Archives for June 2012

8.7.12: Celent Insurance Webinar: A Scenario: The End of Auto Insurance

Celent Research Director 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 csmith@celent.com. Please click here for more information.

When a developer conference catches the worlds attention…

In this case the developer conference is Apple’s WWDC, scheduled for 10am PT today (6pm for me in the UK). There’s the usual round up of expected announcements along with a web based keynote bingo app. Why so much interest? The position of the iPhone versus Android as leading market share in smart phones is a hotly contested subject, what is clear is the iPhone continues to have a dramatic impact on the evolving mobile web. In addition emarketer has just released their estimate that there will be 53 million iPad users in the US alone by year end. It seems Apple will update the operating system on all these devices as well as refresh it’s laptop line up at least (yes, they still sell those). There have been rumours for years that Apple is set to change the world of the television, the largest screen in the house. The AppleTV products have been novelties to date that haven’t lived up to this challenge, perhaps this year Apple will announce support for Apps on the TV. In other news Windows 7 is now set to overtake Windows XP as most installed Microsoft platform, just ahead of Windows 8 being released. Windows 8 has been hailed by some as the killer for the iPad, the more popular Windows platform but designed for touch based interfaces and leveraging Microsoft’s successful Xbox system. We will have to wait until the end of the year to better understand the price point and impact. What does this mean for insurers? Well WWDC will give the world a couple of months notice of changes coming to the Apple products. Perhaps more importantly however, it is the sign that things are not slowing down. No sooner are insurers starting to comtemplate Windows 7 than 8 is out, and actually Windows 8 is targetting an entirely different platform (ARM chips and touch interfaces). Staff and customers alike will want to interact with insurance companies in the easiest, nearest method available and by this time next year that might be by speaking to the television after an advert for the insurance product has appeared – whether it’s Samsung SmartTV’s, GoogleTV, AppleTV, Zeebox, Shazam, Xbox, Kinect and Microsoft Glass – or something entirely different. The pace of change isn’t slowing and more worryingly for insurers, the pace of adoption is increasing, even in these austere times. How are you preparing your core systems for these new technologies, rolling out staff enabling software and structuring your self-service channels to accommodate these shifts? For most insurers it will be a case of wait and see what works. For the technology vendors supporting insurers research and development is likely already underway and new lines of research may commence later today.

Customers are the Disruptive Force in Insurance

Insurance has traditionally been known as a risk-adverse industry and thus the last to employ new technologies. This characteristic is more a comment on the old culture and way of doing business than really being risk adverse. Customers are now forcing insurers to deal with a change at a rate that is faster than they are comfortable. Customers have become a disruptive force in insurance. When I was in the enterprise architecture team in a large insurer, the business drivers always included lower TCO (with respect to IT), improved ease of doing business and business agility. However, ease of doing business was primarily focused on Independent agents, CSRs and underwriters. The actual policy holder was an afterthought to the policy process. Insurers created better UIs and in some cases enterprise portals to allow their agents, CSRs and underwriters easier access to their systems and better collaboration between these groups. While the policy holder was important, the agent was the insurance customer and the policy holder was the customer of the agent. Then insurers opened up Pandora’s Box and enabled policy holders direct access to submissions, claims and more recently self-service. The problem is that their systems were not designed for policyholder access. In addition, these customers have a level of expectations that most insurers are not ready for. Almost overnight, insurers realized that they had entered a world where the company no longer “owned their brand”, they could only manage it. Customers own the brand. Two examples show this change very dramatically. First is the well-known United Breaks Guitars YouTube incident . A customer, Dave Carroll, saw United baggage handlers damage his guitar and when he could not get satisfaction, create a creative YouTube video for the world to see. It went viral in a matter of days and by the time United was ready to fix the problem, the horse had escaped the barn. United now uses the video for training purposes. United learned the customer owned the brand the hard way and now they work hard to manage it. A friend recently told me of a Moen faucet that they had bought. They didn’t get around to actually installing it until months later and it did not work. When he called, he was told that the warranty had expired and there was nothing that they could do. He tweeted his experience and within 10 minutes, received a tweet from Moen asking him to call them to allow them to fix the problem. Within hours, a service rep was at his door with a new faucet and installed quickly. All Moen asked is that he tweet his satisfaction about the fix which he was happy to do. Moen obviously was monitoring the social network and acted quickly to manage their brand. While neither of these experiences have anything to do with insurance, they show the power of the customer. The same customer that now has and is demanding the same level of service they get from other industries. They could care less about legacy systems. They could care less about integration issues and complex environments and systems. They know what they get from other places they purchase items and expect nothing less from insurance. CIOs now state that customer experience trumps features and functions when selecting vendor systems. They are willing to go with 80% of their desired features and functions if the vendor can deliver an excellent customer experience. These statements come from two CIO panels I have recently viewed, one in insurance and one outside of insurance. The customer is turning the insurance business model on its ear. While agents, CSRs and underwriters have put up with the old status quo with small improvements, insurers that do not quickly adapt will become extinct. It has been said, the problem with insurance is dinosaurs lay dinosaur eggs. The customer ice age hit quickly. Which insurers will evolve at this new break-neck pace being demanded by the true customers and which will slowly die off?

Question & Answer: Celent Insurance Webinar: Emerging Insurance Technologies: Life, Annuities, and Pensions Industry Edition

Jamie MacGregor, Nicolas Michellod and I presented a webinar, Emerging Insurance Technologies: Life, Annuities, and Pensions Industry Edition, on May 31st. The webinar had an active Q&A session at the end and, as a result, Nicolas, Jamie and I did not have time to answer all the questions. The blog will provide our answers to all the questions asked and answered as well as asked but not answered during the webinar.

Q: How are Insurers leveraging Social Media & Mobility in their business model and what are some of the major challenges faced in this area?

This was asked during the webinar.

A: From the European perspective, there are different ways to leverage social media and social media data in the insurance business. For life insurers, the most popular is to use it as a marketing tool: digging, mining social media data, and trying to shape the reputation and using it to communicate information about products. This has been used by life insurers more often so we can say it’s becoming common. What we are seeing more and more is life insurers trying to use the existing data on social media platforms to refine or better detect insurance fraud or better assess underwriting risks. This could be done using specific mining tools, but now the difficulty for insurers is to be sure that they can turn the data into appropriate information for their business use. It is coming.

On the mobile side, from the research we have done in North America. From the consumer side there has not been as much demand from life insurance policyholders as in, say, P&C. But consumers would like transactional capabilities such as paying their billing or at least knowing their bill is due or there is a potential for lapse. They would like communication with or from an insurer company. On the producer side, insurance companies are making the move to offer capabilities to their producers. It’s not highly prevalent, but it is increasing. From Celent research in 2011, we found that of the top 100 life insurance companies, only 12 were offering producers some functionality on mobile technology. Most of that was marketing or informational capabilities, not transactional. However, doing a quick review this past week, we found that many more insurers now offer producers mobile capabilities; still many are marketing oriented, but transactional functionalities like illustrations, quotes, needs analysis, even eApplications are increasingly being seen. Celent’s yearly CIO research also shows that insurers look to mobile capabilities for producers as a need to have in the short term.

Regulatory changes are also causing insurers beginning to investigate bold steps in both the mobile and social media space.

Q: What are the main drivers of technology adoption in Asia and what emerging technologies they are mostly adopting? Does this geography show same behavior as US and Europe or are there any differences?

This was asked during the webinar.

A: Geographies do not show the same behavior in terms of technology adoption. Our report provides our view on the level of adoption of emerging technologies for each region that we cover: North America, EMEA, Asia and Latin America. The report can be found on the Celent website: http://www.celent.com/reports/emerging-insurance-technologies-life-annuities-and-pensions-industry-edition-2012. We suggest you read the report and see if it makes sense for you and if you have any further questions, let us know and we can set up a call.

It depends on the technologies that affect specific lines of business. For example, we talked about hedging technologies, the tools that allow for better hedging of the financial position for variable annuities. We know that the market that is most developed in variable annuities is the US market, so in the US these technologies have a higher adoption rate. In Europe, the UK has a more mature variable annuity market than say continental Europe where the products are not so popular, so there is a varying level of adoption of the technologies in Europe.

Looking particularly at Asia Pacific, emerging technology that tend to get traction are the following:

– Mobile technology: Asia Pacific is the largest Mobile market in the world, and the growth is still strong. Access to the Internet through a mobile device is increasing fast. Many Asia Pacific insurance companies are currently working on providing mobility solution to agents, and some of them are also planning to provide mobile solution to policyholders to conduct self-service, and to prospects to purchase simple insurance products.

– Virtualization: insurers in developed markets already have clear strategies in place for virtualization and have deployments in place for the proportion of their estates able to take advantage. In some emerging markets, strategies are less well developed, although many will be reviewing their options currently.

– Business Rules Management: Many Asia Pacific insurance companies have adopted business rules management in recent years, and many other companies that currently doesn’t have a BRM in place are thinking to implement BRM solution within the next three years, in order to realize automation to some degree, to increase efficiency and to reduce headcount cost. The driver behind this is the increasing cost of insurance professionals, such as underwriters, and the growth of business amount.

Two additional points, for Latin America and Asia, when looking at the technology coming from there. Typically because the less mature markets don’t have the older legacy technologies seen in the older markets of the world, some of the new technologies are being adopted wrapped as part of greater the policy administration systems. The general difference is that the more mature markets tend to focus or concentrate on component based solutions from the outset rather than the out of the box solution, whereas the fresher, new markets have the luxury of taking more from a single source because of the greenfield nature of their businesses.

Q: Most of the emerging technologies seem to be in the efficiency and expense control quadrant. There are no proven/high priority technologies in the 4th quadarant (U/W). Why? How about business rules, don’t they qualify?

This was asked during the webinar.

A: It’s a concern for the insurer to work towards efficiency and cost expense control. The insurer is trying to balance revenues that are down with trying to make sure the cost structure allows for strong profits. When it comes to the liability management quadrant, Celent distinguishes liability management from broader efficiencies and cost savings because these technologies are quite specific to managing the risk presented by underwriting business. Technologies that identify and apply claims data to improve actuarial tables and underwriting rules, that identify potential ways to protect an insurer from fraud, or support the identification of high risk groups are often large endeavors with highly unstructured data or highly manual processes. As a result, the data available is difficult to apply to the business processes and for many insurers an area that has been in discussion for a while, but not implemented. Automated underwriting is a prime example.

In the case of the business rules, we have that as a technology in the efficiency and expense control quadrant. For the various geographies, adoption is varied. Insurers are using modern business rules management systems to capture, management, and parameterize business rules. Not many insurers have succeeded in fully externalizing business rules, providing a mechanism for reuse, and managing them separately from core code, but they are trying by implementing BRM tools with their core system upgrades. We feel it is an efficiency and expense control technology because it allows for the effiency of reuse of process rules across the enterprise.

Q: Are their legal/ regulatory complications of using data from social media for U/W, Claims? How authentic is the data available on social media platform and what are the privacy issues when Insurers are trying to access personal data of insured.

This was asked during the webinar.

In Europe, we are not aware of any restrictions on using data people have offered voluntarily on social media sites, forums, or blogs, etc. We think it might be a concern for the future, but currently it means that anyone can access to the data and can use it the way they want, people are adults and responsible for their own actions. They do it under their own choice; whether it affects their relationship with companies or insurance companies is a another question.

For the authenticity of the data on the social media platform, this is very important. And what are the privacy issues related to insurers trying to access the data. We see more and more insurance companies trying to lauch specific innovative products like AXA in Europe that launched a reputation protection products in France. The idea is that if there information about a person on a social media platform that is wrong, then AXA will try to force the social network or forum owner to erase the data about the client on the platform. If the company refuses, then AXA will flood the internet with only positive information about the insured. It means that it is still in the infancy stage as to whether one can trust the information on the internet; sometimes to rely on only data that we are sure is accurate.

Q: What level of savings can a Tier 2 insurer expect from upgrading to a modern PAS?

A: First of all let us clarify what Celent defines a Tier 2 insurer using our five Tier definition:

Tier 5: Insurers under US$100 million in premium

Tier 4: Insurers with US$100 million to US$499 million in premium

Tier 3: Insurers with US$500 million to US$999 million in premium

Tier 2: Insurers with US$1 billion to US$4.9 billion in premium

Tier 1: Insurers US$5 billion in premium and more

In general – at least in Europe – a majority of Tier 2 life insurers are companies having a presence in different countries. Therefore they have had to adapt to market changes when expanding cross-border either via acquisitions or organically. This has led them to run complex IT infrastructure and application landscape. While some of them are trying to find some ways towards simplification of their IT infrastructure, it remains difficult to:

– Quantify the intangible benefits of a modern PAS especially around speed-to-market and automation,

– Determine what part of the savings is derived from which budget position as in general life insurers lack of advanced management accounting capabilities.

In other words, while insurers understand that investment in modern core systems such as PAS including state-of-the-art product configuration tools will allow them to improve many aspects of their business, they often face issues to apply hard dollar benefits to them. On the other hand, if the replacement of a PAS legacy also implies a transformation of the infrastructure they are generally able to quantify the indirect saving linked to the overall information system changes. In conclusion, the level of savings a Tier 2 insurer can expect from upgrading to a modern PAS depends on the existing information system, the objective it tries to achieve with the new PAS (serve a single line of business or various ones, replace multiple systems and share specific components across geographies, etc.) and the type of transformation project accompanying the PAS implementation.

For more on the subject, Celent has published two research reports that indirectly try to answer part of the question:

Capturing the Strategic Value of IT: A Review of IT Investment Evaluation Methods

The Business Case for Modern Policy Administration Systems

Q: COTS product adoption vs. customized solution – what is the latest trend? any specific business process to highlight ? e.g. Policy Admin may have matured more over a period of time and we can see more Insurance carriers to adopt more COTS products in PAS

A: Celent has published a report reviewing the main trends in terms of the build vs. buy approach in the P/C sector last year (The Build Vs. Buy Debate: An Update from the Insurance System Landscape) and we think the trend in the life insurance space has followed the same path. However it is important to mention that there are differences across geographies. Indeed, while North America and UK based life insurers tend to prioritize COTS, continental European insurers still think that bespoke systems (internal development or development with an external partner) remain the best approach although the preferences are slowly changing toward a best-of-breed approach (assembling different components purchased from IT vendors on the market).

Q: What are the emerging technology solutions to enable insurers to provide unique customer experience for improved retention & up-sell / cross-sell.

A: These can be found in the Growth & Retention quadrant. Increasingly, we are having conversations with insurers about how to improve the customer experience. Although adoption of these technologies is not high currently, ‘next best action’ for improving product take-up and ‘top-ups’, and sentiment analysis for better understanding the likelihood of surrender are two of the technologies being considered seriously by some insurers. However, classic issues in our industry such as the current capacity to execute, legacy landscapes and intermediation creating a communication barrier between the insurer and consumer are impacting the pace of their adoption.

Q: Would you say the agent mobile support is based on market problems versus what the carriers are able to offer? If an agent could use a mobile device for more would they or do they just want it for marketing support?

A: As stated above, insurers are offering producers a mix of marketing support and transactional capabilities in their mobile applications today. Celent hears from insurers regularly that producers are asking for expanded mobile capabilities because of market dynamics. The iPad is increasingly being looked at as a ‘must have’ item in the sales process. Even older traditional insurers who have agents who do not use laptops are hearing that their agents want to do more and more on a tablet. It might start out with marketing or training materials, but the requests extend to CRM, illustrations, needs analyses, and access to policy holder data. The access to more transactional capabilities is occuring most often through the browser so that the application is platform agnostic. For many insurers, however, their back office technology is the larger challenge than getting a producer to use the technology if offered. For example, a desktop illustration system cannot be used on a mobile device. If the insurer does not find an answer to that problem soon, the market will quickly move past that insurer and it will lose sales to the insurer who can offer mobile illustration capabilities.

We hope we captured all of the questions. Thank you and we look forward to your being on our webinars in the future!