Next Generation Insurance: Leading from the front.

The noted futurist Ray Kurzweil continues to expound his vision of human immortality - though his 20-year timeframe for achieving it does not seem to have moved forward in the last 4 years. Given his commendable achievements and awards starting with his college days at MIT, his views continue to attract the attention of the world media with multiple reports in the past week.

While there are innumerable implications for immortality as a possibility that touches almost all aspects of the economy (almost a “Human Society 2.0”), it is intriguing to consider the implication for the life & annuity insurance industry where the fundamental premise is the mortality of humans and the investment needs to plan for a limited, yet uncertain “retirement” period. If risk of death were to be substantially eliminated, the miniscule premiums for life insurance would probably render the core purpose of the product as an unworthy enterprise and shift the focus entirely to the understated competency of investment management. On that front, the current retirement planning buzzword would need to transform its tagline to planning for not one, but periodic “retirement” periods wherein an individual would recharge his energies and consider newer frontiers within an immortal lifetime!

Posted by George Ignatius at 11:19 AM | Permalink | Comments (0) | TrackBacks (0)

Read an interesting blog post by Nicolas Michellod (http://insuranceblog.celent.com) on “Some Considerations around innovation”. Nicolas suggests that Insurers need to innovate both on products as well as processes and IT is not necessarily a “must-have” but merely an enabler to achieving innovation.

I couldn’t agree more on the role of IT, as suggested by Nicolas. It necessarily needs to be looked upon as an enabler and not a must have. The tendency to leapfrog into technology solutions has historically led to the snowballing effect of complex architectures, increasing cost of ownership and further impacting the agility of the business to respond to emerging business scenarios including regulatory changes.

That said, I would like to argue that if the goal is to differentiate, insurers need to focus back on the core for identifying innovation – product, price, distribution and marketing. Tom Davenport ( “The Coming Commoditization of Processes," Harvard Business Review, Vol. 83, No. 6, June 2005) suggested that in the new world processes will get standardized. In my view, in the long run, standardization of processes can facilitate significant improvement in the underlying processes and their performance through expense reduction and deployment of lower cost technology solutions. Standardization can also lead to cross-industry shared services that can further eliminate non-value added activity within a carrier.

While in the shorter term, innovation in processes can be looked at, the impact of such innovation on the business may not be significant. Focusing on the 4Ps, on the other hand, will call for a much better and holistic understanding of the customers, definition of newer / better products and getting the products to the customers more effectively leading to significant differentiation in the market.

What’s your take?

Posted by Sanjay Mohan at 12:00 PM | Permalink | Comments (1) | TrackBacks (0)

Generation Z (say born after 1990) has grown up with internet. When they were very young, they demanded the computer playing games to be online & are getting increasingly networked, when they have come to age of sharing, they invented ITunes, when they have come to live in the ‘world of friends’, they invented Face book, YouTube. And now they are for the first time entering the workforce in increasing numbers. That means for the first time this generation will have more money (their own money!!) to play with than ever before. If they could bring about this change in the world order without the money, I wonder what they would with money power (I hate to see them get distracted/corrupted with money!)  Would we see a gradual shift of buying & service expectation patterns that will shake up the Insurance Industry. Now this group when they get the money, the first indulgence, one would expect, will be a car (especially in US!) and there you have, their need for Car Insurance. I guess the first time they buy a car, they will continue to be with the Insurance cover their parents have & may end up buying with the same agent. A natural expectation, but I guess servicing requests will see a dramatic shift and they will not go along the line their parents are used to.  I guess in next 2-3 years, we could very easily see the demand for online service channels far more than what many carriers are ready for.

A first time buyer of Life Insurance is between age 28-45 and that would mean 2018 could be a good inflection point when I suspect we will see online servicing requests taking over the traditional service requests in Life Insurance.  So I guess Life Insurance has more breathing room (if one is looking to procrastinate!!). While it is relatively easy to predict that the servicing requests will become increasingly online, I do not have the same conviction in me to suggest that buying Life Insurance will move online ( May be Term Insurance will). The trust factor that plays so heavily in Life Insurance (a typical policy probably lasts 45-50 years!), I guess is not something, that is easily replicable thru online channels.

Well, I do not want to challenge this generation, but will be watching with interest on how they generate that trust & change the dynamics in Insurance Industry. I wonder what the gurus at Insurance companies are thinking about preparing their company for this change.

Posted by Umashankar Kotturu at 05:03 AM | Permalink | Comments (1) | TrackBacks (0)

I was in a discussion with a customer on migrating their block of business to a different platform. I heard this concern from that customer that one of their colleagues who came from another industry just doesn't understand the challenges associated with policy data storage for 60-70 years. We went on to discuss at length on how data storage is different in Life Insurance Business from that of P&C Business.

But then as I was heading home, I am beginning to wonder if there is any other business out there that a consumer would like to keep data for that long period of time. The only other example that came to my mind is Healthcare treatment/diagnosis where a consumer would prefer to have the data for that period of time. But you know, such a need is not addressed today and that might be a business opportunity in itself and a separate discussion!

Just wondering if there are other live examples out there where a consumer has a need to access data history going back decades?

Posted by Umashankar Kotturu at 04:17 AM | Permalink | Comments (2) | TrackBacks (0)

In my view, top three reasons why modernization initiatives in Insurance organizations do not go well
1 What you want is what you get-  More often than not, future needs are not articulated well enough from a business  vision, strategy and relevant capabilities needed
2.Misalignment of stakeholder objectives -  Business strategies and IT goals have a divergent view as early linkage is not established
3.Value is not visible and perceived  -  Modernization initiatives are either not prioritized based on value generation potential  for the business  or such value is not visible enough through the program

  

What are the best practices?
• Capability Driven Approach- Identify the future capabilities that are aligned to business vision, strategy and drivers and then the relevant technology enablers (e.g. – “Going direct "is a key strategy for many carriers to capture the Generation X. This translates into enhancing channel capabilities and effectiveness; from a technology perspective, this leads to investments in initiatives like SOA, Web services etc.)
• Prioritization through value - Identify the business value potential of each capability and prioritize the change initiatives based on value. Yes, we know the capabilities- but do we know which of them produces the best value for the carrier, their partners and clients?  For example, enhancing online quote and new business capabilities will benefit both agents and direct customers; straight through processing for new business underwriting will enhance operational efficiency and hence impact cost per policy issued.  Value based prioritization can help decide on the right one to go after. 
• Stakeholder involvement- Ensure key stakeholders from business and IT are involved and engaged throughout the program.  This is an important criterion for the success or failure of the program.   Many a legacy modernization initiative has fallen through the cracks either the right stakeholders were not participating or not involved on a continuous basis.    
• Governance and Change Management- Establish a governance process that guides, monitors and promotes progress of the modernization leveraging a metrics driven approach. Communication at the right level and frequency, continuous monitoring of risks to the initiative and deploying mitigation steps are critical to governance. Any modernization initiative brings in change and change is difficult to accept- Insurance modernization programs are not an exception to this rule and deploying appropriate change management program is critical to the success.

Any other thoughts on best practices which Insurance organizations should be adopting on the path of modernization initiatives.

Posted by Baskar Sridharan at 07:11 AM | Permalink | Comments (0) | TrackBacks (0)

Wikipedia refers to Web 2.0 as “web development and web design that facilitates interactive information sharing, interoperability, user-centered design and collaboration on the World Wide Web”.  For the insurance industry that thrives on information and communication, one would consider the advent of new technologies that enable social networking, a web 2.0 tool, a godsend.  But has the insurance industry adopted social networking sites like Facebook, LinkedIn etc. with the expected gusto?  Probably not, if industry analysts’ reports are anything to go by.

As I see it, the insurance industry is probably the best suited to leverage social networking to the fullest for a variety of reasons (not in any particular order)

• A huge workforce – both direct (employees, career agents) and indirect (insurance brokers, other channels)
• A demanding client base of various ages, financial background
• Dependence on paper and people – for underwriting and servicing insurance policies
• Operational areas working in silos – limited room for collaboration
• A constant need to liaise with various partners - doctors, labs, Motor Vehicle Office, Claims Adjusters, regulators etc.
• A large variety and amount of information to share with its internal and external constituents -  changes in rules, policy updates, new product launches, rate quotes and the like.

But many insurers feel they have gone the full distance after they set up a wiki site to enhance internal communication.  Why is it so?

One reason for the limited adoption of social networking tools from the carrier side could be the insurance industry’s traditionally conservative approach to new technologies and business practices.  And then there is the question of security - social networking often involves sharing sensitive and personal information. 

Any thoughts on insurance-specific inhibitors that could be holding back the insurers in whole-heartedly embracing social networking?

Posted by Sanjaya Kumar at 11:27 AM | Permalink | Comments (6) | TrackBacks (0)

In the Insurance Industry, product design, claims, distribution, customer acquisition and policy administration figures on the top of the list of Insurance specific core processes. However in the Insurance processes value chain, each process has different cost-structure. Moreover, the impact that process has on the creating differentiated competitive advantage for the organization varies for each process.

 

Comparing the “power to differentiate” in these processes to the “cost of the processes”, it appears that we may have to re-align spend priorities.

What is your take? Do you think the spending is in line with the industry imperatives?

Posted by Sanjay Mohan at 04:10 AM | Permalink | Comments (1) | TrackBacks (0)

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.

Do insurers consider this as a necessary evil due to high replacement costs or do they have options? Following are a few options adopted by various insurers based on strategic importance of IT, availability of budgets and business drivers.

 

1. Modernize with capability enhancement - Insurers are exploring opportunities to improve business capabilities while modernizing their IT systems. It is a much easier business case when IT modernization gets done along with business capability enhancement.  Application modernization and consolidation is done while keeping in mind the overall business vision and business capability enhancement.

2.Re-hosting - Completely shift applications from mainframes to newer platforms to reduce the risk as well as cost of operations and provide a starting point to extend Legacy applications. There are tools available for the lift and shift.  This is less expensive than the overall application consolidation / rationalization.

3. Re-factoring /Web enablement – Componentize existing applications to enable re-usability and improve maintainability. Identify and expose ‘services’ moving legacy applications towards a standard Service Oriented Architecture

4. Packages - Chose the right product from the 100+ product vendors available in the market

 

Modernization initiatives that tended to focus on improving only IT effectiveness or pure IT head count haven’t received much support from business. A broader focus on integration of business & IT architecture and business capability acquisition would provide better business value and hence easier to achieve success with modernization efforts. Considering the difficult times, any innovative approaches to reduce the cost of operations would be welcomed by business leaders.  If change has not been initiated already, it is never too late! 

 

Posted by Siva Nandiwada at 05:19 AM | Permalink | Comments (1) | TrackBacks (0)