About Craig Beattie

2016 – A year of InsurTech as well as Insurance Technology

2016 – A year of InsurTech as well as Insurance Technology
We’re fast approaching the end of what has been a very eventful 2016, one that has seen (amongst other things) significant new investment in the insurance industry and a focus on InsurTech. This interest was reflected in those reading our blog with a clear trend towards innovation and sources of new technology for insurers.
  1. Will your next insurance administration system be on the Blockchain?
  2. Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?
  3. The Evolving Role of Architects
  4. Slice: Insurance disruption in action
  5. Insurance companies are embracing technology — for investment
  6. A golden day for insurance: Celent 2016 Model Insurer winners
  7. In search of a new ‘dominant design’ for the industry. What does insurtech have to offer?
  8. Blockchain in insurance – who needs it, anyway?
  9. Is State Farm Pre-positioning Itself for the End of Auto Insurance (and Maybe the End of Homeowners Insurance Too)?
  10. A positive note for Brazil: A few insurance market developments to follow with interest
Mixed in here are a few topics on the basics of running an insurance company but overall the top 10 most popular blogs focused on InsurTech and innovation topics. InsurTech has certainly been a source of much of the hype. Examining some of the most popular reports this year suggest a more balanced focus from our clients though, with an interest in both established methods and technologies, applying new enterprise technologies as well as InsurTech and Block Chain topics.
  1. EMEA Policy Administration Solutions
  2. Changing the Landscape of Customer Experience with Advanced Analytics: Applications in Banking, Wealth Management, and Insurance
  3. Innovation Outlook 2016: Practitioners’ Predictions
  4. Model Insurer 2016: Case Studies of Effective Technology Use in Insurance
  5. IT Spending in Insurance: A Global Perspective, 2016
  6. North America Policy Administration Solutions
  7. Blockchain in Insurance: Use Cases
  8. Choosing Blockchain Use Cases in Insurance: Guiding the Hammer Toward the Real Nails
  9. Robotic Process Automation in Insurance
  10. Insurtech Has Arrived: A Primer
This mix of focus on core insurance topics with an eye to the future and InsurTech aligns well with what we’re hearing from insurers. So far the InsurTech movement has largely been symbiotic with the insurance industry rather than disrupting the incumbents. We are seeing a focus on partnerships and new firms augmenting the old ones – but the insurers need to be ready to bring in this new technology. 2017 will continue to see insurers investing to reduce costs, to increase agility, reduce these inhibitors and address problematic legacy issues. 2017 looks like it’s shaping up to be a year of opportunities for insurers who choose to take them. In the meantime, perhaps these top 10 breakdowns from most of 2016 will offer some useful holiday reading to help catch you up.

The Evolving Role of Architects

The Evolving Role of Architects

In the last couple of weeks I’ve had the great opportunity to spend time with IT architects of various sorts both inside and outside of the insurance industry. The discussions have been illuminating and offer different visions and futures both for technology that supports insurers and for the future of the architecture function in insurers.

One of the main events that allowed for this conversation was a round table held in London with architects from insurers. The main topics were the relevance of microservices style architectures to insurance, the role of the architects in AI and InsurTech and the future role of architects at insurers. Another event that offered an interesting contrast was the inaugural London Software Architecture Conference which I'll call SACon below (Twitter feed).

Microservices

I won't fully define microservices here but briefly it’s an approach to delivering software where each service is built as it’s own application which can be scaled independently from other services.

Microservices as a way of delivering software was the default approach at the SACon. There were sessions where architects sharing stories about why sometimes you had to work with a monolith or even making the case for not having the services in discrete applications. Meanwhile at the round table the monolith was the default still with the case being made for microservices in some parts of the architecture.

There are use cases where microservices make a great deal of sense, particularly in already distributed systems where a great deal of data is being streamed between applications. Here the infrastructure of microservices and the libraries supporting the reactive manifesto such as Hysterix and Rx* (e.g. RxJava) and indeed one insurer related their use of microservices to support IoT. Others discussed using this style of approach and the tooling surrounding these architectures to launch new products and increase change throughput but in all cases these were far from replacing the core architecture.

For now microservices is not the default for insurer software but is certainly a tool in the box. An observation or two from SACon from those looking to adopt: First it doesn’t solve the question of how big a service or a component is, something architects need to discuss and refine and; Second, microservices needs a great deal of automation to make work, a topic covered in our DevOps report to be published shortly.

Architects and AI

I have a background with training and experience both in computer science, AI and machine learning. One thing that I noticed going to the analytics conferences where AI is discussed is the absence of IT representation – plenty of actuaries, MI/BI folks, marketing folks – was this a place for architects?

Most insurers present at the round table had activity within the organisation for AI. For the most part only data architects are involved in this discussion – AI being distinct from business and applications architecture for now. It’s my opinion that AI components will form part of the wider applications architecture in the future, with AI components being as common place as programmed ones.

Architects and InsurTech

Here is an area where architects can more immediately contribute in a meaningful way both in reviewing opportunities and unique capabilities from InsurTech firms and in discussing integration where acquisition rather than investment is the goal.

The challenge here of course is the age old challenge for architects – to have a seat in the discussion the architect function needs to demonstrate the value it can bring and it’s internal expertise.

Finally, one amusing discussion I had was with a few architects from startups. As I discussed legacy systems they also related seeing legacy systems in their organisations – albeit the legacy systems were 2 or 4 years old rather than 20 or 40 years old. The intriguing thing here was the reasons for them becoming legacy were the same as insurers – availability of skills, supportability and responsiveness to changing demands. It may hearten architects at insurers that start ups aren’t immune to legacy issues!

 

 

The Rise and Rise of Analytics in Insurance

The Rise and Rise of Analytics in Insurance

As noted in our prior research insurance has always been an industry that relies on advanced analytics and has always sought to predict the future (as it pertains to risk) based on the past. (For research on advanced analytics in insurers see here, here and here).

As observed in the last post here analytics, AI and automation has been a key focus of InsurTech firms but do not assume that the investment is limited to newbies and start-ups. I have for a few years now been attending and following the Strata+Hadoop conferences and others focused on advanced analytics and the broad range of tools and opportunities coming out of the big data organisations. This last week I attended a conference focused on the insurance industry and was surprised to see the two worlds have finally, genuinely overlapped – just take a look at the sponsors.

As Nicolas Michellod and I have noted in the past, insurers have already been investing in these technologies but only those that have made the effort to speak “insurance”. What the conversations at Insurance Analytics Europe (twitter feed) demonstrated was a new focus on core data science tools and capabilities. This continued the theme from DIA Barcelona (twitter) earlier in the year.

The event followed InsTech London’s meeting (Twitter) looking at data innovation and it’s opportunities for Lloyd’s, the London market and the TOM initiative. Here the focus was on InsurTech firms that would partner on analytics, would sell data or would enable non-data scientists to benefit from advances in machine learning, predictive analytics and other advanced analytics disciplines.

While this trend of democratising advanced analytics was discussed by analytics heads and CDO’s at the analytics conference the focus was much more on communicating value, surfacing existing capability and tools within the organisation and to put it bluntly, getting better at managing data.

In short – AI, Analytics, Machine Learning, Automation – these were all hot topics at InsurTech Connect and similar events but for the insurers out there – don’t assume these are purely the domain of InsurTech. Insurers are increasingly investing in these capabilities which in turn is attracting firms with a great deal to offer our industry. For those big data firms that ruled out insurance as a target market a couple of years ago – look again, the appetite is here.

As a techy and AI guy of old I am deeply enthused by this focus and excited to see what new offerings come out of the incumbent insurers and not just InsurTech.

Do have a look at the aware machine report and the blog too. We’re increasing our coverage in this area so if you have a solution focused on this space please reach out to Nicolas, Mike or myself so we can include you and for the insurers look out for a report shortly.

 

How the IoT caused the Internet of Upside Down

How the IoT caused the Internet of Upside Down
The architecture around the Internet of Things and the constraints it poses has fascinated me for a long time. The good news for insurers is integrating the Internet of Things into insurance processes has some fairly common patterns now as described in my recent report [http://celent.com/reports/emerging-architecture-internet-things]. For those with responsibility for the infrastructure of the Internet however, it is providing some interesting headaches. 
 
Upside down?
Why do I say upside down? In the early days of the Internet it was a collection of machines each with broadly the same importance connected together. As information services moved onto the Internet, followed by commerce and retail sites, banks and insurers and then streaming companies the Internet shifted more towards many machines seeking to consume from a (relatively) few machines. 
To support this demand architectures evolved to n-tier structures where data storage areas sat behind application servers, which sat behind web servers and then, not that long ago, caching servers and content delivery networks. 
The Internet has become a pyramid with a consumers machines at the bottom, hooked up to broadband geared towards downloading content quickly and increasingly powerful infrastructures delivering that content to be consumed. 
 
And then homes became data rich farms…
Suddenly homes are the sources of data everyone wants! Key information possibly of use to insurers even, now sits on devices at the bottom of the pyramid. In practice the Internet is shifting more towards the structure it had originally, but the infrastructure supporting todays services is not well suited to this new paradigm – or perhaps one that has re-emerged. 
 
In practice, most of this activity has moved from a pyramid to a less structured cloud already but software of the Internet is still catching up. 
 
So as you're looking at InsurTech firms or attending InsTech groups spare a thought for those poor architects and operations staff of the Internet and the headaches you're causing. 

The privacy bomb and cost of personal data debt

The privacy bomb and cost of personal data debt

I often hear architects talk about technical debt but it strikes me that a different debt is waiting for insurers.

Imagine a world where the regulator says that a customer owns data about the customer, regardless of where it is stored. The key observation here is the decoupling of ownership and control with storage. Most regulators have gone nearly this far and made statements about consumer ownership of consumer data, so perhaps it's not out of step with reality. This is discussion so far but perhaps the technology hasn't caught up with the intent. If we ignore the limits of technology …

There are perhaps 3 models emerging:

  • A. The data remains where it is and is controlled from there. Requires APIs…
  • B. The data moves as customer moves. Requires data standards…
  • C. Customer data is held in a shared environment. Requires APIs and data standards

Let's take a moment to really think that through for an insurer. If you hold data about a customer in your systems, that data is owned by another party. Ownership here is a complex word – it implies but is not limited to controlling access to the data, determining appropriate use of the data, revoking access to the data, determining how long that data is kept.

Scenario A
What if the storers are obliged to provide these controls to the owner of the data and actually – what if that obligation exists regardless of whether that owner is a customer?

Such a scenario may make it prohibitive for insurers to capture and store data directly. What would the world look like in such a scenario? Insurers would request access to customers data and have to disclose why they want the data, what they will do with it and perhaps the algorithms used  in order to offer products. Such a world might favour insurers with simpler pricing algorithms that are more expensive but customers understand what is being done with the data.

If we take it a step further, in theory there would be intermediaries emerge who help manage consumer data and help consumers simply share their data with trusted partners. I would suggest most people would not dig into the detail of who is sharing what so a service that says, "we've found these 15 services that only use the data in these ways and we've packaged that up for you" would be most welcome.

If however, we take existing businesses into this world then suddenly enterprises will be faced with the issue of how do they offer appropriate controls and management around the data already in place.

The standard already exists for sharing information in this way leveraging OAUTH as is used by Twitter, LinkedIn, Google and Facebook.

Scenario B
The cost for doing migration and conversion will lie with the party holding the data. A different type of debt.

This is the model the insurance industry is assuming will come to pass but it requires shared data standards which are harder to implement than API standards. There is also the issue of potentially lossy data migrations – I.e. The quality of the data is reduced in the migration – will this be 'OK' from a regulatory point of view?

Further this is more confusing for a consumer since the mechanism and means to manage access to the data will change each time there is a move. An approach intended to increase portability and movement could become an inhibitor as consumers grow concerned about retraining.

In theory though, this would allow insurers to differentiate on trust and service – a place where they already play.

Scenario C
The greatest challenge with a shared environment is who is the trusted party? Google, Twitter, Facebook and LinkedIn among others have made moves into authentication but they don't hold all the data and regulators in multiple countries are seeking to grasp control and this is a topic for Insurtech startups as well.

Some see Blockchain as a possible solution – the data in a shared open place, but secured and encrypted.

At this point this seems like the least likely solution, requiring the greatest cooperation and investment from the industry and governments. Regulators at this point seem to be supporting the other two.

Which will come to pass
There is a clear trend with private data becoming more valuable, but the cost of storing it is becoming more onerous. Regardless of which of the scenarios comes to pass or if some other scheme emerges – insurers must balance the cost of storing the data and the value it may bring now and in the future.

The Great Pokemon Experiment

The Great Pokemon Experiment

Nintendo's latest mobile phone (and mobile) game just keeps smashing records – it's already the biggest mobile game in the US and is looking set to become a worldwide phenomenon.

It's not relevant to insurance though is it? Well it is sort of introducing new risks with players being mugged and wandering into dangerous places including Downing Street in London apparently.

What's more interesting to me though is the mix of gamification, rewards for movement and the way it is making people meet up in novel locations.

Two opportunities sprang to mind for the industry:

  • What's most interesting to me is that if we were to measure health app's impacts by how far they get people to walk Pokemon Go could be the biggest health app of 2016, despite only launching in July. I'm curious how the Vitality and similar propositions rewarding customers for healthy behaviour will respond to the sudden uptick in activity. 
  • From an advertising point of view and ability to drive foot traffic to say, an agents office, Pokemon Go has huge potential – potential not missed on the developers as hidden code in the game already points to a hook up with McDonalds. For now though, if you have a Pokemon gym at your office location it might be a great time to do a little advertising or push that recruitment drive you've been thinking about.

As a technologist the photos springing up around the world of "Squirtle" being found in toilets (be careful where you point the camera) also goes to show how augmented reality has become mainstream as well, along with the threats AR and virtual reality could pose in at least distracted walking. I love that the digital and physical world are coming together and it's actually bringing families together too.

Whilst some will marvel at this latest craze, for those insurers with investments in the real world like agencies, offices, billboards – and for those that are agile enough – this surprise trend could serve as a great marketing route to catching all the customers, as well as all the Pokemon.

The Great Insurance Experiment

The Great Insurance Experiment

There is a battle going on today for the future of the insurance industry. Like other industries there are those within the insurance industry and new entrants who are seeking to test whether alternate, digital models will prevail. As a participant in the industry and an observer the intriguing thing for me is no one has proven the existing model is actually broken or that there is a better proposition out there. It seems the telematics experiment I wrote about a few years ago is expanding in focus.

I'm sure taxi drivers said the same when faced with Uber, hotels with AirBnB, the print industry, the travel industry, etc. However let's look at the benefits of digital propositions to customers and see if they apply to insurance.

Transparency
One of the key benefits of digital propositions is transparency and low prices – something that telematics and IoT propositions endeavour to deliver for consumers. The peculiar thing about insurance is that transparency and too much data is at odds with what insurance tries to achieve. Put another way, insurance is designed to hedge the risks to a population across the whole population, so that individuals pay a reasonable price and those that suffer a significant loss are reimbursed disproportionally to what they put in. Absolute data and visibility – transparency in its purest form – will reveal the poor risks and in practice deprive them of the very service they need. Good for some who will not see a loss, but not good for all and not good for society as a whole.

Propositions in this area have moved towards education and rewarding behaviours that reduce risk – the win-win for insurer and client. Many have observed that this is arguably not insurance but rather risk advice, engineering and management. Others observe that claims prevention is absolutely part of insurance and has been all along, albeit the tools of old have been regulation, law and classical education rather than the digital variants.

Existing experiments reveal customers care do care about not claiming, about limiting the impacts of a claim and about small rewards for good behaviour. Regulators have also shown they're keen that all parts of society have access to financial services and insurance at a reasonable cost. Use of transparency and data can go so far in insurance but there are limits to how far it can disrupt.

Control
Another key benefit of digital propositions is the just in time and just enough nature of them – the ability to finely control the product and as a result the costs. This is another area that is being tested in insurance with micro control over what is and isn't on cover available to customers via their phone.

The challenge here of course is that this again removes some of the hedging. By assigning a cost per item turning everything on will typically yield a higher price for insurance than a classic contents policy which offers blanket cover for items in a property or even while travelling.

The other benefit of the classic policy is that one doesn't have to engage with it. It's all well and good that one can turn cover for items off and on quickly but to really take advantage of this capability the insured has to care deeply about the level of cover or the cost.

There will be customers who want this level of control in their insurance and will actively seek it – but for the mass market a good enough policy at a reasonable price will be just fine.

The long tail
Now here we could see some disruption, or at least shake up of the market. We're already seeing some splits in the market as people interested in health rewards take up the various incarnations of vitality insurance, young people take up telematics car insurance after being priced out of the classic policies. There will be customers interested in control over their policies, customers who give up human interaction in favour of digital cost control.

In this way we might see smaller, more agile companies with lower cost bases taking their share of the market by satisfying a niche.

Conclusion
In practice, the jury is still out and the experiment still continuing. Do todays consumers want the products they have always been offered or something new? What of tomorrows customers?

What does Brexit mean… ?

What does Brexit mean… ?

This is the question on everyone's lips. I had delayed writing this in the event that some clarity emerged but in day 5 of Brexit that clarity and certainty is proving elusive – indeed uncertainty seems to characterise the whole affair. This has been a discussion within the European team (thanks to Jamie and Nicolas) for some time and this post will briefly concentrate on the impact of the events so far on insurers with operations and interests in Europe. This will not discuss the UK governments response thus far.

The only certain thing about Brexit as it stands is uncertainty. Will Brexit really happen? When will the process start? Who is negotiating? What is the opening position? What we can say with some confidence there will be little regulatory and legal change in the short term and some unknown quantity of regulatory and legal change in the medium term.

The key unknown is the continuing participation in the single market and the other institutions in Europe, particularly the passporting. This more than Brexit itself, will define how strongly businesses with operations in the UK will respond.  Those with headquarters and staff in the UK to be present in the EU will need to reconsider this position if Britain leaves the single market as well as the EU – or indeed if any of the agreements reached put this position in jeopardy.

Uncertainty breeds volatility in the markets, a depressed investment environment and bond rates will hit the market further, particularly life insurers. This could well impact sales of investment products across the EU and UK until some certainty is restored. Existing products would not be safe either, with some investors looking to cash out.

The outlook for technology investment is trickier. If anything the pressures for reducing costs, agility and flexibility will be exacerbated. In the short term it is reasonable to assume reduced investment with alternate investments and clarity increases. It is plausible that this will affect the InsureTech market as well – particularly in London.

For UK insurers, It is likely that the FCA will engage with insurers and the ABI as the UK seeks to set out how it differentiate itself from the EU which will require agility and flexibility from the insurers to adapt to the new opportunities. A similar process may occur within the EU.

As is probably clear above, the one thing needed is clarity.

Do follow our Brexit posts from the wealth management team as well

How do insurance providers develop an agile IT infrastructure?

How do insurance providers develop an agile IT infrastructure?

Insurers have always faced the challenge of taking products and solutions to market faster and doing so at lower cost. The sources of this challenge are not new – changing partner and customer expectations, increased and new competition and demanding regulators with perhaps the addition of the current financial climate.

Insurers have risen to each challenge, offering new ways to interact with their customers, offering new products and tracking their processes against new requirements. However, warning signs loom as insurers are increasingly finding that each of these solutions involve adding something new, encumbering their infrastructure with the latest systems, applications and integrations. Insurers already suffer from heterogeneous and complex IT landscapes and many are in the throes of large, costly programs designed to simplify and reduce costs.

The challenge today is a little more specific from those in the past: How can an insurer increase in agility, speed to market and flexibility while keeping the support and maintenance costs manageable?

Insurers are increasingly realising the benefits of a Software as a Service (SaaS) approach for some parts of their IT landscape. The promise of being up and running on an out of the box solution can be very appealing for activities that don’t differentiate the insurer or are well understood. While these solutions continue to be additive, they don’t increase the load on the IT infrastructure team beyond the due diligence exercise. However, many of the areas that need the greatest speed to market are differentiating and require customisation – how can insurers achieve that without increasing complexity?

Is Cloud the Answer?
There has been much discussion about cloud and how this is changing the way start-ups and businesses deal with their IT infrastructure. Insurers exist in a heavily regulated environment and are rightly hesitant to jump on the latest technology fad to solve their problems. However, dismissing the developments in cloud and SaaS propositions altogether for their core operations may be throwing the baby out with the bath water, along with possibly the bath as well.

There is value in considering cloud-thinking or a cloud style approach to problem-solving when considering the insurer’s infrastructure. Central to enabling cloud is simplifying, standardising and above all automating activities with IT infrastructure. Once the common activities one needs to do are automated this frees up costly team members and time to look at other problems. Through automation one can keep adding new applications and solutions to the IT landscape with a lower impact on support and maintenance costs, enabling an insurer to remain flexible, agile and keep their costs manageable.

It is time for the IT department to look internally and apply the same automation and efficiency thinking of their business counterparts to their own operations. Regardless of an insurer’s position on cloud, there is value in applying cloud-thinking. Consider how automation and simplification can increase predictability, supportability and quality in IT Operations. If appropriate, take that learning and move some services to the cloud.

In practice this approach doesn’t simplify the IT landscape and move everything to one “cloud” way of doing things. Rather it accepts the insurance industries need for complexity, for flexibility in approach and seeks to enable a fast and cost efficient approach to deliver it.

 

Virtual Reality – trend to watch or this years “3D TV”?

Virtual Reality – trend to watch or this years “3D TV”?

The latest technology the tech community are getting excited about is virtual reality (VR). This isn’t new as a concept, in fact I recall the scientists in Jurassic Park using virtual reality to manipulate DNA back in 1993 and that was not the first film to leverage it. VR as a concept is as old as 3D imaging and television. Now though, gaming technology and the ubiquity of small high definition screens have enabled relatively accessible machines that offer the wearer the impression of being inside a 3D generated universe.

There are multiple units available now, with varying levels of capability as well as increasing content from pure entertainment like immersive videos to games and other content. The opportunities for collaborating in a real-time 3 dimension virtual space are also being tested out in some industries.

Will this take off or is it this years 3D TV? It wasn’t that long ago that the future of the television industry was bet on families wearing spectacles in their living room watching 3D content. The industry has moved on to 4K and UHD in the last couple of years with 3D TV left as a novelty – so will VR see mass appeal or is this just another novelty?

Sadly, I think only time will tell. Early reports of the technology tell of a truly immersive experience that is quite different from those that have gone before. Now it will depend on the price point, the content and the perception of the practice itself.

Back when the Nintendo Wii came out there was a spate of damaged HD TV’s resulting from accidentally flinging the remote at the television. The VR equivalent may be damaging oneself and the equipment through falling through desks that aren’t really there – as these videos and article show. Perhaps this will be the first impact to the insurance industry as we see a rise in VR related damage and injuries.

In the future, as virtual reality improves perhaps we will see agents and customers communicating in virtual environments – assuming VR is preferred to face time and voice calls. Perhaps class rooms will be virtual in the future and agents will be trained in virtual auditoriums, mini-conferences held in virtual hotels and project meetings in virtual offices.

As with other digital channels, this will be another addition to those who chose to adopt it and a costly addition to their technology. For now – a technology to watch and if opportunities arise – a business case to construct should should the time come.