At the beginning of the year, the major business and technology trends were analytics, consumer centrism, continued modernization and regulation. While these produce challenges, many insurers jumped right in, navigated the trends of the year and, as a result, improved business. Regulation, however, produced even more complexity, as insurers try to hone in on the effects and action items related to systemic risk, Solvency II and the Patient Protection and Affordable Care Act.
Insurance technology professionals face numerous challenges every day. The following four were critical for them to overcome-or develop an action plan to overcome-in 2012 to set the right course for 2013.
Insurers are working with more data than ever, and in the past year they recognized the potential benefits of effective data analysis. Many are in the process of stepping into analytics, but there are some that made big strides in 2012. GuideOne Insurance, for one, recently was recognized with an Innovation in Action Award from consultancy and research firm Strategy Meets Action for success with analytics. With its internal data warehouse already in place, GuideOne looked to use enterprise data to monitor costs and drive business improvements by territory, segment and sub-segments. The insurer wanted to accelerate the process of getting information from its data warehouse into a useful format and delivered to those in the organization best suited to analyze and act.
Using the iPartners Insurance Scorecard business intelligence solution, GuideOne Insurance created an environment for effective decision-making, empowering executives to guide the business by analysis. Its efforts with data and analytics enable the standardization and socialization of information, reporting and metrics across the enterprise. Executives, actuarial, claims, underwriting, sales and marketing, and finance have immediate access to current data, reports, and dashboards, according to Tom Fischer, SVP and CIO at GuideOne Insurance.
Consumers continue to drive technology development. And, this past year, the industry saw increased evidence of this as insurers took some non-traditional approaches to fulfill consumer needs. The challenge insurers now face is touching the consumer/customer, while still satisfying the multiple distribution networks.
Canal Insurance, a commercial trucking operations insurer that traditionally works through the independent agent, did just that with its iPad app, Canal FRM (Fleet Risk Manager), which was released in 2012.
"Agents have always been jealous of our contact with insureds, other than when dealing with claims," Adrian Brown, CIO, said during IASA's Executive Edge Conference in October. "With permission, we've bypassed them to give fleet risk managers an app that runs on an iPad." It gives the customer the opportunity to track claims, whether open or closed, and the representative assigned to the claim.
As app development and deployment typically can take six months or less, the year was filled with app introductions and updates. According to the "Mobile Strategies: State of Mobile Apps 2012" survey, from MGI Research, many insurers are in the early phases of app adoption. Customer service-oriented apps are by far the most popular apps in development, with companies of all sizes making it the No. 1 type of app in development, especially among the largest companies.
State Farm, which research company MyPrivateBanking ranked No. 1 in the auto insurance category for app user-friendliness, quality of the content, functionality and integration of other media, updated its mobile application, Pocket Agent, in 2012. The insurer wanted to include a new look and improved navigation and enable use on a tablet. The enhanced Pocket Agent is now available on iOS and Android smartphones, and iPad and Android tablet devices. Users can view a policy, mutual funds and financial information and filing, or checking the status of a claim, State Farm said.
"A lot of what you will see in the most recent version of Pocket Agent was heavily influenced by consumer research and customer feedback," said Patty Gaumond, VP of Enterprise Internet Solutions at State Farm. "As more consumers use mobile access points to connect with us, and new devices are introduced, we must continue to focus on enhancing the customer experience across all of our platforms."
The industry has been talking about legacy modernization for years and will be for many more. By the end of 2012, insurers will have selected between 65 and 75 new claims systems, compared to 50 to 60 in 2011, according to "Market Navigator: US Property/Casualty Claims Solutions 2012," a report from consultancy and research firm Novarica.
Insurers are also moving en masse to upgrade policy administration systems (more than 25 percent of large insurers and more than 40 percent of midsize insurers were currently in the middle of a project or planning one as of the end of 2011, according to previous Novarica research). And, because the task can last 20-40 months for large P&C insurers, the industry is finally getting a glimpse into the results and challenges.
The biggest challenges insurers continue to face with these upgrades are change management, communication and fear of change-all relating to internal culture.
As implementation lead for an ambitious core system replacement, including policy admin, claims and billing at Mercury Insurance, Rini Dixit, director, application development, led a multidimensional team with complementary talents to see the project to completion. To implement the InsuranceSuite from Guidewire, Dixit ensured the project had ample business sponsorship from the outset. In addition to a steering committee comprised of senior executives, the company also assembled a working committee made up of senior managers and co-located subject-matter experts to be nearer to the project. "The fact that we had active engagement from everyone has made a huge difference, so by the time we went live, nobody was surprised or disappointed," she says. "We were very fortunate in that the SMEs and business sponsors selected were looking for a change."
Yet even unanimity regarding a policy administration replacement will not preclude some tough decisions insurers will face along the way. One of the most consequential surrounds data conversion. Will a carrier port extant policy data over to the new system or allow it to runoff in parallel?
Dixit says Mercury opted for the latter. "We made a decision not to get into data migration or conversion at that time," she says. "We had an opportunity to make changes to the business processes. On the technology side, it gave us a chance to test Guidewire. We did not want to integrate with our legacy systems."
This year, Mercury has realized a number of benefits, including fostering a better relationship with producers. "Agent response has been positive, they have a lot more integration than they did before," Dixit says.
In addition to more efficiency in underwriting, Dixit says speed to market has improved and changes to products are less onerous. Another improvement is less noticeable because it involves what you don't see: paper. "We have moved from paper-driven to paperless," she says, adding that the name "Transcend," which has been bestowed on the initiative, seems apt in this light.
Regulation made its way into headlines in 2012 and leaves insurers with unanswered questions. Insurers of all sizes, of all lines of business are facing increasing global, federal and state regulatory pressure.
Large, mostly life, insurers are waiting to see what happens with international insurance regulators' proposed method of designating companies with global systemic importance. The International Association of Insurance Supervisors and the Financial Stability Board, which coordinates the work of regulators around the world, plan to consider criteria including size, global activity and the amount of non-insurance business to identify firms considered too big to fail and thus deserving greater scrutiny.
And, on the domestic front, even fewer large life insurers are waiting for the Financial Stability Oversight Council (FSOC) to begin designating non-banks systemically important in the United States as part of the Dodd-Frank Act. "All this points to a period of grave regulatory uncertainty-and thus, risk-for insurers," says Howard Mills, director and chief advisor of the Insurance Industry Group of Deloitte LLP. "It doesn't help that this almost-unprecedented confluence of regulatory concerns comes at a time when economic concerns continue."
For any insurer operating in Europe, Solvency II remains a question as the Jan. 1, 2014, compliance deadline looms, particularly as the final regulations that monitor risk and capital reporting have still not been clarified. This challenges preparation, but insurers continued to make progress in 2012 toward compliance with the risk and capital reporting regulation. Where possible, they have already put systems and processes in place, according to Deloitte's "Solvency II Survey 2012." According to the survey-conducted by the Economist Intelliegence Group-of 60 insurers with UK operations, when it comes to implementation, nearly two-thirds of respondents (63 percent) are somewhat or very confident their business processes and tools will be adequate to meet the working-day timetable once Solvency II is introduced. The other 37 percent of the respondents may receive a gift of more time to get processes and tools in adequate shape, as some industry experts predict another extension to the January 2014 deadline.
On the P&C side, after a cycle of short-term extensions and subsequent lapses since 2008, expiring four times in 2010 alone, Congress passed a long-term extension of the National Flood Insurance Program. The five-year reauthorization was included in a compromise deal that included the surface transportation reauthorization and the student loan bill. The reforms in the extension include phasing out subsidies for many properties, raising the cap on annual premium increases from 10 to 20 percent. The American Insurance Association, Property Casualty Insurers Association of America and The Independent Insurance Agents & Brokers of America applauded the passing.
"Congress recognized that reforms including movement toward fiscal soundness by eliminating premium subsidies, and moving toward risk-based pricing are necessary for the long-term stability of the program," said Tom Santos, VP for federal affairs at AIA.
And, regulation in 2012 can't be mentioned without discussing the June 28th passage of the Patient Protection and Affordable Care Act. The ruling gave health insurers a deadline of 2014 to embrace a number of provisions, including benefit design changes and ensuring 80-85 percent of premiums are devoted to medical care. "As far as tier-2 and tier-3 insurance companies go, they have been slightly slower as far as being able to cope with some of the changes from a document and content management perspective, so they will have to start formulating strategies to expedite those areas," says Kunal Pandya, senior health care analyst with Aite Group. "It's going to become critical for some of the insurance companies that have been a little lackadaisical in their approach, but the majority were bracing for the larger changes, such as the medical loss ratio rebate and certain other implications."
Competitively speaking, this places much more of a burden on large health insurers to provide a wide range of packages that appeal to demographics that may not have been on the radar. "One of the immediate focuses for insurers will be to start formulating some individual plans," said Pandya. "Managing better variations, creating better pricing; being able to sell to the uninsured population or self-employed population; or low- income population that might be looking to get health insurance; and also some of the smaller employers that may be looking to get into the exchange to transfer out of their current health plans."
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