The changing demographics of the U.S. and how they affect insurance

The U.S. Census Bureau recently released new information on the diversity of the population in the US and it is a fascinating read, at least for an insurance nerd like me.

Census Report

To summarize some key points for insurers:

– For the first time, Millennials outnumber Baby Boomers. This means that your potential target market is more technology literate and less understanding of the weaknesses of your systems. No phone app? They’ll find the carrier that has it.
– For the first time, more than 50% of youth (5 years and younger) are minorities. If you don’t have diverse marketing programs, this single statistic says you should, and will be reinforced below.
– The 65 and older group grew to 46.2 million, a growth of over 1.5 million in one year. This group is also more technologically literate than ever before. Don’t underestimate this group’s expectations.
– Only ten states have a majority male population, highlighting the need to market directly, and properly, to women
– All race and ethnic groups had more births than deaths except non-white, non-Hispanic, where the population declined, again highlighting the need for diversity marketing.
– Hispanics outnumber Blacks 55.4 million to 45.7 million. While both should remain targets, specialized Hispanic programs make sense.
– Asians represent 20.3 million, a growth of 3.2% in a single year.

For the most part, this information is of interest to the curious and to the actuaries, but it strongly reinforces the image of the United States as a melting pot. We’re diverse, we’re all both unique and alike, and the needs of our customers are rapidly changing. If you’re not offering new ways to engage, including Exchanges, Roboadvisers, Mobility and more, your company will be left behind.

All of this highlights a particular need – the need for Innovation. How do I connect this raw data to the need for Innovation? It’s simple. Our industry has a well-deserved reputation for moving slowly and for being behind other financial services companies. We are even farther behind companies in other industries. The barriers to enter our space have never been lower. Capital is cheap, technology is improving and the marketplace is shifting.

Which leads to the question: Has your company culture embraced innovation? Do you have a process to encourage experimention and fast failure? Do you have an approach to change that can bypass the traditional, and constraining, project gates to fast track new ideas?

Having discuss this topic with some many companies, it is clear that many, if not most, insurers have not reached this step. The desire is there, but that last leap to make it happen is often lacking. There are stellar examples of exceptions, but even more examples of the status quo.

My colleague, Mike Fitzgerald, has made innovation his primary focus for the last eighteen months and his research and his work is insightful. If you have not spoken to Mike, then I strongly suggest such a call is worthwhile. His insights into innovation in insurance are wonderful and can help you company overcome the barriers and hurdles.

It is an exciting time in our industry. Let’s all be part of the change.

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Open source, analytics and the pace of change

I love spotting ironies such as how this years Strata | Hadoop World conference (the UK one) spent more time discussing Apache Spark and whether it was a successor to Hadoop or another tool in the box than it did discussing Hadoop and it’s applications. It was great to see members of the insurance industry there amongst the retailers and banks as well.

“But wait?!?!!” I hear you say, “Hadoop isn’t all that old is it?” Herein lies the great challenge for the CIO faced with requests for open source tools. These are dynamic, social projects without the same stickiness as those legacy systems insurers spend time worrying about. Not only do users / consumers / fans of open source software shift between projects but the contributers / developers do too. With the rising use of tools like R, Python, Linux, GIT, Hadoop, Spark, Docker, Capistrano and all manner of wacky projects on the go and being adopted by insurers how should a CIO respond? Prohibition tends to lead to shadow IT and surprises down the line far more unwelcome than managing some new software. The key advice is to understand these types of projects can be more transient than other enterprise software. Experiment with them but be careful of expensive, enterprise installations that are hard to extract later down the line. In truth insurer adoption of some of these technologies will outlive the fashion for them but it still requires planning for their removal or worst case, their ongoing support.

I promised analytics in the title too didn’t I? Well Spark is all about real time analytics and is having an interesting impact in the machine learning and predictive modelling space. It gets around some of the issues with interacting with Hadoop while still delivering performance. With open source projects survival of the fittest is the order of the day, far more so than in classic insurance software markets. Hadoop has it’s place, with many insurers globally investing in it.We will see new fashions in analytics approaches and more opensource tools I’m sure. Some will follow the Dodo.

For those interested in Hadoop have a look at my report from 2011, when Hadoop was new and cutting edge. It seems it requires an update.

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Listen up auto insurers. Driverless Cars? No Problem. Collision Avoidance Technology? Hold On!

The just released report by the National Traffic Safety Board (NTSB) contains some important findings on collision avoidance systems’ potential to prevent or mitigate the severity of rear-end collisions.

Some of the data points are eye-popping: a predictive analysis found that this technology could prevent or reduce deaths and injuries in 87% to 94% of all accidents. A private study by the trucking firm Con-way found that these technologies reduced rollovers by 41% and rear-end collisions by 71%. Still impressive, but less startling, the Insurance Institute for Highway Safety found a reduction in claims frequency in three luxury models of 7% to 14% (without estimating changes in severity).

The good news for driver and passenger safety is that auto manufacturers are competing vigorously to offer these features in their new cars and trucks. (The NTSB study has a 9 page Appendix listing these manufacturers and models.)

The NTSB study may also nudge the National Highway Traffic Safety Administration to, someday, mandate these technologies in new vehicles.

The long term implications for auto insurers though are similar to the implications of autonomous vehicles: fewer and less severe losses, resulting in competitive and regulatory pressure which will drive down premiums substantially.

The auto insurance business is going to shrink. But the real question is how fast? Or to put the question more precisely, when will there be a critical mass of autonomous and collision avoidance-equipped vehicles on the road? The NTSB study is speeding up that timeline just a little bit.

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Why I’m passionate about customer service in Life Insurance

Last week, I was watching the National Spelling Bee as they crowned two winners for the second consecutive year. What an amazing performance! One of the winners spoke of her passionate pursuit of winning the Bee. The comment made me reflect on a question I was asked during my interview with Celent. The question was whether I was passionate about life insurance.

I found the question quite interesting. I thought of two recent customer service experiences.  My father passed away a year ago and was smart enough to have protected my mother with life insurance. This is the whole point of our industry – to be there in the most difficult time of people’s lives. I’m pleased to say that the claims representative I spoke with was compassionate, efficient and knowledgeable. She obviously had a passion for helping others.

The second interaction was not as happy. A problem on a different insurer’s customer portal kept me from completing a desired change. I called the customer service number to complete the update. The customer service representative directed me back to the website. When I told her it was not working, she implied that I was the problem since it was working for everyone else. After a discussion about my perceived ineptness, she reluctantly made the requested change. She was disinterested, annoyed and uncaring.

With so much of the today’s interaction being digital, it is crucial that companies hire people with passion. The choices are too many and the personal interactions too few to not take advantage of every opportunity to build customer loyalty.

Anything worth doing should include a passion to become the best. Whether you are a spelling bee participant, an analyst or a customer service representative, passion drives the best results.   It was a good question, and I can firmly state that I AM passionate about life insurance.

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