For sustained innovation, it is not only the “What” but also the “How”

I read an excellent article recently by CoinDesk on John Hancock Insurance Company’s testing of blockchain in insurance. This is one of the early, public declarations that insurers are exploring the potential of this technology. Jamie Macgregor and I also explored this subject recently in the report: Blockchain in Insurance: Use Cases

There is another important angle to the John Hancock story that lies beyond the technology. In our approach to innovation at Celent, we separate the “what” of innovation (blockchain, artificial intelligence, analytics that personalize the customer experience) from the “how”. How companies execute on innovation involves building repeatable processes, incentive systems, and cultures of experimentation that establish a new “way we do things around here”. Note that John Hancock’s LOFT program provided the mechanism through which the insurer could test blockchain. Next week, month, year it will be a different “what” to feed into the “how” machine.

Beginning in the Q3 of last year, Celent research observed the pattern that leading financial services companies which have invested in the "how" of innovation are beginning to gain fast mover advantage over those that have not.  We expect to see an increasing, widening gap between those insurers which have investe in the how of innovation and those that have not. The leaders will use their innovation machines to more rapidly and effectively figure out how to make the “what” of the possible real in their organizations.

Quotes from the Innovation Roundtable

They said it couldn’t be done, but we held the latest installment in Celent’s series of innovation roundtables in Tokyo recently. Our innovation roundtables put the focus squarely on interactive discussion among the participants. This is a relatively untried model in Japan, where events typically take the form of conventional conferences with presentations. We’re glad we tried it though, because we got a very interesting line-up of firms. Participants included the whole spectrum: banks, capital markets firms, and insurers; Japanese and foreign firms; traditional mega-institutions and alternative new entrants. The discussion was lively; below are some quick notes I took of some of the more interesting comments made, to capture a bit of the flavor of the day. Why Innovate? “Innovation is not the goal, it is a method and a tactic.” “We need to innovate because it has become difficult to differentiate us from our competitors.” “In today’s environment, innovation is necessary if you want to stay profitable.” Paths to Innovation “Incremental innovation is an axymoron. You can’t innovate by increments; innovation requires a big bang change.” “It might be possible to rearrange existing elements to create something new.” “When to innovate? If our clients think a new service is interesting, we try and create it for them and see if it succeeds.” “Innovation needs to be business driven.” “Financial institutions need to have an innovation division; an incubation unit that accumulates ideas from throughout the company.” IT and Innovation “IT is not the impetus for innovation, but because IT inevitably evolves, that creates need for innovation.” “Legacy is a barrier: it is hard to throw things away.” Cultural Challenges “We need to justify ROI on any investment each fiscal year. It is hard to show this on an innovation project.” “If you think about it, financial institutions don’t even have R&D departments.” Quote of the Day “Changing company culture is really about changing oneself. I personally enjoy innovation and change. Innovative culture is about getting a bunch of people together who enjoy change.”

Stirring The Creative Disruption Pot

One of the great things about being an analyst is that you’re expected to challenge the status quo on behalf of the companies you work with. The analyst-as-gadfly model was on display at Celent’s Creative Disruption workshop in Boston last week. Someone later told me, “You looked like you were having fun!” I surely was.

Celent’s message of “healthy discomfort” as a driver of positive change seemed to resonate with attendees, both carriers and their vendors. It came into virtually every conversation in some way. Here are a few nuggets I noted throughout the day.

  • Disruption is generally respected but only lightly pursued. Like “change” and “agility,” disruption is a term with positive connotations for most people. But when you ask companies what they are doing to make it a reality, you mostly hear the sound of crickets.
  • Agile methodologies are enabling change. And they’re not all about technology. They seem to serve as a signpost that corporate cultures are changing, giving staff a reason to rethink their traditional behaviors.
  • Vendors have an important role to play in driving change. This is well understood, by players on both sides of the vendor/carrier relationship. But it’s easy to revert to old models, where vendor and insurer interests are in opposition rather than being aligned.
  • Leadership will determine where disruption can thrive. Front line staff are thirsty for productive change. Being part of something bigger and more exciting is on most people’s wish lists, even if they don’t know it yet.  But absent some passionate vision from the top, “big D” disruption projects are doomed.

You can expect more coverage from Celent on this topic in the coming months, as we think it is vitally important. Your ability to keep operational concerns and creative, disruptive thinking in a healthy balance will be essential for you to get to the top of a competitive heap.

Creative Disruption Videos

Celent’s Creative Disruption event last week was very well received. For those of you who couldn’t make it, I thought you might like to see the 3-minute videos that set the tone for several segments. (To view these over a slow Web connection, click on the HD button to toggle high definition off.) Special thanks to National Western Life’s CIO, Mike Hydanus, and Oregon Mutual’s CIO, Bryan Fowler, who shared their views on creative disruption on camera. Also thanks to Jim Kuhn, SVP from USAA, who talked about the Business Case. The Case for Creative Disruption Technology trends and consumer behaviors suggest we need to rethink our sales and servicing approaches. [vimeo clip_id=”31409934″] Speed & Agility Overused cliches? Maybe. But success stories are emerging. [vimeo clip_id=”31409842″] The Business Case Mixing art and science is the best way to get your business case right. [vimeo clip_id=”31399458″]

Hey Facebook: I’m Not Liking It

I shouldn’t admit this, but Facebook makes me queasy. I recently killed my personal Facebook account that the Class of ’83 Reunion Committee begged me to create.

Maybe it’s my unwillingness to finally be found by all those weirdoes I spent most of my high school years trying to avoid. And unlike LinkedIn, which focuses on my professional resume, on Facebook I’m supposed to put personal pictures and photos up on my wall, for all to see? I don’t think so.

Or maybe it’s the Like buttons, which have transformed “Like” into an action verb.

They remind me of second grade, where clandestine notes were used to figure out if someone “liked” someone else. As a lovelorn youth, I once tried to innovate this process by folding my note into an airplane and flying it to my target in the middle of class. Only it landed instead at the feet of my teacher, Mrs. O’Brien. She unfolded my plane, read my amorous profession silently, and handed it back to me. The answer to my question—if I ever got one—is lost to history, while the shame of my failed special ops communication persists.

But now my aversion to Facebook is extending into my professional consciousness. As if sharing of personal information and capturing the cheesy Likes of millions of users weren’t bad enough, new negatives are emerging. Businesses, not just individuals, are getting into the act. Some are creating special 2-stage fan pages, where new visitors have to Like the page to see all of the content. Even worse: Some businesses are providing hard incentives to visitors who Like their content, in a cynical bid to punch up their Like count and get their messages in front of the ever-expanding networks that are forming.

Anyone who has tried to resolve the wildly conflicting opinions found on Zagat or TripAdvisor or Ebay knows that feedback from strangers is of questionable value in determining the truth about goods or services. People’s experiences are hard to compare, even simple ones. And I have found that not many people view the world exactly the way I do, valuing the things I value and discounting the things I discount. I’m also certain that competitive misinformation, spread by competitors posing as dissatisfied customers, is rampant.

Even retreating to the comfort of your hand-crafted “social network” (ugh!) does not guarantee that you’ll turn up useful, honest, actionable data. Without talking to my friends directly, I have no way of knowing why they clicked on the Like button. Was it to congratulate a vendor on a job well done? To beef up their own level of activity to make themselves more relevant? Or perhaps to get 15 percent off their next online purchase? An analytical tool of questionable value has been further devalued. I think we should all unfriend Facebook, right before Social Studies.

Halftime Between Spring Insurance Shows

It’s halftime between the major spring insurance shows (ACORD LOMA and IASA), and here’s a scoring breakdown:
  • Optimism leads Pessimism by a score of 13 to 2. The Pessimism coaching staff is still plotting its comeback at IASA, but I have to say that the odds of getting Pessimism into the win column are very low.
  • Las Vegas oddsmakers agree, as they are shifting the action away from Optimism’s likely win to a discussion of how soon Optimism can deliver benefits from specific projects. Our take, from many conversations at ACORD LOMA, is that compressing the project benefit timeline to 9 to 12 months (down from 12 to 18 months previously) is a high priority for many carriers.
  • The strongest players for Optimism were Core Systems Renewal and Improving The Customer Experience. Fans of these players seem to be coming out of the woodwork rapidly, and Celent expects game jerseys with these names on the back to be hot sellers for the balance of 2011.
  • Of course, BI and Analytics are making strong contributions as well, which is a continuation of the game summary from last season. Many carrier general managers have their scouts out looking for more data sources and the tools to help BI and Analytics perform better on the field, so this story should continue to develop. (Our upcoming Data Mastery report is looking at these trends closely.)
  • Three rookies–Mobility, SaaS, and Social Media–all had strong contributions at ACORD LOMA, and they appear to be fresh and ready for IASA as well. Carriers who were prescient and bought the rookie cards for these three probably may find those cards to be quite valuable, sooner than later.
As usual, Celent was an active participant at ACORD LOMA, and we’ll be at IASA in force as well. (See us online at Expect a full game summary after the show!

Insurance and Japan

One might naturally assume that the tragic events in northeastern Japan would also be devastating the Japanese insurance industry. By the beginning of April some 320,000 P&C claims related to the disasters had already been filed with insurers. After the Kobe earthquake of 1995, when many home and business owners discovered their policies did not cover the damage, people got in the habit of buying earthquake / tsunami insurance. So fortunately more properties were insured on 3/11 than may have been otherwise. In conversations with Japanese carriers, however, Celent has found that insurers are remarkably sanguine about the likely effect on the industry here. Firms say they have adequate reserves set aside precisely to cover an event of this magnitude, which has long been predicted. As a result, Celent expects that major Japanese insurers will continue to invest in strategic initiatives to boost competitiveness and lower costs in this very crowded market. IT spending growth at Japanese insurers, which has been close to flat for years anyway due to the maturity of the market, will suffer a modest dip in the short term. Smaller insurers are likely to put off renewal projects for a while. Pressure to merge will increase at some firms, but again the industry has seen a spate of consolidation activity in recent years already. The recent events are likely to encourage Japanese insurers to accelerate their international expansion efforts, which are already underway. Carriers have been looking abroad for growth opportunities, especially to the Asia Pacific region but further afield in the Americas and Europe as well. In Tokyo, along with the concern, there is a new competitive spirit in the air. April is the start of Japan’s fiscal year and businesses look determined to find ways to grow even as the economy is forecast to contract. The insurance industry would be no exception. For example, the past year has seen the emergence of new internet and mobile based distribution models and products, approaches which seem almost tailor-made for the post-3/11 era. Technology suppliers will want to know that amplified interest in business continuity is leading insurers to think seriously about cloud computing. The blooming sakura and early spring sunshine might be distracting me from some of the harsher realities of 21st century Japan. But certainly a little optimism is not misplaced in what is after all one of the world’s major insurance markets.

Insurance Software Deal Trends 2010: A clearer picture of the software market during the past two years

Celent’s annual North American Insurance Software Deal Trends reports will be published in late May 2010. These reports, one focused on Life/Annuity/Health and one on Property/Casualty, examine over 2000 North American insurance software deals inked in 2008 and 2009. Our analyses conclude that insurance software buying patterns over the last two years look different than prior to 2008. An in depth analysis of software buying trends and of the impact of the down economy on vendors and insurers alike provides keen insight into what happened during the Great Recession and where insurance companies are choosing to spend their IT dollars. Keep an eye out for these reports!

New Faces On Celent Insurance Team

Is it true that you can never have too much of a good thing? That’s my take when it comes to staffing the Celent insurance team. I’m pleased to introduce three new team members who will make our strong team even stronger.

Craig Beattie joins us as an analyst in the London office. Prior to joining Celent, Craig was an Applications Architect with Royal Bank of Scotland, working extensively with RBS Insurance. He held roles in strategy and architecture during mergers within the division and consulted on a number of internal divestment opportunities.

Karen Monks is a North American analyst with 12 years of financial services consulting experience. Previously, she worked for a Celent competitor in the analyst space, John Hancock Financial Services, and Coopers & Lybrand. She also completed General Electric’s Financial Management Program.

Finally, Jim Pelis joins the team as an account manager, based in the Boston office. Jim most recently worked for Datamonitor, and he has experience from Collective Next, IANS, and Forrester.

I’m excited to have you meet Craig, Karen, and Jim because I’m confident that they will carry on the Celent tradition of delivering value for our clients.