Lost in Innovation?

So, how do you avoid getting lost in innovation? The simple (and maybe glib) answer might be to buy a map, a compass and start to plan your route. However, what do you do when there is no map, no obvious path to take and no-one to follow?

The last 24 months have seen an incredible amount of activity across the sector in experimenting with novel proposition concepts fuelled by emerging technologies in the internet of things, distributed ledgers and bot-driven artificial intelligence. Although each new concept shows promise, we are yet to experience a clear and obvious pattern for winning new clients or delivering a superior shareholder return using them. Many of the most exciting novel ideas (and many are genuinely exciting) are yet to see any real business volume behind them (see my earlier blog for additional context of what insurtech has to offer in defining the ‘dominant design’ for new tech-enabled propositions).

So, as an insurer faced with having to balance how much it should invest in these new concepts versus furthering the existing business in what is probably a highly successful and scalable model, two of the big questions we often hear from clients are: “Which of these nascent concepts are most likely to deliver real business value the fastest?” and “How much effort should I be devoting to exploring them today?” These are the questions that we looked to address at our latest event in London that we called ‘Lost in Innovation’, attended by just over 70 inquiring insurance decision makers.

Faced with uncertainty, we followed an agenda that focused on the things that an insurer can control, such as the innovation-led partnerships they enter, the skills they develop internally, the criteria used for measuring value, and the potential challenges ahead that they need to plan for.

Celent analyst Craig Beattie presenting on emerged software development approaches

Alongside presenting some of our latest research on the topic, we were joined on-stage by:

  • Matt Poll from NEOS (the UK’s first connected home proposition in partnership with Hiscox) shared his experience on the criteria for a successful partnership.
     
  • Jennyfer Yeung-Williams from Munich Re and Polly James from Berwin, Leighton, Paisner Law shared their experience and views on some of the challenges in the way of further adoption, including the attitude of the regulator and potential legal challenges presented by using personal data in propositions.
     
  • Dan Feihn, Group CTO from Markerstudy, presented his view of the future and how they are creating just enough space internally to experiment with some radical concepts – demonstrating that you don’t always need big budget project to try out some novel applications of new technologies.

So, what was the conclusion from the day? How do you avoid getting lost in innovation? Simply speaking, when concepts are so new that the direction of travel is unclear, a more explorative approach is required – testing each new path, collecting data and then regrouping to create the tools needed to unveil new paths further ahead until the goal is reached. Scaling concepts too early in their development (and before they are ready) may be akin to buying a 4×4 to plough through the scrub ‘on a hunch’ only to find quicksand on the other side.

Some tips shared to help feel out the way:

  • Partnerships will remain a strong feature of most insurer’s innovation activity over the next 12-24 months. Most struggle to create the space to try out new concepts. Also, realistically, many neither have the skills or the time to experiment (given that their existing capabilities are optimised for the existing business). Consequently, partnerships create a way to experiment without “upsetting the applecart”.
     
  • Hiring staff from outside of the industry can be a great way to change the culture internally and bring-in fresh new ideas…however, unless there is an environment in place to keep them enthused, there remains a risk of them turning ‘blue’ and adopting the existing culture instead of helping to change it.
     
  • There are several ways to measure value created by an initiative. The traditional approach is a classic ‘Return on Investment’ (RoI). However, RoI can be hard to calculate when uncertainty is high. To encourage experimentation, other approaches may be better suited, such as rapid low-cost releases to test concepts and gather data to feel the way. Framing these in terms of an ‘affordable loss’ may be another way to approach it – i.e. “What’s the maximum amount that I’m willing to spend to test this out?” – accepting that there may not be an RoI for the initial step. Although no responsible insurer should be ‘betting the house’ on wacky new concepts, reframing the question and containing exposure can sometimes be all that’s required to create the licence to explore.
     
  • There’s still an imbalance between the promise of technology and the reality of just how far end-customers and insurers are willing to go in pursuit of value. The geeks (or ‘path finders’) have rushed in first – but will the majority follows? Regardless, to avoid getting lost in the ‘shiny new stuff’, a focus on customer value, fairness and transparency around how data is being used need to be at the heart of each proposition – plus, recognising that the regulator will not be far behind.
     

In summary, the journey ahead needs to be less about the ‘what’ (with all of its bells, whistles and shiny parts) and more about the ‘how’ (deep in the culture of the firm and its willingness to experiment – even in small ways) – at least while the map to future value is being still being drawn.

Celent continues to research all of these topics, including assessing the different technologies and techniques that insurers can use. Feel free to get in touch to discuss how Celent could assist your organisation further.

Celent clients will be able to access the presentations from the event via their Celent Account Manager.

Long Live Legacy and Ecosystem Transformation

When I started working at Celent back in November 2007, one of the research topic we were covering extensively was the legacy system modernization or replacement topic. Nowadays, legacy modernization remains a topic that has still a high importance in insurance CIOs’ agenda across the globe. Indeed based on our 2017 insurance CIO survey and out of 150 responses received across the globe, 57% of insurers are currently working on legacy modernization system projects. Another 10% are in the planning process and 11% will begin new legacy transformation projects next year.

It is therefore important for us to help our insurance customers understand what embarking in a core system replacement or modernization project means. While the benefits of modernizing core legacy systems are clear and compelling (gaining a competitive advantage — or achieving competitive parity, reducing operational and IT costs, making better underwriting and claims decisions, seizing analytic advantages when information and processes become completely digital), there are a lot of factors at play from the definition of the new system requirements, the approach to be chosen between the development of a new system and the purchase of a package or a best-of-breed component, to the selection of the optimal partners. Another crucial part of a legacy system replacement is the implementation of the new system as it can represent a major challenge notably in terms of project management, customization effort and migration. Implementations are particularly challenging when they involve multiple vendors and integrations.

To help our insurance customers figure out all the factors at play, every year we describe some cases in the frame of our Model Insurer program. This year we will be presenting the three cases we have received among more than 20 submissions in the frame of our Innovation & Insight Day event, which will take place in Boston on the 4th of April 2017. In addition to presenting the legacy modernization category award winners, we will also explain why they have decided to replace their legacy systems and what opportunities have been identified. We will also describe the implementation effort and draw out lessons learned. For those of you who will not be able to make it in person, we will publish a report profiling the three winners but I hope to meet you in big number at our event in Boston.

Learning from the Best: Operational Excellence from a Model Insurer Viewpoint

I am privileged again this year to be part of the team that judged the Celent Model Insurer nominations. My focus is on the nominations in the Operational Excellence theme. In reality, every nomination demonstrates a high degree of operational excellence. It is a tough job to choose only three winners in the category. 

You may wonder how Celent decides which nominations are the best of the best. We look at the disciples included in successful operational outcomes. Achieving operational excellence, requires transforming processes and systems into competitive advantages by making them leaner, faster, more flexible and of higher quality.

It’s not just what is done, but how it’s done. The project should have lasting effects and transform the organization in multiple aspects: Processes, Technology, Culture and Business Model

This year’s operational excellence nominations run the gamut from project methodology to straight through processing to infrastructure outsourcing.  Following are examples of a few of the nominations: 

  • A P&C insurer in the Cayman Islands moved to a virtual business. Instead of replacing their on premise infrastructure, they transitioned to a cloud environment for all systems including: core insurance operations, human resources, and call center. By moving to a third-party cloud provider, the insurer could go global to support local operations with consistent technology expertise to host and maintain the applications.
  • One of India’s leading life insurance companies which had experienced tremendous growth of 380% in the last financial year required a simple, streamlined and cost effective system to service their growing customer base and extend the enterprise for continued growth and market penetration. The company implemented a document management solution for processing new business and claims. The solution is designed so that it requires no or minimal manual intervention for the end-to-end document life cycle process.
  • An innovative testing solution created in collaboration between a North American P&C insurer and its vendor was implemented after it was found that the existing testing environment, approach and methodology was causing delays and quality assurance problems for the transformation program. The solution is a cloud based, open-source testing environment that has reduced both risk and cost by improving the quality of the testing. 
  • A North America supplemental benefits insurer adopted an Agile project methodology in response to its need of modernization and in recognition that it will undergo more change as the industry continues to capitalize on social, mobile, wearables, etc. The change brought about increased accountability, efficiency and organization that have allowed the company to be poised and ready for all opportunities, producing results at record speed.
  • A reinsurer based in Europe implemented artificial intelligence and machine learning algorithms to allow automatic verification of clauses in contracts and matching of official comments stored in a large database.  This allows experts to focus their attention on parts of the contract that have not been seen before and will allow back searching thought any collection of documents for clauses containing issues of interest as well as comparing contracts on a clause level with calculated accuracy scores.   

As you can see from this sampling of nominations, choosing the winners was hard.  However, it is easy for you to be on hand to network with and learn from the insurers and vendors who submitted the winning projects.  Please join Celent in Boston on April 4 for Innovation and Insight Day where the winners of the 2017 Model Insurer awards will be announced.  You can register here.   

The new customer experience – or how so many carriers are getting journey mapping wrong

Journey mapping, the process of defining the customer experience, is an activity that has been gaining in popularity over the last two years.  Carriers are using this technique to document the existing customer experience in order to identify areas to improve.  The underlying assumption is that a superior customer experience will drive retention and perhaps improve new business.  Which makes sense.  After all, it’s pretty evident that customers are demanding a different relationship model from their insurers.  They are looking for more transparency and simplicity. They are increasingly self-directed and financially literate.  And they are demanding increasing participation. 

Their expectations are increasingly driven by experience in non-insurance categories.   I can see where my uber car is real-time – why can’t I tell if my claim check has been issued.   I can custom assemble a new pc online with instant knowledge of all the options available and the price associated with them – why can’t I tell what additional insurance options are available and what they cost.   I can get recommendations from Amazon on what I might like and what others like me are purchasing – why can’t I get  good recommendation from a carrier to help me compile the best package of coverages, terms and conditions to suit my profile. 

While efforts have been made to drive effectiveness for insurance processes from an internal perspective, there are still many areas where improvements are possible from a customer perspective. So carriers are working to define an extraordinary experience for customers. They’re defining personas, mapping the new business acquisition process, the billing process, claims, complaint handling, customer inquiries, and all the major processes that occur when customers interact with carriers. 

But that’s the problem. Carriers are focusing on optimizing all those places where the customer and the carrier interact.  Now don’t get me wrong. There is nothing wrong with this.  Carriers should make sure that interactions are optimized.  Focusing on automating decisions, automating correspondence, and using workflow to assure tasks are completed in a timely manner can have a dramatic effect on delivering a consistently good experience.  Omni channel, real time, digitization – all those trendy words – are very relevant here. But it’s not enough.

If you really want to build loyalty, think about the customer experience when they aren’t interacting with you. Let me give you an example. 

Allstate has a target market of motorcycle riders, and has a mobile app for them called GoodRide.  The app is available for both Allstate customers and non Allstate customers.  It helps riders keep track of all repairs and maintenance.  They can plan a ride –  checking weather, locate gas, and even find others to ride with as it is integrated to social media. They can track their ride by adding notes, adding photos and tracking miles ridden. There’s even a gamification element that awards badges.   And by the way, they can report a claim, check proof of insurance and pay their bill.  So this application really looks at what motorcycle riders are looking to do outside of the insurance interaction and embeds the insurance interactions within the full context of the customer’s life and where insurance itself plays a role rather than simply looking at the interactions discreetly.

In the commercial lines world, a similar application could be industry based and provide tailored risk management materials, an “Ask an Expert” corner where customers can check in with risk management consultants,   create a Facebook-like collaboration mechanism for customers to talk to each other,  arrange discounts on products relevant to the industry.  and of course, access their policy online, pay a bill, pull a loss run or handle other interactions. 

Expanding the customer experience beyond the pure insurance interactions makes a carrier more relevant to a customer by engaging in their everyday lives and looking for ways of adding value within context.  And it creates a way to have an ongoing conversation with a customer – building personal loyalty. 

So – is customer journey mapping a good idea?  Of course.  Are carriers thinking big enough? That is a different question.

What I will say, is exactly what I told a carrier earlier today –  The secret to organic growth?  Deliver a customer experience that your competitors can’t match. 

The ABCD of Emerging Technology

Alphabet Blocks A to D

Celent has mapped over 45 emerging technologies in P&C and a similar number in Life & Health. That's way too much for an insurer to handle and the pace of technological change outpaces the industry's capacity to absorb it. You could say though that there is a set of 4 emerging technologies with the most potential to profoundly affect insurance; the ABCD of emerging technology:

  • Artificial Intelligence
  • Blockchain
  • Cloud
  • Data (big and small)

The four altogether become a strong enabler for Digital. Digital interactions, digital products, digital claims, everything digital. Digital becoming important to meet the expectations of customers that want insurance to be simple, right now, as I want it, when I want it, and relevant to me. On the other hand, many consumers are still not being attracted by insurance; creating a protection gap. Digital comes as a possible response to close this gap, and in the process has the ability to profoundly change insurance as we know it. Actually, we may not call it insurance anymore. It may just be something that comes as a warranty of the product or service. Have I gone mad?

Imagine cars with assisted driving. There is an accident involving the autopilot function and the manufacturer claims no responsibility. Who is going to buy this car after that incident? No surprise then to see some car manufacturers, vested in automated driving, indicate that they will assume liability. Of course they will, and in the process what they are doing is to offer their customers a guarantee that the product will perform as indicated in the user manual. By being able to monitor the car status they are also able to prevent accidents or breakdown. So in the future will you get car insurance or a manufacturer warranty?

You can imagine any other product that can be monitored, for example as part of the IoT. All these products will generate data, and that data will enable their manufacturers to provide a service; in many cases that service will be a preventive one. See the trend here?

Today many digital initiatives in insurance still rely on the use of a call center. That's not digital because it implies human to human interaction. Each interaction needs of a human in the call center, so each interaction adds cost as there is no way you can make the human person be digital. The use of chatbots or robo-advisors enabled by artificial intelligence and natural language capabilities allow digital interactions, where each interaction can be taken simultaneously by a robot with no, or marginal, cost to do it. By robot don't think about a physical robot but software instead. Just as the one used by Lemonade to settle claims fast.

Artificial intelligence with machine learning capabilities also allows us to mess with a huge amount of data; discovering new patterns. The more information ingested to these machines the better answers you get. The more is used, the more it learns, the smarter it gets. Even most importantly, this technology today is very good at taking repetitive and predictable processes and doing it faster, better and cheaper than humans. You are smart, you don't need me to explain how this is relevant to insurance, do you?

Technology as the one described here is available on demand and in the cloud. Need more computing power? being in the cloud can solve that problem very easily. Pay as you go? cloud deployments make this technology available at a per use price. Basically cloud makes technology accessible to anyone.

Blockchain is the glue that can hold it all together. Digital and physical assets (that can be digitized) can be stored in the blockchain. The IoT could be linked to blockchain. Then, any rules applicable to digital transactions can rely on smart contracts. Finally by providing trust and provenance through a decentralized body blockchain becomes the basis to catapult digital in any scale, even when peers don't know each other.

Are you mastering the ABCD of emerging technology? Not yet? Don't be left behind; insurers around the world have already started. Want to find more about how insurers can take advantage of emerging technology and innovation? Contact me or any person at Celent. We will be happy to dive into this with you.

How Insurity’s Acquisition of Valen Could Create a Virtuous Analytics Circle

It’s open season on insurance technology acquisitions in general, and for Insurity in particular. Today’s announcement of Insurity’s acquisition of Valen Analytics is now Insurity’s fourth acquisition in a multi-year string: Oceanwide, Tropics, and in rapid succession Systema and Valen.   The potential for crossing selling among the five customer bases is obvious.   Less obvious, but of potentially even greater value, is Insurity’s ability to invite all of its insurer and other customers to use its Enterprise Data Solutions IEV solution as the gateway to Valen’s contributory database and Valen’s InsureRight analytic platform.   Insurity now has the scale and the means to create a virtuous analytics circle: individual customers contributing a lot of data through IEV to Valens and receiving back analytic insights to feed into their pricing, underwriting, and claims operations.   Good move.

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.

Data in insurance is not only about technology

In October 2015, I explained that insurers had to hire more data experts if they wanted to better leverage all sorts of data sources they can access nowadays. As I raised this point, I shared the result of a survey we launched in 2015 to identify whether insurance companies were hiring new types of profiles to complement their teams looking at data. For more on this, read the following post: Why the insurance industry needs more data scientists. In March last year, I explained that insurers attempt to hire more data expert had become a clear trend: Insurers are investing in data scientists. With the growing importance of data in insurance and taking into consideration all the activities currently happening around data notably supported by InsurTech companies, we identify that not only insurers are hiring highly qualified data experts but also that these people are getting more and more influential within their organization. Indeed when asked about the level of influence on key business decisions these experts (internal or external consultants) have in their organization it seems that data scientists are gaining more power ​(in % of insurance respondents; n=135): Actually, two categories of experts are gaining influence in insurance: data scientists and user experience specialists. We are not surprised by this result. Insurers deal with a greater amount of data and more sophisticated technologies, therefore they need to hire highly educated experts in order to valuably leverage this data and these technologies. In addition, insurers consider customer interaction to be a key element of their digitization efforts and this is the reason why they are giving more responsibilities to user experience specialists. We will soon publish a report detailing the result of an insurance survey on the use of consumer data and smart technologies. I recommend you take some time to read our report to better understand what insurers are doing around this topic.

CES 2017: JUST HOW SMART IS AI GOING TO MAKE CONNECTED CARS AND CONNECTED HOMES?

Walking the exhibit halls and attending sessions at the mammoth Consumer Electronics Show, it was easy to identify the dominant theme: AI-enabled Intelligent Personal Assistants (IPAs).
  • Manufacturers and suppliers of connected cars and homes are betting big on IPAs: overwhelmingly favoring Amazon Alexa.
  • Impressionistically, Google Assistant, Siri, Cortana and others trailed some distance behind.
Natural language commands, queries and responses provide a vastly more intuitive UX. And these capabilities in turn make owning and using a connected home or car much more attractive. But there is a deeper potential benefit for the connected car and connected home sellers: developing context-rich data and information about the connected home occupants and the connected car drivers and passengers. This data and information include:
  • Who is in the house, what rooms they occupy—or who is in the car, going to which destinations
  • And what they want to do or see or learn or buy or communicate at what times and locations
Mining this data will enable vendors to anticipate (and sometimes create) more demand for their goods and services. (In a sense, this is the third or fourth generation version of Google’s ad placement algorithms based on a person’s search queries.) Here’s what this means for home and auto insurers:
  • As the value propositions of connected cars and homes increase, so does the imperative for insurers to enter those ecosystems through alliances and standalone offers
  • The IPA-generated data may provide predictive value for pricing and underwriting
  • IPAs are a potential distribution channel (responding to queries and even anticipating the needs of very safety- and budget- conscious consumers)
A note on terminology: the concept of “Intelligent Personal Assistants” is fairly new and evolving quickly. Other related terms are conversational commerce, chatbots, voice control, among others.

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.