- 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.
- 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
- 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)
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.
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!
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.
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.
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.
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.
- Software integrators-driven acquisitions: large software integrators are trying to diversify their service offering through the acquisition of insurance system IP. The best example of this type of strategic move is for instance the acquisition of Wyde by MphasiS a few years ago.
- The Private Equity (PE) firms-driven acquisitions: there is a growing interest to invest in the insurance core system space for PE firms. The best examples of this type of acquisitions are the contribution of Riverside in the merger between Charles Taylor and Fadata or Waterland Private Equity investment in Keylane that now combines activities of various PAS vendors including formerly branded LeanApps, Quinity, Mantcore and more recently the German vendor called Geneva-ID.
- The core system vendor-driven acquisitions: PAS vendors understand they can grow quicker if they merge with a competitor. Sapiens acquisition of FIS Software and IDIT or Prima Solutions acquisition of Albiran a few years ago are good examples.