Next Generation Insurance: Leading from the front.

Telematics - the future of Insurance Ecosystem

2013-02-01T21:34:26Z

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.

Mobility Innovations in Insurance

2012-12-12T22:25:15Z

Amidst an unusually cold rainy day last week in Bangalore, I received a renewal notice from my motor insurance provider. Being an Insurance enthusiast, I started to look into the details and found that a wrong "no-claim-bonus" has been applied in the notice. Meanwhile, I also started to look for competitive quotes and review over the internet and eventually landed up in a well-known social discussion forum for motorists. I came across a thread where people were asking questions like -"I will have to visit the insurance branch office for renewing my policy next month, isn't there a way to do it online". Well, before you get prejudiced of the person's ignorance about the web-enabled modern day insurers, let me clarify. The post was from the year 2006. The half decade, or so, which followed 2006 saw various innovations in Insurance Industry across the globe. Few of them were really disruptive in nature, radically changing the technological influence to the insurance industry and empowering the end user at the same time.

One such innovation is the advent of mobility. Mobility is one disruptive innovation which has changed almost all the enterprises across the globe. The rapid change and adoption of change in wireless technologies has forced the leaders in Insurance industry to find ways of how it can be better utilized. The "apps" - intuitive and appealing pieces of software, specially designed for mobile devices, have begun to change the way people behave and respond to the situations. Mobility has opened new doors not only for the consumers but also for Insurers to target and achieve new possibilities.

Having already jumped or planning to jump on the mobile bandwagon, Insurers have reached a point where they know that mobility is the way forward but still pondering on how best can it be used. For some insurers, with conservative approach, mobility would mean converting their existing systems to mobile compatible ones while for others it would mean a new era to experiment and achieve new ways to do traditional things, differently. Some of the possible ways to harness this technology beyond converting traditional applications onto the mobile platform are:

Real-Time Alerts: Employees, Agents or Brokers can get customer information, real-time alerts and access to the core transactional systems. Better customer understanding along with demographic information can empower them to sell in a smarter way.
Transactions, on-the-go: They can use the handheld tablets for new business illustrations as well as billing. They can directly execute transactions in the field which earlier used to happen only through desktops in the home office.
Enhanced Reporting: Top executives can get real-time KPI dashboards for better understanding of the areas where time and money can be invested to gain best results.
Better Claims Settlement: Innovative apps to take pictures and initiate the claims on-the-spot could be a great winner from the customer satisfaction point of view. The apps could transmit the 'event' pictures as well as co-ordinates and other related information and could also allow efficient follow ups. This could also save expenditure on the claims adjusters for the insurers.
Use 'Telematics': The rating/underwriting area can gain by investing into Telematics. It refers to installing a telecommunication device, into the vehicle, which can transmit real-time driving information to the base receptors. The insurers can then use the information to evaluate the risks for individual drivers.

Meanwhile, I have the "no-claim-bonus" corrected and I also compared the premiums on a mobile app. The insurer's mobile presence would certainly contribute to my selection apart from the service quality and better claims settlement track record.

Social Media's Influence on Insurance Products

2011-07-31T23:35:01Z

Preliminary research shows that Social media can play an important role in creation of new products. Below are few data points in this regard.

1. Pepsi's Mountain Dew DEWmocracy initiative involved giving consumers the power to lead product innovation. Through a video game, consumers were encouraged to create the next Mountain Dew product. The campaign resulted in the creation of Mountain Dew Voltage which, says Cooper, was "one of the most successful product launches in PepsiCo beverage history.

2. Procter & Gamble (P&G) has created a community of 600,000 mothers who help cocreate new products and become word of mouth advocates

3. As far back as 2008, over 60% of online US adults used the internet to research financial products such as student loans, brokerage accounts and credit cards. Of those, over 35% of them applied for these products online

4. 10% of individuals making between $75,000 and $100,000 a year, 9% of those aged 25 to 34, and 6% of men researched insurance policies on social media Web sites

5. When shopping for insurance, 35% of 25 to 34 year olds, and 30% of those earning more than $100,000, said they prefer the Internet to an agent.

On similar lines, social media should be able to influence creation of insurance products by involving the consumers as well as reducing the time to market and cost of launching a new product.

Let us see how this can be done. Take a look at the insurance product creation process. The process involves the following steps

· Product planning - Getting the new idea for the product.

· Business Analysis - Conducting feasibility study, market analysis, product proposal, test marketing etc.

· Technical Design -Marketing and actuarial activities, investment and accounting activities, IT activities, legal and Compliance.

· Product Implementation - Obtaining regulatory approvals, Designing promotion materials, Establishing IT systems for new products, Enabling sales force, Conduct activities and promotion for product creation.

· Sales Monitoring -Monitor the performance of the insurance product.

Social media can play a role in the following

· Getting the new idea for the product - New idea is usually obtained from

o Customers - Create dedicated community for your customers. Ask them what should be an ideal product. Solicit feedback about the insurance product they have bought

o Product development team, Company management, Home office staff - Communities, Discussion forums.

o Market research - Social media can be one of the source of market research.

o Competitors' products and activities- Social Listening.

o Consumer advocacy groups- Social listening.

o Business/insurance periodicals/Social sites.

· Test Marketing

o Use the community created during the idea generation to roll out the new product and listen to their feedback.

o Invite other consumers to join the community and get their feedback.

· Product introduction and Promotion

o Conduct advertising using social media.

o Conduct a contest about creating advertisement for this product.

o Ask the community members to write blogs /opinion about the new products at different forums.

o Encourage them to recommend them to their friends.

As an outcome, I can see that the use of social media probably will reduce time for new idea generation (reducing time to market) and achieve cost reduction. but more importantly it will create a product closer to consumer needs and also help in increasing the trust and transparency between consumers and insurance company.

Did you know that India's largest Life insurer (Life Insurance Corporation of India (LIC) has on average 18% first premium lapse ratio and one of the major reasons for this is the forced selling of policies without caring for matching of products with requirements of the policy holders.

This can be reduced if the product is closer to consumer needs and that is where social media can play an important role

What is your opinion?

References

· http://www.brandchannel.com/home/post/Pepsi-Crowdsourcing.aspx

· http://www.research-live.com/features/feel-the-tremor-effect/2001717.article

· http://www.infosys.com/iengage/resources/Documents/banking.pdf

· http://www.insurancenetworking.com/news/social_media_insurance_technology_mintel_forrester_marketing-24410-1.html

· http://www.freepatentsonline.com/article/Review-Business-Research/190699885.html

Agile methodologies in Insurance

2011-03-28T07:49:18Z

Of late some insurers have been trying to implement agile methodology for software development. Insurers who rushed in to implement agile methodology quickly have failed to reap the real benefits of agile. Based on my interactions with a few clients who failed in agile implementations, I have listed here a few tips to note if you are trying to implement agile methodology.

1. You are more than likely to fail in the first 2 to 3 iterations while trying agile methodology. So, Start small and go slow to build the experience in agile.

2. Don't try to make the iterations duration less than 45 days. IF the iteration is too long, benefits of agile are gone. If it is too short , it poses too many risks.

3. Don't take up agile methodology as an excuse to those who don't like to follow the process. Your team is comfortable with following the traditional processes, but agile is used to cut short some of the long drawn processes.

4. Key to agile implementation is agility of the people. Not only of your development team - but also of business, infrastructure, testing and other support groups. If all groups are not aligned, you are not likely to see the benefits.

Video: Web 2.0 in Insurance

2011-03-23T10:54:19Z

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

Video: Smarter Organizations

2011-03-23T10:52:55Z

Watch Siva Nandiwada, Associate Vice President - Insurance, Healthcare & Life Sciences (IHL), urges insurance carriers to build smarter organizations and create a better foundation. Siva recommends three measures: simplification, collaboration and ability to adapt to changes.

Cross Selling- Can it be more successful

2010-08-11T09:20:33Z

Insurers have been focusing on cross sell to address the issue around revenue growth. However a study indicated that, 99 percent of insurance advisors feel it's critical or important to cross-sell effectively, only 46 percent consider themselves successful at it. So what are the key issues?

1. No single source of data - Presence of disparate systems storing data in multiple systems/data sources.

2. Absence of defined processes and systemic support to enable cross selling

In these market conditions, each insurer needs to ponder on the following:

1. Do you have a cross selling strategy in your organization? Is there a measurement mechanism in place? What percentage of business comes through existing customers?

2. Are there relevant processes and systems in place which enable and track cross selling?

3. Do you have a focused effort to provide necessary training and tools to enable people on the field to engage existing customers about new products that are relevant to the customer needs

In my future posts I will dive deeper into each one of the above aspects. In the meantime here are few interesting artifacts which can give you further insight

1) http://www.insureme.com/insurance-agent/successful-cross-selling

2) Infosys - Predictive Customer Interaction Management | Offerings | BPM-EAI

3) 8 Ideas for Cross Selling Success - Yahoo! Small Business

Looking forward to hearing your comments and experiential insights on this topic

Smarter Organization - Simplify

2010-06-28T09:20:09Z

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.]]> Insurers are entering new markets and geographies through acquisitions and setting up their own offices. Insurers in new geographies have initially set up their own enabling functions like IT, HR, finance etc to allow organizational agility instead of relying on corporate office. However as the organizations grew in each of the geographies the siloed nature of the support functions has increased the cost through duplication of efforts, infrastructure and processes. Simplification reduces risks and frees up cash.

Few insurers have realized the need to Simplify their operations to show productivity and reduce costs. Few initiatives for simplification include

1) Creating single digital nervous system for key functions such as HR & Finance to enable faster flow of information
2) Setting up of shared services structures for Infrastructure across subsidiaries
3) Single instances, server consolidation and virtualization
4) Integrated planning, performance management processes across entities

Increasingly Corporate CIOs are given the responsibility to reduce the IT costs by simplifying the underlying structures, processes and systems. Such a transformation is possible only with the direct support of a CEO and CFO.

Demographics shifts in US

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?

Tying Web 2.0 technology to Business Objectives for improving ROI

2009-10-29T05:16:02Z

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

]]>

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..

Insurance and Social Networking

2009-09-14T10:27:01Z

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?

Insurance Legacy Systems – Ready for a change ?

2009-09-01T04:19:29Z

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!

Product Development Strategies for Insurance Carriers

2009-08-21T04:15:55Z

Decline in growth opportunities has forced insurers to look outside their traditional products and markets for sustained and profitable growth. Product innovation has climbed further up in the list of priorities for today's insurer. I think the following are some of the key drivers that necessitate speedy and efficient introduction of new insurance products in the market
• Increased customer needs and expectations
• Demands from distribution channels
• Increased competition in the insurance marketplace
• Heightened regulatory scrutiny and compliance requirements

]]> It is common knowledge that demand for new and creative insurance products is only going to intensify in the coming years; but the ability of insurance companies to cost-effectively respond is diminishing. While IT legacy systems may pose significant challenges, other areas like poorly managed product introduction processes as well as inefficient product testing related activities contribute to the problem. I believe that insurers should address speed to market challenges holistically at both the process and technology levels.

Process
• Managing the overall process
• Promoting collaboration between stakeholders
• Encouraging customer participation in the product creation process
Technology
• Externalizing product rules and attributes
• Analyzing the impact of product rules externalization
• Integrating the externalized rules environment with legacy applications
Insurers should strive towards process improvements through well-defined and communicated best practices and close monitoring of standard metrics. This will result in predictable development time frames, improved quality and better measurement of results. On the technology front, insurers should consider taking a more active role in adopting new technological advancements for business betterment.
Though it seems to be daunting task, I strongly feel that a well defined strategy backed by well-developed business case will provide significant competitive advantages to the carriers.
Please share other strategy aspects insurance carriers should be looking into to launch the right product at the right time in the market.