The Aware Machine in Insurance

The topics of artificial intelligence, machine learning, deep learning, and cognitive computing have made their way into the popular business press. An insurance professional trying to stay informed of emerging technology may struggle to see the application of these technologies to their industry. A Celent new report, Machine Intelligence in Insurance: Designing the Aware Machine, provides an explanation of this space and its opportunities in insurance. It describes a model named “The Aware Machine”,  identifies the characteristics of high-value problems best suited for such platforms, and suggests specific use cases to serve as proof-of-concept experiments.

The use cases include:

• Analysis of legal circulars for impact: Continuously identify which regulatory changes will have a material impact. Involves teaching a system insurance law and providing it with a continuous feed of changing regulations.
• Medical case management: Optimize treatment plans to increase recovery, return to work rates
• Identification of underwriting leakage: Analyze insurance contracts at the clause level and compare them with each other across lines of business to enforce consistency of intent. Continuously monitor new contracts to ensure that appropriate wording is used.

We invite readers of this blog to submit their own candidates in the comments section and check back for updates. Let’s crowdsource suggestions and get some proof of concept experiments underway!

 

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How to grow your book of business.

Most carriers in North America work with independent agents. Although the majority of premium for personal lines is written direct, that is largely concentrated in a few large carriers. Carriers who use independent agents know that high production from agents is correlated with strong relationships. However, beyond encouraging a strong personal relationship with an underwriter, what else can a carrier do to systematically build a stronger connection with an agent and grow their book? Celent surveyed a group of agents to understand those areas most likely to make a carrier the agents’ top choice.

The report addressed the following key research questions.
Key Research Questions
1 When it comes to placing business with carriers, what criteria are most important to an agent?

2 How are top carriers performing on those criteria?

3 Where should carriers prioritize their investments in order to drive growth?

Key Findings
o It is easy to think that price is the most important factor when it comes to where an agency chooses to place business. Competitive products and price certainly are important; however, even more important than products and price is the responsiveness of the underwriter. A fast underwriting decision is also quite important with over 60% of agents stating this is a must-have.
o Money matters to agents although the specific components are not essential to all agents. The most important component is commissions. Interestingly enough, 40% stated that the commission rate does not necessarily have to be competitive. Only 30% said incentive compensation programs were must-haves – and 40% said they were nice to have or didn’t matter at all
o Beyond that, agents also look for support in other areas. A strong brand is important, as it is easier to sell a company where the prospect already has an emotional connection. Marketing, training, and consulting support is seen as important by more than half the agents and especially younger agents who may benefit more from these types of services than older established agents may.
o Mobile tools and social media support are generally not seen as important items to most agents – but there is a significant generational difference here. 25% of younger agents see mobile as a must-have compared to 4% of those over 60. Generational differences will become more important to carriers as baby boomer agents increase their rate of retirement and are replaced by GenX and Millennial agents.
o Agents want carriers to invest in those tools that are most important in helping them perform their job of writing business and providing customer service to the policyholder. Most important to agents is continuing to build out both the integration with the Agency Management System and expanding the functionality of the Portal. Least important to agents are features such as mobile apps, online certificates of insurance, online commission statements, and access to marketing materials.

Looking ahead, the industry is likely to continue to experience increasing channel complexity and increasing regulation, which means there are opportunities both to improve the agent experience and to reduce costs along the way.  Carriers who are looking to drive growth by improving the agent experience should start by looking at their technology offerings and make sure they are delivering the functionality that is most important to their agents.
This report presents the results of an online survey conducted during May 2015 of independent insurance agents.
This 27-page report contains 13 figures and 1 table. You can find it here. Driving Growth by Optimizing the Agent Experience

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UBI, Personal Data and the Global Implications of the European Union Data Directive

On Monday, I was asked to present at a UBS conference for investors on technology disruption facing the industry. It was far from Celent’s usual audience of business leaders and technologists, and as a result the questions being asked were quite different, sometimes challenging, however refreshing at the same time. One of the most interesting sections of the day for me was looking at the adoption of usage based insurance (UBI) across the industry and the implications for data protection.

Ever since personal data was first discussed as having the potential for emerging as a new asset class at the World Economic Forum in 2011, capturing and incorporating personal data into the proposition design has been seen as a potential gold mine, fueling the creation of many start-ups and, in our industry, propositions based upon understanding individual risk and investment behaviors. It’s hard to think of any digital proposition today that doesn’t require you to first mark a check-box to say that you’re willing to give up the rights to some of your personal data as part of standard terms and conditions.

When used well, it can enhance the experience enormously. As an avid Netflix ‘box-set’ watcher, I’m sure that I’d quickly get lost (or bored) without it for example. However, I’ve also learnt to be increasingly picky about who I let have access to my data and what links I click. I’m often amazed by how many apps want access to my location without seemingly having a purpose for it. What’s harder for me to know, however, is what happens to my data once I’ve given permission for where I can see it benefits me to do so.

At Celent, we’ve talked for quite a while about how personal data willingly shared could be a major asset in fuelling new proposition design and aiding risk avoidance. It’s not just UBI propositions that can benefit. The potential applies to all nearly all propositions – including commercial and specialty. Data sources such as LinkedIn, Twitter feeds, Glassdoor, and potentially even driving patterns could prove to be an interesting indicator of the quality and morale character of senior management teams for example. However, at the heart of these propositions or services needs to be an acute understanding of the legal implications and ethics around personal data use.

One related piece of upcoming legislation discussed that every insurer with operations in Europe needs to be aware of is the new European Union Data Protection Directive. This directive seeks to unify data protection laws across Europe and is due to be finalized later this year, with a likely implementation date set in 2016. One of its aims is to protect the consumer and, in doing so, strengthen the laws on security, privacy, residency, permitted use and portability. The maximum fine for a firm getting it wrong could be as large as 5% of global turnover. So, for example, if you’re a US or Chinese insurer with operations in an EU country that suffers from a data breach or allows sensitive personal data to leave permitted EU jurisdiction, then your global profits could take a nasty hit.

So, how does this relate to UBI and the use of personal data within the design of propositions and servicing? Well, apart from the obvious security, anonymity and archival implications, insurers will need to watch carefully what data they use and the permissions consumers have signed up for around its use, probably placing them squarely in control of it.

These changes will inevitably tip the balance more firmly in favor of the individual. Open, transparent, incentivized and positive engagement around the use of personal data will need to become the norm. The days of fortuitous use or situations where policyholders are unaware of how much of their data is being used to underwrite risk may be numbered.

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Three things to consider when choosing your vendor partner

Choosing a vendor can make your head spin. There are so many things to consider. I know I have been tempted to create a dartboard and throw a dart to make the final decision. After hearing multiple presentations, most with similar pitches, the result can be “vendor soup.”

So how do you decide? There are three things that I consider when making a decision that have nothing to do with the system itself. It is important to keep in mind that each insurer is unique, and there is no single answer that is right for all. The goal is to find a partner who is a good match for you.

1. Delivery Approach

Aligning on how the deliverables will be carried out is critical. Project success depends on having everyone on the same page. Some questions to consider are:

• What is the project methodology?
• What is the development methodology?
• Do you want the vendor on-site during the entire project?
• How involved do you want the vendor to be with requirements and user testing?
• How involved do you want to be with construction and unit testing?
• Will the delivery schedule match your in-house schedule – not too short or too long?
• How often does the vendor provide fixes?
• How will the vendor work with your current vendors and/or outsourcers?
• What is the vendor’s experience providing system deliverables along with the existing business priority deliverables?

2. Culture

Projects that appear headed for success can take a nose dive because of a mismatch between insurer’s expectations and what is possible based on the vendor’s culture. Culture cannot be changed in the short term so it is essential to ensure a good match.

Questions to ask:

• What is the experience in the domain?
• Are you more comfortable with a mid-size or large vendor?
• Will the project team be dedicated to your project?
• What is the profile of the staff who will be assigned to the project team? How deep is the bench?
• What percentage is on-shore vs off-shore?
• Will the project require 24×7 support to meet deadlines?
• Who will be the main contact? How many domain experts are available?
• What is the turn-over rate for developers, project managers, business analysts and business architects and is there a good mix of each of the skill sets?
• What is the organizational structure?
• What is the governance structure? How are issues escalated and resolved?
• Are the vendor’s values and behaviours a match for your company?

3. Industry Experience

Everyone enjoys a good marketing story. However, to run a successful project, it is a necessary to understand the vendor’s actual experience.

The following questions will provide a good assessment:

• How long has the vendor been selling systems? How many similar sales has the vendor made?
• Does the vendor have the capacity to run multipe projects simultaneously? Can the vendor provide successful references?
• Does the vendor use system integrators?
• Do the estimated time frames match the actual time frames for the implemented projects?
• Do the projects expected benefits match the actual benefits?
• Is there an active user group?
• What is the vendor’s financial strength?
• Will the vendor provide thought leadership and best practices from actual experiences?
• Is there a five year roadmap? Is the roadmap innovative or does it reflect the addition of common features or functions?

There are no guarantees that the decision will be the right one. However, having a set of vendor specific questions and expectations will assist in highlighting the best choice for your company. One of the keys to program success is to choose the vendor understanding that delivery approach, culture, and industry experience are as critical as the features and functions of the system.

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Ace Buys Chubb: What It Means for Insurance Technology

Today’s blockbuster announcement of Ace buying Chubb will have a lot of industry ramifications—some of which will play out in the IT sphere.

No doubt there has already been an IT assessment element in each insurer’s due diligence efforts. Between now and the effective date of the merger, there will be a lot of planning focused on:

• Efficiencies and platform rationalization–aka “let’s figure out what is the right number of core systems, which core systems will be the survivors, and how data conversion and integration will work”
• Cloud, SaaS, data management/stores, and analytics
• Professional service and SI support capabilities that can scale to the new Chubb
• Which systems will best support a digital roadmap

Some seemingly redundant systems may survive—at least over a 1 to 3 year period. For that to happen, the business (and/or various geographies’ compliance) requirements of the operating units using these system will be too divergent or too difficult to quickly build into a single surviving system.

All this reinforces the reigning market message to insurance technology firms. If you want to be around in 10 years:

• Design highly configurable and agile systems that feature ease of integration
• Have enough scale to meet the needs of bigger and bigger insurer customers—grow, merge, or wither

 

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