Next Generation Insurance: Leading from the front.

Demographic shifts in the US market and its implications on the consumer buying behaviour

2010-03-03T06:56:17Z

I recently came across an article on the demographic shifts in the US market where:

1.The multigenerational household is gaining prominence - affecting major purchases, like automobiles, homes and college tuition. With a record 70 million grandparents in America in 2010, these grandparents will be deeply involved with their grandchildren - with decisions often being made by two generations of people - the parents and the grandparents.

2.No household type will neatly describe even one-third of households. The iconic American family (married couple with children) will account for a mere 22% of households. The most prevalent type of U.S. household will be married couple with no kids, followed closely by single-person households

3.Diversity will vary greatly by age - the younger population substantially more diverse than the old . By 2015, 80% of people age 65-plus will be white non-Hispanics and just 54% of children under age 18 will be white non-Hispanics. White non-Hispanics will account for fewer than half of births by 2015

]]> Other than the shifts, the next generation of consumers will be heavily influenced a fragmented media I believe, with these changes in demographics, the “Always On Society” (the next generation of consumers) will demand and leverage “Always On Business Models” dramatically increasing the number of touchpoints between a consumer and an Insurance carrier. I believe that the key imperatives for carriers in dealing with the next-generation of policy owners are going to be:

1.Know Your Customer : Analytics program to drive a better understanding the next generation of policy owners and their needs / buying patterns
2.Target your customer : Interactive & Social Marketing
3.Multi-channel Distribution : A distribution model that provides multiple access points while maintaining a consistent user experience
4.Ubiquitous Service Model : An always on service model

What’s your take?

Value selling – strategic benefits typically trump financial measures…but should the latter continue to be a laggard?

2010-01-27T11:27:22Z

With most large insurance companies sitting on legacy IT assets that hinder flexibility to adapt to new business needs (such as cross-channel ops for customer service), it is critical to consider how their organization structures and decision making processes for IT investments can enable them to move quickly to steal a march on their competitors. ]]>

Many carriers have been diligent over the last few years in setting up strong governance practices over their IT investments and ensuring they are spending their corporate investments wisely in aggregate by comparing large projects at the company level instead of at LoB level (usually projects over a certain threshold such as $250K). But even though their newly minted governance processes focus on the appropriate financial measures (mostly NPV or IRR, sometimes even option value), executive level decision making still lags with understanding & use of these measures playing catch-up and probably needing another 3-5 yrs before becoming fully mainstream.

In light of the above, there are two aspects of the current trends in the insurance industry that have strong implications for carriers that can make a difference in the competitiveness of their business ops
1. Shared service ops across LoBs/ distribution channels- with unified customer service the holy grail across the multiple silos that exist today, companies will need to ensure that their executive level sponsorship and decision making also focuses on enterprise level benefits. These cross- silo efforts typically require foundational investments in the legacy IT infrastructure that can be justified only with financial toolsets that measure the value over a 3+ year horizon (as compared to quick fix solutions that deliver small cost savings in 1-2 yrs but increase costs in the longer term).
2. Revenue focus in the current recessionary environment- there is definitely a strong preference now for investments that can generate higher sales volume and maintain the excitement level within the agent/ sales community. Carriers will need to make fundamental changes in their sales operational infrastructure to enable any real advantages that can deliver benefits beyond the pale of product tweaks and new offerings (such as looking into their claims & underwriting ops for marketing & lead generation potential or even enabling more direct channel sales). Such capabilities will also require very strong financial toolsets to measure the effectiveness of the investments especially given the complexity of measuring returns from revenue enhancements which has been a typical source for double-dipping.

Carriers who are able to execute the right balance within their organizations between strategic and financial measures and focus their scarce resources on the right investments will obviously steal a competitive edge- enabling the right decision making processes within their organization backed by effective use of strong financial toolsets would be a key ingredient for that balance.

New York Insurance Exchange

2010-01-20T10:29:50Z

For over 400 years there has been no parallel to Lloyds of London, while stock exchanges have conflagrated and today you have stock exchanges in every major city, Insurance exchanges are synonymous with Lloyds and the world is contented with just Lloyds, Surprisingly the first direction to break the monotony came recently from New York State Governor, New York State wants to set up a rival Global Insurance Exchange to specialize in coverage of complicated risks such as oil rigs in hurricane regions, tall buildings that are potential targets of terrorists or corporate directors who could be blamed for accounting scandals]]> This opens up an interesting chapter in the global insurance trade, If the present attempts by New York is successful it could become a formidable competition to Lloyds and also result in creating healthy competition between the various entities and if successful could also open up the clamor to open more such exchanges. Lloyds writes about 44% of business from US & Canada and if we include South American business as well Lloyds writes about 50% of its premiums from Americas. That’s just about US$ 10 Billion of Gross written premium that is crossing Atlantic to the UK today.
The trend could be a blip or become a wave if New York Insurance Exchange succeeds in its attempt but holds wide felt ramifications & opportunities for suppliers who can tap into help New York Insurance Exchange as a potential service provider. Even if the NYIE picks up 10% of business from Lloyds or simply picks up the additional growth that Lloyds has been seeing in Americas the Exchanges at the right competitive potential could start at about US1 to YS 2 Billion of premium income a year.
Obviously it is still a long way to see how this materializes into reality and what could be the actual performance of such an exchange. Also various waves that came to hit Lloyds in the past including the Captive offshores, Smaller insurance exchanges and ART schemes have all enriched Lloyds growth and has furthered it to grow bigger and better, it would be interesting to watch how this turns out to be!

Insurance SaaS Services on Cloud

2010-01-11T06:45:29Z

Off late so much is being said in the media about SaaS, Cloud computing and its applicability to Insurance world, Recently a leading insurance industry focused technology journal highlighted 4 key technology solutions that will peak in 2010 and identified the top technology solution every CIO is evaluating at this point of time as Cloud computing and SaaS based software models. Quite a few big names have come to public about their intentions to seriously consider SaaS and Cloud as a part of their vision though they have also raised concerns on the ability of Cloud /SaaS to protect their data privacy requirements & organizational requirements in the longer term.

]]> Cloud computing has two sides to it one covering the IT Infrastructure consisting of mainframes & end-user desktops and workplace computing. Insurance companies which have tried cloud have so far restricted themselves to private clouds. I believe insurance companies will continue to restrict themselves to safer cloud options in view of the data protection & privacy requirements.

On other side SaaS (Software as Service) has been adopted so far only around peripheral enterprise applications such as email, collaboration, office applications, and stand alone business applications such as CRM. Sales force lead management solutions have been existing for quite a number of years and salesforce.com is a classic example of how SaaS structure could be exploited by insurance companies. So far this is the area that has seen maximum SaaS adoption.

I believe that the both the key trends will grow to attract more attention and It is important for Life, P&C Insurers to adopt and build a longer term vision statement with a privacy protected Cloud , SaaS view.

Pack away the holiday stuff- wait a minute, what is that on the shelf?

2009-12-28T19:14:58Z

As everybody starts to wind down the year and close their 2009 budgets and look forward to 2010, one thought that comes to mind is the purchases made that have been unused so far. For financial services firms that track investment earnings closely, it is quite interesting to note that a few millions in IT investments may not be tracking any returns yet. The most obvious example is that of software purchases that are simply not yet implemented or even poorly implemented with minimal changes to existing business or IT processes.

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One of the key reasons for not being able to leverage software investments is a lack of ability to monitor expected benefits from IT projects. While it is common knowledge that value can be generated mainly by improving business processes (besides reducing IT costs), monitoring returns from IT projects should apply the same concept to rigorously assess target and actual changes in business metrics. Every project or IT investment should be tagged with a focused set of metrics that need to be accomplished to drive realization of returns from that investment- once such a mechanism is in place, IT execs will have an easier time managing their projects with clear visibility of benefits from beginning to end of the solution lifecycle.

Of course, one cannot ignore the people implications of the ownership role entrusted with realizing the target metrics, but that is a much larger topic best left for a future discussion!

Improving Producer Experience

2009-12-24T06:56:13Z

For an insurance company both Policyholders and Agents/Producers are equally important to top-line and bottom-line growth. Even in this day and age, Producers continue to play a vital role in bringing together carriers and end customers. Insurers are well aware of the importance of satisfied Producers — captives independents and others — in driving new revenue as well as in providing a competitive edge in the marketplace.

It is true that market-relevant products and attractive compensation will favorably influence a Producer’s decision to contract with a carrier. However the ‘ease of doing business’ - be it for initial contracting and appointment, tracking continuing education credits or license expiry or other administrative activities like maintaining biographical information, banking details etc. - will be a deciding factor in continuing a mutually beneficial relationship with the carrier.

]]> Given this, I find it surprising that carriers have perhaps not accorded the same level of attention on improving Producer experience as they have in implementing business process and technology–related improvements to cater to the demands of their policyholders.

In my mind the following are three key areas carriers can focus on to enrich their Producers’ experience in interacting with them

• Enhanced Producer Lifecycle Process – Streamlined, measurable process from Producer licensing/appointment to maintenance and finally termination
• Improved use of technology, with specific reference to
o Use of electronic/online forms – Less dependence on paper to collect Producer information .With appropriate edits in place, online forms can also ensure that all relevant information is provided upfront and no time is wasted in following up trailing documents or incomplete information
o Use of electronic signatures – Producer licensing, contracting and appointment process by its very nature requires agreements and approvals from both the Producer and the insurance carrier at different stages of the process. Hence the ability to electronically review and ‘sign’ documents online will not only reduce process cycle time but will also obviate the need – and hence the cost - to print and mail/fax documents
• Selective Self-service capabilities – Empowering Producers through a security-enabled self-service application will not only provide Producers with a sense of ‘control’ but will also leave the carrier to engage in higher value support activities for the Producer. Self-service capabilities will be especially helpful for Agencies to manage administrative needs of its own Producers, intra agency transfers, open agency management etc.

Do you have a goal for reducing the % of non-discretionary spend?

2009-12-15T11:25:39Z

I have been curious to ascertain the discretionary spend of insurers and I can see a shift in the response over the last few years. A few years ago, most companies would respond that, their discretionary spend is in the range of 20% to 25%. This is attributed mostly to the maintenance / support of the legacy insurance systems. Of late I am seeing an increasing trend of companies saying that they have improved this to 30% to 35%. Most of the reduction in non-discretionary spend has come down either due to offshoring or through server consolidation & virtualization etc. However, very few companies can claim that they reduced due to better modernization of systems, processes & applications]]> The key questions to ask are – Does your CIO have a goal for reducing the % of non-discretionary spend? Is there an improvement on this goal year-on-year? How are you improving this? Is it through pure cost / labor/ resource arbitrage or through “engineering” methods?

I would think that reduction in the cost through labor / resource arbitrage is easy and many organizations have achieved. Organizations that are focusing on improving this through engineering methods will tend to achieve competitive advantage due to operational efficiency as well as market differentiation. When I say engineering methods, I mean improvement in process, technology, system and application capability. These methods will have a significant impact on the business. Business leaders would be willing to spend money on these initiatives.

Where does your organization stand today on this aspect?

Sourcing Strategy to Optimize IT Spend

2009-11-26T05:38:20Z

There has been a raging debate (on this blog as well as all major media outlets) on the right level of IT spending for carriers. While, generally speaking, the participants in this debate seem to be converging on the central theme of shifting to a ROI based prioritization and governance of IT spend, ruthless management of Total Cost will continue to be an imperative that impacts the ROI.

Most organizations have leveraged sourcing in some way or the other to optimize total costs. While sourcing is a strong lever, it is also important to assess the right sourcing strategy in optimizing the total cost. Managed services models provide an excellent opportunity to manage cost structures while shifting to a variable cost model. Using managed sourcing in conjunction with other strategies (like Grid computing) can be very effective in managing total cost to address the variable demand.

We all know TC = FC + VC*Q. For the IT landscape Q (Production) is the same as demand for IT in an enterprise (both discretionary and non-discretionary). Functional areas that have potential significant variability in demand (or seasonality – for example processing claims in the hurricane season or a new product launch) can benefit from leveraging models that lower fixed cost (and allow to not plan infrastructure and systems for the peaks) and use variable but predictable (tied to business outcomes) costs.

Let’s take a look at a model for optimizing Total Cost

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As is evident, sourcing strategy ends up being an integral component of IT strategy to manage total cost. However, the application of sourcing strategy and the use of other mechanisms to carefully plan out fixed investments is key for the outcome that we are all looking for.

What’s your take?

What is the true discretionary spend in insurance companies?

2009-11-18T11:48:28Z

I have written a couple of blogs on discretionary spend earlier. Word discretionary spend is quite loosely used. You can rarely get the same response to a question on the % discretionary spend – when you ask 3 senior IT executives of the same organization. Some consider discretionary spend as anything outside of operations and support. Some include enhancements as discretionary. Some consider only new development / re-engineering spends as discretionary. Some include new development / enhancements tied to regulatory compliance as discretionary.]]> Ideally discretionary spending should include only the money that you are spending on projects where you have a choice to make. These choices need to be tied to the business objectives. If you found that to be competitive, you would like to improve your customer experience and so, you invest in Web 2.0 that is discretionary. If you realized that you want to improve the product introduction timelines and either automating some processes or re-engineering the underlying systems to achieve this objective, that should be considered discretionary.

While organizations can take pride in improving the % of discretionary spend, it would help to revisit what is being classified as discretionary vs. non-discretionary. That’s when benchmarking with other companies would give a meaningful picture.

“Be Careful What You Wish For . . . “

2009-11-02T04:07:35Z

Over the past few months I’ve had an increasing number of discussions with insurance industry clients and prospective clients, alliance partners and analysts regarding “managing complexity . . . increasing complexity”. These discussions frequently turn to a newer dimension of this “complexity challenge”; one that has been enabled via the availability of insurance-specific software products (n.b., whether full applications or components) that do provide a significant degree of “flexibility and adaptability”. A variety of such products have been architected and developed with a view to enabling a significant degree of “flexibility and adaptability”.

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Tying Web 2.0 technology to Business Objectives for improving ROI

2009-10-29T06:16:02Z

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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Insurers that are conservative have tried to use Web 2.0 initially for Operational effectiveness through Employee collaboration (internal blogs, Wikis, discussion forums, podcasts) before venturing into investments towards Distribution & customers. This could be a good starting point to improve confidence in the business stakeholders to show early signs of ROI.

Your comments are welcome..

Customer who? Insurers regaining abdicated role...

2009-10-19T18:32:22Z

Insurance companies had typically abdicated their customer ownership role to agents who would be able to reach the customer face to face and drive the sales & service processes. But insurers are increasingly asserting their primary role nowadays with customers willing (and desiring in many situations) to work directly with their insurance companies. ]]> For most of the 20th century, insurance companies have considered their distributor / agent as their actual customer- whether it was for gathering inputs & feedback for new products, driving sales or even for servicing needs during the policy lifecycle. The model has spanned both career (exclusive) agents and even independent agents (brokers) with the effect that insurers fearing channel conflict were a typical late comer to direct models like the Internet and have left customers to get the "one shop" experience mostly with their insurance agent.

With a significant trend in moving large chunks of the value chain directly to the policyowner- insurer interaction model, most companies are emphasizing "one company" customer experience in prioritizing their operational improvements. But they are only dealing with basic "lift and shift" tactics at this point- simply delivering basic operational capabilities directly between the policyowner and the insurance company (granted with some simplification to make that possible).

Going forward, insurers will need to consider key changes in the following areas as they move beyond implementing the simple & basic capabilities to differentiate themselves in the marketplace

1. Marketing & Branding- ensuring a strong brand that the customer identifies and aligns with (several branding lessons can be leveraged from the Retail/ Consumer Products sectors)

2. Customer-driven Sales- call it upsell/ cross-sell or referrals, insurers will need to be in the forefront driving sales strategies by market segments, a lot more than in the current agent driven model as they take primary role in driving and influencing customer perception and behavior.

3. Operational innovation- given that most of the "product" experience felt by policyowners are driven by operational processes (besides contract specifics), insurers will need to innovate extensively in key business functions such as Sales, Servicing & Claims to enhance their positioning relative to competitors.

Of course, another big To-Do in this evolution to a customer driven business model is figuring out an appropriate new model for compensating the distribution force who will continue to drive quite a lot of sales for insurers. Most companies are today busy rebuilding their compensation capabilities as they strive to prepare for the coming re-configuration of compensation models.

A friend in need is a friend indeed!

2009-10-14T06:00:53Z

Mortgage crisis, Credit crisis, Job losses, Car sales plummet – Welcome to the new economy of the 21st Century global village. For all businesses including insurance carriers, retention of existing customer is extremely important. So what do we do? Launch an elaborate customer data analysis, and create “n” more tiers of segmentation and focus on the top tier (the ones who contribute high volume of premium, no claim whatsoever) and shoo others? Well, that is an approach for the short term. What we need is a loyal customer base with a mix of the top tier, moderate and some average- to provide the right customer mix and size that can sustain the value for the long term. It is another story some of the heavy hitters on the claim side swear loyalty to life! Jill Griffin (author of "Customer Loyalty: How to Earn It, How to Keep It." ) mentions that “customer loyalty lifecycle comprises of six stages: suspect, prospect, first-time buyer, repeat customer, client and, finally, advocate. The goal of all relationship marketing is to continually move a customer to increasingly higher stages within the loyalty life cycle” Focusing on research that helps you find which lifecycle stage the customer is, what will enhance the value and move them to the next stage will be of great help.

]]> For example, how do we help those who are still with us but not in the top tier or moderate layer? Here are some simple actions that can help. A good first step is to review their current needs through a proactive conversation and rework the coverage based on information. May be longer / shorter driving due to job changes, reduced income level etc. Does that rental service at additional premium is still a need? Can a slightly higher deductible bring down the premium? Can we move from 3-pay to 6–pay? Can we speed up that bumper claim and settle it? It is the same as any small town community does in hard times – helping one another. Of course, we recognize that this is a business and we need to sustain revenue and profits. But, any small step / action that we try to generate value above and beyond what the customer expects from us will go a long way. For starters, helping our customers take their car for a job search out of town out with proper insurance instead of going uninsured. And believe me, if only we knew our customer’s needs better and any action that we do today to help our customers remain afloat and sustain will go a long way in earning their loyalty forever.
Do you agree?
“We are all in the same boat in a stormy sea, and we owe each other a terrible loyalty. “- G.K. CHESTERTON

Tale of two captive agents

2009-10-05T11:30:49Z

For coverage of my home and 2 cars, I have been with the same insurance company / agent for the last 6-7 years. My insurance agent (Agent A) is a business like person whom I have spoken to only the phone. She was referred to by my friend who told me that she can get me the best deal for car insurance. On the phone, she comes across non sense but very efficient and quickly helps me complete the transactions. She has called me to prompt me if I forgot a payment, ensured that I had all the possible discounts and been very responsive to any phone requests. Every once in a while, I have compared rates (mostly online) in response to a TV ad and found the alternatives to be far costlier than what I currently pay for the same coverage.

]]> Two of my neighbors recently told me about the outstanding claims experience they had with another agent (Agent B)/ insurance company. One of them had a major water flooding in his home and the insurance agent was personally there with a day or two with a check that adequately covered the repairs .After some procrastination, I finally did reach this agent yesterday and the experience was dramatically different. When I mentioned who referred me, she spoke warmly about my neighbors and how they were second family to her (a little corny for my preference). She spent some time enquiring about me and my family, spoke about her family, tried to understand what I liked most about my current agent / insurance company and why I was with them for such a long time. She reviewed my cover ages and pointed out some opportunities to optimize it from a coverage / premium standpoint. She cited some examples of my current insurance company running into lawsuits with the state department of insurance and also about some misleading practices they sometimes engage in to get their customers really low prices (again did not like this part but appreciated the information that I was not aware of). She also mentioned that insurance agents don’t always do the best for their customers because they are paid commissions on the premium and they are looking to maximize it for themselves (sometimes by adding coverages you don’t need).

I waiting for her to give me the quotes today so I can make my decision. I should mention that both of insurance companies are reputed insurance companies with strong credit rating and a national brand.

Some questions I would love to hear your opinions about:
1. Which agent is likely to be more successful going forward as insurance companies with dedicated agencies are looking to go direct ?
2. From an insurance company standpoint, which agent is likely to bring in a more profitable book of business?
3. At a more personal level, should I go with Agent B even if she comes back with a price that is 20% higher just because she said all the right things and I have proof of great claims experience

Immortality- disagreeable future for Insurance industry?

2009-09-29T11:19:05Z

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!