$100million — Follow the Money: Investment in Innovation Ventures

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Jul 25th, 2014

The announcement yesterday that MassMutual has set up its own fund to invest in innovations that may/will affect life insurers is another move demonstrating how real money is being bet on disruption.

Here is the link to their press release site: http://www.massmutual.com/aboutmassmutual/newscenter/pressreleases

Celent is aware of several organizations which have set up similar funds. These are not 3rd party venture funds, but are managed, directed, and owned wholly by insurers.

These moves signal that innovation leaders are increasing investments to discover new ways of responding to customers’ needs. The difference from past behavior is that insurers want to own the technology, not just buy it once it is available on the market.

In these companies a first mover advantage strategy is replacing the age-old fast follower approach. The bet is that, as technology investments pay off, patents and expertise barriers will prevent others from even being able to follow. Insurers will gain advantage because they own a protected capability, or they will be able to license it and capture an alternative revenue stream.

Stay tuned. It’s going to be exciting!

Innovation that Delivers on the Brand Promise at USAA

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Jul 23rd, 2014

The announcement today (http://www-03.ibm.com/press/us/en/pressrelease/44431.wss ) of the use of IBM’s Watson platform by USAA demonstrates several of the current research themes at Celent. The move is an excellent case of innovation at the intersection of brand, risk management and technology.

First and foremost, this is another example where USAA is delivering on its brand promise – to improve the lives of active duty and veteran military members and their families. The company will use Watson will to answer the questions of service military members who are transitioning to civilian life. An firm’s brand promise is at the foundation of the Celent customer experience model. It is the key characteristic that signals the evolution from a customer relationship management (CRM) to an experience approach.

Second, this development is an illustration of an increased focus on prevention and risk mitigation. Traditionally, insurance has been a backward-looking, financial indemnification product (we pay you when there is a loss). This approach shows how insurers will innovate to apply technology to help insureds more effectively manage the risk in their lives (reduce or, avoid risk, altogether). This redirection will occur in commercial, as well as personal lines (see previous post on this blog: “My Risk Manager is an Avatar”).

Finally, this is a business application of a computing approach that, up to now, has been closely held in the laboratory, in select pilot accounts, and in a custom, controlled environment (such as Jeopardy!). It will be fascinating to see what we humans, and the machine, Watson, learn in from this insurance debut.

Apple Takes a Bite at the Internet of Things—Where are Insurers?

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Jun 3rd, 2014

Apple has just announced two new “robust frameworks” for developers that are aimed squarely at two of the hottest sectors in the Internet of Things (IoT): HealthKit and HomeKit (http://www.apple.com/pr/library/2014/06/02Apple-Releases-iOS-8-SDK-With-Over-4-000-New-APIs.html).

The IoT connects people and non-human things. HealthKit facilitates communication between fitness apps (think fitness bands) and health apps (think doc in a box). HomeKit uses Siri to poll and control household appliances and systems (heating and cooling, lighting, security (and eventually entertainment?). Everyone who saw “Her” and wishes they could achieve a higher level of intimacy with an AI/Machine Learning avatar, can now (according to Apple’s PR) “tell Siri you are “going to bed” and it could dim the lights, lock your doors, close the garage door and set the thermostat.”

Apple also announced some initial partners: the Mayo Clinic for HealthKit; and Philips Lighting for HomeKit—both strategically good, and household names (so to speak).

What is missing from this announcement is any mention of how health insurers or homeowners insurers could participate in what Apple wants to be a foundational step for connecting networked sensors to data stores, and then using analyses of that data to better price, underwrite, and control losses.

The iPhone (and other smart phones) have changed parts of the claims process, and basic communication between consumers/patients and healthcare providers. Apple clearly hopes that HealthKit and HomeKit will begin to do the same for the IoT.

Will insurers jump on this wave—or stay on the beach?


Business Configuration – Is it Time?

Karlyn Carnahan

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May 28th, 2014

I was talking with a carrier recently who asked an interesting question. “So many of the modern core systems include highly configurable environments. Does it really make sense for the business to be making their own changes?”

We have seen a movement toward more involvement by the business in the configuration of software systems. Many of the tools have dual development environments – a simplified environment that supports the business making simple changes – modification of rate algorithms/tables, product definitions, lists of values, drop downs – sometimes through wizards. Typically a more robust environment is used by IT to manage screen and workflow configuration, business rules configuration, data/ object model configuration and interface configuration.

Many IT departments have taken the philosophical position that their job is to enable the business to do as much as possible themselves and to do so as transparently as possible.

There are a number of good reasons for this. There’s a better alignment between responsibilities and ownership. It enables the business to be ready for testing, training, and other necessary activities. The business gets to see the changes they’re making and have control over some of the aspects. They can make the changes based on their own prioritization of them.

But for most companies, there are significant hurdles in this movement so the shift has been and continues to be quite gradual.
Specialized knowledge such as logic and abstraction may be needed and may not reside in the business. Changes may impact multiple stakeholders so a process must be in place to assure consistency across business units. Version management is usually important – but different levels of maturity may exist in different parts of the system. The business may not understand the global impact on cost, performance, and maintainability when making changes on systems and environments especially if they are working with complex rules or products.

Sometimes IT resists moving the responsibility to the business – but here’s a secret. Most IT departments don’t actually enjoy configuration work. Most would love for the business to do it themselves. Why then do we see significant resistance on the part of IT departments to move it?

In most cases, IT knows that they are the ones who are held responsible for the system and will be the ones to answer the phone at 2 am or work the weekend investigating a problem. IT is also usually the group measured by system availability, incidents and SLAs and doesn’t want to be penalized for other groups’ activities. In many organizations, business hasn’t been willing to invest in the tooling, interfaces and governance necessary to make it practical for them to self-manage. But IT wants to be sure the other areas are going to be held to the same standard of governance that IT is. These standards were put in place for a reason. And some carriers are concerned about regulatory issues and making sure that there is segregation of duties as well as good auditability around the changes being made because of the discoverability of those changes. Auditability requires a great deal of consistency across processes that can be harder to maintain when spread across multiple units.

If you’re going down this path there are some things to think through. First, make sure you’re solving the real problem. The business may want to take responsibility because they feel they have difficulty engaging IT, that there are quality problems or that IT doesn’t have sufficient business knowledge of what needs to be done. Sometimes business wants to take control because they feel changes aren’t being made quickly enough or senses prioritization or resourcing conflicts. All of these items should be a separate conversation. It may well be that the nature of the work requires a process or skill that will make it better housed in the business. But if it’s one of the other issues, solve for that before moving responsibility to the business.

If you do decide to move configuration to the business, make sure the business is well trained on how to use the tools – and has an understanding of the dependencies outside of their specific area. Some carriers find it most effective to find a few ‘super-users’ in the business and to roll out capabilities to these users in a phased manner. Create a test environment that supports the business. Many times, they’re simply looking for a sandbox environment where they can model what they want – and then use that as the starting point of a request to IT. Include the business in the same governance process for quality assurance, testing, and release management.

While software vendors have created robust tools that can support business driven configuration, carriers should assure processes, procedures, and governance is in place before moving the capability from IT to the business.



My Risk Manager is an Avatar

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May 22nd, 2014

In the world of Commercial Insurance there exists the very curious role of Risk Manager. I mean curious in the sense that successful risk managers appear to have superpowers. They are charged with taking the actions necessary to avoid or reduce the consequence of risk across an entire enterprise. Their knowledge must extend deeply into a variety of subjects such as engineering, safety, the subtleties of the business of their employer, insurance (of course), physics, employee motivation and corporate politics / leadership. Their impact can be wide-ranging, from financial (eg., dollar savings from risk avoidance / mitigation) to personal (the priceless value of the avoidance of employee death or injury).

Sadly, the tyranny of economics restricts the access that businesses have to continuous, high quality risk management. Full-time risk managers are prevalent in huge, complex, global companies. These firms often self-insure, or purchase loss sensitive accounts and the financial value of a risk management position (or department) is clear. The larger mid-market firms can afford to selectively purchase safety consultant services, their insurance broker might perform some of these tasks (especially at renewal), and their insurers may have loss control professionals working some of these accounts. However, for the majority of small businesses, risk management at the professional level is not affordable.

Over the past year, I have toyed with different ideas about how to automate this function in order to bring the value of a risk manager to the small commercial business segment. My attempts were always unsatisfying (and one reason I have not blogged this idea before). However at The Front End of Innovation conference last week in Boston, a presentation by Dr. Rafael J. Grossmann (@ZGJR) crystallized the vision. I can now clearly see how existing technology can be combined to create a Risk Manager Avatar.

Dr. Grossmann is a trauma surgeon who practices in Maine. In addition to the normal challenges of his profession, he is one of only four trauma surgeons servicing a very wide area. Although sparsely populated, the challenge of distance and time complicates the delivery of medical services. Dr. Grossmann presented his vision of a medical avatar, a combination of technologies which will perform 80% or more of the routine medical cases in a consistent, timely, and cost effective manner. Combining the technologies of mobile, voice recognition, virtual reality, artificial intelligence, machine learning and augmented reality forms a new silicon entity – a medical doctor avatar. He also introduced a company, sense.ly, that is now working to deliver similar services (video here: http://www.sense.ly/index.php/applications/).

If such systems can deliver medical services, then why not risk management? For example, given permission, a system would monitor the purchases of a small company and identify when the historical pattern changes, eg., when the company begins to buy new types of materials. Using predictive algorithms, the pattern can be compared against others to evaluate if there is likelihood that the company is now performing new business operations. The avatar could then contact the small business owner to consult on options (endorse policy, retain risk, cease operations). It could also escalate the issue to an underwriter to evaluate more complex options.

Someone will build a Risk Management Avatar. The question is, who will do it first?

6.26.2014 Celent Insurance Webinar: Functionality and Technology Trends

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May 21st, 2014

Jamie Macgregor, Senior Vice President of Insurance and Nicolas Michellod, Senior Insurance Analyst

This event is free to attend for Celent clients, flex-plan clients, and the media. Non-clients can attend for a fee of US$250. If you are unsure of your client status, please contact Chris Williams at cwilliams@celent.com or at +44 208-870-7875.

Please click here for more information.


You can take a horse to water but a pencil must be led: The challenge of “What does Digital really mean for the industry”?

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May 20th, 2014

Recently, I facilitated a roundtable discussion on “What digital really means for the industry”. Over the last couple of years, we’ve run many similar roundtables on the topic. Each time we run one, it never ceases to amaze me around the lack of a common definition for what digital really means, not just across the industry between firms but also between individuals within the same firms. In fact, I’m sure that there is a PhD paper waiting to be written on the topic.

One of my favorite set of questions at these events is to first ask the delegates how they define “digital” and then to follow-up by asking if this definition is shared across their organization. Generally, when you ask the first question, you get very articulate and clearly well-thought through strategic response that makes 100% rational sense. Then, when you ask the second question, you often get a look of despair or, at best, frustration with their colleagues who “just don’t get it” or are “pulling in different directions”. Well, I might be exaggerating a little here but hopefully you get the idea.

From the experience of asking this question repeatedly over the last couple of years, it seems to me that there are two challenges around “what digital really means for the industry”.

The first challenge relates to opportunities presented by technology, which range from the mundane (such as good old fashioned ‘Straight Though Processing’ and even the application of newer more exciting mobile technologies in customer engagement) through to the extreme (such as new device enabled propositions and business models fueled by the Internet of Things). This is the “what?” challenge, the one that we hear most about and the one that we can articulate the best. It’s tangible. You can see it. You can experience it. You can recognize what others are doing that you are not. There is no mystery around this challenge and you can build a program of change to address it.

The second challenge is a more subtle one. It is “as old as them thar hills” and can be aptly summed up by the saying “You can take a horse to water but you can’t make it drink”. It’s also one that this industry, as well as others to be fair, have been struggling with every time there is a step-change in pace and direction. If you know where you need to head to, bringing the rest of the organization along with you is the next big challenge, especially when you’re a large and complex one. This is the challenge of “How?”.

When discussing the topic with one insurer, he shared with me his view that “digital” is merely a term used to get his team to think differently about the way things are done. To stop his team thinking about the way they do things today and start thinking about what could be instead. For me, this was a refreshingly honest perspective. It was not about the devices, the technology or the Apps, it was about re-envisioning his business. To achieve this takes great leadership and mustering support around a shared vision.

This brings me back to the title of this blog. Stan Laurel couldn’t have said it better (or maybe worse?) in “Way out West” … “You can lead a horse to water, but a pencil must be led”. Maybe now is the time to move the debate on to talk more about the “pencils” and the vital role that leadership has to play in addressing successful Digital Transformation? I’d be interested to hear your views about where the challenges around digital really lie for you.

Quotes from the Innovation Roundtable

Neil Katkov

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May 15th, 2014

They said it couldn’t be done, but we held the latest installment in Celent’s series of innovation roundtables in Tokyo recently. Our innovation roundtables put the focus squarely on interactive discussion among the participants. This is a relatively untried model in Japan, where events typically take the form of conventional conferences with presentations. We’re glad we tried it though, because we got a very interesting line-up of firms. Participants included the whole spectrum: banks, capital markets firms, and insurers; Japanese and foreign firms; traditional mega-institutions and alternative new entrants.

The discussion was lively; below are some quick notes I took of some of the more interesting comments made, to capture a bit of the flavor of the day.

Why Innovate?
“Innovation is not the goal, it is a method and a tactic.”

“We need to innovate because it has become difficult to differentiate us from our competitors.”

“In today’s environment, innovation is necessary if you want to stay profitable.”

Paths to Innovation
“Incremental innovation is an axymoron. You can’t innovate by increments; innovation requires a big bang change.”

“It might be possible to rearrange existing elements to create something new.”

“When to innovate? If our clients think a new service is interesting, we try and create it for them and see if it succeeds.”

“Innovation needs to be business driven.”

“Financial institutions need to have an innovation division; an incubation unit that accumulates ideas from throughout the company.”

IT and Innovation
“IT is not the impetus for innovation, but because IT inevitably evolves, that creates need for innovation.”

“Legacy is a barrier: it is hard to throw things away.”

Cultural Challenges
“We need to justify ROI on any investment each fiscal year. It is hard to show this on an innovation project.”

“If you think about it, financial institutions don’t even have R&D departments.”

Quote of the Day
“Changing company culture is really about changing oneself. I personally enjoy innovation and change. Innovative culture is about getting a bunch of people together who enjoy change.”

Four Ways to Modernize Core Legacy Systems

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May 13th, 2014

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

However, modernizing core legacy systems is easier to think about than to do. Modernization projects are costly: both in terms of cash out-the-door and in terms of staff resources (full-time or part-time assignments to design and implementation teams, back-filling those vacated positions). Technical complexity is usually high due to substantial amounts of IP (intellectual property) embedded in the rules, product definitions, and processes; as well as long established integration protocols (often point to point) with other internal operating and back-office systems.

The resulting execution risk means that some projects are never undertaken, others are delayed, and still others are done piecemeal. Consequently very few insurers have completed front-to-back modernization programs—and significant portions of most insurers’ application and middleware portfolios are still legacy.

So how can an insurer balance the costs and risks of legacy modernization against its benefits?

Insurers can choose from among four legacy modernization strategies:
1. Replace with a COTS (commercial off the shelf) package
2. Replace with an Internally Re-written System, from-the-ground-up
3. Wrap and Extend (using portals, rules, BPM, content management, etc.)
4. Continuous Improvement (regular incremental improvements)

The first strategy, replacing with a COTS package has become an increasingly popular option with all but the largest insurers—as vendors have made steady improvements in features, functions, and usability. More recently some very large insurers (over $5 billion in premium) have announced they will use COTS to replace several core systems.

The second strategy, replacing legacy with a new internally written system, has been the chose primarily of very large insurers, and of some specialty insurers and reinsurers. When asked why, CIOs are likely to say that their needs (rules, definitions, processes) are too complex and valuable (IP again) to be configured into a COTS.

The third strategy, wrapping and extending, externalizes a lot of the IP from monolithic legacy code bases, and often provides a more flexible and appealing user interface. Insurers tend to use wrap and extend solutions for somewhat limited lines of business or territories, because these solutions themselves require a significant investment to deploy broadly.

The fourth strategy, incremental improvement, is in fact the default choice. No IT group (well, almost no IT group) will go a year or two without addressing some of the operational and/or technical problems posed by legacy systems. These improvements typically combine elements of the second and third strategies (limited internal re-writes and wrap and extend).

A recent Celent survey of CIOs found that incremental improvement was the most popular modernization strategy (being used by 35% to 45% of CIOs, depending on the core system); followed by COTS strategies being used by 20% to 30% of insurers. Rewriting and wrap and extend jostled for third place. Rewriting was more popular for claims and billing systems (12% and 7%)—while wrap and extend was chosen for 12% of underwriting system renewals and 10% of policy admin projects.

(Note: This blog post first appeared in Insurance Technology Association.)


6.11.2014 Celent Webinar: How to Better Leverage Celent

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May 12th, 2014

Celent CEO, Craig Weber

This event is free to attend and we expect you to walk away with a better view as to how you can get more from working with us. For more information, please contact Anna Griem at +1 603 582 6137 or agriem@celent.com.

Please click here for more information.