A Recipe for Digital Innovation

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, http://www.celent.com/reports/visualising-london-riots-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 http://www.celent.com/reports/model-insurer-2012-case-studies-effective-technology-use-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.

Customer segmentation, fad or future?

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?

Insurers Can Learn from Facebook’s Digital Awareness

Insurers Can Learn from Facebook’s Digital Awareness

This is the second blog post aimed at discussing the opportunities for digital technologyin insurance within the framework of a higher design principle, one that is not technology-led, but speaks to delivering value for consumers of insurance (both individuals and businesses). The tenth anniversary of Facebook is an appropriate date to pass along this next installment.

Why? Because Facebook illustrates the difference between a narrow, technology-focused and a broad, solution-based design principle.  If Facebook had been trying to only deliver digital content on the web (a tech-focused approach), it would still be only a posting site.  However, with its introduction of the News Feed feature, it moved into the Awareness realm.  It went from “look what I have been doing and I’ll look at your posts too” to a proposition “I want to be aware of what my network is looking at because I’ll probably be interested too”.

This shift reflects the key design principles of the Awareness approach:

  • Passivity of user  – minimal or no user action to initiate Awareness (FB: don’t make the user look for news, deliver it to them when they sign on)
  • Pattern recognition determines activity and records preferences (FB: monitor what are friends doing and match that to the user’s interests)
  • Always on capability (FB: continually monitor activity and make it available when the user accesses the site)
  • Allows user to choose to “manage and/or turn off monitoring” when desired (FB: I wouldn’t identify this a strength to the platform so far)

Applying Awareness to insurance, I would add two additional key design principles:

  • Signal when a deviation from normal activity occurs using data analytics
  • Provide a user’s current and past location(s)
The objective of Awareness design in insurance is to prevent the unintentional retention of risk by continually allowing the insurer to be aware of the changing risk profile of an insured. It uses predictive capability to match data collected (at a very specific level of detail) with the external environment, and identifies changed and/or new risks faced by a person or business. It then delivers this analysis to the insured in a preferred format (text, post, email, phone call, etc.)

In my last posting on Awareness, I described a commercial insurance example (http://insuranceblog.celent.com/2014/01/stop-designing-to-be-a-digital-insurer-use-a-business-value-proposition/) .

Another example in health insurance involves continuous monitoring of an insured using their smartphone.  If any one of several key biofeedback measures begins to register out of a normal range, the insured receives a text to schedule a doctor visit.  The insurer is constantly aware of the health of the insured and takes proactive steps to intervene appropriately when needed.

Does this sound like Star Trek? Something we should be able to do in the future?  A company called Tokio Marine Nichido launched such a product in Japan last summer (June 2012). The insurance policy provides a reimbursement ranging from $50 to $300 for the visit based on the final diagnosis.

 As I mentioned in my earlier post, I am confident that we are ready to design digital solutions which change insurance from a backward-facing, financial indemnity product to a continuous, predictive, risk management service. I’d appreciate your views, either in reply on this blog, or you can reach me at mfitzgerald@celent.com

Stop Designing to be a Digital Insurer; Use a Business Value Proposition

Stop Designing to be a Digital Insurer; Use a Business Value Proposition
So much has been written about social, mobile, analytics, cloud (SMAC, previously SOLOMO). Insurers are encouraged to be “digital”. It appears to me that most of these efforts are “technology searching for a solution to solve.” I was lucky enough to be listening to my mentor once when he told me “Don’t ever start designing a solution with specific technology, begin with the business problem/opportunity.” One of my expectations for 2014, is that we can start discussing our opportunities in the framework of a higher design principle, one that is not technology-led, but speaks to delivering value for consumers of insurance (both individuals and businesses). By the end of the year, I hope to have had some great back-and-forths on what these principles could be. To start the dialog, I suggest that we start designing our solutions to increase Awareness, helping insurers, customers and agents become more aware of the risks faced by their policyholders and how initiating actions when risks change. To paint the picture, I’ll start with what Awareness looks like in insurance. Then I’ll describe how I think this can lead to higher value solutions as compared with starting with specific technolog(ies). Here are two examples from the Celent research library on innovation in insurance that tell the story of how the Awareness principle has been applied. One is live and one is a past implementation:
  • Tokio Marine & Nichido partners with a telecommunications firm to deliver location awareness for their one day insurance products. If I drive to the airport, I receive a text on my phone with an offer for trip insurance.  If I am approaching a ski area, I get a message that ski event insurance can be bought for one day for as low as $4.00. If I work at the airport or ski employee, I don’t receive the texts after the first few – the system learns that I am not a prospect. Based on location awareness, Tokio Marine is Aware that I am engaging in an activity that is not part of my typical day-to-day routine, one for which I may not be covered, and offers me a policy to cover the gap at the right time.
  • In the United Kingdom, the insurer AXA combined several pieces of public data with their internal policyholder information and created a visual map of where the London riots occurred on the morning after each of the five nights of the 2011 riots. They could tell by looking at the map which of their policyholders (mostly small retail businesses) were located in the affected areas. For those that had not reported a claim, they called them to make sure that everything was alright – NOTE: the insurer called the insured to ask if they had a loss. AXA reversed the traditional FNOL (first notice of loss) process and proactively contacted their policyholders based on this Awareness of the increased risk of their customers.
In an Aware Insurer, the process is engineered to be continuous. For example, data tools allow automated monitoring of the inventory of small business policyholders to detect changes in purchasing patterns and it is discovered that a general contractor begins to purchase roofing materials. Predictive analytics examines these changes and assigns a confidence sore regarding if this is a one-off event or more permanent change — has the contractor started delivering roofing services? Automated rules compare the inforce policy coverage with the possible new operations to determine if the contractor is performing an excluded operation that is not covered for liability loss. Digital technology then notifies the insured of this situation immediately across several technical platforms and suggest coverage options, or sends an immediate notification to the agent and prioritize is appropriately in his/her work queue. The technologies underneath Awareness include digital, analytics, cloud, perhaps some social, but these are not the “end state”. Digital should deliver unprecedented awareness anywhere any place; big data infrastructure should combine varied types and, likely, large amounts of data effectively and efficiently; analytics (algorithms) should mold this data into new insights and predictions. So, does an insurer need to be digital to make this happen? Yes. Have big data skills? Definitely. Be able to conceive, construct and test analytic algorithms? Definitely. But being a “digital insurer” won’t itself deliver this increased awareness, being able to hoover up and handle vast amounts of purchasing data won’t either.  Combining the different forces around making the insured, agent, and company more aware when a risk profile changes will bring the technologies together to solve a business problem.

I’m convinced that starting from this higher order of design will deliver more value faster, will help get business sponsors on board earlier and more completely and will avoid investment in technology for technology’s sake.  As we enter 2014 I am also sure that we are ready to have this conversation and design solutions what change insurance from a backward-facing, financial indemnity product to a continuous, predictive, risk management service.

Celent Predictions for 2014

Celent Predictions for 2014
It’s clear that my colleagues and I see 2014 as something of a tipping point, a water shed for established and new technologies  to take hold in the insurance industry. I’ll try to summarise them succinctly here. Expect to see reports on these topics in the near future. Celent’s 2014 prediction focus on:
  • The increasing importance and evolution of digital
  • The rise of the robots, the sensor swarm and the Internet of Things
  • An eye to the basics
The first topic area is labelled digital but encompasses novel use of technology, user interfaces, evolving interaction, social interaction (enabled by technology) and ye olde customer centricity. Celent predicts vendors would market core systems as customer centric again, but this time meaning digital customer centricity. Celent expects to see core system user interfaces to acquire more social features along with a deeper investment in user interfaces leveraging voice, gesture, expression and eye movements. A specific digital UI example was the wide spread adjustment of auto damage claims (almost) entirely done through photos. In addition, gamification use for both policyholders and brokers will be adopted or increase in use for those early adopters. Celent further predicts greater investment in digital and that comprehensive digitisation projects would start to drive most of the attention and budgets of IT. The second topic I’ve called Robots and Sensors, while digital there is a significant amount of attention and specificity. The merger or evolution of the Internet with the Internet of Things accelerates with devices contributing ever more data. Celent predicts this rise of the Internet of Things or the sensor swarm, will push usage based insurance policies to other lines of business, not just telematics based auto policies that UBI is currently synonymous with. Celent further predicts that the quantified self movement and humans with sensors will in 2014 yield the first potentially disruptive business model for health insurance using this data. As an aside the increasing use of automation, robotics and AI will see broader adoption in the insurance industry. For those reading my tweets, Celent predicts 2014 will see drones used for commercial purposes. I hope we won’t have the need, but wonder if we’ll see drones rather helicopters capturing information about crisis stricken regions in 2014. The final topic I’ve called the basics. Celent predicts insurers will continue to focus heavily on improving performance of the core business – a good counterbalance to the hype around digital and a good pointer to where to focus digitisation efforts. At Celent we have noted a pragmatic interest in the cloud from insurers and we predict increasing complexity in hybrid cloud models, to the benefit of the industry. A little tongue in cheek but finally, Celent suggests that industry will finally find a business case for insurers adopting big data outside of UBI. Avid readers of the blog will be happy to see we haven’t predicted an apocalypse for 2014.   A special thanks to Jamie Macgregor, Juan Mazzini, Donald Light and Jamie Bisker for their contributions.  

Digital Insurance and the Customer: Mind the Gap!

Digital Insurance and the Customer: Mind the Gap!

Let’s play Jeopardy together! If the most frequently given answer from a panel of insurance customers is “Don’t know,” what was the question?

It was: “Which UK insurer do you think is the most innovative?”

For those who think that is an exaggeration of the common opinion that the insurance industry is not innovative at all, let me tell you that the second most frequently given answer was “None.”

As Jo Hind – Industry Head, Finance at Google – explained during the first presentation of the Digital Insurance and the Customer: Mind the Gap! event Celent organized in collaboration with Google, the pace of change is accelerating. More and more people are using digital communication means to get information about financial products, including insurance policies, and among others mobile devices are getting great traction. To pave the ground for the rest of the event, Jo left the audience with simple but relevant questions to insurers: How important is mobile to the insurance business? Are insurers optimizing and planning for the four-screen world (computers, TVs, pads, and smartphones)? How can insurers engage better with their customers? Are products offered by insurers meeting consumer expectations?

When Craig Beattie followed Jo’ s final interrogations with the Celent views on the customer, Google, and UK car insurance based on research he and Catherine Stagg-Macey published recently, we – in the audience – could not anticipate that the phlegmatic British analyst would provide the audience with such an insightful and dynamic analysis of the reasons for and consequences of the changing behaviour of insurance online shoppers. After this moment of brilliance, it was time for people to take their breath and enjoy the networking break to exchange about what had just been exposed to them by Google and Celent.

The audience had opportunities to share their thoughts during the discussion panel session which ended the whole event. Ian Morgan – Industry Leader Financial Services at Google – moderated the session, which saw Jem Eskenazi – CIO of Groupama Insurances, Ollie Holden – Solution Delivery Director at LV=, Catherine Stagg-Macey – Head of EMEA Celent insurance, and Jo Hind debate about mobile and digital insurance predictions. The audience was asked to provide its opinion on these predictions before they were discussed in more detail with the panelists.

Let’s play Jeopardy again! What question related to the Celent event summarized above will result in the following answer? “Certainly.” It is: “Are insurers who were present in the audience going to view digital insurance and the customer differently from now on?”

Challenges and Solutions in ECM and Digital Commerce

Challenges and Solutions in ECM and Digital Commerce

Celent recently conducted its third Peer Networking Event, exploring the topics of Enterprise Content Management (ECM) and Digital Commerce. Alternative approaches, successes and gaps were actively exchanged by the 40 participants, representing 13 carriers. We would like to thank The Hartford Insurance Company for hosting the session.

The morning kicked off with a presentation by Ben Moreland, Celent Senior Analyst, which summarized the results of research on ECM in insurance. Among the many data points reviewed, the most active discussions concerned moving away from metacode formats and responding to personalization and prioritization requirements by the business. Numerous practical solutions were shared. One company detailed their use of a middleware utility to aggregate and control output from multiple administration platforms.

A presentation by one of the attendees followed which described their ECM platform and detailed the technical and governance challenges involved in managing a complex environment. From the comments exchanged between participants, it was clear that a goal common among many insurers is to rationalize and consolidate products and platforms. In addition to making the correct technical decisions among many alternatives, the softer dimensions of governance and change management are key success factors in modernizing content management.

The afternoon included a great deal of networking and a panel discussion that dealt with the transition to digital commerce. The panel included both IT and business representatives as well as an executive from the banking industry. They outlined the successes and challenges in their efforts to deliver a consistent experience across digital channels, integrate digital and analog customer service touchpoints, and provide personalization of the user experience. A fascinating approach used by a North American bank to self-fund its digital commerce development effort was outlined.

In all, a great deal of practical information sharing and great networking took place in a very productive and relaxed environment. Celent is in the process of planning additional peer networking events, so please stay tuned for announcements about upcoming events. If you are a carrier and would like to host a Celent Peer Networking Event, please contact Chuck Smith at csmith@celent.com.

Carrier staff are invited to join Celent’s Peer Network on Linked in by going here http://www.linkedin.com/groups?gid=3886663&mostPopular=&trk=tyah. The group provides a forum for insurer IT and business strategists to share ideas and network.

New Rules of Engagement: How Digital and Social Innovation Challenge the Insurer Business Model

New Rules of Engagement: How Digital and Social Innovation Challenge the Insurer Business Model
Last Thursday Celent organized an event in London, whose goal was to raise interrogations around digital and social innovation and how it challenges the insurer business model. In order to get some fresh views about this topic, we have decided to invite some speakers who are not directly involved in the financial services industry and insurance. In the first presentation, we learned how Axa UK has decided to take on the social media challenge. For the presenters Chris Denison – Managing Partner in Axa Innovation Hub – and Manjit Rana – Partner in Innovation Hub at Axa – social media is not a “must” but just another communication channel insurers need to understand and leverage where possible. Chris and Manjit explained the audience how Axa determines individual digital profiles, defines target challenges and identifies solution generators using three dimensions: business model, servicing customers and products/services. This analysis has allowed Axa to identify technology options for solving key challenges. Among others, Chris and Manjit identified interesting tool to leverage such as insurance claim validation systems and iPhone applications improving driving efficiency. According to Axa, deeper digital customers will force insurers to deal with unfamiliar technology solutions and risks.

The next speaker was Shaun Gregory – Managing Director of O2 Media. O2 is one of the leaders in the UK telecommunication industry. The key word used by Shaun during his presentation was “fan”. Actually, the goal of O2 is to “turn customers into fans”. To do so, O2 tries to leverage different kinds of social media tools to improve its product offering in the media business. For instance, the company uses a location tool to target people and inform them about stores and activities that might be of interest to them depending on their location. In addition, O2 also launched credit cards and a contactless payment system via mobile. Shaun’s message to the audience was clear: if you want to turn customers into fans you’ve got to anticipate their needs and provide them with the services that will fulfill these needs straight away.

Engaging with customers the Google way was the following presentation. Jo Hind – Head of Finance at Google – reminded the audience about some of the key innovations Google had contributed to bring to the market to make it one of the most innovative firms on earth nowadays. According to Jo, digital means interactivity and addressability. Interactivity is one of the core offering of Google and the company tries to identify all the times how technology via social media notably can address the need for more interactivity among individuals. Insurers can leverage these new tools and Jo made a special example about how companies can use intelligent billboard in advertising campaigns. Hiscox – the UK insurer – is one of the first insurers who has already used this technology.

The final presentation before the panel discussion was given by Rafe Offer, who is an entrepreneur and industry advisor. Among others, Rafe has worked for Facebook and other innovative companies active in the digital and social media industry. Rafe has captivated the audience with a simple and straightforward message: “the digital revolution is not about technology but it is about the culture of innovation”. Through different examples such as Zappos, Apple, Twenty Recruitment, Rafe convinced us that without a clear cultural commitment to innovate, a company cannot be successful.

The event ended up with a fruitful discussion panel composed of Paul Wishman – E-Commerce Director at LV=, Manjit Rana – Partner in Innovation Hub at Axa – Jo Hind – Head of Finance at Google and Craig Weber – Senior Vice President and Head of the Celent insurance practice. For more information about the questions that were discussed during this session, Craig Beattie, one of our UK based Celent insurance analyst, has been tweeting them during the discussion panel and you can retrieve them here: http://twitter.com/#!/cgbeattie