One prediction for 2016 is about to come true – our event on February 3rd

With just under a week to go until our event at The Magic Circle in London is on February 3 I though it worth reflecting on 2016 and the folly of predictions in today’s world.

One of the key challenges for any organisation trying to respond to an unpredictable future is the hockey-stick graph or geometric growth that is increasingly describing adoption and the impact of technology on our society. That is to say that the figures stay relatively flat and predictable and then grow out of all proportion to what went before. Adoption of the Internet is a good example, the rise of the smart phones and that of tablets is another.

Some may still argue that wearables as a fad has passed, citing them being around for a while but not really seeing the growth one would expect. Perhaps though, this is the false sense of security brought by the flat bit of the graph? The same is true of self-driving cars, a concept that’s been alive and well in Hollywood and on TV shows for decades (anyone remember the Hoff and Kit?) and is only now starting to creep onto real world roads.

If the trends of cheaper and ubiquitous technology continue then these trends could at some point see that hockey stick moment, that massive growth in adoption and impact. For insurers – just reacting may not be good enough, instead perhaps it is worth spending time thinking: it is only a matter of time until it is ‘normal’ for clothes and accessories to be internet connected, for cars to drive themselves and for people to live longer through better management of their health.

This is precisely the type of thinking we’re hoping to bring to our event, which will be a mix of folks who are on the curve of some of these changes and also some tools to help insurers plan and respond.

So while I’m waiting for my Internet connected suit to come along (not that fanciful, you can already get connected yoga-pants and nappies that tweet) and the car that drives me to work – I look forward to spending some time those of you can attend our event next week to discuss the future of insurance and to ask the question, What if … ?

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Will Your Next Insurance Administration System be on The Blockchain?

Policy, claims, and billing administration systems have not fundamentally changed since their inception. Yes, there have been technical improvements, but the basic model remains the same as originally designed – each insurer buys (or subscribes) to a version of code to use against their own database and (hopefully) integrate with external sources to service a client. This is about to change with the advent of Blockchain 2.0.
With an appreciative nod to material developed by our parent company, OliverWyman, here is a brief summary of this technology. (Celent subscribers will have access to a full report on this platform in the very near future.) Blockchain is built on a series of innovations in organizing and sharing data. The objective is to create a single version of the truth, used by all participants, which contains a much richer dataset than exists in any one system today. This, in turn, enables new industry processes to be developed based on the use of transparent real-time data, immediate settlement of transactions and the expansion of auto-executing “smart” contracts with business logic encoded into the ledger.
The technology incorporates two facets, a blockchain (lower case) which is the process of adding blocks of cryptographically signed data to form perpetual and immutable records, and distributed ledgers – a database architecture where all participants in a system collaborate to reach a consensus on the correct state of a shared data resource. Applying business rules to this infrastructure, called smart contracts, drives transactions immediately.
Real time data exchange, increased security, and more efficient settlement of transactions and processing are some of the benefit areas waiting to be realized. Before this though, the platform must solve hurdles including scalability issues, regulatory concerns, and common standards and governance.
To this last point, our brethren in the banking industry have joined the R-3 consortium to begin to address the challenges. Founded in New York City in September last year by nine founding banks, it now has 42 members spread across multiple geographies. It is led by a startup organization and is in its very early stage — the technology team is being built and initial use cases have not been completed.
But what of insurance? Celent is aware of insurers who are active in this space. Most are leveraging the investments made in an innovation infrastructure (Innovation Labs, Centers of Excellence, co-development partnerships, accelerators) to conduct limited experiments with Blockchain. However, these efforts are individual and not connected.
Is there a “similar group of 9” insurers that want to work together to explore the opportunities and coordinate on standards? Or is there a policy, claims, or billing technology provider who is going to fill this void? We expect movement in these areas in the first half of the year with some possible ways forward identified by year-end.

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US patents in 2015 – who are the leaders?

I thought this chart from the firm Statista was interesting and topical given my post from last week. What particularly caught my eye was their observation that IBM is number one for the 23rd straight year. In addition, over 2,000 of their patents focus on cloud computing and cognitive computing, both areas of particular interest to insurance and the broader financial services industry.

And for those that wonder (like me), Apple was in 11th place, just 18 patents short of 10th.

 

You will find more statistics at Statista

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Insurance companies are embracing technology — for investment

Celent frequently observes that many insurers, particularly in the Life space, are running aging, if not antique, software systems. They rely heavily on mainframe systems, often in languages such as COBOL that are becoming more difficult to support. The positive news is that our research shows continued growth, if modest, in IT budgets with modernization and innovation a frequent focus.

With this as the foundation, it is interesting to see continued growth in insurance company’s venture capital arms in financial services oriented technology, or Fintech. Industry research shows an incredible growth path in Fintech start-ups, from a modest 400 or so in 2010 to over 12,000 in 2014. While the numbers are not yet in, we expect the 2015 numbers to continue this dramatic growth path.

The insurers with venture capital arms are too numerous to list, but are a who’s who in the industry. Examples include AXA Strategic Ventures, MassMutual Ventures, American Family Ventures, and Transamerica Ventures.

While many of the examples are US-based, it is a global phenomenon. A great example is Ping An Ventures, a subsidiary of the Chinese insurance company Ping An.

Celent tracks many of the insurance related investments and we see several focus areas. One is in financial management and modeling, such as Roboadvisors, across both Life and Health. Good examples include Northwestern Mutual’s acquisition of Learnvest and AXA Strategic Ventures and MassMutual Venture’s investment in Limelight Health. MassMutual is also the parent company of Haven Life, a fully online sales organization dedicated to Life insurance.

Other hot areas, not surprisingly, include analytics and the ever popular Internet of Things.

The most recent investment, announced just yesterday, is AXA Strategic Ventures’ investment in Neura. Neura’s tagline is “Enrich your products with personalized insights from the lives of people who use them”. While a little heavy on the buzzwords, the basic view is that Neura analyzes data about you and recommends personalizations based on that information. The basic premises appears to link the Internet of Things, such as your Fitbit, to your social media presence, to your calendar and more. There are, of course, other companies overlapping this space (with 12,000 new companies, you would expect competition), such as Vitality and Life.io. The competition is encouraging, as it fosters continuous innovation. As the Millennials now outnumber Baby boomers (at least in the US), new technologies to engage them in insurance can be game changers.

I am particularly intrigued with the technology companies, like these, that are focusing on changing the entire approach to Life insurance. The life insurance sale has always been focused on a negative experience – death of a love one. No one wants to talk about dying, and everyone wants to believe they will live many more years. When I talk to people that are just reaching an age where they really need life insurance, I get push back, and a lot of it, about everything else more important in their lives. My response that they need to protect their family often falls on deaf ears. By changing the discussion from “you are going to die”, to “how can we help you live longer”, we are opening up a much more comfortable discussion. In addition, this is a generation that will share everything on social media, to the point of embarrassment, so asking for more information to make their experience more intimate should be fairly easy.

The investments and technology are exciting. It is wonderful to see insurance organizations finally catching the technology wave, after lagging for so long. Whether it be the Internet of Things, Usage based insurance, Micro insurance, behavioral underwriting or more, the staid insurance industry is breaking out. Some technologies are even a bit fun, such as the expanded usage of drones.

Now before I get you too excited about the reinvention of insurance, I suggest you read a counterpoint to this post, from my colleague Donald Light, entitled A long time ago in a galaxy far far away, I went to a two hour meeting to reinvent insurance. He makes some very valid points about the managing our excitement. Another colleague, Craig Beattie, shares a similar bit of skepticism in his post What if… the insurance industry didn’t innovate?

I guess I am forever the optimist and want to believe the excitement and change is real.

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A Long Time Ago in a Galaxy Far Far Away I Went to a Two Hour Meeting to Reinvent Insurance

It was in the Galaxy InternetBubble, stardate 2000.12.1. I was at a technology firm that was riding the Internet rocket up—and a couple of years later rode it back down. (It actually made a soft landing, and those early Web-anauts lived to tell the tale).

In those heady early days of the web, there was a general feeling that the Internet was going to “change everything.” True, there wasn’t a lot of clarity about what “everything” or “change” were, but it was something many people said (and possibly believed). In any event, there was a steady stream of VC-funded insurance start-ups that would visit us, asking for our vision of what the web would wrought—while we were trying to think of some ways to be hired by those start-ups to make those visions real. If any of this sounds familiar to anyone, let me know.

So there I was, minding my insurance Subject Matter Expert business, and someone asked me to attend a meeting that afternoon. The purpose of the meeting was to reinvent insurance. And I thought, “Why not?”

I entered the conference room, and saw that the other attendees (bright and articulate professionals each and every one of them) had very limited insurance experience. No one in the room (with the exception of your humble blogger) could have defined hazard, exposure, or probable maximum loss, or the law of large numbers, and so on. At the end of the two hours, we had in fact not reinvented insurance. There was no follow-up meeting.

Why bring up this bit of ancient history? Because we have arguably entered another period in which claims are made that technology, or digital, or insurtech is going to, if not change everything, at least disrupt everything. As an example, see these Celent reports about the end of auto insurance, or the Internet of Things, or digital strategies.

If you want to separate the disruptive wheat from the buzz-based chaff this time around, here are some basic questions to ask:

• Does the proposed use of a new technology impact the basics of the insurance model?
• Can it scale?
• Will it change the relationships among cost, price, and value in a way that is fair to the insurer, the distribution channel and the policyholder?

If the answers to these questions are all yes, maybe maybe someone will reinvent insurance this time around.

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You Are the Magic!

Our event at The Magic Circle in London is on February 3 and it is approaching fast. Our external speakers are set to tell us how their companies are challenging long-held assumptions about the way insurance works.
But, part of the programme will also involve the participants. We plan to invest a portion of our time together letting you, the attendees, run the meeting. With so many talented, skilled insurance professionals in one place, want to tap into that brainpower and provide analysis that attendees can take back to their companies to use. Of course, we can’t go into too much detail, as magic depends on surprise, but…here is a short preview.

We will ask attendees to provide their perspective on a number of scenarios and then break into groups to exchange perspectives. We are in the process of finalizing the scenarios now, but to give you an idea of what we are considering. What if…..
• cars don’t crash?
• people don’t die?
• insurance products are service contracts, based on the avoidance of loss, rather than on indemnity?
• pricing is determined by activities and instead of basing rates on rating categories, they are based on behaviors?
• technology and social norms allow individual risks to socialize their coverages and seek partners to share in deductible / low loss payments?

Our goal is to give everyone an approach that they can take back to their company, modify appropriately and use to gain some consensus on the way forward. We also plan to have some fun!

If you have not registered, here is the link:
http://ift.tt/1Zwdt1c
See you soon!

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A consolidation wave is reshaping the EMEA PAS vendor landscape

At Celent, we have been writing reports profiling policy administration system (PAS) vendors for long. In the European, Middle East and African region (EMEA) we have covered up to 50 vendors in some of our bi-annual reports and we know there were approximately twice more active in this region of the world.  The most recent report focused on life PAS in EMEA can be found here.

Since our first look at the PAS market in the EMEA region in 2007 we have predicted that its fragmentation and its heterogeneity would lead to a consolidation. It is fair to say that we have been wrong with our prediction or without less humility we can say we have been right but our timing was bad. Indeed, it seems that the consolidation phase we predicted has started to materialize a few year ago but certainly not as early as we thought. In other words we have observed a surge in mergers & acquisitions over the past few years and we think it will still accelerate in the coming months. The most recent acquisition that validates our view is the acquisition of the Danish vendor Edlund by  KMD Group that has been announced this week.

Overall we see various kinds of acquisitions:

• Software integrators-driven acquisitions: large software integrators are trying to diversify their service offering through the acquisition of insurance system IP. The best example of this type of strategic move is for instance the acquisition of  Wyde by MphasiS a few years ago.
• The Private Equity (PE) firms-driven acquisitions: there is a growing interest to invest in the insurance core system space for PE firms. The best examples of this type of acquisitions are the contribution of Riverside in the merger between Charles Taylor and Fadata or Waterland Private Equity investment in Keylane that now combines activities of various PAS vendors including formerly branded LeanApps, Quinity, Mantcore and more recently the German vendor called Geneva-ID.
• The core system vendor-driven acquisitions: PAS vendors understand they can grow quicker if they merge with a competitor. Sapiens acquisition of FIS Software and IDIT or Prima Solutions acquisition of Albiran a few years ago are good examples.

As already mentioned we expect more M&A to come and we are glad to help our insurance clients to navigate this changing market.

 

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