How do insurance providers develop an agile IT infrastructure?

Insurers have always faced the challenge of taking products and solutions to market faster and doing so at lower cost. The sources of this challenge are not new – changing partner and customer expectations, increased and new competition and demanding regulators with perhaps the addition of the current financial climate.

Insurers have risen to each challenge, offering new ways to interact with their customers, offering new products and tracking their processes against new requirements. However, warning signs loom as insurers are increasingly finding that each of these solutions involve adding something new, encumbering their infrastructure with the latest systems, applications and integrations. Insurers already suffer from heterogeneous and complex IT landscapes and many are in the throes of large, costly programs designed to simplify and reduce costs.

The challenge today is a little more specific from those in the past: How can an insurer increase in agility, speed to market and flexibility while keeping the support and maintenance costs manageable?

Insurers are increasingly realising the benefits of a Software as a Service (SaaS) approach for some parts of their IT landscape. The promise of being up and running on an out of the box solution can be very appealing for activities that don’t differentiate the insurer or are well understood. While these solutions continue to be additive, they don’t increase the load on the IT infrastructure team beyond the due diligence exercise. However, many of the areas that need the greatest speed to market are differentiating and require customisation – how can insurers achieve that without increasing complexity?

Is Cloud the Answer?
There has been much discussion about cloud and how this is changing the way start-ups and businesses deal with their IT infrastructure. Insurers exist in a heavily regulated environment and are rightly hesitant to jump on the latest technology fad to solve their problems. However, dismissing the developments in cloud and SaaS propositions altogether for their core operations may be throwing the baby out with the bath water, along with possibly the bath as well.

There is value in considering cloud-thinking or a cloud style approach to problem-solving when considering the insurer’s infrastructure. Central to enabling cloud is simplifying, standardising and above all automating activities with IT infrastructure. Once the common activities one needs to do are automated this frees up costly team members and time to look at other problems. Through automation one can keep adding new applications and solutions to the IT landscape with a lower impact on support and maintenance costs, enabling an insurer to remain flexible, agile and keep their costs manageable.

It is time for the IT department to look internally and apply the same automation and efficiency thinking of their business counterparts to their own operations. Regardless of an insurer’s position on cloud, there is value in applying cloud-thinking. Consider how automation and simplification can increase predictability, supportability and quality in IT Operations. If appropriate, take that learning and move some services to the cloud.

In practice this approach doesn’t simplify the IT landscape and move everything to one “cloud” way of doing things. Rather it accepts the insurance industries need for complexity, for flexibility in approach and seeks to enable a fast and cost efficient approach to deliver it.

 

Choosing a New Claims System?

Few carriers are doing nothing when it comes to claims. Year after year, we continue to see significant activity as carriers replace or enhance their claims solutions. The reasons for such activity are plentiful. Claims systems are aging which means that they are expensive to maintain. Older systems generally are much less flexible than modern systems with robust configuration environments. Business rules are regularly embedded in code, which reduces a carrier’s agility in making changes rapidly. They often are decoupled from policy or customer systems so accessing and aggregating data across these systems can be difficult. They were initially designed to focus on managing the financial aspects of claims not the customer service aspects of claims. It’s also getting harder to find resources that can or want to work on older technology. Meanwhile, carriers replacing core claims admin systems are trying to achieve multiple goals. Insurers’ corporate objectives fall into three broad categories:
  • Getting bigger by growing the top line. A policyholder who feels that a claim was handled quickly and fairly is a policyholder who is much more likely to renew.
  • Getting leaner through higher productivity and expense control. When specific tasks (such as accessing external data or generating forms and correspondence) are automated, an adjuster’s time is focused on the remaining tasks and decisions.
  • Getting smarter by adjusting claims more accurately. Through workflow and rules, a new core claims system gives claims adjusters much improved tools to make the right decisions and take the right actions.
Selecting and implementing a new core claim system can contribute to the achievement of all three corporate objectives. Donald Light and I have just published a report that profiles the available claims solutions in North America. The report provides an overview of the different basic, advanced and technical features a carrier can evaluate. It also provides detailed profiles of the different vendors. Some of the vendors qualified for a more in depth profile that includes customer reference checks and our opinion of the solution. If you’re thinking about beginning a claims replacement, check out the report here. It’s a great place to start your research process. Then give us a call. We will be happy to chat in more detail about any of the solutions and help you as you move through your selection process.  

A Value Roadmap: Don’t implement a new core system without it

I’m sometimes asked, “What is the worst error an insurer undergoing replacement of its core solutions can make? And how can that pratfall be avoided?” There are a lot of candidates for this honor: for example poor governance, inadequate project management, underestimating the complexity of data conversion and or integration, incomplete knowledge transfer—the list goes on and on. My nominee is: Failure to define and follow a Value Roadmap as part of the implementation and near term post implementation process. Conceptually, a Value Roadmap identifies the specific types and sources of value which the new system will provide. If the insurer has already developed a good business case for the new core system, the Value Roadmap will address many of the cost reduction and revenue enhancement elements of that business case. In addition, the Value Roadmap will place these benefits on a timeline which could start (to a limited degree) during implementation, and definitely starts when the new system goes live. If the insurer does not have a reasonably complete business case for the new system (and yes that does happen); the Value Roadmap allows senior management (C-Suite and/or the Technology Governance structure) to: **  Document for future ROI and performance analyses the business and competitive rationale for the project **  Provide guidance for the remaining implementation period **  Focus on realizing value through new offerings, processes, and organizational structures Note: an earlier version of this blog appeared on the Insurance Technology Association website.

Keys to Successful Policy Administration System Upgrades

All IT professionals have a horror story about a system upgrade gone wrong. Since most policy administration systems (PAS) have a 12 – 18 month upgrade cycle for major releases, there are plenty of opportunities to misstep. To address this dynamic, a consistent claim of modern PAS vendors is that multi-tiered architectures and other technical designs ease the pain of upgrades as compared with legacy environments.   However, up to now, objective data concerning upgrade metrics was difficult to collect. How long does it really take to upgrade a PAS? Do modern systems live up to the levels of ease that vendors cite? Historically, have insurers experienced any difference in outcomes when using vendor or third party system integrator staff versus internal staff to execute the upgrade?   In order to close this gap, Mike Fitzgerald and I surveyed 44 North American insurance carriers to provide answers to these questions as well as to understand major challenges faced and overcome. The report reviews carrier’s experiences in policy administration upgrades. It examines reasons for doing upgrades, staffing strategies, scope, time and budgets inherent in upgrades and provides advice from carriers on challenges to prepare for and advice to assure a smooth successful process.   Here are some of the key findings from the report.
  • Most carriers doing upgrades do a point upgrade and generally, these are successful.
  • All upgrades to modern systems in the survey group were successful, supporting the expectation that these platforms reduce the pain related to ongoing updates.
  • The most frequently reported reason for taking an upgrade is “to gain new functionality” and the second most common driver is “current version no longer supported”.
  • Only 10.7% of insurer respondents used their own employees without assistance from vendors or third party companies. The most common uses of vendor services for upgrades are for coding, configuration and testing.
  • Most upgrade projects (64.3%) meet their delivery deadline.
  • Some carriers actually came in below budget on their upgrade, but the vast majority, 60.7%, came in on budget.
Many carriers report that they have not upgraded their PAS either because they are homegrown, or, more frequently, because these are new installations. This places a particular importance on the lessons that can be learned from other carriers’ experiences as the new installations prepare for their first upgrades.   For many carriers upgrades are a big deal. They take months of effort, tie up a lot of staff, and can frustrate business partners. However, done well, they go smoothly and can add new functionality, upgraded configuration tools and deliver significant benefits.

2014 Latin America Outlook

The following text was published today in Inter-American Dialogue’s Financial Services Advisor under the title: “What is driving the insurance market in Latin America?” I provided my view to FSA in advance, and now that it is out there I thought it made sense to share it with you through our blog. Growth continues to be a common theme throughout the region, though not at the same pace that before and not equally in all countries. The Pacific Alliance countries have been growing faster than Mercosur countries, for example. Insurance in Latin America has its own dynamics and has been growing year over year, even beyond GDP increase, and is expected to continue this trend through 2014. A growing middle class is driving insurance buoyance in the region, with Brazil much setting the tone. Estimates indicate that 40M people have gone from living in poverty to the middle class in the past decade in Brazil. Nevertheless, there is a large number of people in the base of the pyramid (BoP) which is also of interest of insurers. Infrastructure investments, trade, and group life and benefits to attract employees are key drivers for commercial insurance growth. We are seeing moves towards consolidation in certain countries which are imposing stronger capital requirements and also acquisitions and new entrants into high growth potential markets, such as Brazil, Colombia and Peru. Competition is increasing and new segments are being targeted with more focus. All this is driving higher investments from insurers as well as competition for qualified talent in the marketplace. Some countries are moving towards a stricter risk-based capital measurement, and the rest should move in the same direction as part of a global and regional trend. In many countries sales practices are far from innovative and what customers expect to be. There is a need to evolve in the use of distribution channels and provide a better customer experience. Most insurers are still tied to legacy systems that impose a burden to become more competitive, efficient and smart. Rising inflation, weakening of financial market due to lower quality of loans (as they compete for the raising middle class); lower demand of products from China (mostly commodities), Europe and USA, and risk aversion from foreign investors are some of the concerns shadowing the region’s potential.

Customer segmentation, fad or future?

Traditionally insurers have been structured by line of business and some have grouped those around personal lines and commercial lines to differentiate businesses from people. With the opportunities of varied distribution channels and more sophisticated technologies insurers are starting to be much more granular in their view of the customers. Insurers have now the chance to move from their traditional top notch markets and be able to create an offering to attract the different segments. Some of these moves include Microinsurance targeting people in the base of the pyramid and Small and Medium Business (SMB) insurance products. Microinsurance products are being launched almost every month in different parts of Latin America. Most recently it was announced that Asomi and Redcamif will be launching an initiative in El Salvador with life insurance policies written by Pan American Life Insurance Group (Palig) with premiums as low as $0,68 per month. Some brokers, large ones, are moving into the SMB market but using its affinity platforms instead of their commercial platforms to support this business. While originally SMB should have fallen into commercial, they realize that it requires processes and the agility expected also in their affinity business. In another interesting move, Metlife Mexico announced yesterday the creation of a new division that will sell to socio economic segments C and D and to young people, those that are not the usual target of insurers. According to the classifications developed by AMAI, a Mexican association, the country’s population is divided into five segments: AB (people with high purchasing power and income), C+ (people with higher-than-average incomes, whose families are headed by someone with a college degree and have at least two cars), C (people with middle incomes, whose families are headed by someone with a high school degree and have both a car and the ability to take one trip per year), D+ (people with incomes slightly below average, some secondary education and no family vehicle), D (people with low income levels and a fairly austere way of existence, who have a primary school education and who lack access to traditional banking services). Metlife Mexico will be offering simple and flexible products while also developing better distribution channels, with emphasis in the use of technology. Software vendors are coming in also to provide solutions towards being more granular. Solutions around analytics to better understand your customer, digital to better serve them and master the points of contact, core processing and BPM to adjust your products and processes accordingly, just to mention a few. Last year Guidewire presented its vision on how a core system will be able to support customer segmentation already delivering some required functionality. Core systems are just another gear in the engine and it’s important that vendors acknowledge how they need to integrate into other solutions for the insurer to be able to deliver a customer segmented value proposition. While I believe customer segmentation is where the industry needs to go, it is not without huge challenges. Insurers need to address the differences and purchase attitudes of those different segments.  Omni-channel is one of the aspects, but also dealing with channel conflicts and regulation. Products need to be tailored in a way that can be flexible but capable of scaling massively, and this means looking into pricing, packaging, marketing, distribution and servicing. Processes need to be adjusted in order to provide the correct value to each segment. At the end of the day you don’t want to be perceived as under-performing and not providing the required value, but neither you want to over deliver if this means excess of cost and important cuts in your margins. My final thoughts for you. How will your structure look as you move into serving segments? How will this affect reporting and statistics by the way, which today is seen by line of business (even by regulators)? Are you ready? Are we ready?

12 Free Gifts from Celent

Reprising last year’s 12 Gifts of Celent on 12/12 I thought it was worth looking at free gifts offered, namely the most popular posts from 2013 on this very blog. I’ve gone for most popular blogs or blog sets by page views, which of course favours the older blogs because they’ve had longer to accumulate the views, but let’s work with this data anyway. It’s been a busy year and it’s not done yet, but here are some useful discussions you may yet have missed. So in the style of a new years top 10 count down, here are Celent’s top 12 blog posts: In at number 12 is a new entrant (well, a recent post) musing on the sentiments from ACORD’s Insurance Technology Congress in London this year. There was a sense that attitudes towards technology change even in some of the oldest parts of the global insurance industry were thawing, boosting optimism that useful, quick change was achievable. At number 11, a new years post asking how the insurance industry should respond to the growing openness in government departments and the availability of ever more data. At number 10, not the UK’s Prime Minister, but clearly as important, a write-up of Celent’s initial UK CIO Roundtable discussing technology in the workplace and innovating with suppliers. Innovation proves a popular subject in the top 10. As we enter the home straight of single digits at number 9, fast followers also have work to do. Celent’s Mike Fitzgerald observes, from conversations at IASA this year that even if a company chooses not to be the innovator, there are challenges in following the right innovations effectively. A number 8 the theme stays with innovation, this time looking at the role of mobile technology – particularly in emerging markets. A change of subject at number 7; we discuss balancing domain expertise, delivery capability and technology in new insurance core systems. Back to innovation at number 6 with a discussion on what it takes to become a Chief Innovation Officer. Is this the new role for a CIO? Something the CEO does? An adjacent role or something different? A look at what’s involved and some pointers for further reading. Topping the final 5 we continue the discussion started last year on the end of auto insurance with a look at the work of others. Although it’s not in the top 12, another blog on the subject from Donald Light is available here. Donald argues that the key variable is “when”. At number 4 we discuss social data and specifically, realising the ROI of social media. A longer post supported by a report in our library on the same topic. The second runner up at number 3 is our write up of Creative Disruption London, some great disruptive case studies from around the globe. While it was perhaps too recent to make it into the top 12 it’s worth revisiting the write-up and content from our event in  San Francisco, “What’s next: The Search for Disruptive Innovation” and the roundtable the night before – Making Innovation Happen. Number 2 is actually a collection of blogs chronicling the consolidation of the market in 2013, including Insurity and AQS, Guidewire and Millbrook and, SAP and Camillion. And finally, the moment you’ve all been waiting for or just skipped straight ahead to (it is a blog after all), our number 1 is: Innovation – What can the insurance industry learn from Steve Jobs and Apple? some views and actions from Celent’s own SVP of Insurance, Jamie Macgregor. So there you are. One not on the list that I thought worth highlighting was SaaS Policy Administration Systems: The Time Is Now, because it is a thought to take into 2014. If I missed one you particularly liked do let me know. Maybe I can find a home for that too. Happy Holidays from Celent!

Realizing the ROI of Social Media in Insurance

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. Social Site Distribution 2 14 13 wn 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.

Toronto Peer Networking Event

Celent held its 10th Peer Networking Event in Toronto last week and met with Canadian-based carriers to discuss insurance innovation and trends in big data. The purpose of the discussions was to identify practical ways to make progress on these topics in the face of increasing demands from the day-to-day business. The group reviewed the Celent Innovation Model and then broke into subgroups for a hands-on exercise. They used the model to analyze a set of strategic projects. The group agreed that using a model to analyze the disruptive potential of projects lends a valuable perspective to the standard project review process. There was also a broad recognition that funding and implementing truly innovative projects requires significant alignment between IT and business. One participant observed that senior leadership’s challenge when sponsoring innovative and disruptive initiatives is to be ready for quick failures and recalibration. The host CIO then led a discussion on current challenges and opportunities in the Canadian market. A consensus view was that past allegiance of a policyholder to their company that existed five years ago is largely gone today. Insurers cannot take for granted their customers will renew. Thus, it is becoming increasingly important to engage and reach the customer in various ways and with new products. For example, telematics is receiving a lot of attention in the Canadian market and usage based insurance is likely to be standard very shortly. In the afternoon, Ben Moreland presented a framework in which to understand Big Data and also gave the group insight into the vendor market serving this area. His prediction for the market development of big data products is that they will follow a similar path to portals. Initially, large system providers such as IBM and BEA delivered platforms on which insurers could build portals. As the market matured, purpose-built solutions emerged that contain deep functionality built in. The final session was led by a business architect from one of the leading banks in Canada. He shared an analysis tool developed by his company that used customer experience mapping techniques to trace the journey that customer data takes through the various systems used in their insurance area. As a result of this approach, insights and opportunities for consolidation were discovered that would have remained hidden using traditional data analysis techniques. As with the all of other Peer Networking Events, the feedback from participants was that this format allows for open and active exchange of ideas between insurance company technology professionals. If you are interested in attending or hosting an event, please contact csmith@celent.com for more information.

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.