Why social networking can be bad for your house premiums

Why social networking can be bad for your house premiums
As reported in the press today, Legal & General here is the UK is considering adding the usage of social network sites in deciding on premiums. On the back of their own commissioned research, the company believes that burglars are increasingly using sites such as Facebook to identify targets. I can understand the logic of this approach, but it seems a little heavy handed. The idea is to penalise homeowners who has anyone in the family using a social network site. Given the prevalence of these sites, a very high number of people will be caught in this net (given the insurer plans include any family member). I know of people who are very careful about what they put up on these sites, never declaring holidays until they are complete, and “friending” their children so as to be aware of what information the offspring might put into cyberspace. Are these people to be cast into the group of “higher” risk? Being aware of the evolution of criminal behaviour is important and educating your policy holders seems a more positive way to approach this problem.

So what are you doing in this recession?

So what are you doing in this recession?

So what are you doing in this recession?

In August, much to the surprise of their own governments, economic data suggested that France, Germany and Japan had exited the recession. Similar good news has yet to be heard in the other major economies, but Celent’s recent research about perceptions and attitudes of insurers in this recession does show that there is increased optimism in the world of insurance.

Over the course of the first half of the year, insurers have made more progress in implementing tactical responses to the current recession. Around 80% have already or are in process of freezing discretionary spend and travel. Two-thirds have are in the process or have already cut staff salaries. But these tactical responses dont inspire.

In our new upcoming report on the impact of the recession, we added a new question trying to get at the strategic response of insurers. In quarter one, the outlier was a change in strategy, with only a quarter of respondents having done this — a clear reflection of the severity of this measure both on long-term capacity and the difficulty to execute. By mid-year, almost half had undertaken this difficult task. The other area with the most noticeable change was that of budgets. By the end of the second quarter, almost two-thirds of insurers had undertaken or were in the process of revising budgets.

Streamlining of processes is the top area of focus and is already underway or completed in 77% of respondents. The second area with a high level of activity is divestment of assets. A return to the focus on core business is a response to be expected in difficult times, and 70% of respondents had undertaken this option.

Outsourcing is also on the agenda. Responses indicate a higher frequency of business process outsourcing to IT process outsourcing. This is probably attributed to the already high level of IT process outsourcing in the industry. Almost half of respondents have already outsourced business processes and another fifth are taking this under consideration.

There are a large number of insurers considering or undertaking the launch of a new product or a new channel. Over 50% of respondents are in discussions or already doing so. Launching into a new geography and acquiring new company assets are strategies that appear fairly low on the list of priorities.

So the question to your business is what are you doing in this recession? Many insurers clearly see some opportunities in these difficult times and such innovative and progressive strategies are clearly going to put them ahead of the pack when time improves.

What Customers Really Want

What Customers Really Want

I saw some consumer data recently which suggested that insurers have weathered the financial crisis better than banks and capital markets firms. Not in terms of finances—although that may be true in many cases—but in terms of consumer opinions.

As an industry, before this period of uncertainty we were viewed on par with used car dealers and cell phone companies. Now we are viewed, well, about the same. But at least we didn’t lose ground, or the trust of our customers. Thank the regulators, or maybe a culture of conservatism, for keeping us mostly out of trouble.

Of course the battle for consumer mindshare is never ending. That’s why the current crop of TV commercials being aired by insurers concerns me. Some national companies are positioning themselves as feeling their customers’ pain. Call me a cynic, but I have trouble imagining a set of consumers who get a warm, fuzzy feeling as they think about their insurers. As a consumer myself, I don’t care whether my insurers feel my pain. I just want good service, good value, and integrity. Besides, recession kvetching is already out of fashion.

Other insurers are making hard price comparisons. Their claims are in close parallel: They all talk about how much their customers saved when they switched. Assuming the stats are true (and I do), the obvious conclusion is that switching carriers can make sense, no matter which carrier you start with and which one you end up with. Do we really want to encourage consumers to constantly spreadsheet their providers? Is all that churn good for the industry?

I’d prefer to see insurers focusing on attracting and retaining customers for longer relationships. That means understanding the risks, pricing accordingly, and delivering great service. And by eliminating switching costs, carriers ought to be able to reward customer longevity, and still improve their margins.

Eco-centric insurers can cut costs

Eco-centric insurers can cut costs

Our data is now in on greening IT in the insurer and the results will probably not surprise you. For more than half the respondents, green initiatives still poses some question mark and initiatives vary tremendously by company. Mostly, they appear ad-hoc and occur in small pockets in the organisation.

In this time a recession, one might ask why this topic is on anyone’s agenda. The point is that having eco-centric policies make financial sense. Especially in a turbulent economy, an insurance company doesn’t need to see the building of a green organization as counter to its mission of financial responsibility; rather, it is part of that mission.

Celent believes that it’s a convergence of several factors that will ensure interest in this topic in the coming months:

  • Increased customer awareness:– customers are becoming more aware at a local level (composting, recycling, food miles) of the impact of climate change, and this is changing their own perceptions. Customers are also employees of the insurance company, and so overtime, these increased expectations shift to companies they work at and from whom they buy.
  • Energy costs on the rise – watching the price of a barrel of oil is becoming a hobby… The sharp increases last year brought into focus our reliance on this fossil fuel, for both consumers and businesses.
  • Recession pressures have seen a real focus on reducing costs in the business. Initiatives such as reducing paper, reducing a data center’s carbon footprint through more modern, energy-efficient systems helps the environment and also saves money. Allowing more remote work to reduce commuting has a positive impact on the environment but also can increase morale.
  • Regulatory scrutiny – Governments are going to become increasingly focused on controlling water usage, carbon emissions as they strive to meet their national and electoral commitments to the environment.

So as all these factors converge, we believe we will see an increasing effort in the insurer to have clearer eco-centric policies across the organisation. These will impact both supply and demand of technology, and also show the role that technology can play in getting the organisation to be smarter about how they work – think shared services, remote labour force as examples.

For more detail, see our report published next month.

Where's My Junk Mail?

Where's My Junk Mail?

My wife and I had our first baby one month ago. The excitement and awe are slowly giving way to pragmatic concerns. Like, what’s the downside of using a pacifier? Is it really necessary for Baby Weber to live in organic cotton clothing? Isn’t it time to start a college funding plan? And where are we going to buy the extra life insurance that we ought to have?

While random thoughts on pacifiers and baby clothing are now—somewhat incredibly—interesting to me, the issues most relevant to this audience are the latter two. And my perspective on them in Week 4 of my newborn’s life is that insurers are strangely absent in helping me to think about financial products.

While the insurers sit idly by, my wife and I have received direct mail offers from photographers, clothing stores, umbilical cord blood banks, and even a local private school. (He’s a month old, and I’m supposed to enroll him in private school already!?) Babies R Us emails me weekly specials. I’ve put myself on some of these mailing lists, so I’m not mad. I appreciate the attention, for once.

I’m thinking insurers must be able to access the same databases as everyone else, in which my name now has a checkbox in the NEW PARENT columns. But if they do, they aren’t working those databases very well.

Come to think of it, I didn’t even get any insurance material in the baby welcome kit from the hospital where he was born. Formula and diapers yes, insurance no. The story on life events marketing in insurance is age-old, but at least in my home town no one seems to be acting on it.

The good news is that many carriers appear to be building out infrastructure in a way that supports life events marketing. For example, needs analysis solutions are getting very good at teasing out the customer’s story. Web-based self service is generating tons of data that can be mined for relevance. “Practice management” tools are integrating the workflows and data across front and back offices. Now if someone aim those tools at the thousands of birth announcements appearing in newspapers every day, I might get the offers for financial products that every new parent needs.

Wisdom From South Park

Wisdom From South Park

Fans of the TV cartoon South Park were treated to a comical scene this week that resonated with me. The episode raises an intriguing question: Can there be rational thought behind some of the decisions being made about the economy and financial institutions?

Stan (a normal kid from Colorado, for those of you who don’t watch) sneaks into the U.S. Treasury offices. He’s wondering how Treasury officials make decisions about saving troubled institutions, and here is what he sees: One official chops the head off a chicken and throws the bird onto a giant horizontal wheel sectioned off in bright colors, with each section labeled as a potential option. Another official spins the wheel. A third takes out a kazoo and performs circus music while the bird lurches around crazily, spewing blood. When the headless bird finally expires, the space on which it falls lights up with a game show flourish of beeps and the decision is made: “BAILOUT!”

I’m quite certain that Treasury officials have other tools at their disposal. (Ping pong ball lottery machines instead of chickens?) But the broader point is that there are so many unknowns right now that we might as well be using the chicken method. We simply don’t know where this is all going.

At Celent, we’ve been blogging and writing and speaking about related issues for several months. But for me, there are at least as many questions now as when the crisis began in the fall. So what’s an insurer to do? First of all, don’t focus on the unknowns, as they will drive you crazy. Second, keep doing the things that seemed like good ideas before this all began. Invest in technology, improve your infrastructure, and keep asking questions about how you can make things better for customers and agents. Finally, don’t get too caught up in the prognostication. As anyone who grew up in the country can attest, chickens are surprisingly resilient, even minus their heads.

Answer the emails before you Twitter

Answer the emails before you Twitter

If you think twittering is for the birds, then think again. US President Obama and Stephen Fry (a renowned British actor) are both active users of the micro-blogging website – twitter.com. Earlier this month, Stephen Fry was stuck in lift in London and used Twitter to talk to his followers – all 180,000 of them – about his predicament. Ever helpful, his followers offered advice on surviving in broken lifts and generally uplifting comments. Welcome to the world of social networking.

But it’s not all fun and games. Recently, a US congressman took to announcing in detail his movements on a visit to Irag. This caused an outrage over the unintended security risk he caused for himself and his delegation.

Companies are using Twitter for their own purposes. You can follow the CEOs, hear what employees are saying about the company or interact as a customer. Twitter has caught onto this corporate surfing and has made mutterings about charging corporate users. Clear benefit of this channel remains unproven and such a move would certainly dampen corporate interest.

In the corporate world, Twitter is said to be able to play a role in customer feedback, queries or product questions. However, these activities could just as well be served in on-line forums which are better at structuring and associating data. Twitter boards can sometimes look like random streams of the unconscious that can only make sense to the Twitter owner. Most companies will allow you to submit queries to them via email but either don’t respond, or respond in a useless timeframe. I’d happily use alternative channels (email, twitter, skype) to communicate with companies instead of having to deal with those interminable call centres. But then the company must actually respond.

The Wall Street Journal noted “… some users are starting to feel ‘too’ connected, as they grapple with check-in messages at odd hours, higher cellphone bills, and the need to tell acquaintances to stop announcing what they’re having for dinner”

I’m with WSJ on this one. Twitter is yet another communication channel in an over-communicated world. The technology may be a viable consumer communication channel but it competes with alternative and more established channels. My message to firms considering this is to get your other channels working first.

As expected, Solvency II is under threat

As expected, Solvency II is under threat

In April 2008, Celent published a report about the new regulatory approach for insurers and reinsurers operating in the European Union called Solvency II.

Surprisingly or not, the draft text submitted to and approved in the beginning of December by the European Council of Economic and Finance Ministers (ECOFIN) does not contain the group supervision provision any longer. With Solvency II, capital requirement is based on a risk-based system as risk is measured on consistent principles. Knowing that, the removal of the group supervision requirement is an important change to the overall Solvency II regulation. Indeed, the idea behind Solvency II is to encourage large and diversified groups because they can pool their capital resources which should in turn benefits to policyholders. This approach is directly derived from the Basel II regulation implemented for the bank industry.

In other words, it seems that some factors have played an important role during the last six-month period and led the policy makers to reconsider the pros and cons of the group supervision provision. First of all, a few internationally diversified banks have nearly collapsed in the recent past demonstrating that the Basel II regulation could not prevent even well-diversified institutions from experiencing solvency problems. In the insurance sector, the American International Group (AIG) has been seriously hit due to its vast financial exposures that were written at the group level. In addition, after the massive interventions of governments to save some of the biggest European financial institutions, political pressures have emerged. France, for instance, seems to be in favor of the deletion of the group support element of the directive. This decision is also due to the fact that mutuals – which are preponderant in France – tend to have lower solvency ratios and capital requirements. Smaller countries in Eastern Europe are also concerned since they fear losing control over some of the entities. According to a report published by FSA in April 2008 (Enhancing group supervision under Solvency II), foreign insurance subsidiaries own 98.6% of market share in the Slovakian life sector and 100% in the non-life. These figures help us better understand the small Eastern European countries concern.

Overall, the immediate consequence of the ECOFIN decision could trigger new rounds of political discussions and delay the effective implementation of the Solvency II directive. In this context, Celent thinks that 2012 might be a too optimistic objective. However, we still encourage insurers to prepare for the Solvency II implementation because the new set of capital requirement regulation means changes and will trigger new investments anyway.

Integrity In Times of Turmoil

Integrity In Times of Turmoil

It is easy to do the right thing when everything is going well. It gets harder as conditions deteriorate.

That basic truth applies to just about everything. I think it is relevant to the times we’re in, whether you’re an insurer competing for scarce premium dollars, a vendor trying to differentiate your products to customers, or an analyst firm that provides a neutral voice on business and technology trends.

How about an example that touches our industry? A homeowner I know was horrified to discover that the custom-made cabinets in his brand-new home were off-gassing immense amounts of formaldehyde, nearly a year after he moved in. His builder, the cabinet subcontractor, the supplier of the materials used in the cabinets, and their respective insurers all cashed their checks after the house was built. But despite their clear shared responsibility for the problem, they all ran for the hills when the formaldehyde was discovered.The homeowner moved out and took a third mortgage to remedy the problem while the lawyers argued over who should ultimately pay for the fix.

There’s plenty of shameful behavior in that story. But focus on the insurers. Were they justified in denying liability and pushing the case into suit? I think they all need a gentle reminder that the true measure of who we are–as companies and individuals–emerges in times of trouble, not in times of plenty.

For those of us who appreciate a good challenge and who want to demonstrate their commitment to doing the right thing–always–these are the best of times. And times of revelation, in a sense. As the prospects for a quick economic turnaround dim, we’ll all have new insights into who thrives on doing the right thing, and who does not. This is a distinction that matters.