The start of a new era: digital retailers and insurance

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Jan 22nd, 2015

Insurers from all around the world are making great efforts to become digital. This shows in our research in terms of priorities and increased spending in digital initiatives. Nevertheless, it is a great effort to take a brick & mortar company and move it into the digital world. Ask retailers if not?

It is true that there are some pure digital initiatives out there in insurance such as esurance (an Allstate company), Kroodle (an Aegon company) or Friendsurance (not an insurance company) but none today have the critical mass to compete head to head with brick & mortar insurers.

In this scenario, digital in insurance is still today an aim but not an established reality. This is why I believe recent news become extremely relevant to the industry. Digital native companies – retailers that have disrupted the brick & mortar retail business – are jumping the fence.

It is no news that Google has interests in the financial industry offering car insurance, credit cards and bank accounts in the UK and with all the potential to scale this business model globally. Though, still only playing on the distribution side, so not an insurer; but what happens when giant digital retailer Alibaba decides to cross that fence?

The founders of Alibaba and Tencent Holdings Ltd purchased stakes in Ping An Insurance Group Co of China Ltd in a $4.7 billion deal in December 2014. Now Alibaba is seeking stake in insurer New China Life according to different public sources, such as Reuters.

The potential of an integrated end to end business going from digital distribution and all the way back to managing and taking risks.  With the possibility of having an important say in which are the products that digital native consumers want to buy and how they want to buy them from these insurers and having the capability to create and deploy them, managing the entire value chain.

Nothing will be the same if Alibaba manages the complexity of integration, achieves the potential sinergies of these businesses tied together, and decides to replicate this business model globally taking advantage of its existing positioning as an established and successfull digital retailer.

Scary for established insurers (and existing distribution channels), but true. It is all a catch-up game for insurers now.

In my opinion a new era for insurance.

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Driving growth through distribution management

Karlyn Carnahan

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Jan 22nd, 2015

Growth and retention continue to be the top business goals affecting IT investments. However, in our current hyper-competitive marketplace with continued pressure on rates, growth opportunities for insurers are limited. Many carriers are focusing on improving their distribution practices as a key technique for driving growth. Carriers are expanding channels, adding distributors, moving into new territories and working to optimize their existing channel in order to improve customer acquisition and retention. Designing, developing, maintaining and managing productive channel relationships can create a sustainable competitive advantage. Conversely, a poorly designed or executed distribution channel strategy can create conflict, inefficiency and disruption up and down the line.

 

Some carriers are placing their priority on servicing distribution channels and improving service to distributors, increasingly using producer service excellence as a way to retain and grow business. Others are focused on managing the compliance aspects of distribution management – assuring the distributors have the right licenses, state appointments are made in a timely manner. Many carriers are focusing on using compensation tools and techniques to more effectively stimulate production. While in the property casualty world, most carriers work with independent agents, this is no longer an exclusive channel. Most carriers are looking at more effectively using data to manage carriers strategically rather than tactically. In addition, carriers are adding channels including wholesalers, GAs and MGAs. On the life side carriers work with exclusive agents, independent marketing firms, financial planners, banks and a wide variety of other channels.   These multiple channels are effective at targeting different aspects of the market, but add complexity when it comes to channel management.

 

Distribution management encompasses 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.

 

Distribution management systems provide tools and technologies to help carriers with the administrative aspects of distribution management. They are most typically used by carriers 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 2015, It profiles 14 distribution management solutions. Check it out – or give me a call if you’d like to talk about the report.

 

 

Google Glass is dead–long live Google Glass!

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Jan 16th, 2015

On January 15, Google announced that Google Glass was not ready for prime time. Google is withdrawing it from general availability, but says it will relaunch at some unspecified future date.

With the benefit of unaided 20-20 hindsight, Google Glass was a consumer product designed by engineers to appeal to, well, other engineers. Consumers who bought the $1500 device, started to be called a number of things, but “cool” was not one of them.

The form/function of Google Glass (a hands-free, heads-up display, sourcing various kinds of data and information, with a video recording capability) suggests several business uses, for example, in insurance: field loss estimators and loss control engineers. And there are of course many other professions with similar needs (e.g. service and repair technicians).

The form/function of Google Glass will live on, probably in several diverging incarnations. But whether any of these descendants will be recognizably a “Google Glass” or whether their wearers/users will ever be cool; remains to be seen.

Life in the Cloud – vendor activity is high

Karlyn Carnahan

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Jan 14th, 2015

Few technologies are talked about as much as cloud computing. Cloud services may top the list of technology buzzwords used in corporate board rooms, by Wall Street analysts, in the trade media and within insurance IT organizations, but it often is talked about as an emerging technology – one that is potentially transformative but still little used.

The level of general interest in cloud computing is understandable. It promises tremendous flexibility, tempting economic advantages, and unending operational efficiencies. To that end, insurance carriers are dependent on the cloud offerings available. Only if vendors are offering products on the cloud can carriers take advantage of them.

So where are the vendors? Do all vendors have cloud applications? What options are available for insurance carriers and are they aligned with carriers on the importance of cloud apps? What challenges do vendors face, and what are their plans for the future?

I surveyed 41 vendors to provide answers to these questions as well as to understand pricing models, platform investments, and their expectations of where the market is going.

Cloud has grown from an emerging trend to the way of doing business for most vendors in a remarkably short time. While vendors may believe they are leading the competition by offering a cloud solution, the reality is that cloud options are now the norm. Vendors have moved swiftly to create cloud offerings and those that don’t have some type of offering are rare. Although these offerings are common, that doesn’t change the very real and significant concerns that carriers have, particularly around privacy issues and performance.

Yet carriers interest in cloud computing continues to gain traction as a way of managing costs, improving efficiencies, and offering opportunities to transform the business. Despite the high interest, vendors who wish to be successful in selling cloud options to carriers will have to address concerns in three key areas: privacy and data integrity, reliability and performance, and may want to provide tools to help carriers learn to manage and govern their cloud offerings.

This rapid evolution is not without its challenges for vendors. Customer-facing challenges are of high concern for vendors include issues such as managing the release cycle across multiple clients balancing front end, customer facing features reliability and performance enhancing features, and the impact of a changing target market customer base. Vendors are also concerned about identifying the right pricing model. Managing the shifting business model from license and professional service fees to subscriptions is formidable for many vendors. In addition, cloud creates notable organizational challenges, especially competing for scarce engineering resources.

Cloud is expected to generate significant levels of revenue, and vendors that have not put their cloud plans together may want to begin to build a roadmap for the future.

Check out the report – Life in the Cloud: Vendor Plans and Priorities

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Wearables: living with a smart watch

Tom Scales

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Jan 13th, 2015

As a research analyst in technology, and a serious geek, I like to play with new technology. I resisted the urge to buy a smart watch for a long time, but finally succumbed. The first several generations of watch were unusable. The next generations were huge and clunky.

What finally made me jump was that, while still huge and clunky, the latest watches are round! Perhaps not the best justification, but any geek would understand that rationalization is the key to virtually every technology purchase.

I chose the LG G Watch R. While not an exciting name, the R is the round one and it is actually a decent looking watch. That was a long lead-in to the point of this post — what’s it like to replace your watch with a smart watch? Or perhaps more accurately, what’s it like to have some of your tech on your arm, since few people really wear watches any more?

The results? Mixed, which likely isn’t a surprise.

Pros:

  • There are some great apps for the watch.
  • I use Google Maps on the watch which is much safer when I am in a rental car than trying to balance my cell phone. It is limited, but works.
  • I receive emails, tweets and Facebook posts on the watch. Again, limited, but it has kept me from pulling my phone out for what turns out to be something that can wait.
  • I just installed a new app called Hold the Wheel. This app automatically responds to a text or call while I’m driving with an SMS that, well, I’m driving.
  • I like that I can change watch faces easily too. I mostly use the analog faces — so it still looks like a watch. I have a nice one for when I’m home and a different one, that shows two time zones, when I travel. Sometimes I’m in a mood and in becomes a Mickey Mouse watch. OK, my daughter likes the Hello Kitty watch face too.
  • For me, though, the defining application is one that most people will never install — an app called tinyCam monitor. You see I have lots of small children — four year old twins and three year old twins. They’re full of energy and still need lots of supervision. So we installed inexpensive cameras in their rooms, the playroom and by the doors. The tinyCam app lets me watch the cameras on the watch. Very, very Dick Tracy. For me, I feel like the kids are safer, as I can keep better tabs on them. Yes, it is an app that I won’t need soon, but by then I hope that the next defining app will show up for me.

Cons:

  • Not as many as I would have expected.
  • It is large and a little clunky, but surprisingly not very heavy. It makes up for this a bit by actually looking like a watch.
  • You also have to charge it every day, but it docks easily, so you just put it on the charger at bed time. Eventually I expect wireless charging, like my phone and tablet have.
  • I also feel like it could just do more. I’ll keep exploring as new apps come out.
  • Lastly, the big challenge, is that it is expensive. $300 expensive. Yes, I can rationalize well to have bought it.

So the moral of the story? Don’t look at watches, look at applications. If you can find that one or two defining apps that make the purchase a positive experience, then jump on board. If not, wait. However, for some that wait might be forever.

What does this have to do with insurance? Lots has been written, including by Celent, about the use of wearables in insurance. It has a place in the future and we can already see benefits. But in the end it all comes down to the consumer actually wearing it.

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“What We Need is a Good Catastrophe”…in Insurance Innovation

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Jan 9th, 2015

I’ve had the opportunity to work alongside commercial property insurance underwriters. This is a very unique group – extremely detail-oriented, whip smart, very black and white, but not given to back-slapping humor or ironic observation. So, when one used the phrase “What we need is a good catastrophe”, it really made an impression on me. He was referring to the fact that property insurance prices were trending downward and a hurricane or tornado would raise them again.

In working with insurers on innovation this past year, I feel the same way – the industry needs a good disruption to get it moving. Perhaps today’s speculation about Google entering U.S. insurance will provide a push. Kudos to Ellen Carney @ellenmcarney for doing the gumshoe investigation that uncovered some interesting activity by Google regarding insurance licensing in numerous states (see New York Times http://bits.blogs.nytimes.com/2015/01/08/new-clues-on-googles-plans-for-insurance/)

In a survey last year, we asked 100 financial services professionals about the importance of innovation in their business (Celent subscribers can access the report here: http://celent.com/reports/innovation-financial-services-firms-leadership-gap). Comparing some of the responses demonstrates that, while many are saluting the flag on innovation, there still is no burning platform in most firms. The details are:

Respondents overwhelmingly believe that customer expectations are rising and that innovation is critical if the industry is to keep up:

customer importance

However, the same group said that innovation is important, but not critical to their business strategy:

strategy import

So, innovation is critical to respond to customers, but only important to company strategy…a recipe  for complacency.

The momentum for innovation in insurance is rising, there is increased interest, but it remains to be seen how many insurers will grab the mantle and make innovation a critical part of their strategy. Perhaps a good catastrophe will help.

Six things insurers should know about the 2015 Consumer Electronics Show

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Jan 7th, 2015

The 2015 Consumer Electronics Show is winding down—and if any personal lines insurer wasn’t there, taking names, and setting up meetings, they jolly well should have been.

Here’s a short list of insurance-relevant news:

  1.  Keynote Speaker, Ford CEO Mark Fields, promised Ford will be first to market with a mass-production autonomous car. Somewhere Henry Ford is smiling and suggesting that the autonomous car come in many colors, all of them black.
  2. Mercedes-Benz showed a driverless concept car, the F 015 Luxury in Motion, which has swivel chairs, lots of display screens, and for the “Minority Report” fans gesture recognition and eye-tracking capability.
  3. Samsung’s Co-CEO B.K. Yoon, another Keynoter, pledged the development of open IoT devices working with its Open Interconnect Consortium. No detailed discussion about interconnectivity with the alternative AllSeen Alliance, or with Apple’s HomeKit.
  4. Augmented reality (aka heads-up displays) are coming to a windshield near you – so says the CEO of automotive supplier Bosch.
  5. Connected home controller hubs are also emerging as a key category, backed by some very back players (Google for Nest, GE for Quirky). The question remains what exactly your light bulb has been wanting to say to your dishwasher, if only it could.
  6. And two non-CES announcements: USAA is offering the Protection 1 range of security and connectivity services to its membership (http://www.businesswire.com/news/home/20150105005901/en/Protection-1-Joins-USAA-Strategic-Alliance-Relationship) ; and GM’s OnStar is linking with Progressive’s UBI program.

But seriously, insurers: autonomous cars (whenever they arrive in force) are going to have a lot fewer accidents (and generate a lot less premium) than today’s human-driven cars. Here’s what I said nearly 3 years ago.

Connected homes will have kitchen and electrical fires detected much more quickly, fewer losses from theft, and more advance notice of weather-caused catastrophes. Some story: a lot fewer losses, a lot less premium.

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It’s no longer about “Why” innovate in insurance, but “how”

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Jan 6th, 2015

The opportunities and threats facing the insurance industry are forcing a change in the conversation around innovation in the sector. Celent has been tracking innovation in financial services for the last 18 months and we have detected a recent shift in interest. In 2014, insurers were exploring why they might need to invest in disciplined innovation practices. What is the next disruption that will change the industry? What can new technology offer regarding improved risk selection and pricing? Now the conversation is moving on to how to execute on innovation. How exactly are firms which are finding success in innovation executing their initiatives? What processes have they put in place that enable them to move beyond the theoretical and carry them into the realm of practical benefit?

To respond to our clients’ needs, Celent is facilitating an innovation event in London on February 25, 2015: Making Innovation Happen in Insurance: Hedging Against the Future. The programme will focus on how to deliver innovation in an established insurance franchise.

Our design team has developed an agenda which combines research and experience and will provide attendees with practical advice on how to make progress with innovation. The programme includes a mix of first-hand accounts from firms who have achieved success as well as hands-on activities that simulate typical decisions innovative firms face. In this and subsequent blogs, we will give you a look at the agenda in detail.

The first portion of the day will provide a look at the current state of innovation in the UK market. This will include data from a survey to benchmark how insurers in the UK market are structuring their innovation initiatives.

Celent research finds that success in innovation often entails establishing new types of partnerships that link emerging technologies with traditional insurance products. Sometimes, but not always, this involves direct investment in spin-off firms. In all cases, it involves a dynamic that extends beyond the usual vendor-customer relationship as companies co-develop new approaches to their markets. The second portion of the programme includes presentations from three start-up companies to explain how they are working with insurers to deliver successful innovation.

In the final section of the day, we are very pleased to welcome Oliver Werneyer, the Head of Innovation at Swiss Re, to present a Practitioner’s Perspective. He will outline the journey his company has taken so far as they combine their company’s valuable experience with new operating practices. Oliver joined Swiss Re in 2012 and focuses on commercialising traditional life insurance concepts in the modern world of apps, social media and digital connections. His comments will detail how Swiss Re uses data analytics and consumer experience techniques to change the way people experience life insurance.

More details are forthcoming on the sessions on measuring innovation and barriers to change, so stay tuned. Click here for more information and to register.

Same old, same old – which vendor did I just see?

Tom Scales

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Dec 29th, 2014

As part of my role as an industry analyst, I attend a number of vendor sponsored analyst meetings. Some are vendors entirely focused on the Financial Services space, but most are larger vendors with a much broader perspective.

The meetings are interesting, as we hear from their leadership team about their perspective on both modern technology needs as well as what their company is doing to meet those needs.

What surprises me, and perhaps it should not, is how the presentations are so generic and common. We see the same buzzwords: Cloud! Digital! Mobile! Innovation! Yes, usually with the exclamation points.

I honestly believe you could change the logo from one vendor to another and their CEO could happily and easily give the presentation. Worse, at a recent conference, three different executives gave essentially the same presentation but with different slides. At least they agreed.

The vendors do differ, however, on their approach to these meetings. I have a new theory on how to rate these vendors, which is based in humor, but I often wonder if it could be validated with data.

1) Let me talk to your customers

The majority of the vendors hold their analyst days completely separate from the customer meetings. Usually they are back-to-back, so the customers are nearby, but they don’t let us talk to them. My scoring system would rate a vendor higher based on their willingness to let us mingle in a completely uncontrolled manner with their customer base. An example could be:

  1. Analysts attend the customer meeting and are given total access to the customers
  2. Analysts attend part of the customer meeting and are scheduled with select customers in a controlled manner
  3. Analysts attend a separate meeting, but are given one-on-one access to company leadership
  4. Analysts attend a separate meeting, attend lectures on how great they are and go home

One vendor gets the highest rating because they combined 1 and 2. We were in shared sessions, shared meals and shared entertainment plus they scheduled one-on-one meetings to discuss projects interesting to my specific speciality.

2) How well do you organize a meeting?

If you claim to be the company that should come in and revolutionize my company, you ought to be able to manage a decent meeting. The best meetings are well-organized with personalized agendas that focus on the analyst’s speciality and with one-on-one meetings with the right people. The worst meeting I recently attended started off poorly when they didn’t have a name badge for me and cancelled my hotel room. I certainly didn’t feel loved. Worse, they never did get me a badge or an agenda, so I suspect I missed many one-on-one meetings. Since that was the last session of the day, I did the only thing I knew to do. I went home.

One vendor put the analysts front and center, at tables, and each spot had both power and a wired internet connection. Outstanding.

3) What are your production values and who are your presenters?

Again, if you want to transform my company, you should be able to do an amazing job in your pitch. You should at least upgrade to purchased photos from clipart. I am amazed at the number of presentations that look like they were prepared on the plane ride to the meeting. Some don’t even have the company’s logo. Oh, and don’t forget, I’ll recognize the templates that come with Microsoft Office.

Perhaps even coordinate the presentations to ensure they are not all the same, or worse contradictory.

At the other end of the spectrum are the professionally prepared presentations, clearly not done in Powerpoint, that include appropriate use of videos, etc. The vendor mentioned above again wins this prize as their materials were outstanding. They also understood that they needed to be both informative and entertaining to keep our interest.

The corollary to production values is the concept of who is presenting. At a recent meeting, I heard from a range of company execs but noticed one thing was missing. Not a single customer presented. At the other end, virtually all the presentations were customers, sharing their unique, positive experiences with their customers.

I suspect you get the point by now. Hopefully any vendors reading our blog will too. To the vendors: Feel free to call me to discuss! (exclamation point mine).

If you’ve read this far, you’re probably wondering what this has to do with financial services or research. Well, nothing, but now you know a little more of the pain that we go through for your benefit.

 

Choosing a New Claims System?

Karlyn Carnahan

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Dec 18th, 2014

Few carriers are doing nothing when it comes to claims. Year after year, we continue to see significant activity as carriers replace or enhance their claims solutions. The reasons for such activity are plentiful. Claims systems are aging which means that they are expensive to maintain. Older systems generally are much less flexible than modern systems with robust configuration environments. Business rules are regularly embedded in code, which reduces a carrier’s agility in making changes rapidly. They often are decoupled from policy or customer systems so accessing and aggregating data across these systems can be difficult. They were initially designed to focus on managing the financial aspects of claims not the customer service aspects of claims. It’s also getting harder to find resources that can or want to work on older technology.

Meanwhile, carriers replacing core claims admin systems are trying to achieve multiple goals. Insurers’ corporate objectives fall into three broad categories:

  • Getting bigger by growing the top line. A policyholder who feels that a claim was handled quickly and fairly is a policyholder who is much more likely to renew.
  • Getting leaner through higher productivity and expense control. When specific tasks (such as accessing external data or generating forms and correspondence) are automated, an adjuster’s time is focused on the remaining tasks and decisions.
  • Getting smarter by adjusting claims more accurately. Through workflow and rules, a new core claims system gives claims adjusters much improved tools to make the right decisions and take the right actions.

Selecting and implementing a new core claim system can contribute to the achievement of all three corporate objectives.

Donald Light and I have just published a report that profiles the available claims solutions in North America. The report provides an overview of the different basic, advanced and technical features a carrier can evaluate. It also provides detailed profiles of the different vendors. Some of the vendors qualified for a more in depth profile that includes customer reference checks and our opinion of the solution.

If you’re thinking about beginning a claims replacement, check out the report here.

It’s a great place to start your research process. Then give us a call. We will be happy to chat in more detail about any of the solutions and help you as you move through your selection process.