Archives for May 2012

5.31.12: Celent Insurance Webinar: Emerging Insurance Technologies: Life, Annuities, and Pensions Industry Edition

Celent Analysts Jamie Macgregor, Karen Monks, Nicolas Michellod 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 csmith@celent.com. Please click here for more information.

The State of Europe

I have frequently provided my personal view in this forum about the economic situation insurance companies have been facing since the emergence of the financial crisis back in the end of 2007. I published a post in November last year titled “Time is passing, uncertainty remains“, in which I exposed my view on 3 important lessons that manifestly are proving to become reality as time passes: nations are here to stay, democracy always wins, and we cannot solve a credit problem with more credit. But today I would like to get back to an interesting figure published yesterday demonstrating that the financial industry in Europe is in a deep transformation phase that could take more years before the industry gets back to a better shape. This figure is the recent estimation of the jobs lost in the City of London published by the Centre for Economics and Business Research (CEBR), who said that City roles were down by almost 100,000 since the recession so it means we are talking about one-in-three City jobs axed since recession (more from The Telegraph). This impressive number is among others the consequence of a fierce competition that is currently happening between the main international financial cities. On the UK life insurance side, we have seen big changes too as shown in the following chart, demonstrating that the life market has gone through difficult time over the past five years:

In France, the growing uncertainty surrounding financial markets has had an impact recently on how life insurance is perceived within the French population, explaining why life and pension product withdrawal (buyback of insurance policies) increased in 2011. Without saying that insurance ROEs have dropped across the board in comparison to the pre-crisis times penalizing the main bancassurance groups in 2011: In summary, uncertainty remains and getting back to the three key lessons explained in November 2011, I think the near future will remain tough for financial institutions and insurers. Indeed, the recent presidential elections in France and the parlamentary elections in Greece have demonstrated that: 1) There is a gap between what the European Union institutions think about the future of nations and what specific populations think is good for them. This is without saying that more integration between State members part of the EU forms part of the solution to the sovereign debt crisis but populations seem to be against this idea. 2) While austerity is needed, policy makers are now talking about growth programmes triggering confusion if not conflicts with the country producing the effort to keep the whole Euro-zone construction afloat (Germany) and without saying that austerity has not really been even tried as it is brilliantly demonstrated by Veronique de Rugy:

In the light of what I observe day by day I can only repeat what I have written last year. I think that we have reached a point where the magnitude of the Euro-zone problem is too big for policy makers ability to find a successful plan. To me the time has come to plan the end of the Euro-currency under its current form and the more we wait the more difficult it will be. For insurers, there is more uncertainty ahead and I would encourage them to prepare contingency plans as Zurich Financial Services is doing.

Straight Through Processing and Product Development: Lessons Learned

Celent facilitated another Insurer Peer Networking Event at the headquarters of New York Life Insurance Company. The discussion was the liveliest yet, with every company contributing significant learnings about their experience in straight through processing and product development in Life and Annuity Insurance. Here is a brief overview of those lessons.

There was general agreement that companies are experiencing a greater than 65% NIGO rate with a paper process. For one insurer who has implemented electronic applications in annuities and for part of their life book, NIGO drops to 10% in an automated submission environment.

Most who had implemented in production or in a pilot agreed with one participant that “STP is a journey, not a destination”. A common development approach is to look for what steps can be automated now and build a roadmap that supports continual refinement and technology introduction.

The main key success factors that emerged were:

·Straight through cannot be technology led; if it is, it will fail. Support must be championed by the Business and reinforced in sales meetings, communications, incentives and in design and implementation decisions which are taken throughout the project;

·The STP experience must be superior to the paper experience in order to create the pull necessary for wide adoption. This design philosophy extends beyond the agent to company service personnel;

·The insurance industry is holding itself back regarding Esignature. The legal issues have been resolved;

·The change management issue in the service center is huge and should not be underestimated. One company identified it as their “biggest challenge”. The work change at the desk level for service employees is critical if the benefits of STP are to be realized. Getting staff to work on an exception basis and not look at the full case for every (or most) of the submissions is a significant adjustment.

The group participated enthusiastically in a rich discussion about how to change incentives and performance measures to make a successful transition on both the agent and the company side. The major take away was that STP must have a technology plan supported by a change management approach in order to reach the level of success needed to deliver the substantial benefits that are possible.

In the afternoon, the insurers reviewed their product development processes with a goal of identifying what approaches lead most frequently to an increase in speed to market. A few common themes emerged.

First, those reporting the most progress started with measuring the current process. Simple metrics were developed regarding how many departments are typically involved in a major product change, how long (elapsed time) it takes to implement a change, etc. One such review identified that 86 separate teams were involved to some degree in the development and production of a major change – a much higher number than was expected.

Another common element among the insurers who have improved speed to market is a focus on building and improving business analysis skills and tools. One organization discussed their center of excellence for Business Analysts. Another company described an estimation tool to assess priorities and determine trade-offs. This insurer reported an increase in process flexibility and improved communication between Business and IT as a result of the use of the tool.

The open discussion and practical nature of the suggestions made this a very worthwhile exchange. Thanks to everyone who attended and contributed!