Guidewire Acquisition of FirstBest – A Wakeup Call for Core Suite Vendors?

The Guidewire acquisition of First Best should come as a wakeup call to other suite vendors in the marketplace.   Not to be a doomsayer, but the reality is the market for core system replacements is shrinking.  Many carriers are in the middle of a replacement or have already completed their replacement.  There are fewer and fewer deals to be had and more and more vendors in the marketplace chasing those deals.  

Let’s look at the numbers.   Donald Light’s recent PAS Deal Trends report shows that we’ve seen an average of around 85 deals a year over the last two years.  But there are more than 60 suite vendors out there.  Of those available deals, a very few key vendors – including Guidewire – will likely get half or more of them.   That leaves around 40 deals for the remaining 60’ish vendors.  That’s less than one each.  And that’s IF we assume the market will stay steady at 80-85 deals a year. This basic math shows that many core suite vendors will not get a single deal in 2017.  

So how can vendors satisfy their shareholders?  How can they generate growth and remain viable players?  The truth is some of them won’t.  But smart vendors are thinking about other options for growth.  And they have a few paths they can take. 

  • Sell things other than suites.  This is the tactic that Guidewire is showing with their recent announcement of the FirstBest acquisition and is also illustrated by their prior acquisitions of Millbrook and Eagle Eye.  Duck Creek is doing the same as shown by their acquisition of Agencyport.  Providing other core applications that carriers need allows a vendor to continue to grow their existing relationships, and allows them to create new relationships with carriers – even if the carrier doesn’t need a new core system.  Some vendors will purchase these additional applications; others will build them.
  • Sell to a different market – Insurity’s acquisition of Tropics lets them go down market to work with small WC carriers.  Their acquisition of Oceanwide gives them the ability to handle small specialty, or Greenfield projects.  While there are still plenty of deals to be done in the under $100M carrier market, most vendors can’t play in this space. Their price points won’t work for small carriers, and their implementation process won’t work. It’s too expensive and takes too many carrier resources.  The implementation process has to be drastically  different for a carrier with only 6 people in the IT department than it is for a larger carrier.   This strategy of going down market only works if a vendor can appropriately sell and deliver their solution to a small carrier while still making margin – and many vendors just can’t do that. 
  • Enter a different territory – Vue announced today they’ve entered Asia with Aviva; Sapiens entered the US by purchasing MaxProcessing.  And we see other vendors including Guidewire, EIS, and Duck Creek moving outside the US.
  • Sell services – many vendors provide cloud offerings – which provides a steadier stream of income.   Vendors such as CSC or The Innovation Group (prior to the split) had/have a large proportion of revenue coming from services.  Vendors like ISCS provide additional BPO services such as mail services and imaging.   

Any of these strategies are viable – but I predict we’ll see more vendors using them as the market for core system replacements shrinks.  Smart vendors are already thinking ahead, working on their long term strategy. 

Carriers who work with these vendors should be watching as well.  No one wants to work with a vendor that won't be here for the long term.  If you’re a carrier considering a new system –

  • Make sure your vendor is showing momentum – new sales.
  • Look to see what the signals are for their long term viability – will they be a survivor selling new suites?
  • Do they have the resources to create or acquire new capabilities like portals, analytics or distribution management?
  • Are they entering new markets, new territories or providing new service offerings?

If you don’t see these signals, you may want to start having a conversation with your vendors today. 

 

 

How to grow your book of business

Most carriers in North America work with independent agents. Although the majority of premium for personal lines is written direct, that is largely concentrated in a few large carriers. Carriers who use independent agents know that high production from agents is correlated with strong relationships. However, beyond encouraging a strong personal relationship with an underwriter, what else can a carrier do to systematically build a stronger connection with an agent and grow their book? Celent surveyed a group of agents to understand those areas most likely to make a carrier the agents’ top choice. The report addressed the following key research questions:
  1. When it comes to placing business with carriers, what criteria are most important to an agent?
  2. How are top carriers performing on those criteria?
  3. Where should carriers prioritize their investments in order to drive growth?
Key Findings
  • It is easy to think that price is the most important factor when it comes to where an agency chooses to place business. Competitive products and price certainly are important; however, even more important than products and price is the responsiveness of the underwriter. A fast underwriting decision is also quite important with over 60% of agents stating this is a must-have.
  • Money matters to agents although the specific components are not essential to all agents. The most important component is commissions. Interestingly enough, 40% stated that the commission rate does not necessarily have to be competitive. Only 30% said incentive compensation programs were must-haves – and 40% said they were nice to have or didn’t matter at all
  • Beyond that, agents also look for support in other areas. A strong brand is important, as it is easier to sell a company where the prospect already has an emotional connection. Marketing, training, and consulting support is seen as important by more than half the agents and especially younger agents who may benefit more from these types of services than older established agents may.
  • Mobile tools and social media support are generally not seen as important items to most agents – but there is a significant generational difference here. 25% of younger agents see mobile as a must-have compared to 4% of those over 60. Generational differences will become more important to carriers as baby boomer agents increase their rate of retirement and are replaced by GenX and Millennial agents.
  • Agents want carriers to invest in those tools that are most important in helping them perform their job of writing business and providing customer service to the policyholder. Most important to agents is continuing to build out both the integration with the Agency Management System and expanding the functionality of the Portal. Least important to agents are features such as mobile apps, online certificates of insurance, online commission statements, and access to marketing materials.
Looking ahead, the industry is likely to continue to experience increasing channel complexity and increasing regulation, which means there are opportunities both to improve the agent experience and to reduce costs along the way.  Carriers who are looking to drive growth by improving the agent experience should start by looking at their technology offerings and make sure they are delivering the functionality that is most important to their agents. This report presents the results of an online survey conducted during May 2015 of independent insurance agents. It contains 13 figures and 1 table. You can find it here: Driving Growth by Optimizing the Agent Experience

Risk, reward and cyber-scurity

For most people the amount of time, skill and effort required to get access to our family photos far outweighs the possible value someone would find there in. Thus, security measures based on making it really quite difficult to get to the data while at the same time not too hard to use have become increasingly popular. I would file username and password security in here. Occasionally, the digital assets on the other side are valuable to the right group. Banks use 2 factor authentication and a variety of non-digital schemes to ensure security. Even World of Warcraft where rare digital swords and armour carry their own value offer broader measures of security to protect accounts. The recent leak of a number of celebrities private photos shows that there are other assets worth the time and effort required to break this level of security. The risk associated with the data insurers hold has to date been quite minimal. There are health, specialty lines and large commercial lines where this isn’t the case, but for most people the data held by insurers and available through portals is largely innocuous and available through other means. As insurers start to tap into wider data sources and the Internet of Things it is imperative that the industry considers how it protects it’s customers. A simple example from products available today: some insurers likely hold the real-time location of the car driven by celebrities and millionaires children, thanks to the increasing popularity of telematics based car insurance. This brings with it increased security, the opportunity to recover the car if stolen and the opportunity to bring much needed assistance swiftly if the car and driver suffer an  accident. In the wrong hands this data is sadly highly valuable and thus worth the time, effort and risk to assault and try to recover. Whilst the details around the leak are still emerging it is clear that it is incumbent on the providers of these services to offer sufficient security in the first place and to educate it’s users on appropriate use. To insurers looking at cloud and portals, I say consider the edge cases – the celebrities using your security for instance, those for whom there are organised groups who would be rewarded for getting the data. Take into account the type of data available through various security schemes and portals, some information is naturally less sensitive. No one will read a story about a film star’s driving score and premium due next month, but where they drove and when – well maybe that’s a headline you don’t want your name associated with.

Empowering Your Agent at Insurance Networking News

There’s a great article at Insurance Networking News (in which I am quoted) about the rise of agent portal technology. It’s been a favorite topic of mine, and I’ve written multiple reports about it at Celent. As the article explains, there are essentially four ways insurers have gone about providing agent portals.
  1. Build it themselves.
  2. Leverage a portal technology vendor.
  3. Leverage the portal technology in a policy administration system.
  4. Utilize a framework from a professional services firm.
The first option has–so far–been the overwhelming choice for insurers, but as technology offerings from vendors have matured, this is changing. Considering that such a high percentage of carriers have an agent portal (according to Celent research, it’s between 85 and 95 percent, depending on line of business) It’s surprising that it’s taken so long for this many viable vendor options to be available. Though, really, many of these vendor technologies have been in the marketplace for a while. I think the real change is that many carriers have completed the build out of proprietary portals and are now stepping back and asking how to take those portals to the next level. For INN’s take on it, check out the “Empowering Your Agent” article.

Two Fruits: “Miracle Apples” and “Business Renovation Project”

This week, Celent is pleased to feature an article from guest contributor, Hiroshi Yokotsuka, Managing Director, Member of the Board and CIO of the Tokio Marine & Nichido Fire Insurance Co., Ltd.

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Hiroshi Yokotsuka

Hiroshi Yokotsuka

Today, I’d like to share with you a story that happened in Japan called “Miracle Apples” and Tokio Marine & Nichido Fire’s project called “Business Renovation Project.” Adam and Eve, the discovery of gravity, William Tell, and the iPod. have brought various challenges, discoveries, emotions, and pleasures to human beings. Another miracle was created by apple trees and an old man at the north end of Japan. Today’s apples are different from the one Newton saw. With generations of breeding improvement and sophisticated anti-pest methods, apple trees can bear big, sweet fruits. High-end apples in Japan are twice as big as the ones you see in the hotel lobby. But apples became very vulnerable. They can’t live a year without a substantial amount of agrichemicals, fertilizers, and careful weeding. There was a strong belief that it was impossible to grow apple trees without agrichemicals and other artificial materials until Mr. Kimura challenged it. Mr, Kimura, age 60, began his attempt of pesticide-free apple production 20 years ago. Kimura-san knew it wouldn’t be easy. But the hardship was far beyond his imagination. Eliminating thousands of worms by hand and disinfecting with vinegar or Wasabi water did not work, and apple leaves were devoured by insects. Kimura-san tried everything he could think of, but despite six years of effort, apple trees were weakened and dying even without flowering, and needless to say bearing not a single apple. Out of ideas and exhausted physically, mentally, and economically, he finally decided to conclude his unsuccessful life by killing himself. He walked deep into the mountains to find his final place. What he saw there were vital forests full of life. Trees spread their leaves and roots vividly, without any help from humans. Apples are made by apple trees, not by human beings. Kimura-san spent six years realizing that obvious truth. A human being cannot live alone; neither can an apple tree. Trees in a forest live with harmful insects and beneficial insects (and these are the human definitions of them), weed and fungus, worms, frogs, snakes, and animals in harmony. Completely forgetting what he had come to the place for, he rushed back and began to reconstruct his field to make apple trees comfortable. In that field, various plants sprouted and various insects, reptiles, and animals lived with the trees. The field became a very comfortable place for both apple trees and humans. The apples grown there are incredibly flavorful and nutritious. It became very hard to get the apples. A restaurant that serves apple soup using those apples is booked for a year in advance. Tokio Marine & Nichido Fire sells insurance 100% through its agencies. But it was just recently that TMNF realized the obvious fact that it is agencies who face customers and sell insurance products. Before that, agencies were compelled to sell the complicated insurance products designed for company’s sake, following the cumbersome processes designed by the company, not agency-friendly computer systems. The “Business Renovation Project,” started in 2004, focuses on how to make agencies feel comfortable through the business process. We cut insurance products and special clauses by half, refined and simplified the business process thoroughly, and rebuilt the computer systems, from the agencies’ point of view, from scratch. Now, a harmony of renewed insurance products, business processes, computer systems, support from TMNF’s employees, and above all agencies’ autonomous efforts create a very comfortable business environment. That, no doubt, results in comfortable experiences for their customers. In this way, TMNF’s “Business Renovation Project” bears fruit as delicious as Kimura-san’s Apples. About the author, Hiroshi Yokotsuka: [Read more…]

2つの果実:「奇跡のリンゴ」と「抜本改革」

今回は、東京海上日動火災保険株式会社の常務取締役でCIOの横塚裕志氏より、セレントのブログに寄稿いただきました。
 
To view the English version of this article, click here. 
 
Hiroshi Yokotsuka

Hiroshi Yokotsuka

 
 本日は、日本で「奇跡のリンゴ」と呼ばれる物語と、東京海上日動の「抜本改革」の話をしたい。
 
 
 
 
 

 アダムとイブ、万有引力、ウイリアム・テル、iPodなど、これまでリンゴは人類にさまざまな試練、発見、感動、楽しみをもたらしてきた。今また一つ、日本の北のはずれのほうで、リンゴの木と一人の老人が新たな奇跡を起こした。

 今日のリンゴは、ニュートンが見たそれとは全く別物である。数世代にわたる品種改良と優れた病害、害虫対策により、立派で、甘く、大きな実をつけるようになった。特に日本で作られている高級なリンゴは、皆さんが欧米のホテルのロビーで見かけるものの倍近い大きさがある。

 その代償として、現在のリンゴは大量の農薬、肥料、丁寧な除草なしでは、1年も経たないうちに枯れてしまうほど脆弱なものになってしまった。リンゴを無農薬で育てるのは不可能であるというのが農家の常識であった。少なくとも木村氏が挑戦するまでは。

 木村氏は現在60歳。20年前にリンゴの無農薬栽培という、当時の常識からは無謀とも言える試みを開始した。

 その困難は、木村氏の想像を遙かに超えていた。手作業で害虫を取り除き、消毒薬の代わりに酢やワサビの溶液を撒いたが、葉は害虫に食い荒らされた。

 6年間、考えられることを全て試してきたが、リンゴの木は実を結ぶどころか花を咲かせることもなく、衰弱し、枯れていった。

 万策尽き、精神的にも経済的にも消耗しつくし、ついに自殺を決意して山中深く分け入った木村氏が見たものは、農薬も肥料も与えないのに力強く育っている木々の姿だった。

 リンゴを作っているのは人間ではなくリンゴの木である。人間の都合ではなく、リンゴの木が本当に気持ちよく実を作れる環境が必要だ。この当たり前のことに気づくのに6年かかった。人間が一人では生きていけないように、植物もそれだけでは生きていけない。森の木々は、害虫も益虫も(これは人間の定義である)、雑草も雑菌も(これも人間の定義である)、ヘビも蛙もミミズも一緒になって、絶妙のバランスを保って生きている。

 木村氏は自分が何をしにここに来たかもすっかり忘れて畑に走って帰り、それからはどうしたらリンゴが気持ちよく果実を作ってくれるか、それだけを考えて畑を作り替えた。その畑は様々な草が生え、多くの虫やヘビやカエルや動物が棲む、雑然とした、しかしリンゴの木にとっても人間にとっても大変心地よい環境になった。そこで創られるリンゴは言葉では言い表せないほど滋味に溢れ、現在では入手が非常に困難である。そのリンゴを使った料理を出すレストランは、1年先まで予約が埋まっている。

 

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東京海上日動は、その保険のほぼ100%を代理店が売っている。しかし、お客様と接し、保険を売っているのは代理店であるというごく当たり前のことに気がついたのは、つい最近のことである。それまでは代理店は、会社の都合で作られた複雑な保険商品を、会社が考えた煩雑なプロセスで、社員の目線で作られた使いにくいシステムを操作しながらお客様に販売していた。

 

2004年にスタートした「抜本改革」は、代理店がいかに気持ちよく仕事ができるかを徹底的に追求したプロジェクトである。会社の都合で複雑化した保険商品・特約を半分にそぎ落とし、プロセスを根本から見直し、代理店の目線でシステムを全面的に作り直した。

 

現在では、商品、業務プロセス、システム、社員のサポート、そして代理店自身の自律的努力が絶妙に調和し、代理店にとって心地のよいビジネス環境が生まれつつある。それは、言うまでもなくお客様にとっても心地よいカスタマー・エクスペリエンスを提供する原動力になっている。

 

東京海上日動の「抜本改革」もまた、木村氏のリンゴに優るとも劣らない果実を実らせつつある。

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To view the English version of this article, click here.
Hiroshi Yokotsuka

Hiroshi Yokotsuka

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