PAS market that clients often opt to stay with their existing vendors and modernize in lieu of starting over with a new system and vendor.

In a counter to our finding, we received the following comment from an attendee that we thought we’d share: Modernization may not always be possible with the current vendor particularly if there is a growing need for agility as Craig mentioned. Carriers may be looking for ways to inject agility into a legacy solution by employing, for example, a new calculation engine that interfaces with the PAS and other core systems or a product configurator that can facilitate rapid change by producing artifacts a legacy system can consume. This way they are protecting their existing investment, are by no means doing a rip and replace, and provide themselves with a roadmap to future replacement.”

Questions: Any specific trends in the closed book of business when it comes to package / software implementation? Especially, do you see any insurers implementing a packaged solution for small closed block of business?

Answer: We did not ask specifically about whether the systems were being used for closed books of business in our vendor RFIs. Nor did we ask the clients using the systems if the books were open or closed. However, Jamie MacGregor in Celent’s London office and I (Karen) are currently researching a series of reports specifically about closed books of life insurance. Our reports will discuss closed books in both US and the UK. It will address the reasons why insurers opt to close books and the challenges facing them once they decide to close the blocks of business. We will lay out the options available to insurers such as outsourcing, selling off businesses to other insurers or aggregators (UK), keeping the business inhouse and the additional options available for that strategy, etc. When legacy platforms are involved, this leads us right back to the question of what to do with an older system, especially if the system administers closed blocks, doesn’t it? Look for that series of reports beginning in late April 2012.

Is there any life left in those old (life) blocks?

Last week, the Hartford (USA) announced that it was refocusing its business strategy. The immediate impact of this change was to place its annuity business into runoff, and to initiate a search for a buyer (or strategic alternative if a buyer cannot be found) of its Individual Life, Woodbury Financial Services and Retirement Plans. In addition to this news from the Hartford, earlier this month we also saw the Prudential (USA) announce that it was going to discontinue the sale of individual long term care products.

In mature markets around the world, there appears to be a growing demand to either find new homes or alternative strategies for long-term business that no longer fits with the business strategy of insurers. In Europe, for example, Solvency II and local market reforms (such as the Retail Distribution Review in the UK) are acting as a catalyst for insurers to re-evaluate the economic viability of running these blocks as they reduce in size with age, and also with a view towards releasing capital.

So, if you’re an insurer with large block of non-strategic long-term business, what are your options?

The most obvious option, and preferred by many, is to find a buyer for the block. Although strategically, this can be the cleanest option for the insurer, it comes with two big risks. The first risk is brand reputation. Even though the products within the block may be viewed as non-strategic by the insurer, it is unlikely that the customers holding those products see them that way. Ultimately, these same customers may also be good prospects for other financial products and services. The second risk relates to transition. Ideally, the buyer of the closed block needs to be able to absorb the business into its existing operation without a drop in service quality or benefits to the customer. Typically, this will involve some level of convergence on processes and platforms with other similar blocks – not an easy task, and it is likely that the biggest share of the reputational risk associated with any failure still lies with the insurer who sold the block!

Other options range from financial restructuring through to outsourcing through to internal transformation. No option is straight forward, all involve some level of balancing the cost to serve with the reducing size of book, and all attract risk. Arguably, at the heart of any good strategy for closed blocks, should be an understanding of the value of the end customer holding the product, and how further value can be extracted from the relationship to the benefit of both parties (regardless of who manages / owns the block now).

At Celent, we are researching the options open to insurers for managing closed blocks and also strategies for maximising the value of the customers held within them. If you have an opinion on what the best strategy is for managing these old discontinued blocks of business, then we’d be keen to hear from you.

If only we could trust data available on social networks…

Some insurers are starting to launch e-reputation insurance products for individuals. Indeed, in France Swiss Life started to launch last year an insurance product targeting students about to start a professional career or any persons worrying about all data and information about them on the web. Very recently Axa France also launched a similar insurance product. While it’s been a while that we have been speaking about how insurers can leverage social network data in claims or in underwriting, it seems some of them just apply the simple rule that consists in recognizing these types of data just represent a new business opportunity. With the importance taken by the notion of self-image and reputation in the public (not only the young one), I tend to think this is an interesting field to investigate. In the case of Swiss Life, the insurer uses a dedicated e-reputation agency called Reputation Squad and, for a bit less than €10 a month, the insured can action the insurer’s e-reputation agency, who will try to put pressure on website or social network owners and ask them to erase data using the threat of a battery of juridical means. Of course, it’s almost impossible to erase all kinds of data related to a person from sites and social networks on the net and it is here that the real issue appears. Actually if there are still data left after all the juridical measures have been triggered, the insurance service proposes to flood existing data with a massive positive information and data content about the insured. While I think there is certainly a need to fulfill when insurers propose specific juridical assistance to erase data about their insured from social networks and specific Internet websites, I think flooding the web with exclusively positive information about a person demonstrates how harmful open data on the web can be. It raises two simple but important questions for insurers: Can we trust information publicly available on social networks? If external sources – in our case here insurers in the frame of their obligation towards insured with regard to e-reputation insurance products but we can assume insurers are not and will not be the only external sources playing a role in here – start flooding the web with biased data about individuals, is it really a case to leverage social network data for claims and underwriting in the long run? Addressing these questions should be according to me the starting point of an evaluation to invest in technologies whose objectives are to leverage social network data.

4.17.12: Celent Insurance Webinar: 2012 US Insurance CIO Survey: Pressures, Priorities—and Innovation

Celent Senior Analyst Donald Light 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 Chuck Smith at +1.617.262.3125 or Please click here for more information.

The Impending Insurance Architect Crisis

I was recently talking to a past colleague over lunch and he reminded me of a concern I had a couple of years ago that seems to be descending on insurers in the next 2-5 years. Architects are usually considered valuable internal resources within carriers (for good reason if they are good) along with PMs and BAs. Carriers have been outsourcing more and more development work over the last decade and reducing their internal developer footprint. For many insurers, this has proven a cost effective endeavor, albeit not without its bumps.

In addition, more modern vendor insurance solutions, namely core systems, data mastery (BI, analytics, DW/DM, ETL), case management, BPM, Rules, Portal, etc., have become much more configurable and have enabled business users to take on more of the development and maintenance of these systems. While this has again been viewed as forward progress by analysts and insurers, it again has reduced the IT developer footprint.

The typical career path for most architects in insurance has been developer, senior developer, technical lead, architect, solutions architect, enterprise architect. While different companies may have slightly different names for the stages in the architect career path, and while there have been some exceptions, for the most part, the pipeline for architects has traditionally been from their (or other insurance companies’) development teams. As a developer, one would become very knowledgeable of the carriers systems, especially with respect to legacy systems. While some insurers may have training programs, most of the learning and knowledge was acquired through project experience and shadowing architects on projects if they were tapped as future architects for the company. Architects for many insurers continue to be the first group assembled to resolve major crises and failures for insurers due to their deep knowledge of the systems and ability to diagnose problems.

Obviously, as the architect pipeline dwindles due to a much reduced insurance developer pool, the number of available architects will likewise dwindle, but the need will not. Top level architects will be even more necessary going forward as insurers take advantage of Cloud and SaaS solutions as they mature. Knowledge of the impact of using a Cloud/SaaS solution on existing systems and analyzing the risks and benefits will fall squarely on the shoulders of the architects. While this development may make IBM, Oracle, Accenture, TCS, Cognizant and others smile since they have architects, the internal knowledge and insurance industry knowledge will be lacking (maybe not missing, but definitely lacking) and the cost will be high. This will create an opportunity for some one/group, I’m just not sure who at this time.

Auto Quoting Now Available on FB

Another step noted on the journey that I blogged about last month – which insurer will be the first to sell through Facebook. Thanks to Carol Tice (@TiceWrites) for leading me to the 21st Century Facebook site. They have implemented a quoting feature on their page and I used it to find out how much money I could be saving on my automobile insurance!

What I liked about the experience is that I did not have to leave Facebook to get to a quoted price. The site uses effective drop down lists that worked efficiently (they were contextual and really sped up the process) and, even when I selected the wrong option, I could easily and intuitively correct my mistake. Once I completed the input process (took less than five minutes), there was a link to go to the full 21st Century side to obtain a “complete quote”.

I noted that the current design does not use any of the information that Facebook already knows about me (age, gender, etc), but I am sure that will be offered as a feature at some time in the future. At a minimum, I expect to see prefilled information and a “click here to confirm” option.

Since I had to go to the 21st Century site to proceed with the transaction, this is not selling on Facebook yet, but I was surprised to see how quickly we are progressing toward that state.

5.4.12: Celent Insurer Peer Networking Event: Technology and Process Solutions to Increase Efficiency and Speed to Market in Life and Annuity Insurance

Celent Analysts Karen Monks and Mike Fitzgerald Registration is free for qualified attendees (insurance carriers only), but space is limited. If you have any questions, please contact Jim Pelis at or at +1.617.262.1427. Please click here for more information.

9.13.12: Celent Insurance Symposium: Creative Disruption: Technology and the Future of Insurance

Celent senior analysts, Insurance Group

Admission to the event is free for Celent clients and the media, but space is limited and pre-registration is required. Non-clients can attend for a fee of USD $495. Please click here for more information.

Facebook and Google: Physics for Poets and Physics for Physicists

When I was an undergraduate, a few years ago, my college had a very strong Physics Department. It also had a graduation requirement that all students had to take one science course.

This presented the Physics Department with a quandary, because its introduction physics course was rigorous and was designed for students who would become physics majors, as well as the odd engineering or chemistry major. At the same time, the Physics Department wanted its share of liberal arts majors who had to take that one science course.

What to do? It created a second intro physics course, for non-scientists with very high entertainment value lectures (funny contraptions) and funny test questions (few of which can be shared in a family-oriented blog such as this one).

The non-science major physics course became wildly popular. And the rigorous course remained rigorous. Inevitably, the former course became known as Physics for Poets, and the latter as Physics for Physicists.

It’s impossible for a technology analyst (like me) not to think about Facebook and Google; and the extraordinary impact they have had on how consumers and businesses spend their time and money on the web. Will Facebook’s IPO follow Google’s IPO trajectory? Will Google+ ever be a serious competitor to Facebook? And on and on.

In pondering such questions, I finally realized that Facebook and Google aren’t really competitors—just as the two intro physics courses were not competing for the same pool of students.

Facebook is Physics for Poets, and Google is Physics for Physicists. Facebook is designed for sharing, for feeling (aka friending and liking), for enabling each person to continuously expand the expression of self. Google is built by engineers (aka geeks) for people who want to get in, get some information, and move on (or occasionally stay and play).

Of course Facebook has its share of engineers who make the thing work, but there is NOTHING about the site that says “Welcome, fellow geeks”. Google has its share of engaging apps: Google Earth, Google Maps, even Gmail. But the guiding hand is always a technical hand, “Look at something cool that tech created.”

So the question is not who will win, Facebook or Google. The basic question answers itself: there will always be poets and there will always be physicists (in different bodies or even in the same body). The more interesting question is who will be better over time in monetizing the value provided to poets and to physicists.

Emerging Technologies in General Insurance

The Celent webinar yesterday, Emerging Technologies in General Insurance, was very well attended and there were more questions than time allowed. Thank you to everyone who was able to attend and who contributed. If you didn’t get a chance to join us, the recording is posted at

Below are the answers to the questions that were still outstanding at the end of the session:

Q: Is there such a thing as an Insurance Carrier Fraud Maturity Model?

· No, but great idea and don’t be surprised if you see one in the upcoming Celent report on fighting insurance fraud!

Q: For consuming telematics data, is this something that a carrier should do standalone or are there industry schemas such as IBM’s IIW that add value in this regard?

· We have observed a difference of approach between US carriers and insurers in the UK. Typically in the US larger carriers are building out the infrastructure and model themselves to capture, analyse, keep and use customer telematics data. In the UK the preference is to use partners or the vendors of the devices to gather the data and do the analysis on their behalf – sharing the results of the analysis for use by the insurer. It’s worth noting there are already efforts underway in the UK and German associations of insurers to discuss a common format for this data to allow the information to be shared between vendors at time of renewal, although I don’t believe they’re reviewing industry warehouse models such as IIW. There is no one size fits all approach and insurers using various approaches are meeting with success although Celent expects some common standards to emerge for sharing this data between insurers, agents, brokers and even customers should they request it.

Q: What carriers are best-in-class when it comes to Big Data? What technologies do they use?

· Big Data is still more of a buzz word for carriers than reality today. The larger insurers have Big Data programs/pilots underway due to the amount of data that they have. Smaller carriers are considering Cloud options and mid-size carriers for the most part are watching the results of the other two.

Q: Isn’t expense control closely associated with underwriting efficiency? What do you see adoption of emerging technologies wrt to underwriting?

· Expense control covers all insurance functions and processes, as well as the technologies that support/automate these solutions. Analytics have been used by a lot of carriers to create more effective and efficient UW decisions. We expect the use of social data to play a great role over the next 1-3 years with respect to UW, as well as the continued use and maturity of analytics in the UW process and decisioning.

Q: Why hasn’t the notion of insurance focused open source taken off?

· Open source has taken off in many carriers and is in use in varying degrees and levels (operating systems, libraries, ESBs, portals; and to a lesser extent applications). Analysts do not typically include open source solutions in their reports (as separate from other non-open source vendor solutions) for several reasons. First, the analyst process of evaluating solutions starts with a vendor, their profile, their implementations, customer references, etc. Second, vendors often use open source as a component or even a core of their applications that are included in most vendor reports.

· Many carriers prefer working with a vendor rather than developing solutions internally and thus select a vendor solution over open source.

Q: Many of the new data sources create privacy “surprises” when consumers intuit that a commercial organization knows what it knows and puts it to use, even if it benefits the consumer. Policy is of course lagging technologies but it will evolve unpredictably. California has limits on telematics data use, for example. How the insurance industry implements emerging technologies has a public relations component and potential for igniting a very fragmented state-by-state way that data can be used. What does Celent see as far as some uses being especially dangerous from a brand perspective and liable to be shut down by regulation?

· Pricing and eligibility decision rules must be filed with the states. Whether file-and-use or preapproval jurisdictions, all regulators expect that insurers declare these parameters with their organizations. Using any non-approved data source to price or determine eligibility should be strictly off limits.