How relevant is the traditional Life insurance agent?

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May 8th, 2014

Our team spends a lot of time thinking about the role of the agent. Over the years, we have seen considerable change, particularly in the application of technology.

What we have not seen change is the agent.

By agent I mean the “transactional” life insurance agent. Their business is made up of selling life insurance, usually at the kitchen table of the proposed insured, and that is their primary focus.

You can picture the agent: they arrive carrying a briefcase that contains paper applications. They will likely be in a suit, or at least a sport coat, sometimes with the logo of their carrier or agency in a nice crest. They consult with the proposed insured, or more likely the husband and wife, and then sell them a policy by filling out the application with their ballpoint pen. This very old school approach has not changed since our parents bought insurance.

This is still a successful model for some, but we believe it will be less so as time marches forward.

But if you are one of these agents and recognize the need to change, what do you do?

Many have already transformed their practice into that of a financial advisor or wealth manager, and that’s a great direction, but it is not for everyone. One approach follows a slightly different path and acknowledges the changes in the marketplace being driven by exchanges.

The agent could license private exchange technology from one of several vendors and build a brand. They would advertise and push this brand and steer potential customers to a website where they could sell major medical, both on and off the federal and state exchanges. They could sell supplementary products and, perhaps most importantly, they could sell transactional life insurance, focusing on term.

Back in the office, the agent could have a small call center team. Their role would be to answer phone calls from people that either came through their website or were referrals. You see, if it is easy and transactional (can you say term?), then we would want one of our modestly salaried team to handle it over the phone.

The agent’s energies would then be focused on a combination of marketing (establishing the brand) and sales (focusing on the big win), including large-face life and large annuities. This is one option, and one perspective, but one that we believe should generate discussion.

Tom Scales

Follow me on twitter @tjscales

 

It’s The Little Things

May 5th, 2014

I bought my wife some flowers recently, and was shocked to discover that the florist—as of this minute, my ex-florist—no longer gives out those little cards you tuck in the arrangement. The person behind the counter said, “We have these new ones from Hallmark, for only 99 cents…”

Huh? I’m spending $20 on cut flowers that cost you only $5, and you think it’s smart to eliminate the cards that cost you two cents each? That’s nonsense.

The real story here is that service experiences cannot be disaggregated. As a customer, I don’t view the Buy Wife Flowers Exercise as 10 separate steps, each with its own decision tree and cost benefit. I want it all, end to end, seamlessly. A good selection of fresh flowers, nice vases, honest and helpful service, a fast checkout process, maybe some ribbon, and those little cards that make sure I get full credit for my thoughtfulness. For that, I’m willing to pay $20. Start messing with the formula, I assure you I will look elsewhere.

It’s the same with all of my financial institutions. The basic product features and price are important. So, too, are how they sell to me, how they communicate routinely with me, what happens when things go wrong. And if I’m sitting across the desk from someone, how they treat my five-year-old when he interrupts a financial transaction with an explanation of his favorite Lego. It all matters.
The institutions I am loyal to are the ones that understand this. For example, I got an honest-to-goodness email from someone in a local bank branch when she noticed something unusual about my account that was, in fact, my mistake. “It didn’t look right, so I thought I’d ask,” she said. Problem solved, customer won over.

In the case of the Lego interruption (a different bank), the rep couldn’t have been more patient, which taught my son an important lesson about polite listening. The next time the bank calls me to offer a new service, I’ll return the favor.

I’m still waiting for one of my insurers or my broker to do something small but meaningful to convince me that I’m something other than a random, periodic check for them. They’ve got the big pieces in place, which is why I have relationships with them. But until I experience the extra touches and perhaps an occasional nice surprise, I’ll keep my eyes open for other providers.

Consumer mobile apps in Property and Casualty: Webinar follow up

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May 2nd, 2014

On April 16 and 17 we hosted our “Consumer Mobile Apps” webinar focusing on P&C apps availability in Latin America. We had a Spanish and an english version of the webinar.

The survey behind the webinar included the review of 169 insurers, focusing on the top 10 of each market (20 countries). Before you jump to tell me that I am failing on math 101, let’s put a note here: not all countries in Latin America have 10 P&C insurers.

A question that came up was about the role of brokers & insurers regarding customer -facing apps. There are at least two angles to cover this question:

1) Insurers and brokers competing to win customers/consumers

2) Insurers and brokers collaborating to win customers/consumers

Our research shows that insurers and brokers are investing, with different pocket sizes, to win customers attention through apps. First thing to consider here is that consumers don’t just want an app. They want to have easy interactions. Apps are just another cog in the engine. As investment (and capacities) are needed to provide these experiences it is most likely that larger brokers will be able to play this game along with insurers. Now, when we take a look to the intermediation in insurance in Latin America, banks and retailers play an interesting role too. Consumers usually interact more with these than with brokers and insurers, so if banks and retailers decide to invest in an app that would also provide access to the financial and non-financial products the consumer has with them (i.e. credit cards, product and service offers, insurance, travel? in the case of a retailer), would the consumer be more likely to use this app instead the one provided by the insurer? More broadly, will the consumer prefer to buy the insurance through a bank, a retailer, (fill in the blanks with the distribution channel of your choice) or through the insurance company?

It seems that insurers will play an important role in providing an app every time they have a direct model or by collaborating with the distribution channel that can’t manage these interactions by their own. On all other circumstances it is more likely to expect the app coming from the distribution channel that has a meaningful interaction with the customer.

There are some good examples of collaboration between insurers and agents. Allied Insurance, Celent’s Model Insurer Award winner for the digital catregry this year, enabled agents to brand the insurance app. The mobile app serves as another way for Allied to extend and enhance customer service. Select agency partners dynamically brand the customer experience with their own custom logo. Customers can view policy, save insurance ID cards for offline viewing, make payments, view agency information, get accident help and roadside assistance and start a claim. Future plans include expanding the dynamic branding feature; building additional personalized digital enhancements for its agents and customers. The project from concept to full delivery took approximately eight months. They already had 22,000 downloads and more than 200 independent agency partners personalized the app with their own agency brand. The app also enabled thousands of mobile payments. It’s a perfect mix of Broker/Agent presence with the needs of the insurer.

If you’re interested in learning more about effective technology use in insurance be sure to read about our Model Insurer Awards finalists and winners at http://www.celent.com/reports/model-insurer-2014-case-studies-effective-technology-use-insurance.

Another case highlighted in the report, John Hancock’s sales tool to empower its agents (though this one is for Life insurance):

  • JH Life BriefCase: one central place to store, organize, and manage illustrations and client related information.
  • JH Marketplace: manage sales and underwriting materials, increasing speed of distribution, decreasing cost of delivery, maintaining version control for compliance.

What is the potential for mobile apps in Latin America? This was another area of interest for those attending the webinar.

Latin America has surpassed 100% mobile phone penetration. On average, there are 107 mobile phones per 100 people across the region. However, this doesn’t mean everyone in Latin America has a phone or that there’s connectivity everywhere. Smartphone penetration is growing in Latin America, but adoption rates are behind more mature markets such as the US and UK. Smartphone penetration in Latin America is around 32%, though this differs significantly from country to country. Nevertheless, Brazil, for example, has more smartphone users than Germany or France. Brazil and Mexico together have more smartphones than Australia has inhabitants.

Consumer behavior in Latin America should help to accelerate adoption. Increasingly, consumers are using mobile devices to access the Internet. In Mexico, for example, 80% of smartphone users access the Internet daily, almost 90% access an app daily, and 38% did not purchase something on a store as a result of a search on the smartphone.

Apps are also becoming important in enabling new business and service models; providing a platform to distribute, in a cost-efficient way, insurance products that are less attractive to sell through traditional channels. Microinsurance is an example, as are e-wallet capabilities banks are making available, even in feature phones.

As smartphones become more popular and inexpensive (as announced by the major phone manufacturers in the Mobile World Congress at Barcelona) this trend will accelerate and open more possibilities for financial institutions, beyond the top tier customers. Institutions operating in the insurance space such as banks, retailers and non-traditional players such as Google seem to understand this very well.

Finally, from Brazil we got a question around what is it required before even starting with an app. I believe this could actually be a good title for a report! As we don’t have enough space here I would summarize in the following:

  • Understand your customer – who/how/when/why he buys from you. Customer needs to be in the center of the design. We have moved to an environment where “the user” is beyond the insurer (and IT department) control.
  • Don’t focus just on the mobility concept, most likely it will require an omni-channel strategy to deliver what they expect. Consistency and integration across channels is of vital importance.
  • Work on your processes. Simplify and adapt to new channels and customers’ expectations.
  • Invest in a core system that will be able to accommodate these processes, integration points and basically that will provide you with the flexibility to evolve in time with agility.
  • If you insist and only want to focus on mobility, assuming everything else in your company works fantastically well, then portals/websites should be part of your mobile strategy besides apps. Use responsive design so it is easier to deliver content on any device (and size of screen).

If you are interested in our research about mobile, there is a series of reports published and some more coming out soon. Also expect a couple of reports about Online insurance. If there is any specific theme you would like to see us cover, please let me know.

See you around!

Personalization in car insurance is just around the corner

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May 2nd, 2014

In a 2013 survey in Latin America we asked CIOs about their views on the use of Telematics and UBI. We wanted to know if these were currently in their plans and if they believed that they would have any use and impact by 2016. Despite UBI and the use of Telematics has been well received in UK, Canada and the USA, we found that Latin American insurers were not so optimistic about it. Very, but very, few were in the process of investigating it or considering running a pilot, and the vast majority (overwhelming) said they were not doing (and would do) anything about it in the 3 year timeframe.

In our conversations with insurers some would be very cautious about how it could be introduced, particularly on how attractive this would be for a producer to sell. Particularly, successful incumbents reacted as if this had no chance to succeed and that they would not be the ones to try it, as they believed it would negatively impact their current portfolio (lose customers). Others would say that in Latin American countries the burglary component of the premium is significant, while the collision component not so much, and therefor UBI would not bring advantages in price to customers. All these typical reactions from incumbents to an innovative and disruptive idea that provides the means to personalize the rate to reflect the real risk that the driver represents. Pay as you drive, pay how you drive and more lately manage how you drive are value propositions that target to personalization (of risk) and loss prevention, two of the major trends we see in insurance in the future.

As any disruptive initiative, it only takes one to be bold enough and then change the dynamic of the market. We were conscious about some limited amount of initiatives that were being considered during 2013 in the region and our position was that the 2013 survey results would change completely as soon as UBI and Telematics was taken seriously in the region by at least one player (regardless of the size).

We also kept thinking about leading incumbents. Good for them if this did not succeed. But what would happen if they started losing the good risks towards an insurer with an UBI value proposition? For sure their revenue would be affected. But then, how would the leading incumbent’s portfolio look like if only the high risk drivers stayed? Not a pretty scenario, ha?

Some interesting facts that occurred since last year. The few pilots are taking shape; research is also indicating that in fact specific segments of customers pay more for car insurance just for being younger or a combination of factors that have nothing to do with the real individual risk; the use of telematics has seen its first implementation in a producer distribution model, moving away from being exclusively a direct insurance proposition (or targeted by a few specialized brokers); and last week Baseline Telematics, a leading provider of telematics based solutions, and Sistran, a leading provider of core insurance solutions, made available to Latin American insurers a combined offering with all the required technology for insurers to quote, sell and price insurance policies entirely based on the actual driving habits of a driver (mileage and behind-the-wheel behavior), which is obtained through a telematics device installed in the driver’s vehicle.

Guess what? Not surprisingly our 2014 survey (in edition) shows that, as we anticipated, the perspective on UBI and Telematics has changed completely in Latin America! Around half of the respondents indicated that they believe that in 2014 these technology will have some kind of impact or at least will be tried as a pilot, but most importantly, the view 3 years from now (2017) is that the majority believe it will be of use and impact in underwriting, rating and claims (against only 20% that indicate no use expected).

Solutions as the one presented last week enables monthly billing, with a variable premium based entirely on the usage of the vehicle (kms/miles) as well as the behavior of the driver (acceleration, braking and excessive speed). The objective is to attract the best drivers and rehabilitate (or eventually get rid of?) the more risky ones. The goal is to decrease exposure to risk (cost reduction), perfect your technical margins, and gain market share.

It seems now that the market has aligned in the right trajectory and personalization in car insurance is just around the corner. Will leading incumbents take their chances? Will this be the opportunity for others to grow in market share and quality of their car insurance portfolio? Does any of this resound familiar to you in any given market you may be?

If you are interested in the topic, feel free to contact us. Also, these are some of our reports related to this subject:

Four Ways to Grow Your Book

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Apr 23rd, 2014

Coming off a year with record results, industry reports show that prices are starting a downward trend. That ‘hard-ish’ market was gone in a blink. With pressure on rates, carriers have to compete hard to keep their accounts and have to focus efforts on growth just to make up for the rate loss. When it comes to growing a book of business, there are several techniques to deploy.

 
Growth by Managing the Distribution Channel.
Carriers can focus their growth efforts on superior management of the channel. Those who use independent agents can redouble their efforts to manage agents more effectively in order to extract more revenue from them. Realistically, this may require investments in technology as research has shown pretty conclusively that agents place business where it’s easiest to get the job done. Carriers can explore adding additional distribution channels. Options include a direct channel to the policyholder, working with wholesalers and MGAs, developing group and association business, banks, payroll processors – or a whole variety of other options. Carriers can expand their channel to other territories – entering other states or geographies. Carriers can focus on retaining more of the business they already write by providing superior customer service and targeting their efforts – especially on vulnerable accounts. Growth through channel management generally requires technology investments in portals, automated underwriting to permit straight through processing, distribution management systems to ease the on boarding, licensing and allowing compensation schemes to drive performance.

 
Growth Through Product Management
Carriers can focus on cross selling additional lines of business and products to existing customers. New product development is an area we see a lot of carriers focusing on as well as modifying existing products. And of course, getting a better margin on the product by improving underwriting risk assessment and pricing is a key area that drives growth. Effective growth through product initiatives requires the ability to rapidly modify existing products, a heavier reliance on analytics to drive uw decisions, and automated workflow to assure customers are being handled consistently.

 
Growth Through Marketing and Brand Management
The stronger a carriers brand the easier it is to improve their competitive positioning and generate new business. However, it’s hard for a midsize carrier to compete against a large carrier’s huge advertising budgets. There are areas midsize carriers can successfully focus on. We see midsize carriers focusing on social media, lead management, sales support and CRM as tools to drive brand.

 
Growth Through Acquisition
Purchase of books of business or other carriers is a growth strategy that some have perfected. For those who haven’t, there are challenges in such a strategy. Whether it’s integrating the new systems, assuring the credentialing of the new distribution channel, or absorbing new staff, this strategy can present enormous efforts by an IT organization.

 
When I talk with carriers about their growth strategies, most say – “We do all of that”. Each of them however, requires different skill sets for carriers. When a company is fighting to grow a book of business, different initiatives may take priority. It becomes more difficult to keep focus and resources on longer term initiatives, or initiatives that are focused on non-revenue generating activities. Data, infrastructure, and back end support initiatives can get side tracked. CIOs have to be thoughtful about understanding the relationship between the work they do and the value they generate so they’re not seen as a pure cost center – an expense to be cut when combined ratios drop.

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The Blame Game

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Apr 16th, 2014

Kathleen Sebelius resigned on Monday, and I’m betting that she is hoping that her next role does not include a major IT project.  As Secretary of the Department of Health and Human Services (HHS), Sebelius was responsible for overseeing the rollout of the troubled healthcare.gov website whose launch was tainted by serious technical problems. 

Initially the technical problems were thought to be confined to scalability issues given the large amount of traffic.  But it was found that there were a variety of other issues.  The site rejected valid passwords, served up blank drop-down menus, and crashed repeatedly.  There were challenges with the database, issues with integration, and after millions of visits on the first day, only six people got all the way through.  New contractors were brought in to fix the problems which added to the cost overruns.  The cost ceiling began at $93M, was raised to $292M, and today, it is estimated that the site has cost around $500M.    To be fair, this was an extremely complex project consisting of 6 complex systems, 55 contractors working in parallel, 5 government agencies were involved; it is being used in 36 States, and covers 300 insurers’ 4500 insurance plans.

There were a number of contributing factors to the technical problems.  No single contractor managed the entire project and there was a lack of coordination across the multiple vendors.  There were a number of last minute changes – and the project was managed using a waterfall methodology – which can make it difficult to respond to the changes quickly.  Testing was inadequate.  Not only did the system not perform according to design, but it didn’t scale to the level anticipated.  Clearly they knew what the load would be – but the load testing didn’t meet the capacity plan. 

However, Sebelius had little direct oversight of the project and certainly wasn’t responsible for the day to day project management.   The website design was managed and overseen by the Centers for Medicare and Medicaid Services, which directly supervised the construction of the federal website.   Regardless, Sebelius is likely updating her resume today and considering alternatives. 

What does this mean for a CIO?  If you’re going through a large scale project – and many carriers are – you won’t know everything that the project manager knows – even though your neck is on the line if the project fails. Large scale projects require a different level of management than day to day operations.

Areas to focus on include:

·         Set realistic time frames.   Don’t underestimate the amount of time it will take to implement the project.  A lot of carriers want to hear that implementation of a policy admin system can be done in 6 – 12 months and while there are some examples of that being true, it’s more likely that your solution will take longer.  Plan carefully,  add contingencies, and if you end up with a choice between launching late or launching with less functionality that was initially planned,  you’re usually better off taking the time to do it right.  People are much less forgiving of a poorly executed project than a late one.

·         Manage the project with multiple, aligned work streams.  Large projects generally will require multiple work streams.  We often see carriers who divide the project into streams such as data, workflow, rating, documents, etc.   This allows the team to focus their efforts.  However, you have to continuously monitor that the streams are aligned.  Communication across multiple work streams is critical

·         Communications is a key success factor for large projects, yet is often an afterthought – or worse – not planned.  Communications across project teams is necessary to assure the functionality is aligned as planned. Communications is also critical when it comes to managing scope creep.  When the team clearly understands the priorities, they’re better able to make tradeoffs early on.   Clearly setting expectations around the deliverables and then continuing to manage those expectations as the project moves forward is an important piece of the communications – especially if faced with optimistic delivery dates, changing requirements, or staffing constraints. 

·         Focus on the worst case scenario.  Be skeptical when all is going smoothly.  Insist on regular checks on the project and take red flags seriously.  Realistic monitoring of the project progress and analysis of the underlying factors impacting the use of contingency will help identify issues early on.  Make sure not to just look backwards at what has occurred – but focus on readiness for future stages.  Some carriers benefit from having third parties come in and conduct project health checks – looking objectively across the project for subtle indicators of potential issues.

In the end, Sebelius is responsible for the results of the healthcare.gov implementation and her resignation should be seen as a red flag for carriers in similar situations.  Take a look at the governance you’ve put in place for your large projects.  Now may be a good time to consider adding some additional oversight. 

5.13.2014 Celent Webinar: The Internet of Things and Insurance: Can an Old Industry Learn New Tricks?

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Apr 14th, 2014

Donald Light, Director of Americas Property/Casualty Practice

This event is free to attend for Celent clients, flex-plan clients, and the media. For more information, please contact Chuck Smith at 1-617-262-3125 or csmith@celent.com .

Please click here for more information.

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Is there a concentration wave going on?

Apr 11th, 2014

As part of our research, Celent has been covering a large variety of vendors active in the insurance space. Over the past 6 months we have published a few reports profiling specific core insurance system vendors in different application domains such as policy administration, claims, underwriting and quote and illustration. Based on our continuous screening of the market we have a pretty good understanding of this market:

Vendors_covered

In Europe, the Middle East, and Africa we have noticed that the market is highly fragmented and we think that a concentration phase will decrease the number of market participants over the next decade. Mergers and acquisitions activities have already started with some interesting strategic moves that happened over the past 5 years such as the acquisition of Duck Creek by Accenture, IDIT and FIS Software by Sapiens and the merger between FJA and COR AG.

More recently we have seen software integrators or more generally what Celent calls IT services vendors getting more active on the M&A front with for instance MphasiS purchasing Wyde a few years ago. As we are about to kick off the update of our IT Services vendor reports from 2010 (for more information about these reports you can click on the following links: IT Services Vendors Solutions Spectrum: North American Version, 2010 and IT Services Vendors Solutions Spectrum: EMEA Version, 2010), we already have noticed that some IT services firms are getting very aggressive on the market. A good example is without any doubts Sopra who has had an acquisition fever over the past 3 years with the recent acquisition of Steria announced this week.

We find the recent M&A developments in the core insurance system vendor area as well as the IT services vendor industry interesting. We think it demonstrates that IT in financial services and more specifically in insurance attracts interests from investors, being existing players or new ones. In this fast changing environment, we are looking forward to get a deep dive in the IT services vendor landscape in order to provide the latest about this market to our insurance subscription clients. Stay tuned!

5.20.14 Celent Insurance Webinar: Which way is IT going across Europe in 2014?

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Apr 9th, 2014

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

This event is free to attend for Celent clients, flex-plan clients, and the media. For more information, please contact Chris Williams at 44-208-870-7875 or cwilliams@celent.com .

Please click here for more information.

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Is the insurance industry facing a Cyber-Cat? Thousands of websites at risk to heartbleed bug…

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Apr 9th, 2014

No no – I’m not referring to an animated cat on an App but rather the announcement yesterday regarding the Heartbleed bug affecting the security of over 50% of the Internet according to some estimates.

The bug affects the OpenSSL package and is believed to have been in the package since 2011. It affects the way the package deals with heart beat messages, hence the moniker given to the bug. There are already tools in use that exploit the bug and provide access to recent user data on compromised servers.

There have been security alerts before with many large brands facing fines and media inquiries about their losses but this bug potentially affects hundreds of thousands of websites and many businesses globally, but why characterise this as a catastrophe and why would insurers be interested?

In the last 2 to 3 years with the cost of data breaches growing significantly businesses have been offsetting the risk of a breach or loss through Cyber Liability Insurance Covers. Whilst the practice and cover is arguably in it’s infancy it’s popularity suggests that this sort of event could constitute a significant liability to insurers globally offering this cover. Further the event has some characteristics in common with other events requiring catastrophe response:

  • Many insured are at risk.
  • The event will likely draw the attention of governments and regulators.
  • Swift response will mitigate further loss.

There are some significant differences here though. Most notably in the event of hail, storm or flooding the insured are likely aware if their assets are affected or not – they may not know the extent of the loss but are likely aware if they need to claim. Increasingly risk aggregation and modelling tools are helping carriers and brokers understand the likely impact of catastrophe events. In this case however the insured may not be aware if they are compromised or not since the bug allowed for intrusions that would not be logged by the affected systems. In this case the advice is to determine if OpenSSL is used and if so then the server has been vulnerable, may have been compromised and should be patched immediately.

The full statement regarding the bug is available at http://heartbleed.com/ although it is also covered at http://blog.fox-it.com/2014/04/08/openssl-heartbleed-bug-live-blog/ which contains some useful advice. Further coverage is available from Reuters and The Guardian.

As noted on heartbleed.com – Apache and NGinx webservers are known to typically use the OpenSSL library and account for 66% of the Internet according to Netcraft’s April 2014 Web Server Survey.

Google says that it is not affected however Yahoo has already reported that they are working to fix the affected services on their side.

As always communication and collaboration is crucial to managing these events. Insurer clients of Celent may like to read Celent’s case study combining internal and external data to respond to a catastrophe.