A Recipe for Digital Innovation

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Mar 19th, 2014

At each of the five Celent Innovation Roundtables held in the last several months, innovation practitioners consistently identify culture change as a significant success factor. A particular challenge, poor communication between technologists and their business partners, is often cited as a barrier.

The Second Machine Age by MIT professors Erik Brynjolfsson @erikbryn and Andrew McAfee @amcafee offers some help. Their explanation of digital innovation made a big impression on me as the clearest description that I have found so far.  The approach is simple: “digital information….is built on multiple layers”. It is a “recipe” of different automation solutions mixed together. That is, look at a list of digital technologies, pick a few and combine them in unique ways so that they work together, and deliver new value.

This description led me to revisit some Celent insurance innovation case studies and rethink how to best explain them.  The first, the AXA claims example (Visualizing the London Riots at AXA UK, http://www.celent.com/reports/visualising-london-riots-axa-uk), outlined how the insurer combined data from public police records, media reports, and their internal systems to predict which of their insureds might suffer a loss during the multi-day rioting in the U.K. in 2011. AXA “layered” successive sources of digital data, then added some analytic algorithms to produce a new and valuable tool designed to proactively identify at-risk insureds (mainly small businesses that were exposed to looting). All of these technologies existed on their own, in isolation, until they were combined to yield new insights which helped avoid losses.

The second study is from Tokio Marine & Nichido Fire Insurance Co., Ltd. They were recognized as a Celent Model Insurer for their One Time Insurance product (Model Insurer 2012: Case Studies of Effective Technology Use in Insurance http://www.celent.com/reports/model-insurer-2012-case-studies-effective-technology-use-insurance). They combined geo-location, text messaging, and data prefill services to deliver real-time insurance offers to subscribers. As a prospect drives to the airport, their mobile phone receives a text from the insurer with an offer for travel insurance. Similarly, texts are sent as golfers arrive for their tee times, skiers approach the lifts, etc. It is the combination, or layering, of these technologies in a unique manner that creates the innovative service.

The value of this explanation is not only academic. Layering strikes me as a useful tool to explain how all of this “digital stuff” can fit together. The recipe and layering metaphors succinctly describe digital in non-technical, accessible terms. It can be used with any audience to illustrate how the sum of the parts can be greater than the whole.

I also see value in using layering to generate new ideas. My thought is that, in an interactive session, a group of participants can create a list of technologies, data sources, etc. and then brainstorm different combinations from them.

Our continuing research illustrates that there is no one prescription for innovation, but there are guideposts to follow.  The use of the layering metaphor to improve communication and as a technique for brainstorming is one such guide.

2014 Latin America Outlook

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Mar 18th, 2014

The following text was published today in Inter-American Dialogue’s Financial Services Advisor under the title: “What is driving the insurance market in Latin America?”

I provided my view to FSA in advance, and now that it is out there I thought it made sense to share it with you through our blog.

Growth continues to be a common theme throughout the region, though not at the same pace that before and not equally in all countries. The Pacific Alliance countries have been growing faster than Mercosur countries, for example.

Insurance in Latin America has its own dynamics and has been growing year over year, even beyond GDP increase, and is expected to continue this trend through 2014.

A growing middle class is driving insurance buoyance in the region, with Brazil much setting the tone. Estimates indicate that 40M people have gone from living in poverty to the middle class in the past decade in Brazil. Nevertheless, there is a large number of people in the base of the pyramid (BoP) which is also of interest of insurers.

Infrastructure investments, trade, and group life and benefits to attract employees are key drivers for commercial insurance growth.

We are seeing moves towards consolidation in certain countries which are imposing stronger capital requirements and also acquisitions and new entrants into high growth potential markets, such as Brazil, Colombia and Peru. Competition is increasing and new segments are being targeted with more focus. All this is driving higher investments from insurers as well as competition for qualified talent in the marketplace.

Some countries are moving towards a stricter risk-based capital measurement, and the rest should move in the same direction as part of a global and regional trend.

In many countries sales practices are far from innovative and what customers expect to be. There is a need to evolve in the use of distribution channels and provide a better customer experience. Most insurers are still tied to legacy systems that impose a burden to become more competitive, efficient and smart.

Rising inflation, weakening of financial market due to lower quality of loans (as they compete for the raising middle class); lower demand of products from China (mostly commodities), Europe and USA, and risk aversion from foreign investors are some of the concerns shadowing the region’s potential.

Segmentación de clientes, ¿moda o futuro?

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Feb 27th, 2014

Tradicionalmente las aseguradoras se han estructurado por líneas de negocio y algunas se han agrupado en torno a líneas personales y comerciales para diferenciar los negocios de las personas. Con las oportunidades de múltiples canales de distribución y tecnologías más sofisticadas, las aseguradoras están comenzando a ser mucho más granulares en su visión de los clientes.

Las aseguradoras tienen ahora la oportunidad de moverse de sus mercados tradicionales y ser capaces de crear una oferta para atraer a los diferentes segmentos. Algunas de estas acciones incluyen el desarrollo de Microseguros, dirigidos a las personas en la base de la pirámide, y seguros para Pequeñas y Medianas Empresas (Pymes).

Los productos para Microseguros se están lanzando casi mensualmente en diferentes sitios de Latinoamérica. Recientemente Asomi y Redcamif lanzaron una iniciativa en El Salvador con pólizas de vida comenzando en $0,68 mensuales provistas por Pan American Life Insurance Group (Palig).

Algunos brokers, los más grandes, se están dirigiendo hacia las Pymes pero utilizando su plataforma de afinidad en lugar de sus plataformas comerciales para soportar sus negocios. Mientras que originalmente el negocio del seguro para segmento Pymes debería recaer en lo comercial, se han dado cuenta que requiere los procesos y la agilidad que esperan también en sus negocios de afinidad.

En otra movida interesante, MetLife Mexico anunció una nueva división dirigida a los segmentos socio económicos C, D y jóvenes, que no son los targets usuales de las aseguradoras.

De acuerdo a la clasificación desarrollada por AMAI, una asociación mexicana, la población se divide en 5 segmentos: AB (personas con alto poder de compra y de ingreso), C+ (personas con ingresos superiores al promedio, cuyas familias son encabezadas por alguien con un título universitario y ambos tienen automóvil), C (personas con ingresos promedio, cuyas familias son encabezadas por alguien con un título secundario, un automóvil y la posibilidad de viajar una vez al año), D+ (personas con ingresos un poco por debajo del promedio, con educación secundaria y sin vehículo familiar), D (personas con niveles de ingresos bajos y una forma de existencia austera, que tienen educación primaria y que no tienen acceso a los tradicionales servicios bancarios).

Metlife Mexico estará ofreciendo productos simples y flexibles y al mismo tiempo desarrollando mejores canales de distribución con énfasis en el uso de la tecnología.

Los proveedores de software también están realizando su aporte para ofrecer soluciones que permitan esta granularidad. Soluciones analíticas para entender mejor al cliente; soluciones digitales para brindarles un mejor servicio y mejorar los puntos de contacto; procesamiento de datos y BPM (Gestión de Procesos del Negocio) para ajustar sus productos y procesos de acuerdo a los diferentes segmentos, sólo por mencionar algunos.

En este sentido, el año pasado Guidewire presentó su visión de cómo un sistema de administración de pólizas será capaz de soportar segmentación de clientes, proveyendo en su actual versión alguna de la funcionalidad requerida. Los sistemas centrales son un engranaje más en el motor y es importante que los proveedores estén al tanto de cómo necesitan integrarse con otras soluciones para que las aseguradoras sean capaces de entregar una propuesta de valor segmentada.

A pesar que estoy convencido que la segmentación de clientes es hacia donde la industria necesita ir, no es sino a través de grandes desafíos que podrá lograrlo.

Las aseguradoras necesitan conocer las diferencias y actitudes de compra de estos diferentes segmentos. Omnicanalidad es uno de esos aspectos, pero también lo es tratar los conflictos del canal y los aspectos regulatorios. Los productos necesitan ser desarrollados a la medida, de manera tal que sean flexibles pero capaces de escalar masivamente y esto significa trabajar sobre el precio, presentación, marketing, distribución y servicio. Los procesos necesitan ser ajustados para proveer el valor correcto a cada segmento. Al final de cuentas no querrán ser percibidos como una solución de bajo rendimiento y poco valor, ni tampoco entregar de más si esto significa exceso de costos y reducciones importantes en sus márgenes.

Mi pensamiento final. ¿Cómo se verá afectada la estructura de su organización a medida que se mueva hacia servir segmentos? ¿Cómo afectará esto al reporte y a las estadísticas que por cierto hoy son vistas por líneas de negocio (incluso por los reguladores)?

¿Está Usted preparado? ¿Estamos preparados?

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Countdown to Celent’s Model Insurer Awards: Announcing the Finalists

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Feb 27th, 2014

In our eighth year of the Celent Model Insurer awards we decided to change the program a bit once we received all our submissions. With a near record 74 submissions, it became evident that we could categorize the submissions into the research themes that we at Celent have been hearing are important to our clients and insurers all over the globe.

In a webinar yesterday, Jamie Macgregor and I described the changes to our program. The biggest change is the move from the components of the insurance lifecycle processes like claims, billing, and underwriting to five major themes: digital and omni-channel, innovation and emerging technologies, legacy and ecosystem transformation, data mastery and analytics, and implementation best practices.

Our review methodology did not change. We continue to look for best practices in the development and implementation of technology. We consider things like the use of industry data standards, the optimization of infrastructure, the impact on channels, and the use of metrics, to name a few best practices. We also heavily consider measurable business results like increase in market share, productivity improvements, or operational or IT savings. We review each and every submission against a detailed rubric.

After our review of the 74 nominations, Celent identified 14 finalists for four of the five categories named above for our 2014 Model Insurer award program. The finalists named yesterday recognize insurers that demonstrate effective use of technology and industry best practices in each theme category. The awards for the top Model Insurer in each category will be announced at our 2014 Innovation & Insight Day in April.
During I&I day, we will also name an IT Management Model Insurer and Celent’s overall Model Insurer of the Year.

The finalists in four of the five categories include:

Digital
Allied Insurance
John Hancock
Unigarant

Analytics
Bankers Insurance Group
Inter Hannover
RSA Insurance Group plc

Legacy Transformation
Aegon UK
Foresters
ICW Group
Saxon Insurance

Implementation Best Practices
1st Central
CNA
Millers Mutual Group
MetLife

Congratulations to all the finalists! Come to NYC on April 3, 2014 to hear about each of their projects and to learn who bubbled to the top as Celent’s Model Insurer of Year. Event information can be found here: https://www.regonline.com/builder/site/Default.aspx?EventID=1285653

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Customer segmentation, fad or future?

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Feb 21st, 2014

Traditionally insurers have been structured by line of business and some have grouped those around personal lines and commercial lines to differentiate businesses from people. With the opportunities of varied distribution channels and more sophisticated technologies insurers are starting to be much more granular in their view of the customers.

Insurers have now the chance to move from their traditional top notch markets and be able to create an offering to attract the different segments. Some of these moves include Microinsurance targeting people in the base of the pyramid and Small and Medium Business (SMB) insurance products.

Microinsurance products are being launched almost every month in different parts of Latin America. Most recently it was announced that Asomi and Redcamif will be launching an initiative in El Salvador with life insurance policies written by Pan American Life Insurance Group (Palig) with premiums as low as $0,68 per month.

Some brokers, large ones, are moving into the SMB market but using its affinity platforms instead of their commercial platforms to support this business. While originally SMB should have fallen into commercial, they realize that it requires processes and the agility expected also in their affinity business.

In another interesting move, Metlife Mexico announced yesterday the creation of a new division that will sell to socio economic segments C and D and to young people, those that are not the usual target of insurers.

According to the classifications developed by AMAI, a Mexican association, the country’s population is divided into five segments: AB (people with high purchasing power and income), C+ (people with higher-than-average incomes, whose families are headed by someone with a college degree and have at least two cars), C (people with middle incomes, whose families are headed by someone with a high school degree and have both a car and the ability to take one trip per year), D+ (people with incomes slightly below average, some secondary education and no family vehicle), D (people with low income levels and a fairly austere way of existence, who have a primary school education and who lack access to traditional banking services).

Metlife Mexico will be offering simple and flexible products while also developing better distribution channels, with emphasis in the use of technology.

Software vendors are coming in also to provide solutions towards being more granular. Solutions around analytics to better understand your customer, digital to better serve them and master the points of contact, core processing and BPM to adjust your products and processes accordingly, just to mention a few. Last year Guidewire presented its vision on how a core system will be able to support customer segmentation already delivering some required functionality. Core systems are just another gear in the engine and it’s important that vendors acknowledge how they need to integrate into other solutions for the insurer to be able to deliver a customer segmented value proposition.

While I believe customer segmentation is where the industry needs to go, it is not without huge challenges.

Insurers need to address the differences and purchase attitudes of those different segments.  Omni-channel is one of the aspects, but also dealing with channel conflicts and regulation. Products need to be tailored in a way that can be flexible but capable of scaling massively, and this means looking into pricing, packaging, marketing, distribution and servicing. Processes need to be adjusted in order to provide the correct value to each segment. At the end of the day you don’t want to be perceived as under-performing and not providing the required value, but neither you want to over deliver if this means excess of cost and important cuts in your margins.

My final thoughts for you. How will your structure look as you move into serving segments? How will this affect reporting and statistics by the way, which today is seen by line of business (even by regulators)?

Are you ready? Are we ready?