The Great Insurance Experiment

There is a battle going on today for the future of the insurance industry. Like other industries there are those within the insurance industry and new entrants who are seeking to test whether alternate, digital models will prevail. As a participant in the industry and an observer the intriguing thing for me is no one has proven the existing model is actually broken or that there is a better proposition out there. It seems the telematics experiment I wrote about a few years ago is expanding in focus.

I'm sure taxi drivers said the same when faced with Uber, hotels with AirBnB, the print industry, the travel industry, etc. However let's look at the benefits of digital propositions to customers and see if they apply to insurance.

One of the key benefits of digital propositions is transparency and low prices – something that telematics and IoT propositions endeavour to deliver for consumers. The peculiar thing about insurance is that transparency and too much data is at odds with what insurance tries to achieve. Put another way, insurance is designed to hedge the risks to a population across the whole population, so that individuals pay a reasonable price and those that suffer a significant loss are reimbursed disproportionally to what they put in. Absolute data and visibility – transparency in its purest form – will reveal the poor risks and in practice deprive them of the very service they need. Good for some who will not see a loss, but not good for all and not good for society as a whole.

Propositions in this area have moved towards education and rewarding behaviours that reduce risk – the win-win for insurer and client. Many have observed that this is arguably not insurance but rather risk advice, engineering and management. Others observe that claims prevention is absolutely part of insurance and has been all along, albeit the tools of old have been regulation, law and classical education rather than the digital variants.

Existing experiments reveal customers care do care about not claiming, about limiting the impacts of a claim and about small rewards for good behaviour. Regulators have also shown they're keen that all parts of society have access to financial services and insurance at a reasonable cost. Use of transparency and data can go so far in insurance but there are limits to how far it can disrupt.

Another key benefit of digital propositions is the just in time and just enough nature of them – the ability to finely control the product and as a result the costs. This is another area that is being tested in insurance with micro control over what is and isn't on cover available to customers via their phone.

The challenge here of course is that this again removes some of the hedging. By assigning a cost per item turning everything on will typically yield a higher price for insurance than a classic contents policy which offers blanket cover for items in a property or even while travelling.

The other benefit of the classic policy is that one doesn't have to engage with it. It's all well and good that one can turn cover for items off and on quickly but to really take advantage of this capability the insured has to care deeply about the level of cover or the cost.

There will be customers who want this level of control in their insurance and will actively seek it – but for the mass market a good enough policy at a reasonable price will be just fine.

The long tail
Now here we could see some disruption, or at least shake up of the market. We're already seeing some splits in the market as people interested in health rewards take up the various incarnations of vitality insurance, young people take up telematics car insurance after being priced out of the classic policies. There will be customers interested in control over their policies, customers who give up human interaction in favour of digital cost control.

In this way we might see smaller, more agile companies with lower cost bases taking their share of the market by satisfying a niche.

In practice, the jury is still out and the experiment still continuing. Do todays consumers want the products they have always been offered or something new? What of tomorrows customers?

One last look back at Google Compare

It’s old news by now that Google is shutting down Compare, its financial services and insurance comparison site. It wasn’t open long – less than a year. When Compare was first announced, the industry reacted with warnings that this was a major disrupter in insurance distribution. With the massive audience that Google has, the industry expected that Google was going to swoop down and capture the online insurance market – which by the way is pretty big – typically 75% of prospects research online and 20-25% of all new auto policies are purchased on line according to those who track this type of metric.   So what happened? Well, the fundamental idea of capturing the online market is a sound idea. And Google was pretty smart at avoiding all the hard technical costs of building out the aggregator engine by partnering with those who had already done the hard work – like, Coverhound and Bolt.   But the business model of an online aggregator is hard. There are three models – online agents – who earn full commissions. That wasn’t really Google’s deal. They weren’t interested in any of the after service or ongoing relationships. A traffic generator – sending a potential lead to another site and being paid for the eyeballs. Well, that’s not very lucrative either – and frankly, Google can make money through their own advertising and search capabilities. Spending the money to build an online quoting front end only adds cost to something they already do quite well, thank you.   So why would Google have invested the money in an online quoting front end? To take advantage of a lead model. With a lead model, the aggregator collects data, processes a request for quote and sends a highly qualified lead to be fulfilled. The price per lead is significantly higher than the price for traffic. But there’s a fundamental challenge with this model. For the lead to be valuable to a carrier, the lead has to actually purchase insurance. And because a lead is sold to multiple carriers, the acquisition costs rise for a carrier.   Let’s say a lead is sold for $5 to ten carriers. The aggregator makes $50 for that lead. But only one carrier actually writes the lead. If ten leads are sold, and each carrier writes one, the aggregator makes $500 but the carrier has spent $50 for that lead. Play out a competitive situation where the leads aren’t equally distributed, and you can see that the acquisition costs can rapidly rise. If I only get one lead out of twenty, I’ve spent $100 for that lead. If I only get one lead out of $30 I’ve now spent $150 for that lead – which now is pretty close to what I’d probably be paying an independent agent. And what if the customer NEVER buys – and simply goes in looking for prices so they have a comparison to an off line model? The numbers rise rapidly. Remember those numbers above – 75% shop on line and 25% purchase on line. That means that only one in three leads actually results in a sale. Assuming leads are distributed evenly, an aggregator will distribute 165 leads before I close one. That brings this $5 lead fee up to $82.50 –, which is pretty expensive. The way to make those economics work is to increase the conversion rate so that more of the leads a carrier purchases actually ends up buying a policy.   So while carriers are very interested in participating in the online marketplace, they really want to work with those aggregators who are successful at converting traffic to leads that will convert to policyholders. The online agent model is attractive as the carrier doesn’t pay until the policy is written. The traffic model is similar to online advertising, so that works as well. But the success of a lead model is a combination of the price of the lead and the likelihood of closing that lead – which is dependent on the number of carriers the lead is sold to and the propensity to buy.   So here’s where Google lost an opportunity with Compare. They thought they could convert relatively low paying traffic into high paying leads simply by putting a quoting front end on and didn’t think through what they could have done to improve the conversion rates. With their analytical power, Google could have created a truly disruptive experience by providing consumers with a powerful recommendation engine. Google is a master at finding out information about individuals from social media and other publicly available data. They could have created an algorithm that used the information about the lead to tailor and target recommendations.   Personal auto isn’t that hard. If we were talking about commercial, it’s a much harder set of algorithms. But honestly, it’s not that hard to create something that tells a customer that given their location, the value of their home, the type of vehicle and their driving record, 64% of people like you choose this limit/deductible/additional coverage etc. And getting a personalized recommendation drives conversion. When people trust that the advice is good, they’re willing to buy. We’ve seen many examples of how inserting advice and recommendations into the quoting process drives conversion.   When I personally go to get an online quote – it’s part of my job – I enter information that shows I own a home in California and I drive a luxury car. So why oh why do the aggregator sites today recommend minimum limits coverage to me? My car is worth more than that. Today, trusting the advice from an aggregator site is dicey. And that is why policyholders continue to rely on the advice of an agent. Does this mean the role of aggregators is dead? No.   But Google missed a major opportunity to truly disrupt by providing a powerful recommendation engine that could use their ability to easily find information about individuals and combine it with their powerful analytical abilities. They ended up creating just the same thing we had back in the 90’s. Kudos to them for killing it quickly – but they missed an opportunity to use their capabilities to make the model work.  

One prediction for 2016 is about to come true – our event on February 3rd

With just under a week to go until our event at The Magic Circle in London is on February 3 I though it worth reflecting on 2016 and the folly of predictions in today’s world. One of the key challenges for any organisation trying to respond to an unpredictable future is the hockey-stick graph or geometric growth that is increasingly describing adoption and the impact of technology on our society. That is to say that the figures stay relatively flat and predictable and then grow out of all proportion to what went before. Adoption of the Internet is a good example, the rise of the smart phones and that of tablets is another. Some may still argue that wearables as a fad has passed, citing them being around for a while but not really seeing the growth one would expect. Perhaps though, this is the false sense of security brought by the flat bit of the graph? The same is true of self-driving cars, a concept that’s been alive and well in Hollywood and on TV shows for decades (anyone remember the Hoff and Kit?) and is only now starting to creep onto real world roads. If the trends of cheaper and ubiquitous technology continue then these trends could at some point see that hockey stick moment, that massive growth in adoption and impact. For insurers – just reacting may not be good enough, instead perhaps it is worth spending time thinking: it is only a matter of time until it is ‘normal’ for clothes and accessories to be internet connected, for cars to drive themselves and for people to live longer through better management of their health. This is precisely the type of thinking we’re hoping to bring to our event, which will be a mix of folks who are on the curve of some of these changes and also some tools to help insurers plan and respond. So while I’m waiting for my Internet connected suit to come along (not that fanciful, you can already get connected yoga-pants and nappies that tweet) and the car that drives me to work – I look forward to spending some time those of you can attend our event next week to discuss the future of insurance and to ask the question, What if … ?

Living with the Internet of Things (and crowd funding)

Earlier this week some users of the Wink smart home hub found that their smart home hub was more useful as a door stop or brick than as a hub. A fix is being worked on and rolled out to customers but for me this looks like the teething problems of the still nascent Internet of Things movement and one of the hurdles Apple is trying to jump with the Apple Watch. Earlier this month I received a portable handheld scanner from Dacuda. It’s not unusual for me to receive gadgets in the post but this one was particularly interesting to me as I had been one of the kickstarter funders of the item and have been following it’s creation with some interest. It piqued my interest particularly because I’d seen the technology almost two decades ago in a research lab but not seen it come to market at a reasonable price – a scanner that one moves over the page and software builds a picture of the underlying document. This isn’t the first item funded via crowd funding I’ve bought. My keys have a tile attached to them and I’m still wearing the original Pebble wrist watch (with e-ink display). I guess this firmly places me as an early adopter in the Internet of Things, wearables and crowdfunding space. I don’t have a Wink hub although it’s sort of appealing but not available in the UK yet. So far though it hasn’t been all clear pastures and dreams ideally realised. The Internet of Things has it’s teething problems. Let’s take the Tile for instance, a small device that emits a bluetooth and short rage wifi signal so you can track it’s location from a phone or tablet, thus, never losing it. I used to have 3 of them and now have 2, that’s right I lost one. I was rushing out the door, the school run running a little behind schedule and forgot my phone. Somewhere on the brief journey I dropped the Tile and what it was attached to. Had I had my phone with me it would have given me the location of the last place it connected to the Tile, as it was it told me the last time it saw the Tile was at home. No matter, in theory if I retrace my steps I will come in range and be alerted that it is found. This didn’t work either so I assume it was picked up. Since the battery lasts two years perhaps someone with the app will go near it and it may yet find it’s way home – but not yet. Part user error and part an unfortunate series of events perhaps, but another technology found fallible and a dream not quite realised. The Pebble has been more successful. The fact I answer the phone when it rings is largely down to my smart watch rather than the phone these days and the wrist-borne notifications are hugely helpful. I use the misfit app on it to tell me I’m not doing enough exercise and a Withings smart body analyser at home to let me know the end result of not having done enough exercise – all great fun! I may still invest in the Apple Watch. I have a standing desk so do stand, something misfit on my pebble doesn’t track and I feel I want to be recognised digitally for this at least. The little handheld scanner is more work in progress. My son’s somewhat fascinated when it works and hugely interested in the errors it makes and where they are made – such is life as an early adopter. More teething issues there. No doubt though we as a population are moving to a world where anything we buy could be connected, where we can buy a $50 hub that controls our lighting from an app and it’s failure is covered in the global (technology) press and where we can fund and follow the development of gadgets we’ve dreamt of owning for a couple of decades (even if the software needs a little more work). So what does this have to do with insurance? The fact is the Internet of Things appears to be running apace, smart homes are being tried out by the early adopters and bugs are being squashed. Did you know with the Wink hub, the app on your phone and this $40 quirky+ge water sensor you can get alerted in real time regarding escape of water events? Ever been out of the house and come home to find the kitchen, bathroom or basement flooded? Indeed just yesterday Karen pointed out this article suggesting insurers are getting involved with smart homes. There’s a lot of buzz around health and life insurance in part driven by the Apple Watch launch. I’m looking forward to Apple doubling down on the HomeKit API or someone credible getting there first; I’m looking forward to the same boom around the Internet of Things and insurers handing out moisture sensors to home owners. I’m looking forward to prevention and intervention products, rather than selling services after a loss. Perhaps we just need to squash a few more bugs first.

A Recipe for Digital Innovation

At each of the five Celent Innovation Roundtables held in the last several months, innovation practitioners consistently identify culture change as a significant success factor. A particular challenge, poor communication between technologists and their business partners, is often cited as a barrier. The Second Machine Age by MIT professors Erik Brynjolfsson @erikbryn and Andrew McAfee @amcafee offers some help. Their explanation of digital innovation made a big impression on me as the clearest description that I have found so far.  The approach is simple: “digital information….is built on multiple layers”. It is a “recipe” of different automation solutions mixed together. That is, look at a list of digital technologies, pick a few and combine them in unique ways so that they work together, and deliver new value. This description led me to revisit some Celent insurance innovation case studies and rethink how to best explain them.  The first, the AXA claims example (Visualizing the London Riots at AXA UK,, outlined how the insurer combined data from public police records, media reports, and their internal systems to predict which of their insureds might suffer a loss during the multi-day rioting in the U.K. in 2011. AXA “layered” successive sources of digital data, then added some analytic algorithms to produce a new and valuable tool designed to proactively identify at-risk insureds (mainly small businesses that were exposed to looting). All of these technologies existed on their own, in isolation, until they were combined to yield new insights which helped avoid losses. The second study is from Tokio Marine & Nichido Fire Insurance Co., Ltd. They were recognized as a Celent Model Insurer for their One Time Insurance product (Model Insurer 2012: Case Studies of Effective Technology Use in Insurance They combined geo-location, text messaging, and data prefill services to deliver real-time insurance offers to subscribers. As a prospect drives to the airport, their mobile phone receives a text from the insurer with an offer for travel insurance. Similarly, texts are sent as golfers arrive for their tee times, skiers approach the lifts, etc. It is the combination, or layering, of these technologies in a unique manner that creates the innovative service. The value of this explanation is not only academic. Layering strikes me as a useful tool to explain how all of this “digital stuff” can fit together. The recipe and layering metaphors succinctly describe digital in non-technical, accessible terms. It can be used with any audience to illustrate how the sum of the parts can be greater than the whole. I also see value in using layering to generate new ideas. My thought is that, in an interactive session, a group of participants can create a list of technologies, data sources, etc. and then brainstorm different combinations from them. Our continuing research illustrates that there is no one prescription for innovation, but there are guideposts to follow.  The use of the layering metaphor to improve communication and as a technique for brainstorming is one such guide.

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!

Innovation – What can the insurance industry learn from Steve Jobs and Apple?

I’m guessing that somewhere in your strategy documentation will be an objective that states that you will succeed as an insurance company through ‘being innovative’. It may be presented up-front as a bold strategic theme or it may be hidden deep down in the depths of a key initiative. I’m also guessing that, for many of you, this objective may not necessarily be backed up by a statement of how you intend to achieve ‘being innovative’ or what ‘being innovative’ really means. So, what does it mean to be innovative in insurance?  Interestingly, when you search for a definition of being ‘innovative’ in insurance using Google, you’ll get back over 24 million hits. For fun, you can also read some of the entries in our competition to define what innovation is for our industry in advance of our Innovation & Insight Day in Boston on 27th February (see our LinkedIn discussion group with circa 115 entries submitted so far).   Finally, let’s not forget, that there is a whole industry of management self-help books out there online and in airport book shops (circa 39 thousand books listed in Amazon for innovation), plus academic research (639 thousand hits on Google Scholar for innovation and insurance) to help. With all of this information available, I guess it should be easy for all of us to know exactly what to do to be innovative and how to use innovation to be successful?  Mmmh. In my experience of running workshops with clients, innovation is rarely a well-articulated or understood concept.  In many instances, it is just another word for ‘new’, which rather than helping a firm to rally around a radical concept or idea, can underplay its significance.     So, when things start to get confusing or complicated, I personally like to learn through doing or by observation.   Over the holiday period, I finally got around to reading Walter Isaacson’s “Steve Jobs: A biography” (one of the many books you’ll find in or near the Management Section of your airport bookstore). Apart from the biographical elements about his personal life (many of which were eye opening to me) and his dysfunctional people management style (this is a slight understatement!), I found myself identifying some of the themes that made Steve Jobs and Apple innovative in my eyes.  Here’s a quick round-up of my take-aways:
  • Adopting a heuristic approach.  Learning by doing, taking risks, accepting mistakes (well, some of them at least) and following instinct.  It would appear from the book that few product launches led by Jobs ever followed a formal plan or typical investment case procedure adopted by many corporates and that I’d recognise.    
  • Maintaining a pure vision. Jobs insisted on perfection.  New to the world products were frequently pulled back from their launch date in order to achieve the ‘insanely great’.
  • Separating out a small team.  Albeit not always by design, Jobs sometimes found himself creating a team outside of the main corporate organisation.  This had the effect of helping to focus minds as well as creating a distinct identity – even when this had the effect of creating a counter-culture to the parent firm.
  • Hiring the ‘A-team’.  Jobs claimed that ‘A-team’ players want to work with ‘A-team’ players, and that ‘B-Team’ players would only drain energy away.  Jobs was pretty ruthless in insisting on the best.  
  • Creating a unique value network.  Rather than making the best use of what’s out there already, Jobs frequently preferred to create a value network from scratch rather than compromise or find himself in a weak position of power.
Although often dysfunctional and extreme in the case of Steve Jobs and Apple, these observations are consistent with much of the formal management research on disruptive innovation and entrepreneurial success.  Being innovative often requires a firm to break away from accepted industry norms and values in order to create something new.   So, in an industry as old as insurance, are we ready to live up to our written strategies and ‘be innovative’? ______________________________________________________________________________________ Our competition for “Innovation in 6 words” is still open.  To take part in the discussion, join our LinkedIn discussion group (Innovation is…) devoted to the topic.  To participate in the challenge, e-mail your definition to Erica Ferguson at using the subject line “Innovation is” along with your contact information. We will be announcing the winning entries during our Innovation & Insight (I&I) Day on February 27, 2013. Regular readers of our blog know that I&I is a flagship Celent event. As always, it will host a variety of Celent and non-Celent speakers and will be a great opportunity to network with the industry peers. If you’d like to see the full agenda and learn more details, please visit our registration site.  

Creative Disruption in Action – 2012 Event

Thursday September 13th. The clock indicates 6 past and the day is over. I walk out from what has been a very busy conference room. My head still spinning around so many ideas and concepts speakers and audience have interchanged in the context of our 2012 Creative Disruption Event.

Phrases such as “Excellent- thought provoking”, “Interesting topic that we all struggle with in our respective organizations. Good tools to bring into prioritization discussions and to reframe conversations about change”, set the tone of the audience feedback.

How to discover a new or underserved market to approach with a new value proposition based on the use of a specific and unique technology was the common theme along the day and definitely this is a topic that attracts the industry’s attention but also one where it still has problems executing it.

One of the many take away of this event, besides the signed free copy of “The Innovator’s Manifesto” by Michael Raynor, is the insight on how to deliberately pursue creative disruption.

It is very interesting that the day started with a fresh wake up call for insurers in terms of how consumers perceive that they are not being bold enough in addressing their needs and especially not taking advantage of the new technological means to interact and serve them. While this might be the general perception we are starting to see how some companies, generally new players, are walking along the direction of creative disruption.

UK based ingenie for example shared with us how they have addressed the needs of a specific segment of consumers (young drivers aged 17-25) usually not considered by traditional players because of risk. ingenie offers a fresh approach to insuring young people. With the use of telematics they treat every young driver as an individual. Just drive well, and you could pay less for your car insurance. The cost of your insurance is reviewed every three months and offers incentives to those that change and adopt a better driving pattern. With the combination of technology and a clear understanding of their consumers, they have come up with a new solution and business model that changes how they manage the risk of youthful drivers.

It seems it is under the most challenging situations that creative disruption emerges. When faced to a challenge and with the application of the right technology, some people discover a new market or how to make money out from one that was considered unattractive, like in the success stories we learned from Tom Hammond, Executive Vice President, Agency Operations of BOLT Insurance Agency; John Roblin, Former CIO, Chubb Insurance and current Chairman & CEO, Cover-All Technologies; and Davinder Singh, Head of Third Party Distribution and Products for DLF Pramerica Life Insurance Co., Ltd from India.

· Tom shared how BOLT applied the use of the right technology they had developed to serve the smallest businesses. The challenge was the fragmentation of the selected market and that it is dominated by independent agencies. They applied marketing and affinity strategies and created a call center with licensed agents using their software. They use this comparative rating to get all of the top insurers they have in their portfolio transparently compared and offered to their customers.

· John took us into a journey of discovery on how Chubb had created one of their most successful products. In a challenging situation, thinking to discontinue personal lines, they figured out there was an opportunity with the high income segment of customers who prioritize prevention on top of claims payment. They worked all aspects of the business. Processes were rethought to make it simple to customer. They worked on every “touch” and point of contact with customers, including the insurer-agent relationship. Underwriting was focused on the person and not exclusively on the peril. They emphasized on prevention during the inspection process where they could work in tips, loss control ideas and ensuring that all gets covered. While today, with the existing technology and systems, this is might look much simpler back then it was a great challenge.

· Davinder exposed maybe the most challenging situation in terms of execution as he shared how DLF Pramerica untapped the opportunity of selling insurance in rural India 4 years ago. The challenge was how to serve a high cost business (fragmented distribution – market of 600,000 villages and 33 dialects), with a low average written premium per policy and no banking institutions presence to support the required financial process. They used technology and straight through processing to close the deal in one step without need of further interventions. They also relied on local people to sell simplified products as a way to introduce insurance in the villages and they also looked into other industries best practices. DLF Pramerica is currently serving villages in rural India covering 11 languages.

Fostering creative disruption requires focusing on people, vision leadership and execution. Mike’s and Jamie’s presentation and review of Celent’s innovation model came very handy to understand this linkage.

The objective of Celent’s Innovation Model is to effectively manage insurance innovation, so we can always have the chance to ask the right questions and be sure that our project portfolio has the correct balance of improvements, innovations and disruptive initiatives. It provides a framework for insurers on how to build a path to create disruption.

After reviewing many cases of effective use of technology in insurance we have concluded that it is hard to find a handful of them that could be considered disruptive. Recently, we were able to take an insurer’s pilot strategic initiatives (for life insurance) and map them into the framework with a result of no initiatives to be found in the disruptive category.

It is understandable for some companies to show this type of project portfolio at some given point in time. It is also certain that it must not be pursued without being sure that you have the required execution capabilities, but it is healthy to start discussions around disruptive initiatives at some point, or other competitors will come up with an initiative that will threaten our established position.

This model will help business and IT to have the right discussions. Companies have traditionally looked into technology from an in-to-out perspective; technologies that implemented in the inside could have some impact in the outside. Examples of these are PAS, Claims, Billing, BPMs, Agent/Customer/Prospect Portals and BI/Analytics.

Consider the UK market for example, the auto insurance industry started mainly as broker based, then evolved into direct insurance. It got somehow more sophisticated with the segmentation of net worth customers and then disruption came in again with telematics and products based on pay how you drive (moving away from pay as you drive which could also be considered disruptive at its time) but still all of these mostly triggered by an in-to-out perspective of technology.

If something has changed radically in the last few years is how technology has invaded our daily life. Computers are everywhere, even in our phones and they are re-defining how we interact with others. Consumers are demanding a new way to interact with companies, which need to come up with business models and processes that take advantage of these technologies but also provide the user experience and level of service they now expect from this digital world. This view of outside technology impacting inside the companies brings a whole different perspective.

Today we are looking on how aggregators and Google’s very recent move into the industry might be the first signs of a new disruption for the Insurance Industry.

It is in these times that companies require the vision, leadership, methodologies and toolsets to drive the execution of creative disruption initiatives. The risk is for other new players to displace you from your current market position.

Creative Disruption in Action: Changing the insurance outlook for young drivers

With less than a month to go until our Creative Disruption Symposium in New York on 13th September 2012, the Celent team are working hard on pulling together some great content. The agenda and speakers have been confirmed, and hopefully we’ve got the technology lined up to add in a bit of audience participation for fun.

On Monday, I spent a great day with one of the new breed of telematics insurers in the UK that base their model on ‘Pay How You Drive’, called ingenie. We’ll be featuring them at our symposium in a video. What amazed me about this start-up was the passion and energy not just around delivering the insurance product through new technology but also the desire to change the driving behaviour of young 17-25 year old drivers. This passion extends to bringing new disciplines into the risk pricing equation, such as behavioural science to understand young drivers’ attitude to risk and also top-end driving science through a partnership that they have developed with the Formula 1 Williams team. Based upon their discoveries, they have added ~300 algorithms into the risk selection and pricing equation.

They also use the same information to feedback driving performance to young drivers in a way that they want to receive it, via a combination of a mobile app and push notifications. There’s no point in pushing the data out to a traditional browser based portal as that’s no longer how 17-25 year olds want to interact with technology. The goal of this model is to influence behaviour in order to reduce the total claims cost, build a long-term affinity with the young driver, and in doing so deliver a stable return.

For years, the traditional UK auto insurance industry has dismissed young drivers as virtually uninsurable, backed up a claims experience that’s hard to argue against. And it’s no surprise that this is the response when you consider that the traditional model has delivered an above 100% COR for entire UK auto insurance market over many years. In 2011 alone, which was considered to be an improvement on prior years, the industry made an operating loss of £600m ($960m).

Through changing the model to focus on adapting driving behaviours and in doing so reducing the frequency and cost of claims, telematics is enabling new entrants to target this underserved market using a viable alternative capable of outperforming the industry incumbents. As a result, it’s no surprise that many of the insurers that we speak to in the UK are seriously looking at how (or even if) they should respond.

To us, this is a great example of Creative Disruption in Action and one that we will be covering in more detail at the Symposium. There’s still time to register!

Finally, whether you are able to attend our Symposium or not, why not help us prepare by taking five minutes to complete our survey on Creative Disruption within Insurance. Click here to participate. Thank you.

Insurance Innovation?? Michael Raynor to Speak at Celent Event

It has always been ironic to me that insurers have “lost the plot” on technology innovation. After all, insurance companies were among the first companies to implement systems to solve practical business problems. Of course, this was in the day when mainframes demanded entire floors in company headquarters buildings. These early systems have, in many cases, become a legacy that is proving hard to cast off.

Today, Celent is working with insurers and their vendor partners to change this. With the pressure to grow and to meet escalating consumer expectations, innovation is more important than ever. With tools such as geocoding, predictive analytics and automated fraud detection, new opportunities are also available for the taking.

Other industries are working hard to solve the innovation puzzle and we are very excited to have one of the biggest names in the field, Michael Raynor, join us on September 13 in New York for A Celent Insurance Symposium-Creative Disruption: Technology and the Future of Insurance (#creativedisrupt). Michael’s most recent work is The Innovator’s Manifesto, a fascinating exploration of how to execute innovation in a deliberate and disciplined way. He is going to share his thoughts on how insurance can approach innovation more effectively and what support they will need from their vendor partners to do so.

At Celent, our modest goal is to help insurers regain their position as a leader in applying technology to solve their customers’ problems. This is an exciting step on that journey.