Tom Scales

About Tom Scales

DOL Fiduciary rule delayed

DOL Fiduciary rule delayed

On Friday, President Trump signed an executive order that begins the process of rolling back Dodd-Frank. He also signed an executive memorandum that directs the Labor Department to review the effect of its fiduciary rule on investors’ ability to access financial advice. If there is an adverse effect, the memorandum authorizes the DOL to rescind and revise the rule.

The DOL rule has been a point of particular discussion since the inauguration between a group of us at Celent and our parent company, Oliver Wyman. The discussion focused not on whether the rule would be implemented but instead on how insurers should plan and react. It would be easy to believe that President Trump’s executive memorandum is the first step in the revocation of the rule because it is delaying it. It is certainly a believable outcome; however, we believe delaying preparation would be the wrong decision for a number of reasons.

Most prominent among them is that there is considerable uncertainty as to what Friday’s delay actually means. Insurers are, by definition, in the business of assessing and hedging risk and not knowing how the DOL review will turn out has risk associated with it. We believe that the right response is to hedge this risk by continuing to prepare for the implementation of the rule, even if the rule is likely to be modified or even rescinded.

Why? Because the fiduciary rule as it written today might happen. It might go into effect with a modest delay. It is easy to see a path that results in changes in compensation in the qualified market. It is even conceivable that this rule, or a similar one, would ultimately affect the entire life insurance and annuity market. There is considerable precedent, globally. For example, the UK implemented their Retail Distribution Review (RDR) in 2013.

In simple terms, the end consumer, ultimately, will believe that a rule that requires advisors to make decisions in their best interests would be popular. We suspect most of them expect that their advisors already do this!

There is clearly a cost of implementing the new rules and this cost is significant. However, most companies have already made the majority of their investment and completing these efforts makes sense. We are even hearing from advisors that they believe that conforming to the rules of a fiduciary could be a competitive advantage. You can see it now: “I work in your best interests. My competitors don’t”.

This is not the time or place to debate the topic in detail, but we would welcome the conversation. We would love to hear your thoughts on the matter. Feel free to email me directly at tscales@celent.com. If I get enough feedback, I’ll post a summary soon.

You might also find a few publicly available reports from Oliver Wyman interesting:

Implications of the Trump administration for financial regulation

The State of the financial services industry in 2017

Conversation systems and insurance — one experience

Conversation systems and insurance — one experience

To start with full disclosure, I am a huge fan of the Amazon Echo. We have them throughout the house, and have automated our home so Alexa can control most light switches, ceiling fans and more. We play music through them, ask for the weather, schedule appointments, and more.

All my kids are believers from our 5 year-olds on up. It’s fun to hear one of my five year-olds ask Alexa to play the song YMCA and then burst into full song, including the dance. My one personal recommendation. If you have an Echo and children, turn off voice purchases. I found out the hard way.

So I thought I would check out how Alexa does with insurance. My plan is to try all the skills and leverage them into a report. I may even have to purchase one of Google’s new Google Home devices just to compare them in this use case.

So I spent considerable time this morning trying to get an auto quote. Let’s just say the outcome was that I gave up. I won’t name the insurer, as I am sure that their Alexa skill works well in other areas such as information sharing and likely works for others to get a quote, but it sure did not for me. I do want to give credit to the insurer, as they are out on the bleeding edge doing these quotes.

First it asked me my birth year. It heard 1916. That’s not when I was born, but that’s what it heard. I tried to correct it, using the instructions it had provided, but no dice. I gave up and started over, only to be born in 1916 again. This time it was so stuck I had to unplug the Echo. I was surprised, as Alexa’s voice recognition amazes me.

I’m old, but I’m not 101 years old.

I finally made it through on the third try with very careful enunciation. Made it through my wife’s birth year and the fact we’re both married (apparently being married to each other wasn’t important).

Got to the question on what body style. I tried convertible, since, well, it is a convertible. That wasn’t an option. Since the app had prompted 2 door car as an example, I tried it. Um, no. That’s not supported. That seemed odd, but I tried car. Apparently car is OK.

Made it through miles driven a year.

Go to age of the car. My car is a little older, but no antique. However, apparently 12 years old is fatal, as the app crashed with “Sorry I am having trouble accessing your skill right now”.

OK, odd, but wireless sometimes blips, so no problem. Started over for the fourth time.

Worked my way through all the questions, enunciating very, very carefully and got to age of my car.

Yep. Crashed again.

At that point, I gave up and decided to write a blog instead.

Or I could have played a game of Jeopardy with Alexa.

Where is the innovation in Individual life and annuity?

Where is the innovation in Individual life and annuity?

I had the pleasure of attending an amazing event last week in Las Vegas. The InsureTech Connect event drew over 1,500 people, from insurers to vendor to investors. Given the unprecedented size of an inaugural event, I was very impressed with how well the event worked. The sessions were good, but for me, the opportunity to have individual meetings with key industry players was even better. Our own Oliver Wyman was the primary sponsor of the event.

As I cover individual and group products, plus health and have an experience in P&C, I personally got a lot out of the event. I did have one major observation which I think speaks of the individual life and annuity industry. While I did not do a scientific study, I would estimate that over 50% of the content was focused on P&C insurance. This is not particularly surprising as they have all the cool technology like drones. My estimate was that the group insurers and health insurers were about 45% of the content, with an emphasis on topics like wellness programs and direct to consumer exchanges.

If you did the math, this only leaves 5% of the content for individual life and annuity products and that may very well have been a stretch. There was one session on eliminating the health data gathering for underwriting, which was well done and well attended, but past that, not so much.

Some insurers are diversifying, into Group or Wealth management, but I would not characterize that as innovation.

So what is holding us back as an industry? There are many things, from risk aversion, to length of the application to the sheer amount of data required for underwriting. I could write pages and pages on the topic, which explains why the next blog post you read from me is likely going to discuss the report I am finishing on this exact topic.

The potential for disruption in the space is huge and the coveted Millennial buyer is looking for just such innovation. Let’s make it happen.

Internet of Things – NBA edition, round 2

Internet of Things – NBA edition, round 2

For those of you that follow our blog, you may have read my post from April 8th, entitled Internet of Things – NBA edition. If not, then I’d suggest you click the title and read that post first.

Given we’re in round 1 of the playoffs, this post feels even more timely. The basic premise of the first post revolved around the use of wearables in sports, more specifically during games. As it turns out, there was recently a follow-up article on ESPN.com:

NBA union, wearable tech company Whoop to meet Tuesday

As I mentioned, the use of wearables goes well beyond just the technology, particularly to the ownership of the data.

I particularly liked the quote from the Whoop CEO, Will Ahmed: "…let's not deprive athletes of in game analysis. It's their careers at stake and data is not steroids."

As wearables get to be more and more ubiquitous, it will be interesting to follow their use. We see the benefit in insurance programs, such as Hancock’s Vitality, but the ultimate use of the information shows so much opportunity to truly change our lives. It will be fun to follow.

Internet of Things — NBA edition

Internet of Things — NBA edition

It is not often that I get to reference an article from ESPN for a blog post, but as March Madness is complete and we’re coming close to the NBA playoffs, this topic resonated with me.

The article, entitled Why the NBA slapped the wrist of Matthew Dellavedova, focuses on the use of wearable technology by NBA players. Not exactly an insurance topic, but it brings up many topics that do apply to our industry. It is also a fun read.

In a nutshell, a company has created a super-wearable for use by athletes called the Whoop (pronounced without the W). It is unique in that it not only captures current information, but more importantly trends in information. It focuses on my more than just activity during the game, but includes other areas such as sleep monitoring, including the impact of late evening caffeine.

The reason Matthew Dellavedova was slapped on the proverbial wrist was wearing a Whoop on that wrist during a game.

Now there are some obvious reasons why that might be a bad idea, particularly if that wrist came in contact with another player in the eye, or other sensitive area.

But the interest from the insurance perspective is narrower (although that could be a pretty big claim).

The challenge is the use of wearables isn’t covered in the current contract, which was negotiated well before wearables became a thing. So the issues include:

  • Marketing rights – what happens if the wearable in use is different than the ‘official wearable of this sports league?
  • Ownership of data – This is the big one for our industry. Does the player own their data? If so, that data may have value and they may need to be reimbursed for the data.
  • Use of the data – this is another big issue. If the data could potentially predict an injury, or the likelihood of an injury, this could affect the value of the player, lowering their total contract.
  • Security of the data – This one isn’t mentioned in the article, but what if a competitive team hacked your data. Worse a dishonesty bookie or bettor hacked your data. It would be interesting to know that LeBron was having breathing difficulties the afternoon before a game, wouldn’t it?

These are just some examples, but we can see how they could come across to insurance. If an insurance company wants my health data or my driving data, there better be a significant quid pro quo. Some auto insureres address this with a signing bonus when you enroll in their telematics program, essentially buying your data. Other programs offer you discounts for this information, if you do what you’re supposed to do (drive safely, exercise more). This gets more complicated as wearables evolve. The use of this data in underwriting could dramatically affect your premiums, but if you own the data and refuse to provide it, what happens? What are the legal ramifications of a declined life insurance policy because of wearable data?

For the average consumer, the security of the data really isn’t an issue and I’ve said this before. If a hacker really wants to know that I didn’t walk my expected 10,000 steps today (after all, I work from home, there are only so many steps I can take), than they are welcome to that data. I feel the same about a lot of health data. My cholesterol level isn’t something that could be used to steal my identity.

Just as driverless cars have ethical and legal issues to resolve, so do the expanded use of the Internet of Things in our industry.

John Hancock launches Vitality 2.0, rewarding life insurance consumers for healthy eating

John Hancock launches Vitality 2.0, rewarding life insurance consumers for healthy eating

As many of you know, John Hancock introduced the Vitality program to the US Life insurance market a year ago this month. At its core, the program offers discounts and earns points for healthy living. It is a program that has been offered for over 15 years in other markets, originating in South Africa. The program is exclusive, in the US Life insurance market, to John Hancock.

Today Hancock make another major announcement in enhancing the program and it directly, and positively, affects the health and pocketbooks of their customers.

The core of the new program is a partnership with major grocery chains, headlined by Walmart. Hancock Vitality members will get discounts, up to $600 per year, on health foods when they participate in the program, as well as points in the program that could reduce their premium up to 15%. This is measureable money and can go far towards offsetting the cost of the insurance. The real benefit, though, is continuing to encourage healthy living. In the case of Walmart, and likely other groceries, the savings are printed on the receipt, so the customer can be immediately aware of their savings.

Policyholders also gain access to nutrition information, at no charge, from the Friedman School of Nutrition Science and Policy at Tufts University.

Just last week, a study was released that for the first time, the number of people in the world that are obese outnumber those that are under weight.

The study also shows that China and the US have more obese people than any other countries. Given the disparity in population, this confirms what we already know – Americans are dangerously overweight.

While we would not expect that this program alone will have a measurable impact on obesity in the general population, it certainly can for Hancock’s policy holders.

For more information, see John Hancock’s press release. We will be watching this development closely as it takes off.

Well sir, we’re not Amazon: online support lessons for insurers

Well sir, we’re not Amazon: online support lessons for insurers
I just got off the phone from a 40 minute phone call with an insurer that provides benefits to my family. I won’t name the company, as that is not the point of this blog post, but I thought I would share my experience. I am certainly hopeful that this could not happen at any of the companies for which our readers work. The same insurer handles my Group life and Dental coverages. It is a well-known company. I had previously registered for their website, so I logged on to print my new dental card, so I could get all seven of us to the dentist. When I logged on, it only showed my Life coverage, but not dental. Nothing on the site let me add it, so I resorted to the next best thing. I called. The wait was about what I expect – about 10 minutes – before they actually connected me to a person. After providing my entire life history (or at least it felt that way), to validate I am who I am, the customer service rep banged away at her keyboard for a solid 5 minutes before declaring that she could not send me id cards – that my account did not allow it. Getting beyond the fact that this is simply silly, she transferred me to web support. Back in the queue for another 10 minute wait, I finally spoke to a helpful gentleman who could set me up to access my dental account. Except he couldn’t. First, he explained that I had to have a second web account to view Dental. Apparently the siloed nature of their organization spilled over to their customers (Strike one). Then after being on hold for another 5 minutes, he came back to let me know that he could not set me up because my employer did not allow us to have an online account. Even when assured that my colleague DID have allow web accounts, he stuck with his guns. I tried, repeatedly, to convince him that my company would not have made that decision (Strike two). I finally gave up, ended the call and emailed our internal benefits coordinator. She responded that all I had to do was register for the site again, using a second email address. Naturally, this worked, contrary to what the insurer repeatedly told me (Strike three). Now, why did I title the blog as I did? Because my experiences with my insurer are not unique. I recently had trouble returning an online order from a major big box home improvement store. They wanted everything short of my first born to allow me to return a defective product. I had to jump through many hoops and take the product back to their local store. To make it worse, they wouldn’t be able to replace it. I’d have to order it again, and, by the way, the price went up $120. During that call, I commented that their service was complicated and poor and paled in comparison to Amazon. To which he replied: “Well sir, we’re not Amazon.” No, no you’re not. And I haven’t ordered anything else from them either, but Amazon gets my business regularly. The moral of the story? Oh there are so many:
  • Don’t show your organizational weaknesses to the customer. You may be siloed, but that shouldn’t make it difficult for the customer.
  • Make sure your support people actually know what they’re doing. The solution set should not include “making something up so the customer will go away.”
  • Customers expect your service to equal those of other providers. Admitting that you’re not Amazon just reinforces this notion.
I could go on and on, but it is a lesson the insurance industry needs to learn. We lag behind virtually every other industry in online support. Now I don’t want to leave on a negative note, because there are insurers in our industry that excel at online support. My auto insurer is wonderful. What’s a bit ironic is that once I got setup on the two almost identical websites for this insurer, the web experience is wonderful.

US patents in 2015 – who are the leaders?

US patents in 2015 – who are the leaders?
I thought this chart from the firm Statista was interesting and topical given my post from last week. What particularly caught my eye was their observation that IBM is number one for the 23rd straight year. In addition, over 2,000 of their patents focus on cloud computing and cognitive computing, both areas of particular interest to insurance and the broader financial services industry. And for those that wonder (like me), Apple was in 11th place, just 18 patents short of 10th.   Infographic: Top 10 U.S. Patent Recipients | Statista You will find more statistics at Statista

Insurance companies are embracing technology — for investment

Insurance companies are embracing technology — for investment
Celent frequently observes that many insurers, particularly in the Life space, are running aging, if not antique, software systems. They rely heavily on mainframe systems, often in languages such as COBOL that are becoming more difficult to support. The positive news is that our research shows continued growth, if modest, in IT budgets with modernization and innovation a frequent focus. With this as the foundation, it is interesting to see continued growth in insurance company’s venture capital arms in financial services oriented technology, or Fintech. Industry research shows an incredible growth path in Fintech start-ups, from a modest 400 or so in 2010 to over 12,000 in 2014. While the numbers are not yet in, we expect the 2015 numbers to continue this dramatic growth path. The insurers with venture capital arms are too numerous to list, but are a who’s who in the industry. Examples include AXA Strategic Ventures, MassMutual Ventures, American Family Ventures, and Transamerica Ventures. While many of the examples are US-based, it is a global phenomenon. A great example is Ping An Ventures, a subsidiary of the Chinese insurance company Ping An. Celent tracks many of the insurance related investments and we see several focus areas. One is in financial management and modeling, such as Roboadvisors, across both Life and Health. Good examples include Northwestern Mutual’s acquisition of Learnvest and AXA Strategic Ventures and MassMutual Venture’s investment in Limelight Health. MassMutual is also the parent company of Haven Life, a fully online sales organization dedicated to Life insurance. Other hot areas, not surprisingly, include analytics and the ever popular Internet of Things. The most recent investment, announced just yesterday, is AXA Strategic Ventures’ investment in Neura. Neura’s tagline is “Enrich your products with personalized insights from the lives of people who use them”. While a little heavy on the buzzwords, the basic view is that Neura analyzes data about you and recommends personalizations based on that information. The basic premises appears to link the Internet of Things, such as your Fitbit, to your social media presence, to your calendar and more. There are, of course, other companies overlapping this space (with 12,000 new companies, you would expect competition), such as Vitality and Life.io. The competition is encouraging, as it fosters continuous innovation. As the Millennials now outnumber Baby boomers (at least in the US), new technologies to engage them in insurance can be game changers. I am particularly intrigued with the technology companies, like these, that are focusing on changing the entire approach to Life insurance. The life insurance sale has always been focused on a negative experience – death of a love one. No one wants to talk about dying, and everyone wants to believe they will live many more years. When I talk to people that are just reaching an age where they really need life insurance, I get push back, and a lot of it, about everything else more important in their lives. My response that they need to protect their family often falls on deaf ears. By changing the discussion from “you are going to die”, to “how can we help you live longer”, we are opening up a much more comfortable discussion. In addition, this is a generation that will share everything on social media, to the point of embarrassment, so asking for more information to make their experience more intimate should be fairly easy. The investments and technology are exciting. It is wonderful to see insurance organizations finally catching the technology wave, after lagging for so long. Whether it be the Internet of Things, Usage based insurance, Micro insurance, behavioral underwriting or more, the staid insurance industry is breaking out. Some technologies are even a bit fun, such as the expanded usage of drones. Now before I get you too excited about the reinvention of insurance, I suggest you read a counterpoint to this post, from my colleague Donald Light, entitled A long time ago in a galaxy far far away, I went to a two hour meeting to reinvent insurance. He makes some very valid points about the managing our excitement. Another colleague, Craig Beattie, shares a similar bit of skepticism in his post What if… the insurance industry didn’t innovate? I guess I am forever the optimist and want to believe the excitement and change is real.

Why private equity investment in insurance makes sense

Why private equity investment in insurance makes sense
As many of you know, the latest buzzword is FinTech. Considerable money is coming to vendors that are attempting to define the next major technological leap in financial services. This chart, from CB Insights, shows the explosive growth in FinTech investments. It is an exciting time. CB chart What I find interesting is that Private Equity firms are also finding the more traditional insurance market interesting. For example, Moelis Capital made an investment in Insurance Technologies last fall. Insurance Technologies focuses on the front-end of Life insurance, including illustrations and electronic applications. More recently, Moelis Capital announced an investment in FAST Technologies, which focuses on the Life Policy Administration System (PAS) space. Another example is Thoma Bravo, which announced in August that they had purchased iPipeline, another competitor in the front-end space. To me, these investments make sense. They may not be as technologically sexy as something like roboadvisors, but the market is ripe for improvement. The age of the policy administration systems in use is somewhat staggering, with systems that have been in production for decades. On the front-end, the Life insurance market is still surprisingly dependent on a paper application. As someone who has been a part of this space for many years (measurable in decades), it is nice to see that the market finds room to improve.