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?

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.  

The Implications of Going Driverless

The Implications of Going Driverless

Google recently received a patent for a driverless car that can handle the challenges of the open road. (Story: Google Granted Patent for Driverless Car Technology) I love this story, and the implications.

The NTSB’s proposed ban on texting will require a rewrite. Unless my autopiloted car and my smartphone are sharing computing power or connectivity, I’m assuming my texts sent while underway won’t impact safety. Of course, by the time this system is operational, texting will most likely have become passé.

The field of play for telematics is about to get more complicated. Sure, you can track where my car went. But was I at the helm, or was my car driving itself? And what if I get out of the car to let it park itself? Does that still count as me driving, for insurance purposes?

If my car can drive itself, under what circumstances will I even decide to go with it? For example, for many daily errands (e.g., picking up the dry cleaning, grocery shopping, taking the kids to football practice) the main value-adds I bring are navigation and execution of the route. Take those away, and I might choose to do something else.

We’re one step closer to answering one of life’s Big Questions. Namely: Are men or women better drivers? The answer may turn out to be neither, assuming that Google gets the product right. With R2D2 as our chauffeur, my wife and I will have to find something else to debate. Related question: Will my autopilot car stop and ask for directions when it gets lost, or will it just drive around hopelessly? For tradition’s sake, I propose to make that a user-configurable feature. I’d hate to have my car out-perform me in such an obvious manner.

Slaying The Keyboard Dragon

Slaying The Keyboard Dragon

That sound you hear is me, tap dancing on the grave of my iPhone keyboard. And this is not a comment on the iPhone, per se. I love my iPhone, and my Blackberry before it. But let’s just say that neither machine was friendly to my fat thumbs.

The solution? Two applications by Nuance Communications. The first, Dragon Dictation, is a tool that converts dictation to text and then places the text conveniently in your application of choice. Apps such as SMS, e-mail, and Twitter are integrated, or you can cut and paste anywhere. Once you get used to dictating, Dragon allows you to express yourself quickly and easily. Due to the length and “normalness” of my writing, my friends assume I’m on my laptop, when in reality I’m on my iPhone. Cool.

Now Nuance has done it again, with Dragon Go!, an app that extends the dictation model. This time, the target is processing typical commands on your iPhone like reviews, searches, and directions, and pointing you toward best-fit solutions. For example, you can dictate “find sushi near me,” and Dragon Go! will 1) determine that you’re looking for sushi; 2) direct you to a pre-filled Yelp! Search for reviews of local sushi restaurants, 3) provide a phone listing of appropriate restaurants; 4) provide a Google maps page where possibilities are highlighted, and driving directions are a click away; 5) set up an Open Table page in case you want to make reservations; 6) open a Wikipedia page about sushi.

If that all sounds too confusing, it’s not. The app uses a clever tabbing system to show your options, and the most likely destination is always the first one opened. Plus, the integration to the standard apps like Yelp! and Google Maps is good: you don’t have to figure out what to do with your transcribed commands because Dragon Go! does it for you.

You can also dictate a command and a target web site, if you know what you want. So saying “malwarebytes on CNET.com” takes you to CNET’s mobile application, showing search results for “malwarebytes.” Currently, Dragon Go! appears to support almost 200 websites in this directed search mode.

The company says Dragon Go! uses natural language processing techniques (think IBM’s Watson supercomputer) to figure out what you’re really trying to do. I’m not sure how sophisticated this functionality really is, but for what I do on my phone, it’s plenty sophisticated. In my tests, results of dictated searches were highly relevant.

But what does this all have to do with insurance technology, you’re asking? I present it as more evidence that user experiences and tools are changing for the better, in both subtle and dramatic ways. The subtle side includes things like better integration across sites, and between channels. Plus user interfaces that are so effective that they don’t require manuals. The dramatic side is intelligent speech recognition, built into your applications. Twenty years from now will we even have keyboards on our devices? Probably, but I’m certain they won’t be the interaction tools of first resort. Whether you’re an insurer or a vendor, you need to jump on this kind of thinking to stay competitive.

The Clash of The Insurance Technology Shows

The Clash of The Insurance Technology Shows

Here’s an open question to the show organizers for IASA and ACORD LOMA: How are you planning to resolve the uncomfortable proximity of these two great shows?

For the record, I am a big fan of IASA, ACORD, and LOMA. All three organizations have contributed greatly to the renaissance in the insurance technology space and have opportunities to bring unique value to the industry. So it pains me to have regular conversations with industry participants of all persuasions where we all agree that there is room for two big industry shows a year, but not within weeks of each other. The current approach diminishes the value of both shows. We need a change.

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I know there are financial and political considerations that conspire to keep things as they are today. Ditto that old insurance favorite: tradition. But a shakeup would have significant benefits for show organizers and attendees. Here are two options.

Option 1: Consolidate again.

If you really don’t want to address the timing issues, then you should consider combining IASA and ACORD LOMA into one massive, must-attend show. Want to be fair? Rename it “Insurance Expo” and start a new tradition that will carry us for the next 30 years.

To make the financial picture work, double the price of exhibiting and of sponsoring various events. For vendors who currently participate in both shows, this would be a net gain, as they would only be sending booths and staffs to a single location each year instead of two. And the rise in the number of attendees would more than offset the higher cost for vendors.

Attendees should pay higher fees for a single combined show, too. But will they? If you address tactical issues (e.g., scheduling to ensure adequate time for both show floor interactions and content) and raise the quality of show content by being more selective about presentations and presenters, I think they will. Heck, make it a day longer if you need to. You might not keep everyone for 3 full days, but the extended time would give opportunities for different, deeper content.

There should be consolidation benefits to show organizers, too. The logistics of a combined show would be a challenge, and I’m sure the list of potential venues would be shorter than it is today, given the combined show’s size. But the costs of a combined show would not be equal to the two shows as they are, and the staffing overhead of running the two shows would be lower.

Option 2: Re-create some comfortable calendar separation.

Most of us would be thrilled if one of the shows moved to March or October. This is not as compelling to me as Option 1, personally, but it would be a major improvement.

I know the counterpoint: March weather can be sketchy. And an October show is disadvantaged because it is out of sync with buyers who are shopping mid-year for projects that will appear in the following year’s budget. But neither response outweighs the benefits. Buyers are looking at options year round these days, and there’s as much chance of tornadoes in June as there is snow in March. I say put on two solid shows that aren’t on top of each other and people will show up.

Moving Forward

Taking either of these steps requires organizational courage. And acts of good faith on all sides to make sure that the benefits of a new approach would trickle down to the organizing groups equitably. But the current, fractured approach to keeping these two shows alive has its own risks. Uncertainty and dissatisfaction with the status quo will severely limit the growth of both shows. As member-driven organizations, IASA, LOMA and ACORD must all accept that anything that could help their members merits serious consideration. So how about it, show organizers? Can you address this nagging and obvious problem?

Halftime Between Spring Insurance Shows

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

Japanese Insurers Poised for Technology (r)evolution

Japanese Insurers Poised for Technology (r)evolution

In Japan, Internet banking and online brokerage have been around for some time. The Internet revolution is taking a bit longer to come to the Japanese insurance industry. Currently, most insurers’ web sites are limited to providing information and some online tools, such as premium calculators or financial planning simulators. Customers who want to actually buy some insurance are directed to call a contact center, which will then mail application materials to the customer. In 2008, though, two firms–SBI AXA Life Insurance, a joint venture between Softbank Investment and AXA; and Lifenet Insurance, a greenfield firm– began to offer fully online insurance sales for the first time in Japan.

But for the most part, the insurance industry here has yet to realize the benefits of Internet-era communications in reducing processing cycles, supporting agents, or improving customer service. Here and there some new technologies have been adopted—some firms have built basic agent extranets and offer some online policy and claims information to their customers. The basic building blocks for a more integrated insurance infrastructure, however, are not in place. SOA is in its infancy in Japan, and the use of standards is limited. “Business intelligence” software generally takes the form of embedded Excel spreadsheets used by analysts and underwriters in lieu of more efficient assisted workflow solutions.

Change is on the horizon, however. Japanese insurers have seen foreign entrants succeed in taking large chunks of their market share, particularly in new product areas like retirement and health products. This has focused their attention on some of the techniques used by the foreign entrants, such as the BI used to support direct marketing, and more flexible core systems.

Due to a long-term trend towards declining market size—a result of the country’s shrinking population–Japanese insurers are also under intense pressure to reduce costs. This is driving even large domestic insurers for the first time to consider international vendor solutions and even outsourcing. As insurers move towards more modern, flexible PAS and claims systems, they will look to update their infrastructures, introducing more remote channel capabilities for their salesforce and agents as well as their customers. We expect the technology landscape at Japanese insurers will be transformed steadily, and in the end significantly, over the next few years.