Distribution Management – New Tools for Strategic Growth

Distribution Management – New  Tools for Strategic Growth

Growth and retention continue to be the top business goals affecting IT investments. Many insurers are focusing on improving their distribution practices as a key technique for driving growth.  Designing, developing, maintaining and managing productive channel relationships can create a sustainable competitive advantage.

Almost every insurer we talk to is focusing on how to grow their book of business.  Some are using underwriting strategies, some are focusing on improving customer service, and others are looking at acquisition.  Virtually every insurer we talk to is also focusing on distribution management.  They’re looking at expanding channels, adding distributors, moving into new territories and working to expand their existing channel in order to improve customer acquisition and retention. 

These multiple channels are effective at targeting different aspects of the market, but add complexity when it comes to channel management. Additionally, the explosion of InsureTech startups carries with it the potential for channel disruption. However, a wide variety of issues creates difficulties for insurers when it comes to effectively managing the distribution channel.

As an insurer begins to focus on managing their distributors more strategically, many put resources towards managing their distributors more effectively in order to extract more revenue from them. Some insurers are focused on managing the compliance aspects of distribution management – assuring the distributors have the right licenses and that state appointments are made in a timely manner.  Others are focusing on using compensation tools and techniques to more effectively stimulate production. Still others are placing their priority on servicing high priority distribution channels and improving service to distributors.  They are utilizing increasingly complex segmentation schemes and tailored programs for preferred producers as a way to retain and grow business.

But in doing so, they often run into a common set of issues.   Standard processes and automation were designed for an environment that has long since passed, one that was much more stable and predictable. In a typical insurance environment today, multiple departments perform separate tasks in the cycle making coordination of activities and integration of information difficult. This is especially problematic since producer management involves large numbers of distributors, different types of distributors, a substantial volume of transactions and data from multiple sources. As insurers expand the number and types of distributors they work with, hierarchies become more complex to manage. This is compounded by multiple jurisdictions, multiple policy admin systems, and limited reporting and analytic tools.

These conditions result in multiple issues including poor service, a lack of insight into producer performance, unreliable data, and high support costs. The inability to link information means that distributors are managed on transactions instead of strategically. Compliance issues continue to plague insurers who find it difficult to monitor licenses and process appointments in a timely manner.

Distribution management systems provide tools and technologies to help insurers with the administrative aspects of distribution management. They are most typically used by insurers with a mixed distribution channel, multiple policy admin systems, multiple jurisdictions, complex compensation programs, or some combination of these factors.  These systems encompass a wide variety of administrative functions that are focused on operational issues such as registering and licensing producers, configuring compensation plans, administering payment and reconciliation, and tracking performance.  They provide tools and technologies to help insurers with the administrative aspects of distribution management.  They are most typically used by insurers with a mixed distribution channel, multiple policy admin systems, multiple jurisdictions, complex compensation programs, or some combination of these factors.

I’ve just published a new report Distribution Management System Vendors: North American Insurance 2017.   It describes what these solutions do and profiles 16 distribution management solutions that are relevant for property casualty and/or life and annuities.  There’s another report that covers all the global vendors as well.  Check it out – or send me a note if you’d like to talk about the report.  And keep your eyes on this space for an upcoming report – Reinventing Distribution – which will give tons of examples of cool stuff that insurers are doing to manage, enable, and shift their distribution channels. 

Digitizing Life Insurance New Business with Technology and Tools

Digitizing Life Insurance New Business with Technology and Tools

In February Celent published its second report using data from a 2016 New Business Benchmarking Survey. The first report compared data based on the average face value of products sold by the participating insurers. The second report presented the same benchmarking data but considered technology as the main focus. It compared the overall averages for a set of key metrics with the averages for high and low technology users throughout the new business process. The findings from the report were not surprising; except for the fact that we had to acknowledge that technology in the new business is still slow to take hold.

We found that electronic application use is on the rise. Just less than one half of all applications by the participating insurers were submitted electronically. The insurers that sold moderate face value policies were more apt to use electronic applications than insurers that sell high face value policies. That makes complete sense since most insurers begin their eApplication journey with less complex products like term or whole life. Celent believes that all insurers can achieve benefits from eApplications. Less than half the insurers in the study Insurer reported having an eApplication, and those with captive insurers submitted a larger percent of their new business via eApps. Direct to consumer as a channel was reported by four of the insurers and they received 20% of their applications from e-apps targeted to consumers.

Data quality is a critical issue that strongly impacts unit costs. As a group, the insurers that participated in this study estimated that 69% of all paper applications received were not in good order (NIGO). For those that implemented eApps and have a technology heavy new business process the NIGO rate fell to 5%.

We also found that imaging systems were ubiquitous. Ninety-eight percent of paper applications were imaged. Imaging was also used for the underwriting requirements that are received in paper. Workflow systems were also very common. But as the process moved closer the underwriting evaluation the level of automation began to drop off. Seventy percent of the participating insurers could automatically order and receive underwriting requirements; however, this happened for less than a quarter of the applications. Since most third party providers of underwriting evidence can provide data in digital formats, this Celent recommends this as an area for future investment by insurers. Further down the line shows that technology is not king in the underwriting departments yet. Automated application evaluation, underwriting/case management workbenches, and electronic signatures were used by over half of the insurers in the study; however, less than 40% of all applications were managed on a workbench. Even fewer were processed by an underwriting system, and only 12% included electronic signatures. Electronic policy delivery, new in the 2016 survey, occurred for 4% of all applications.

When an insurer is fully automated in the NBUW process, benefits can be seen in cost and time metrics. For insurers that implemented technology throughout their new business process the unit cost per application dropped from US$312 to US$237, and unit cost per policy issued fell from US$440 to US$329. The average cycle time fell from 38 days to 17 days for the insurers that implemented a full suite of new business and underwriting technology into their process.

The highest-level conclusion that can be drawn from this new business benchmarking data is that even among top-tier insurers, there are significant differences in new business performance, particularly when technology is considered. Creating performance measures such as unit cost, percentage of new submissions “in good order,” and cycle time is essential. Monitoring those measures against a peer group will be an eye-opening experience for insurers that do not do it today. While direct comparisons between insurers are difficult due to product and channel differences, this study and our previous one suggest there is a strong relationship between face amount and unit cost. It also suggests that technology can have an impact on costs and cycle times when it is implemented across the process or even in just parts. Insurers are urged to analyze their own performance, starting with metrics such as unit cost per application received, unit cost per policy issued, and percentage of cases received not in good order.

The notion that life insurance underwriting is more art than science (and thus exempt from automation) is misleading at best. It is true that the subtleties in underwriting present unique challenges for technology. But underwriting is a process like many others in that it requires certain data as input, and there are rules that govern both the process flow and the decisions that result from it. Following basic principles of getting clean data and automating wherever possible will help insurers do their jobs more cheaply and more effectively.

Process improvement strategies should focus on implementing electronic applications, automating the receipt of third party underwriting evidence, and automating underwriting decisions. The order depends on the distribution strategy and change management processes in place to maximize the benefit. Few insurers have maximized the potential value of new business automation, but the findings in this report show the time savings and cost reduction potential of implementing technology across the new business process flow.

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

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.

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

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.

Guidewire makes blockbuster acquisition of ISCS

Guidewire makes blockbuster acquisition of ISCS
Long sought after by Private Equity firms, other insurers, and the occasional investment banker looking for a transaction, privately held ISCS has chosen to join Guidewire (NYSE:GWRE).   ISCS adds its SurePower Innovation end-to-end suite to Guidewire’s existing InsuranceSuite end-to-end suite. This is a decided change of acquisition strategy for Guidewire. Up to now, all its acquisitions have fit into—or added a single new element—to InsuranceSuite.   Why?   Well, if you are a publicly held company growth is good. ISCS immediately brings more revenue and more importantly brings good market momentum with a solid sales pipeline.   ISCS’ focus on small and midsize insurers brings a few other intriguing possibilities. One is that Guidewire and its SI alliance partners will now aim at the large and very large insurer market, leaving the small and midsize market to ISCS. A second is that ISCS will become a vehicle for small insurer growth outside of the US. The third is that ISCS’ more extensive cloud experience, especially with AWS, will step up Guidewire’s movement to the cloud.   For now Guidewire shareholders have a heckuva gift under their Christmas trees.  

Have Electronic Applications Come of Age?

Have Electronic Applications Come of Age?

My first experience with an electronic application was in 2002.  I was working with a major credit card company who included a flyer along with the billing statement that provided information about how to apply on-line for their term life insurance product. We didn't know how many applications to expect; but based on the wide distribution, we planned on a high number.  Many months of effort went into developing the eApplication on the website and creating an interface for the collected data into the new business and underwriting system. This was cutting edge technology at the time. The electronic application collected the Part 1 – demographic information – of the application. The Part 2 – medical information – was collected by a third party. A whopping 523 applications were received from the first mailing. The campaign continued on an intermittent basis for a year with a few over 2,000 applications received. At the end of the year, we threw in the towel and quietly closed down the campaign.  

Why did the campaign fail? There was nothing wrong with the process and the technology, while primitive compared to today, worked well.  The problem was that the idea was ahead of its time.  People were not ready to buy insurance on the internet. In fact, most of the applications received were declined or heavily rated.  The people who applied were driven to do so by a less than stellar health history and had few other options available to them.   

Flash forward to today; digitization of life insurance new business is a hot topic. Consumers are buying everything from mutual funds to groceries on the internet.  However, based on Celent’s recent new business and underwriting benchmarking report, Resetting the Bar: Key Metrics in Life Insurance New Business and Underwriting, nearly 52% of all insurance applications received are still in paper form.

There are a number of problems associated with paper applications, from missing forms to illegible writing, which creates a tremendous impact on an insurer’s ability to process an application quickly and/or accurately. Industry benchmarks have placed NIGO (not in good order) rates at greater than 50%. Electronic applications essentially eliminate NIGO.

Our research shows a significant reduction in new business cycle time for insurers between 2007 and 2016. For high face amount writers, the average cycle time decreased from 52 days to 44 days and from 42 days to 33 days for moderate face amount writers. When asked how the better results were obtained, the majority of insurers had seen a reduction in cycle time due to the use of technology. Some responses included “increase in eApp adoption and increased use of an automated UW engine,” “eApp, more skilled staff, cross-training with 60% automated underwriting, so huge reduction,” and “increase in auto-issue rate.” Obviously, the new business process is ripe for automation.

In Karen Monks’ and my new report, The Doorway to Straight-Through Processing: Life Insurance Electronic Applications 2016, we profile nine software vendors and their 10 electronic applications marketed to life insurance. The report focuses only on stand-alone solutions in North America. For each vendor the solution is described using the customer base, data sources supported, functionality, and technology, as well as implementation and costs.

In 2002, the buying public wasn’t ready to shop for insurance on-line.  That attitude is changing.  An electronic application, along with an underwriting rules engines and electronic contract delivery, to enable straight-through processing will soon be the norm. The time for eApplications has arrived.  An electronic application opens the door to transform the insurance buying experience, increase agent and customer satisfaction, and potentially sell more insurance.

  

 

Predicting the Future – Illustration Systems to the Rescue

Predicting the Future – Illustration Systems to the Rescue

Life insurers continue to strive to increase growth and point of sale tools used by producers continue to evolve. Illustrations are becoming a key factor in keeping producers happy by improving the probability of the life insurance sale. Modern illustration systems provide the ability for agents to illustrate a variety of “what if” life events such as college education, retirement or purchasing a home to show how life insurance can be used to plan for the future events. Quality illustrations can move a “nice-to- have” to a “must-have” for a prospective client.

Functionality changes such as more emphasis on the illustration output, the use of mobile devices, user-level configuration, and full integration with other point of sale tools are just a few of the changes Celent has seen in vendor based illustrations solutions.

In Celent’s new report, Predicting the Future, 2016 North American Illustration Solution Spectrum, 11 vendors providing illustration systems to North American insurers are profiled.  The following trends in North American illustration systems were observed:

• Regulatory changes including NAIC model regulation and Department of Labor fiduciary rule driving increased transparency.
• Disconnected mode of operating with automatic synchronization upon reconnection.
• Increased security with role-based authentication and single sign-on capability.
• Ability to limit the products displayed to those that the agent is licensed to sell and the potential insured is eligible to purchase.
• Configuration has replaced coding for calculation engines but still requires IT involvement.
• Standardization of transactions for third party interfaces.
• Improved user experience with prefilled data, fewer forms, and conversational English-like labels for data entry. Output provides graphs and charts in addition to tabular data.
• Omnidevice support for phone, tablet, laptop, and desktop. An agent can start the quote or illustration on one device and complete it on another.

Today, an insurer can manage what used to be myriad of POS tools that included needs analysis, advanced sales support, suitability, illustrations, and e-applications, which were provided by a combination of vendors and in-house systems, through one interoperable, integrated vendor system.

Insurers also have the choice in the level of system development and maintenance in which they want to partake. Today’s vendor systems offer a spectrum from full vendor maintenance to user-level tools for the insurer to maintain its own systems.

Although homegrown illustration systems are still being developed and used, Celent believes that most carriers looking to invest in a new illustration system should consider vendor systems for core functionality and tools that can help them produce illustration systems more quickly and at a lower cost.

A companion report of 14 illustration vendors selling in EMEA, APAC and LATAM is coming soon!

Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?

Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?

The Guidewire acquisition of First Best should come as a wakeup call to other suite vendors in the marketplace.   Not to be a doomsayer, but the reality is the market for core system replacements is shrinking.  Many carriers are in the middle of a replacement or have already completed their replacement.  There are fewer and fewer deals to be had and more and more vendors in the marketplace chasing those deals.  

Let’s look at the numbers.   Donald Light’s recent PAS Deal Trends report shows that we’ve seen an average of around 85 deals a year over the last two years.  But there are more than 60 suite vendors out there.  Of those available deals, a very few key vendors – including Guidewire – will likely get half or more of them.   That leaves around 40 deals for the remaining 60’ish vendors.  That’s less than one each.  And that’s IF we assume the market will stay steady at 80-85 deals a year. This basic math shows that many core suite vendors will not get a single deal in 2017.  

So how can vendors satisfy their shareholders?  How can they generate growth and remain viable players?  The truth is some of them won’t.  But smart vendors are thinking about other options for growth.  And they have a few paths they can take. 

  • Sell things other than suites.  This is the tactic that Guidewire is showing with their recent announcement of the FirstBest acquisition and is also illustrated by their prior acquisitions of Millbrook and Eagle Eye.  Duck Creek is doing the same as shown by their acquisition of Agencyport.  Providing other core applications that carriers need allows a vendor to continue to grow their existing relationships, and allows them to create new relationships with carriers – even if the carrier doesn’t need a new core system.  Some vendors will purchase these additional applications; others will build them.
  • Sell to a different market – Insurity’s acquisition of Tropics lets them go down market to work with small WC carriers.  Their acquisition of Oceanwide gives them the ability to handle small specialty, or Greenfield projects.  While there are still plenty of deals to be done in the under $100M carrier market, most vendors can’t play in this space. Their price points won’t work for small carriers, and their implementation process won’t work. It’s too expensive and takes too many carrier resources.  The implementation process has to be drastically  different for a carrier with only 6 people in the IT department than it is for a larger carrier.   This strategy of going down market only works if a vendor can appropriately sell and deliver their solution to a small carrier while still making margin – and many vendors just can’t do that. 
  • Enter a different territory – Vue announced today they’ve entered Asia with Aviva; Sapiens entered the US by purchasing MaxProcessing.  And we see other vendors including Guidewire, EIS, and Duck Creek moving outside the US.
  • Sell services – many vendors provide cloud offerings – which provides a steadier stream of income.   Vendors such as CSC or The Innovation Group (prior to the split) had/have a large proportion of revenue coming from services.  Vendors like ISCS provide additional BPO services such as mail services and imaging.   

Any of these strategies are viable – but I predict we’ll see more vendors using them as the market for core system replacements shrinks.  Smart vendors are already thinking ahead, working on their long term strategy. 

Carriers who work with these vendors should be watching as well.  No one wants to work with a vendor that won't be here for the long term.  If you’re a carrier considering a new system –

  • Make sure your vendor is showing momentum – new sales.
  • Look to see what the signals are for their long term viability – will they be a survivor selling new suites?
  • Do they have the resources to create or acquire new capabilities like portals, analytics or distribution management?
  • Are they entering new markets, new territories or providing new service offerings?

If you don’t see these signals, you may want to start having a conversation with your vendors today. 

 

 

Apax Partners adds Agencyport to its growing property/casualty technology investment portfolio

Apax Partners adds Agencyport to its growing property/casualty technology investment portfolio

Today’s announcement of Apax Partners’ acquisition of Agencyport makes sense. This deal is a further commitment by Apax to the property/casualty software sector—following shortly after Apax’s announcement of its equity investment in the soon to be independent Duck Creek.

Insurers want the internal and external users of their systems to have seamless mobile access to new business and other functionality. Agencyport has developed one of the leading solutions for agents, brokers, and policyholders find information and execute transactions with insurers’ core systems.

As is true for any technology acquisition, the soon to be combined management teams of Agencyport and Duck Creek will need to focus on communicating the benefits of their new relationship to current and prospective customers—sending a “good before, better now” message. Providing “vendor neutral” support to Agencyport customers who do not use Duck Creek solutions and Duck Creek customer who do not use AgencyPort solutions will also be crucial.

Who has the best life insurance new business and underwriting system?

Who has the best life insurance new business and underwriting system?

Celent has published a new report, North American LHA New Business and Underwriting Systems: 2016 ABCD Vendor View, in which Celent profiles fourteen providers of new business and underwriting systems. Each vendor responded to a request for information. Seven vendors met the criteria for inclusion as a potential Xcelent winner. The seven vendors eligible for the awards provided a demonstration and briefing of their billing solution.

Due to the ongoing economic conditions that continue to have an adverse impact on life insurance application volumes, insurers have strong interest in reducing the cost of acquisition, processing and issuing life insurance applications. Automating the new business and underwriting functions are critical components in reaching a level of straight-through processing (STP) for new business. Insurers hope that these systems will help reduce unit costs and improve margins. Celent believes that these initiatives are necessary to help the insurers address growth, service, and distribution mandates, in addition to reducing the cost per policy issued.

After years of development that started almost 30 years ago, automated underwriting systems have become highly flexible in allowing insurers to define and configure underwriting rules and workflow. Most systems include or integrate into eApplications. Data from the applications drive reflexive questioning and identify risk classes associated with application data. They offer high levels of automation when gathering third party medical requirements and flag risks when the third party data results are outside of the ranges set by the rules. They also can deliver decisions to the point of data entry or to an underwriter.

New business image

The interest in new business and underwriting systems is on the upswing. Deciding the best new business and underwriting system is unique to each insurer. The goal of the report is to provide detailed information so that an insurer will be able to make an informed decision on which systems may be the best for them.