The insurance industry worldwide is undergoing a significant change accelerated by the financial meltdown and changing demographics of its customer base. In this blog, we will discuss the challenges, approaches and possible solutions to dealing with the transformation that the industry has unwittingly entered into.

June 2, 2015

Nordic Insurance - Digital disruption underway

Digital transformation today has taken entire industries by storm, transforming the landscape beyond recognition. Think about Nokia, Kodak, Blockbuster, traditional music labels, brick & mortar book stores and numerous other examples. Digital mavericks are coming to the market with game-changing innovations and business models focused on customer journeys and experiences that is proving to be the sudden death for traditional ways of doing business. Consider Geico, Friendsurance, Netflix, Airbnb, Apple and Uber - each one of these has changed their respective industries, and overnight everyone has to play according to the new agenda set by these digital mavericks.

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September 1, 2014

RIP Traditional Insurance, Digital Disruption Has Arrived!

Currently Insurers are finding themselves in a tempest where the digital disruption has caught a few of them completely off guard. The digital disruption has arrived with a proliferation of smart devices and advent of the digitally savvy customers. Insurers will have to display Digital motility to quickly beef up- Customer experiences and Operational efficiency. Tackling either one of them without the other would lead to dismal results. Digital insurers need to follow this twofold strategy while injecting Digital in every aspect of the business.

We are seeing a metamorphic transformation take place where the consumers, employees & stakeholders are expecting intuitive experiences and agile responsiveness leading to a buildup of necessity to innovate on the go.

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February 10, 2014

Retain your profitable policy owners!

One of the most important KPIs of Insurers is to retain the existing policy owners. It is more relevant in the current world for two reasons. First, it is becoming difficult to attract the digital consumers day by day as carriers are still in process of understanding them. Secondly, it is less costly to retain the existing customers than adding new customers.
Insurers need to be diligent when trying to reduce the churn. They have to question whether it is worth trying to retain all the customers who have the tendency to churn.
Let me try to explain this using a scenario from Life Insurance Industry. For example, Assume a set of customers have been identified whose churn probability is higher than others. All these customers had cleared financial underwriting conditions originally. If Life time value (LTV) is refreshed for such customers before initiating churn reduction activities, it may turn out that some of them are not profitable at all.
In these circumstances, Insurers would be better off if they focus only on profitable customers.
In the past, it used to be a major challenge to identify customer profitability at the customer level. Typically all customers would be contacted for renewal of their policies simultaneously based on the previous personal data available within the Insurers' systems. Now with abundant technical capabilities in the analytics space (SAS or R or any other platform) built on the basis of strong statistical models and data from internal / external sources, it will not be that difficult to track the profitability at individual customer level. Carrier may increase their focus on profitable policy owners.
Here is a simple approach.
Step 1: Identify set of customers who are likely to churn
Step 2: Refresh their life time value (in other words refresh the customer segment)
Step 3: Check the profitability of customers and map them to benchmark values
Step 4: Identify key reasons why profitable customers want to breakaway
Step 5: Initiate cross sell if the churn reason is either 'under-coverage' or 'does not meet the need'.
Step 6: Launch customized campaigns to promote cross-sell opportunities within profitable customer segment
This approach assumes that the insurer has benchmark values for profitability, agreed customer segments, good quality of data and strong technology capability like SAS or R or any other platform for executing the models

February 1, 2013

Telematics - the future of Insurance Ecosystem

When I boarded an Airport Taxi, recently, I was with my family. Like many others, my father is a kind of person who wants to be at the airport or a train station at the earliest. I have an intuition that he might have sent signals to the taxi driver that we are in a hurry (not that rest of us were relaxed either!). Anyways, so the taxi driver decided to take controls in his hand. The moment the taxi hit the express-way, we were traveling - with fair speed. I was about to take a glance at the speedometer when a recorded voice declared -"You are exceeding the speed limit, please slowdown". That's 'Telematics' I announced for the benefit of audience. In fact, a more appropriate term for my self-initiated announcement would have been "Vehicle Telematics".

Telematics has been the buzz word in the auto insurance industry for quite some time now and rightly so. As mentioned in my previous blog, it represents one of the most disruptive innovations in recent times for the insurance industry. The idea is to capture the real-time data and transform it to either a 'Usage Based Insurance' (UBI) or a 'Pay as You Drive' (PAYD) insurance. The UBI is basically governed by the amount of time you spend behind the wheels while PAYD encompasses your behavior (e.g. speeding) while driving, along with the mileage driven. The 'behavior' component is essential to differentiate between two drivers - both travelling the same distance over a period - one does a daily commute during the rush hour in a hurry to not miss the morning appointment, while other doing a leisure travel during the weekends.

The traditional implementation of telematics device would be a black box integrated along with other on-board-devices in the vehicle and making use of satellite and cellular network. A more recent innovation is the advent of smart phones. Smart phones could make use of a suitable mobile app, the inbuilt GPS and the accelerometer to send and receive data over the mobile network. The result of all this would be multidimensional. The underwriters would be assessing more relevant and updated information to write policies with actual risks. The drivers would have an opportunity to reduce their premium and deductibles by showcasing their good driving behavior. The society would get not only a safer road (refer PAYD insurance) but also a greener one (refer UBI).

One area which is still undiscovered - in terms of using telematics - is 'Life Insurance Underwriting'. As we know life insurance is a complex product and needs more expertise in underwriting. In that sense, the use of telematics should be considered a farfetched idea. Underwriters usually want to factor in all possible facts that might affect the mortality risk of the applicant. Premium amount for a policy is typically driven by a person's health history and lifestyle (relate it to the behavior aspect we discussed a while earlier). Smokers end up paying more compared to non-smoker. While a person with possible heart risk might end up paying more than a person without. Thrill hunters who love 'Auto Racing', 'Sky Diving' or rock climbing might well be denied a cover.

Life Insurance policies often include an "Accidental Death Benefit" (ADB) rider along with the normal policy. Most of the insurance providers are offering this rider on a flat rate basis or rather very minimal underwriting. An ideal scenario would be if underwriters were to establish some kind of formula to rationally charge for the ADB rider. The 'behavior' part of the life underwriting decision should also consider the applicants behavior on road and how it contributes to the risk. With the increased use of 'telematics', there might come a stage when life insurance underwriters start seeking that information. Like the credit scoring system, a 'safe driving index' system might eventually make its way to provide information to the auto industry as well as life industry.

Although the implementation of telematics itself comes with pre-packaged concerns which can be discussed at length, one cannot deny the potential of this disruption. It could lead to new ways of underwriting as well as product development. In an ideal insurance ecosystem, be it auto or life, telematics seems to be a promising part of the future-state.

March 23, 2011

Video: Web 2.0 in Insurance

Watch Siva Nandiwada, Associate Vice President - Insurance, Healthcare & Life Sciences (IHL), as he highlights how insurance companies can leverage Web 2.0 to enhance business efficiency

June 28, 2010

Smarter Organization - Simplify

In my previous blog I mentioned the need for Insurers to  "Simplify", "Collaborate" and "Adapt" to emerge as "Smarter Organizations". I would like to elaborate on the need to "Simplify" in this blog.

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October 29, 2009

Tying Web 2.0 technology to Business Objectives for improving ROI

Organizations are seeing Web 2.0 as a technology enabler to achieve business objectives to deliver results. Key to success is “collaboration” between business & IT in leveraging web 2.0 to achieve business objectives.

Some key business objectives of Insurance companies are around enhancing customer experience, revenue growth, minimizing operational expenses, improving employee productivity and distribution effectiveness.  IT departments need to evaluate where Web 2.0 would be most effective to solve parts of the business problems once the business objectives are internalized.  These business problems can be broadly structured around 3 key stakeholders – Employees (for Internal Operational effectiveness & Employee productivity); Customers (Customer experience, product development & revenue growth); Partners - Distributors, Suppliers etc (For Channel productivity and efficiencies).

Once the key stakeholders / business objectives are identified, organizations could start working on three key dimensions of change management – Process, Technology & people. Focusing on technology without focusing on business process and people can be disastrous. There are several examples where blogs, wikis, discussion forums don’t attract enough interest in the user community because the key business problems or issues are not addressed

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September 1, 2009

Insurance Legacy Systems – Ready for a change ?

There are varied views expressed by experts in Insurance on legacy systems in Insurance. A significant majority of insurers still have over 70% of their insurance systems as legacy. Because of this, over 70% of the IT budgets are kept aside for keeping the lights on!!  This bothers the business leaders and makes them question the value IT is providing to business.  IT is clearly not in the front seat driving the business unlike in some of the other industries IT drives business results.  Legacy systems also are quoted as the one of the most common reasons for the delays in launching new products. Longer cycle times for application processing, issues in claim processing and poor customer experience are the other common issues that are attributed to the legacy systems.

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