Archives for July 2012

Are closed blocks life insurers’ nuclear trash?

In the Nevada Desert, the US Federal government has spent the last 22 years hollowing out the inside of a mountain. Yucca Mountain was – and technically still is – the US’s official repository for spent nuclear fuel rods. A series of tunnels 1,000 feet below the mountain surface has been carefully bored. The project, which was expected to cost $96bn (£58bn) over its lifetime and hold up to 77,000 tonnes of nuclear waste, is situated in the most extensively studied piece of geology anywhere on the planet. It is extremely controversial and now appears unlikely to ever open leaving the US without a long-term solution for its nuclear waste.

As nuclear power enjoys a renaissance all over the world, the problem of what to do with spent nuclear material is high on governments’ agendas. Currently most nuclear waste is stored in wet pools at the reactor sites. Worldwide it is estimated that 270,000 tonnes of nuclear waste does not have a permanent solution for disposal. With nuclear energy gaining pace globally, disposal of nuclear waste is a continuing global issue.

An extreme comparison, but closed blocks are a bit like nuclear trash. Much like the way nuclear trash illustrates the conundrum that society faces, the issue of closed blocks is a conundrum that insurers face. With approximately 40% of all insurance policies closed today, the issue of the long-term management of closed blocks has similarities to nuclear waste management . First, both are issues that embody complexity and uncertainty. They inspire fear and insecurity. They are very long-term in character, raising questions of inter-generational equity. They raise the discussion of trade-offs: asset sufficiency versus significant financial investment and long-term security. In sum, it is an issue that requires a much better understanding of many factors including the dynamic interaction between all of the factors and technology.

As was reported in Celent’s recent research, “Strategies and Options for Managing Closed Blocks”, 92% of life insurers state they have a strategy for closed block management. However, with a 40- to 80-year run-off, it is often hard for insurers to see the immediate need for a long-term strategy. Consequently, the traditional approach preferred by many insurers to handling closed blocks has been to contain costs and manage the run-off internally. Similar to holding nuclear waste in wet pools at the reactor sites, the long term costs and risks of an ‘as is’ strategy for closed blocks are greatly unknown.

To choose the right strategy, insurers must not only evaluate the available strategies, but also the lifetime value of the closed block; they must build an accurate cost base and understand the comparison drivers; and they must understand all compliance and regulatory requirements they face. Determining a long term closed block strategy deserves careful planning and attention in order to avoid unintended consequences because the options open to insurers for managing the closed blocks all involve risk.

As with nuclear waste, there is only so long that an insurer can wait before acting. At some point, the costs and risks will be too great to for the insurer to handle. Most insurers don’t price products with the thought of ultimately closing them in mind. Consequently, many insurers now face a difficult trade-off between funding new product development activity and decommissioning closed blocks. For existing closed blocks, the cost of ‘doing nothing’ is simply too high and many insurers now need to decide upon and fund a strategy. To avoid history repeating itself, perhaps one small additional change that insurers could make today is to recognise that any new product will eventually be placed into run-off and then plan accordingly with their normal product life-cycle management.

Co-written with Jamie MacGregor, Celent Sr. Analyst

8.30.12: Celent Insurer Peer Networking Event–Delivering New Business Capabilities: The Insurance Architecture of the Future

Celent Analysts Chuck Johnston and Mike Fitzgerald Registration is free for qualified attendees (insurance carriers only), but space is limited. If you have any questions, please contact Chuck Smith at or at +1.617.262.3125. Please click here for more information.

9.27.12: Celent, in association with Google, presents Digital Insurance and the Customer: Mind the Gap

Celent Senior Vice President Catherine Stagg-Macey Insurers, Celent vendor clients and the media can attend the event at no charge. Non-client vendors can attend for a registration fee of £195. Vendor firms are limited to two representatives. If you are unsure of your client status, please contact Chris Williams at or +44 (0) 208 870 7875. Please click here for more information.

9.5.12: Celent Insurance Webinar: Strategies and Options for Managing Closed Blocks: Life, Pension and Annuity Edition

Celent Analysts Jamie Macgregor and Karen Monks 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.

Insurance Innovation?? Michael Raynor to Speak at Celent Event

It has always been ironic to me that insurers have “lost the plot” on technology innovation. After all, insurance companies were among the first companies to implement systems to solve practical business problems. Of course, this was in the day when mainframes demanded entire floors in company headquarters buildings. These early systems have, in many cases, become a legacy that is proving hard to cast off.

Today, Celent is working with insurers and their vendor partners to change this. With the pressure to grow and to meet escalating consumer expectations, innovation is more important than ever. With tools such as geocoding, predictive analytics and automated fraud detection, new opportunities are also available for the taking.

Other industries are working hard to solve the innovation puzzle and we are very excited to have one of the biggest names in the field, Michael Raynor, join us on September 13 in New York for A Celent Insurance Symposium-Creative Disruption: Technology and the Future of Insurance (#creativedisrupt). Michael’s most recent work is The Innovator’s Manifesto, a fascinating exploration of how to execute innovation in a deliberate and disciplined way. He is going to share his thoughts on how insurance can approach innovation more effectively and what support they will need from their vendor partners to do so.

At Celent, our modest goal is to help insurers regain their position as a leader in applying technology to solve their customers’ problems. This is an exciting step on that journey.

Apple still does laptops, Microsoft does tablets and Google does iOS Apps

So June 2012 was an incredible month in the world of technology. Firstly Apple opened it’s developer conference with an hour dedicated to it’s PC era products – the MacBook. The iOS announcements seem to hint at a growing divide between Apple and Google preferring to go with a hand picked set of partners. One partnership pointed to a significant Apple decision: Apple doesn’t do social networks now, firmly integrating itself with Facebook. Then Microsoft announced it’s bridge to the post-PC era offering – the surface tablet and discussed it’s mobile OS at length. The tablet is a perplexing one, with many waiting to see the price to see the impact. Low price will show Microsofts commitment and provide a real contender for the iPad, but will upset the manufacturers of PC’s, Microsoft’s key current route to market. A high price will throw the gauntlet down for Microsoft’s partners to do better, but perhaps consign the surface to nothing more than a lightweight high end netbook. Finally Google announces that not only does it do social (Google+ seeing investment), Google really does hardware (a streaming media device, 7 inch tablet and Google Glasses), Google also does iOS apps – notably it’s chrome browser and drive cloud products, which looks like a reasonable response to Apples announcements. Now there has been a heating up of rumours of a 7.85 inch iPad being launched later in the year now we have the Google Nexus 7 on it’s way. Does this mean 3 apps for these devices, with different views for a 4 inch, 7 inch and 10 inch screen? (not going to discuss 5 inch for the new iPhone 5 (alledgedly)). In the hotly contested smartphone space a few observers have noted it’s Apple and Samsung who are taking the bulk of the profits. I wonder how concerned Samsung is now that the key software partners seem to be in bed with or building their own hardware – Google with Motorola and now Microsoft is in bed with Nokia and making it’s own tablets. So that’s iOS, Windows Phone and Android – perhaps they’ll take up MeeGo in their line up now some ex-Nokia employees are looking at bringing the project back to life. In fictional tech news Minority Report hit 10 years old prompting this article in Wired on what technology in the film has come to pass. A few tidbits that are relevant to the insurance industry:
  1. Iris scanning – India has 150m irises on file. UK, US, Canada are using irises for passports. Could we be seeing personalised insurance quotes offered just by looking at an advert?
  2. Self-driving cars creating personalised individual mass transportation. The Google car and advances in safety technology are making this seem much closer than a decade ago, still perhaps a while to go. See Celent’s report on the end of auto insurance.
  3. Not quite spider bots but the military is using robot fleas and dragon flies – something the US military is deploying with help from British aerospace apparently (economist article linked, BA reference from Wired article). Advances in the use of aerial drones since the start of the Afghanistan conflict are now meaning this technology is being considered for mainland US security purposes. Perhaps in a decade we’ll see police forces using today’s military robots. Having said that, cyber-security paranoia may rise after some students recently hijacked a drone on a bet.
  4. There is a very interesting bit on predictive policing and forces using predictive analytics to look for future crime hotspots. Could insurers use this data? Might we see this in the UK in the future, “Your insurance premium has gone up because south Yorkshire police believe your house will be the centre of a crime hotspot in 3 months.”
  5. LG working on flexible plastic e-paper based on OLED – the article reckons 5 years. There are a few companies working on this and actually, Apple’s recent patent on wearable technology has sparked some interesting design work on flexible wearable phones.
  6. Personal flying machines – while the article is dismissive there are groups working on the devices and the standards required. Perhaps personal aviation insurance may replace auto insurance in the future.
Of course the greatest benchmark for the future comes from the Back to the Future series, particularly Back to the Future II which will be 25 in a couple of years and 26 when the 2015 it envisions comes to pass. Sadly, flying cars and hover boards are likely to take a little longer to become mass market. Clearly the pace of technology change is in no way slowing. Key assumptions about what major players build, make and how they operate together are being challenged as consumer technology re-orients itself around mobile devices and cloud services. Meanwhile, insurers and all industries are looking for methods and partners to help them keep up.

Data … Outside In

Increasingly, when it comes to the world of data, what lies outside of the traditional core insurance system landscape is fast becoming more interesting than what lies within it. For years, insurers have relied on their own data capture mechanisms to create unique insight enabling them to outperform the market when understanding the characteristics that make up a good risk versus a bad risk, and the end customer’s propensity to buy. Size was important – the more data an insurer had access to, the greater its chance of developing unique insight. Now, I am not going to argue that insurer size is no longer important when talking about data, when simply it still is. However, there are a growing number of external data sources fuelled by the connected social generation, geospatial data and initiatives targeted at making public data more accessible that may benefit insurers when combined with existing internal sources for use in underwriting risk selection, pricing and claims validation. Some insurers, both large and small, are starting to look seriously into how this data can be used to drive growth and profitability. Typically, these external data sources are supplied through local government, industry sponsored initiatives, commercial organisations specialising in the aggregation and analysis of data as a service, and now also through open data markets, such as InfoChimps and Windows Azure Marketplace. Knowing how to navigate this market, and its associated legal aspects, is a major challenge for many insurers. Potential considerations:
  • Build internal capabilities, or partner, to specialise in the search, acquisition and modelling of new data sources;
  • Undertake effective due diligence to validate the authenticity of external data sources, permissions of use and jurisdiction;
  • Combine data from a variety of sources, both internal and external, to test validity, build new models and discover new insight;
  • Use data not only for risk selection and pricing, but also for incentivising good risk behaviour and practices; and
  • Agree internally the ethics around using some of the data in risk selection and pricing – especially in relation to the use of social network data.
For more discussion around this topic, check out the Post Magazine’s Webinar on ‘Optimising Pricing and Underwriting Data’ from last Friday. The debate was focused on the UK P&C market. However, many of the themes and lessons learned are transferrable between insurance markets across the world.