Microinsurance is referred to the type of insurance that aims to the base of the pyramid (BoP) population, generally those ignored by mainstream commercial and social insurance schemes. It emphasizes the importance of understanding the needs, preferences and characteristics of this target group: the low-income household, the working poor and the under-served.

Microinsurance has the potential to play a very important social and economic role by breaking the vicious circle of poverty and vulnerability that affects the low income segments of the population. It can also help local economies by redirecting funds to be invested into high-return/high risk assets, that otherwise would be allocated in low return investments or even kept without investing.

The potential market for Latin America is estimated in 360M of people, and for many insurers it is a huge opportunity to position its brand in a population that eventually will demand more insurance products.

When you look into these markets you can distinguish 3 clearly separate phases of evolution of Microinsurance:

• Phase I: Easy products to administer, such as mandatory life insurance tied to micro-finance products.
• Phase II: Products get more sophisticated providing more options and benefits, turning into voluntary schemes, usually based on health, life and funeral insurance type of products while adding distribution channels to reach a broader audience.
• Phase III: More complex products with emphasize in adding value to customers and an extended network of multiple distribution channels.

Currently Microinsurance in Latin America is doing pretty well in Phase I and is walking through Phase II. The major challenge nevertheless resides in including more commercial oriented products which typically are developed in Phase III, such as index-based insurance products.

Technology plays an important role in supporting microinsurance strategies as they require an innovative approach in areas such as product, rates, distribution, claims and collection.

Agility, scalability and high volume-low cost processing are important features for insurers to consider in their supporting systems.

In our experience most of insurers in the region struggle to obtain these features from their current systems and enabling those innovatives approaches, which by the way, are also desirable to serve the upper-income segment.

Are your systems up to the task? Feel free to comment!

On 15th of March Celent held our creative disruption event at the Tower of London – no small irony to be discussing the future of insurance surrounded by such rich history.

Celent’s Catherine Stagg-Macey opened proceedings with a discussion about how quickly technology is moving and by providing a concrete example of that in the form of 3D printed objects handed out to each of the guests. As she discussed time taken to source the items Catherine observed that agreeing what to print took perhaps longer than getting the items delivered.

We moved swiftly to the wake up call session presented by myself, Craig Beattie. This opened with a few provocative thoughts around what might be possible within the next ten years and moved on to how technology is redefining what our customers and staff in the insurance industry perceive as convenient – redefining what just in time means, just enough and how much effort things take. I went on to look at how digital and being connected to computing resources has redefined insurance distribution and observed two key things about digital: First adoption is now measured in months and not years and; Secondly, that digital seems to redefine itself regularly and a redefinition due imminently. We explored how social is changing buying behaviour and generating ever more data, data that is proving to be useful in all manner of models from predicting the stock market to predicting illnesses in large populations.

Before long I yielded the floor to the our three insurer case studies. First up was Sebastian Herfurth, CEO and Founder of Friendsurance in Germany. Sebastian took us back to our social roots in insurance in discussing the micromutual operation. As he explained how Friendsurance worked it became clear that classic insurance products enable the operation and that the true innovation was in the area of small claims, where friends covered the losses of those in their group. On innovation, Sebastian advised that the customer guides Friendsurance and they constantly review their customer experience – “we build paths where people choose to walk”.

Next to present was Matthew Gledhill, Managing Director of Beagle Street in the UK. Matthew first reflect on some of the most difficult things he had done in his life and noted that none of these were nearly as painful as trying to purchase life insurance. Matthew spoke about how they had reviewed the full value chain and looked at the needs of the customer to deliver a customer experience that made sense. Next steps included looking at new types of customer, a great observation that not all customers are the same.

Our final case study presenter was Tsukasa Makino, CIO of Tokio Marine in Japan rounded out our case studies with an amusing and insightful look at their innovative products. Makino-san discussed the cultural changes in Japan and the issues this presented for them as an insurer. He introduced the audience to the term Moteru meaning “to be attractive or popular”. Young people are now much less likely to own a car, this being seen as less attractive, but they still have occasional use for a car and therefore, occasional use for car insurance. Tokio Marine’s one day insurance offering sold via mobile, internet and agents provides just such a product.

David Smith, CEO of Global Futures and Foresight followed our break and took us on a whirlwind tour of the future and the major trends affecting the world now. He noted that all enterprises innovated when they started, but arguably have forgotten how to do this as they grow in size. There was so much content here it’s hard to summarise but I’ll leave with a few provocative thoughts from David:

1. World GDP is set to triple in four decades, how much of this are you targeting?
2. The disparity in health and aging globally will be a significant and growing issue, what will it mean for the insurance industry?
3. If you automate all the mundane and routine jobs, how does anyone become an expert?

Jamie Macgregor, Senior Analyst with Celent followed David discussing Celent’s approach to deliberate innovation management, an approach intended to draw out the missed opportunities for innovation and shine a light on what an insurers change portfolio will achieve. Jamie shared some anecdotes from session already executed with insurers globally and discussed the benefit of considering innovation and disruption as facets of your portfolio. The key question or challenge from Jamie, “are you managing out innovation?”

The day ended with a panel session with a mix of audience polls as well. Nicolas Michellod led the session, with our case study presenters on the panel. There were some discrepancies in view between the audience and the panel as we discussed how the panellists innovated. We had already heard that the customer had to be at the centre of what you do. Matthew offered the advice that a villain can help with innovation, focussing effort on removing the influence of the villain in the story. When asked if it was important to think outside the box Sebastian noted that he was already outside the box, coming from a very different background into the insurance industry. Further, freedom and reward were also highlighted by the panel as contributors to an innovation culture – along with a performance driven culture. Another area of difference was in drivers and inhibitors of innovation, with the audience voting for skills as a major influence but the panellists highlighting clear responsibility and reward, courage and above all – speed.

The event offered me so many points of insight I found it hard to summarise. To that end, I choose to use someone else’s words from a tweet during the conference, “Insurance is changing fast…”

For those on Twitter who want to review comments during the day you can find those here and that content we are permitted to share will be available to clients in our library shortly.

Click, click, click—that’s the sound of more formerly independent policy administration vendors dropping into the product portfolios of larger solution vendors. 

Today’s announcement by SAP of its intention to acquire Camilion is another significant move—following rapidly after Insurity’s acquisition of AQS on Tuesday.

In both cases the acquirer is getting certain capabilities that augment what they already have. Significantly both SAP and Insurity emphasized the ISO automation capabilities of their respective acquisitions—which will strengthen their commercial lines capabilities. 

Additionally, SAP is getting Camilion’s North American base of insurer policy administration clients—which will give SAP a foundation for additional policy admin or end to end sales.

Any acquisition brings integration challenges—at the business user level, at the system admin level; and most importantly over time at the architectural level. It will be important for SAP to quickly communicate its plans for Camilion.

Insurity’s acquisition today of AQS could prove to be a good deal all the way around . . . if certain things happen

Insurity, currently owned by private equity firm Genstar, is showing an appetite for growth which is a good thing. Size does matter in terms of financial resources that can be put into product, service and innovation.

AQS brings its unique relationship with Verisk/ISO along with it—namely ISO’s use AQS solutions to maintain ISO commercial lines content. Insurers writing ISO-based commercial lines are increasingly demanding easier knowledge transfer and enhanced ability to manage their ISO content. The AQS acquisition should help Insurity to be a leading provider of that content.

On an analyst call today, Insurity said that the AQS Access product rules and rating engine will be integrated into Insurity’s Policy Decisions policy admin product. And Insurity’s Claims Decisions, Billing Decisions, and Insurance Enterprise view will quickly be available to AQS customers. Effective execution will provide a best of both worlds solution to each company’s customer base.

On the same call Insurity talked about an aggressive and well-funded roadmap for the integration of the two companies and their product portfolios.

All that said, success will require a continued focus on providing quality solutions and support to existing customers while managing the consolidation of the two companies—as well as developing a compelling story to bring new customers in the door.

At corporate level we usually conceive and refer to technology focused on the internal use and how to reach to the outside world to provide better products, have more efficient value chains and improve service.  For example insurance portals or technologies that will improve call center performance. This conception has been very useful to the insurance industry enabling evolution and innovation.

Let’s take the UK insurance market for example. The auto industry started mainly as broker based but then evolved into direct insurance. It got somehow more sophisticated with the segmentation of net-worth customers.

In this sense, the use of technology has been usually seen as a support to the business, but more and more it is becoming a central part of the business model for many insurers, especially for those new and disruptive players.

Following the UK example, the use of telematics and “pay as you drive” and “pay how you drive” type of insurance products has lately enabled disruptive models that also integrate internet, mobile and social media to deliver products and services.

These insurers recognize the fact that consumers have incorporated technology into their daily lives and that they expect from insurers the same level of engagement and user experience they have with other players in other industries such as Apple and Amazon just to mention two.

Computers are everywhere, in the office, at home, in our appliances, and electronic devices; even phones are now computers, and consumers are using them to interact with people and companies by web access, e-mail or social media. Mobility is a fact that insurers need to recognize as they deploy new technology driven strategies.

A usual misconception is that emerging markets are behind most mature markets in terms of internet, social media and mobile usage.

You might be surprised to know that Latin America for example:

• Had 231M internet users in December 2011 (10% of the world internet population);
• Had 145M Facebook users in April 2012 (18% of worldwide Facebook users), and
• Had +500M mobile connections as from March 2010 (86% of the Latin American population)

As for smartphones, clearly of more interest for deploying self service capabilities for agents and upper income consumers:

• Brazil has more smartphone users than France or Germany
• Brazil and Mexico together have more smartphone users than Australia has inhabitants
• Argentina smartphone penetration (24%) is better than in Germany

Latin American countries also present above-average usage patterns in many areas:

• 65% of Mexican smartphone users search on their phones every day, compared to 57% in the U.S.
• 90% of Argentine smartphone users use their phones to access social networks, compared to 63% in Japan
• 29% of Brazilian smartphone users have changed their minds about a purchase while in a store due to research conducted on their phone, compared to 15% in Canada

Mobile is changing the way Latin American consumers interact with the world…

• 57% of Brazilian smartphone users read newspapers or magazines on their phones
• 73% of Argentine smartphone users check email on their phones every day
• 81% of Mexican smartphone users watch video on their phones

 …Especially when it comes to shopping

• 26% of Mexican smartphone users have made a purchase on their mobile
• 45% Brazilian smartphone users have purchased on their computer after researching on their mobile
• 82% of Argentinean smartphone users have researched a product/service on their mobile

Usage data and user behavior is indicating that engaging with consumers and stakeholders through the use of internet, mobile and social media makes sense. Though, our research shows that the priorities and investments by Latin American insurers in these areas are very low. There might be some isolated efforts, but no integral approach to embrace these technologies to provide an improved customer experience which could result in growth, retention and efficiency.

This seems to be the time to start acting, unless the insurance industry in the region wants to wait and see if a disruptive outsider sets the new standard. Worth the risk?

Seven years.  Isn’t that when some people get an itch?  Not Celent’s 7th annual Model Insurer awards program.  We are excited that this year our Model Insurer program saw a large number of highly competitive submissions.  Our Innovation & Insight Day, where the winners were announced, was combined with our Model Bank awards and had record attendance.

Celent’s online competition preceding the event asked “How would you define innovation in six words or less?”  After evaluating the 150 entries, the winning submission was “Human generated evolution.”     How appropriate I thought given the emphasis placed on technology today to make the insurance industry better?   This year’s 17 Model Insurers and Model Insurer of Year implemented technology projects that not only helped some evolve in the industry, but also expand markets, distribution channels, and develop new products.

This year’s winning technology projects differed a bit from last year’s in that last year several emerging technology began to infiltrate the IT department project plans.    This year, some of the same emerging technology was apparent, but after so many years of constrained budgets insurers were also looking at how to use technology to improve efficiency and save costs over time.   I am not saying the submissions veered away from innovation completely, but whereas last year we saw the industry taking a large step forward in market and product agility and improving customer experiences with more innovative technology, this year the step forward was smaller in those directions.  Instead more insurers concentrated on efficiency and expense control and liability management through claims and billing projects or data analytics.   However, I consider some of the steps made in these directions to be just as compelling because for many insurers they are using the constraints put upon them and still had impressive project successes.  Some examples include:

• Allstate Financial which was spurred by the need to adhere to a new regulation and opted to go beyond meeting the regulations and implement a new secure credit card processing system with reengineered and automated credit card payment processing, recurring payments, refunds, and accounting processes. They also eliminated any chance of security breaches related to customer credit card numbers.
• Hiscox USA changed on their competitors in the small business market from competitor to partner.  Hiscox decided to leverage SeaPass’ technology by building a link between the BOLT Platform and the Hiscox direct website so that prospects coming to the BOLT website or service center could quote and bind coverage on Hiscox products in real time. The new partnership was an innovative shift which now benefits both Hiscox and SeaPass.
• Industrial Alliance implemented an auto insurance product that relies upon telematics data to determine pricing.  The insurer offers incentives to 16-24 year old drivers to improve and maintain responsible driving behavior.  This innovative product allows a relatively smaller Canadian insurer to successfully address a niche market that previously did not exist, and was typically avoided by traditional underwriters.
• XL Group pls, Celent’s Model Insurer of the Year, implemented a truly global claims system that standardized the claim process for every product that XL Insurance sells and in every country in which XL Insurance operates.  The three year project involved replacing multiple legacy systems that were the result of the many acquisitions XL made over the years.  They also implemented a multichannel online system where customers can report and monitor claims and enable mobile activity. The deployment of XL GlobalClaim and XL GlobalClaim Customer Portal resulted in operating efficiencies and consistent processes for all lines of business in all of its 27 business groups; completely paperless claims files; integration with Third Party Administrators; and a reduction in the claims reserves required by the insurer.  The project came in under budget and on time.

I see insurers continuing to make steps towards improving their operations and believe that they will ultimately embrace the idea of using technology to innovate the way they do business.  History has shown that humans have used tools to make their lives better and technological innovations to leap frog how things were always done.  The industrial revolution is a great example from the turn of the 20^th century of how years of doing the same thing resulted in humans finding a way to do it better.  At the turn of the 21^st century, iTunes and mobile technology proved that business, market, or life changing innovations no longer take hundreds of years or even decades to come to fruition.   As insurers embrace innovation, it’s only a matter of time that our next Model Insurer submissions will show insurers taking larger steps or even leap frogging the competition because they allowed humans to use technology to dictate a course of innovation at their companies.

The use of mobile in insurance is usually related to the self service capabilities insurers can deploy for agents and for upper income groups such as quote, bind, issue, claims and printing, all for which a smartphone is a better device than just a simple mobile.

One trend we have recognized is that mobile technology is being used in emerging markets to innovate as a means of distribution and collection, especially to low income consumers through microinsurance products, as there is usually 70 per cent mobile penetration but insurance penetration is below 5 per cent. Mobile operators benefit as well, as they are able to turn ‘pay as you go’ customers into annual subscription contracts.

Microinsurance aims to the base of the pyramid (BoP) population and has the potential to play a very important social and economic role by breaking the vicious circle of poverty and vulnerability that affects the low income segments of the population. It can also help local economies by redirecting funds to be invested into high-return/high risk assets, that otherwise would be allocated in low return investments or even kept without investing. For many insurers it is also the opportunity to position its brand in a population that eventually will demand more insurance products.

While in 2006 only 78M of risks were covered under microinsurance products in Asia, Africa and Latin America, by 2011 this number was over 500M!  Latin America representing 10% while Asia had near 400M risks covered.

The potential market for Latin America is estimated in 360M of people, with Mexico and Brazil concentrating around 55% of this market.

A usual misconception is that emerging markets are behind most mature markets in terms of internet and mobile usage. You might be surprised to know that Latin America for example:

• Had 231M internet users in December 2011 (10% of the world internet population);
• Had 145M Facebook users in April 2012 (18% of worldwide Facebook users), and
• Had +500M mobile connections as from March 2010 (86% of the Latin American population)

As for smartphones, clearly of more interest for deploying self service capabilities for agents and upper income consumers:

• Brazil has more smartphone users than France or Germany
• Brazil and Mexico together have more smartphone users than Australia has inhabitants
• Argentina smartphone penetration (24%) is better than in Germany
• 26% of Mexican smartphone users have made a purchase on their mobile
• 45% Brazilian smartphone users have purchased on their computer after researching on their mobile
• 82% of Argentinean smartphone users have researched a product/service on their mobile

The microinsurance market matches almost perfectly with the conditions for innovation as it is an under-served, untapped market that presents fragmentation and it is a high cost to serve market under the present business model for traditional insurance companies. Mobile is just one of the technologies available that could help insurers serve the low income market with a profitable model.

Microinsurance strategies require an innovative approach in areas such as product, rates, distribution, claims and collection and it is a shared view among industry leaders that such innovative approach could afterwards be used in their incumbent markets.

A recurring finding from Celent research concerning the use of social media in insurance is the perception that the return on investment is low or nonexistent. Given that the cost of social platforms is minimal, this implies that the benefits associated with it are thought to be very low.

Celent believes that insurers can increase the actual and perceived value of social media use by extending social search tools and processes beyond marketing departments and into the core operations of their organizations. Companies can realize the ROI potential of social media by applying it broadly across the enterprise, not only as part of Marketing activities.

In order to test this theory, newly published research uses a search tool, Salesforce.com Marketing Cloud, to extract 380,000 consumer posts from social sites that mention any one of 14 North American P&C insurance companies. (report url = http://www.celent.com/reports/realizing-roi-social-media-insurance-listen-mirror)This creates a mirror, held up to insurers, so that they may see what their agents, customers and prospects are saying about them. This is not study of what insurance companies want us to know… their latest contest, advertisement, or antics of their beloved mascots, but, rather, what paying customers say is important to them. It is a massive, virtual insurance consumer focus group.

By analyzing social data all the way down to the source level, Celent’s research discovered opportunities to improve insurer performance in specific functional areas. The report focuses on the functions of Service, Product Management and Claims. If found numerous and diverse examples of how these areas can be improved using the output from social listening. Examples include: providing examples of best practice for catastrophe response audits (based on recent Sandy postings), identifying cases of poor communication and planning in property risk management, and detailing interactions between customers and agents that customers said were valuable and increased the benefits of an agent relationship.

However, social listening is not a silver bullet which will create customer value in and of itself. In order to maximize value from social search, insurers must perform the difficult tasks of changing work processes and driving decision-making to customer contact points. Traditional assumptions about what insurance consumers (both individuals and businesses) value must be challenged. Product experiments should be undertaken based on what is heard. Making these adjustments is a leadership, not just a technology play.

This research details specific examples of actionable social content and makes suggestions of how these can be used to improve insurance operations. Social data is a good source of insights, prompts and provocations, but using it blindly as an empirical source of the truth is pushing it too far. As with any new data source, the insurance industry must conduct its due diligence and respond wisely. Once insights are validated and meaningful responses are put in place, the return on investment in social tools will be realized.

I’m guessing that somewhere in your strategy documentation will be an objective that states that you will succeed as an insurance company through ‘being innovative’. It may be presented up-front as a bold strategic theme or it may be hidden deep down in the depths of a key initiative. I’m also guessing that, for many of you, this objective may not necessarily be backed up by a statement of how you intend to achieve ‘being innovative’ or what ‘being innovative’ really means.

So, what does it mean to be innovative in insurance?  Interestingly, when you search for a definition of being ‘innovative’ in insurance using Google, you’ll get back over 24 million hits. For fun, you can also read some of the entries in our competition to define what innovation is for our industry in advance of our Innovation & Insight Day in Boston on 27^th February (see our LinkedIn discussion group with circa 115 entries submitted so far).   Finally, let’s not forget, that there is a whole industry of management self-help books out there online and in airport book shops (circa 39 thousand books listed in Amazon for innovation), plus academic research (639 thousand hits on Google Scholar for innovation and insurance) to help.

With all of this information available, I guess it should be easy for all of us to know exactly what to do to be innovative and how to use innovation to be successful?  Mmmh. In my experience of running workshops with clients, innovation is rarely a well-articulated or understood concept.  In many instances, it is just another word for ‘new’, which rather than helping a firm to rally around a radical concept or idea, can underplay its significance.    

So, when things start to get confusing or complicated, I personally like to learn through doing or by observation.   Over the holiday period, I finally got around to reading Walter Isaacson’s “Steve Jobs: A biography” (one of the many books you’ll find in or near the Management Section of your airport bookstore). Apart from the biographical elements about his personal life (many of which were eye opening to me) and his dysfunctional people management style (this is a slight understatement!), I found myself identifying some of the themes that made Steve Jobs and Apple innovative in my eyes. 

Here’s a quick round-up of my take-aways:

• Adopting a heuristic approach.  Learning by doing, taking risks, accepting mistakes (well, some of them at least) and following instinct.  It would appear from the book that few product launches led by Jobs ever followed a formal plan or typical investment case procedure adopted by many corporates and that I’d recognise.    
• Maintaining a pure vision. Jobs insisted on perfection.  New to the world products were frequently pulled back from their launch date in order to achieve the ‘insanely great’.
• Separating out a small team.  Albeit not always by design, Jobs sometimes found himself creating a team outside of the main corporate organisation.  This had the effect of helping to focus minds as well as creating a distinct identity – even when this had the effect of creating a counter-culture to the parent firm.
• Hiring the ‘A-team’.  Jobs claimed that ‘A-team’ players want to work with ‘A-team’ players, and that ‘B-Team’ players would only drain energy away.  Jobs was pretty ruthless in insisting on the best.  
• Creating a unique value network.  Rather than making the best use of what’s out there already, Jobs frequently preferred to create a value network from scratch rather than compromise or find himself in a weak position of power.

Although often dysfunctional and extreme in the case of Steve Jobs and Apple, these observations are consistent with much of the formal management research on disruptive innovation and entrepreneurial success.  Being innovative often requires a firm to break away from accepted industry norms and values in order to create something new.  

So, in an industry as old as insurance, are we ready to live up to our written strategies and ‘be innovative’?

______________________________________________________________________________________
Our competition for “Innovation in 6 words” is still open.  To take part in the discussion, join our LinkedIn discussion group (Innovation is…) devoted to the topic.  To participate in the challenge, e-mail your definition to Erica Ferguson at eferguson@celent.com using the subject line “Innovation is” along with your contact information.

We will be announcing the winning entries during our Innovation & Insight (I&I) Day on February 27, 2013. Regular readers of our blog know that I&I is a flagship Celent event. As always, it will host a variety of Celent and non-Celent speakers and will be a great opportunity to network with the industry peers. If you’d like to see the full agenda and learn more details, please visit our registration site.