For the insurance industry, the future has finally arrived. In this future, as described by technologist Nicolas Negroponte in his 1995 collection of essays entitled Being Digital, bits have replaced atoms, distance is irrelevant and constant connectivity is the norm. Organizations are flatter, commerce is global, and companies increasingly rely on their ideas and imagination to compete rather than their size and their stature.
Even so, many insurance companies remain burdened by the past. “Some insurers still have some catching up to do,” observes Mark Breading, a partner at Strategy Meets Action, an insurance technology consulting and research company. “The big trend is the digital insurer:’ moving toward digital strategies across the enterprise and creating digital platforms,” Breading says. But while insurers have created portals for agents and customers, built mobile apps and exposed core systems to the outside world, many have erected these capabilities as silos. “Now it’s more about utilizing all of these capabilities in a unified way. That’s the overarching trend,” he notes.
“When I say that the race to be a digital insurer is on, it’s on, it’s real and it’s serious. Companies need to be paying attention to it,” agrees Kevin Miller, VP of IT strategy and architecture at CUNA Mutual Group. But many insurers are handicapped by their culture. “Business people have been trained to do extensive business cases, value propositions and ROI analysis,” he says. “But with these digital technologies, you’ve just got to take a chance and see if it works. You have to break through viability concerns. Companies need to get comfortable with innovating and taking risks.”
In 2015, this innovation will coalesce around five key technology trends: core systems modernization, analytics, mobile computing, the Internet of Things and the digital customer experience.
Top Tech Trend No. 1: Core System Modernization
Spending on policy administration and other core processing systems is accelerating, according to Celent, an insurance technology research and consulting firm, and now accounts for about half of all P&C software purchases. Investments in core systems accounted for 48 percent of all P&C software purchases, compared to 27 percent the prior year, according to Celent, an insurance technology research and consulting firm.
“When you have industries that are as old as ours, there’s a lot of legacy,” says Kristin Kirkconnell, CIO of American Family Insurance. “And unless you revitalize it, it becomes an anchor; it impedes your ability to move and to move quickly. So, we have to get rid of those anchors.”
Also driving the need for more agile and sophisticated core systems that can support more extensive use of analytics is the industry’s growing complexity and dynamism, notes Justin Cruz, who reports to Kirkconnell as Am Fam’s vice president for strategic data and analytics. “The more dimensions there are to our products, our customers and their experience with us, the richer the opportunity to do deep analytics,” Cruz says. “But without core systems in place that can support this, we’re handcuffed.”
Data proliferation is also driving the modernization trend. “A lot of times, the various components of these systems weren’t architected in a way that was particularly communicative,” says Eric Hulls, senior vice president and data science officer at Allstate Personal Lines. “And they are not particularly well suited to providing customized output because, at the time they were designed, no one was doing analytics at this level.”
For example, Huls says, customers might feel better about paying their bills if they arrive printed on their favorite color paper. But even if Allstate knew their preference, “There’s nothing in our billing system that would allow us to do that. That’s a silly example, but there are a lot of less silly examples that the policy-administration systems just can’t handle.” Notes Huls, “The trick is to architect the system in a flexible way, so that as analytics continue to evolve you don’t have to redesign the entire system every time you come up with something new.”
NO SLOWING DOWN
The trend toward core-systems modernization began in earnest around three years ago, says SMA’s Breading, and he doesn’t see it slowing anytime soon. “If you’re going to do all of this other stuff, it’s mandatory; you can’t do it if you’ve got a legacy core system.”
Insurers need to access, capture and analyze data and then feed it out to a variety of mobile devices. This, Breading says, is nearly impossible without systems designed with those functions in mind.
Top Tech Trend No. 2: Analytics
Newly available technologies are leading insurers to invest more heavily in analytics.
Am Fam is a case in point, as the P&C insurer is extending the use of analytics beyond underwriting and pricing, and now is leveraging the technology to other operational areas, according to data chief Cruz. Goals include increasing customer satisfaction, retention and conversion, he says.
“Ultimately we can apply analytics to anything the organization does: a new product or marketing campaign, testing chat functionality on a new website, or how call routing techniques impact wait times and customer satisfaction,” Cruz explains. “We’re looking at analytics in terms of how we interact with customers, and how we can drive customer retention and satisfaction.”
NO TIME LIKE REAL TIME
Allstate’s Huls also believes that the ability to leverage analytics in real time, throughout the insurance value chain, is becoming more prevalent and important. “Now, at any point that someone is making a decision, that decision can be informed and made better by analytics,” he says.
Starting from when a customer calls Allstate’s 800 number, analytics is being applied to choose the most appropriate agent for the customer, to help the agent offer the most appropriate solutions for the customer and how best to cross-sell and up-sell that customer. “Those types of things, within the sales or the needs assessment process, can now all be driven through analytics,” Huls says.
In the recent past, small amounts of data were analyzed to help make big, across-the-board decisions. Today, big data can be used to shed insight on individual customer buying decisions.
“The technology is now powerful and evolved enough that it can determine the optimal solution at a much smaller level,” Huls says.“While you’re still tailoring your technology around the optimal sales process, you’re also evaluating that process at an individual customer level. It’s one of those contradictory things: When you had small data, all of your decisions were big, because they were going to apply to everyone. Now that we have big data, each of the decisions we make is tiny, because it may apply to just one customer. But you’re making far more of those decisions.”
THE IMPORTANCE OF CLASSES
Seth Rachlin, vice president of insurance at Capgemini, a business management consulting firm, says the opportunity to use analytics for micro-segmentation is enormous.
“Everybody who’s grown up in insurance knows the importance of classes,” Rachlin says. “Risks are rated by classes; clients are tracked by classes; you track your losses by classes. “Analytics has exploded that. We can look at individuals; we can look at individual corporate entities and the attributes that surround them and understand how they all interact to produce a result. We used to have this approximation, which was a class code. We now can use everything we know about the individual to understand risk, buying patterns and how to price. That change is absolutely fundamental.”
Rachlin continues, “There isn’t a major carrier out there that isn’t devoting significant attention and spend to analytics. Even companies that are very mature from an analytics perspective are doubling down, because they know it’s an arms race. To be a laggard in the category likely means significant adverse selection; that obviously has huge consequences.”
Top Tech Trend No. 3: Mobile Computing
In the consumer world and for many businesses, mobile computing is the new norm.
This is reflected in the size and type of devices sold. In 2014, shipments of fabulist, tablet computers with screen sizes ranging from 5.5 to 7 inches, surpassed those of portable personal computers, and in 2015, the gap will widen further. Smartphones, meanwhile, already comprise more than 60 percent of the market.
The insurance industry is acutely aware of this and doing its best to respond. Almost half of the 88 insurance CIOs surveyed by insurance technology researcher Novarica said they are piloting mobile capabilities for customers. Yet fewer than 10 percent of these CIOs claimed to have extensive mobile deployments in production, meaning despite the rapid proliferation of mobile devices, the trend toward mobile insurance solutions is still in its infancy.
MOBILE IS THE INTERNET
But for many consumers, mobile is the Internet, and any transaction they could do through a browser, they expect to be able to do on a mobile, notes Capgemini’s Rachlin. And for insurers, the number of use cases is expanding as well. These include risk control people and field adjusters, as well as producers, who can benefit from illustration and scenario-building software when speaking with prospects.
“All the roads lead to mobile,” CUNA’s Miller says. Mobile is the No. 1 mechanism people use for social media, and for insurers, mobile produces a wealth of near-real-time, behavior-based data. And because they can draw on smartphone functionality like online cameras and GPS tracking, “Mobile applications are going to continue to be more predictive and context sensitive,” Miller adds.
Since 2011 CUNA, which offers insurance and financial services for credit unions and their customers, has launched several mobile-optimized webpages and apps. Its first, Smartphone Loans, has originated a billion dollars in loans with an average value of $8,900. Since then, the company has rolled out a number of mobile applications, several of which include elements of online games to encourage consumer interest and adoption.
“We’ve tried a couple of things that didn’t work,” Miller admits. “But you’ve got to be willing to take a shot. It used to be that the big eat the small; now it’s the fast eat the slow.”
Top Tech Trend No. 4: The Internet of Things
In the coming year, 4.9 billion things will be connected via the Internet. These will include everything from smartphones and thermostats to automobiles — a 30 percent increase from 2014, according to technology research firm Gartner.
By 2020, the number of Internet-connected objects is expected to reach 25 billion, and this Internet of Things (IoT) will become a powerful source of business innovation and disruption.
“The digital shift instigated by the cloud, mobile and social, and boosted by the IoT, threatens many existing businesses,” says Jim Tully, a senior vice president and distinguished analyst at Gartner. “They will have no choice but to pursue it.”
IOT’S BIGGEST BENEFICIARIES
More than many others, the insurance industry stands to benefit from IoT applications by collecting near-real-time data on customer behaviors. This will enable more accurate pricing, more effective risk mitigation and improved fraud detection. Some insurers are already doing just this, using telematics data from cars and commercial vehicles to price their auto and transport policies.
“It means a totally different information flow and knowledge about what you’re insuring and what kind of services you now can provide,” says Breading of Strategy Meets Action. “Same thing with wearables, especially on the life and health side of the industry. If you’re writing auto insurance and ignore the telematics and driverless-vehicle trends, what’s that going to mean five or 10 years from now? You could be out of business or lose the good business. A lot of insurers are a little bit scared.”
NEW VALUE PROPOSITIONS
In addition to offering more accurate pricing, based on individual risks rather than risk classes, insurers could create entirely new value propositions or product portfolios to help clients better understand and mitigate their specific risks. According to Am Fam’s Cruz, “That’s where data, technology and analytics are doing more than just making us more effective. They’re enabling us to transform how we provide value to our customers.”
HOME IS WHERE THE DATA IS
As insurance telematics enter the mainstream, the connected home is the next likely target for IoT-based applications. There are many different risk factors that can affect a house, Cruz says, including the activities and lifestyle of its owners, the house’s age, construction, layout, location and prevailing weather patterns.
“Think of the rich, rich opportunity for that digitization,” he says. “If you can actually track and capture, identify and monitor all those different risk dimensions, you have increased the potential for accuracy from a pricing, claims severity and fraud reduction perspective. I think that in terms of digitization for insurance, risk reduction is really a tremendous opportunity.”
Am Fam CIO Kirkconnell concurs. “For a high-value customer, or somebody who makes a lot of money, this idea of connecting your home is very intriguing,” she says. “And they have the funds to do it. But it has to get easier so the everyday person can do it; it has to come down greatly in cost. Let’s be realistic — it will be tackled. It’s the future, and you have to be looking at it now.”
Top Tech Trend No. 5: Digital Customer Experience
Population growth in the U.S. is slowing, increasing by just 0.71 percent for the 12 months ending July 1, 2014, according to the U.S. Census Bureau. This and other factors, including the global economic slowdown, now in its sixth year; long-term wage stagnation; baby-boomer retirements, the U.S. housing slump and the rise of the sharing economy among Millennials, are limiting the insurance industry’s growth potential.
With fewer new potential customers, attracting new ones and keeping current ones happy, while finding ways to cross- and up-sell, have become the industry’s Holy Grail. This is pushing insurers to boost their advertising spend, re-examine how they go to market, and rethink the types and frequency of their customer interactions, which increasingly are digital. Insurers frequently had developed systems to manage customer interactions in isolation and have not architected them to bring interactions and information together, to actually create a cohesive view of the customer relationship. Explains Allstate’s Huls: “For a customer, that can feel very disjointed. While internally [insurers] may view themselves as separate business units or having separate responsibilities, customers really view their insurance company as a single entity, which is very reasonable.”
At this stage, most every insurer provides a multi-channel environment, servicing customers, agents and others through the phone, email, chat, Web and other technologies. “What’s new are the expectations and demands of customers, prospects and producers,” says Strategy Meets Action’s Breading.
“Everybody expects to do business digitally, but businesses are realizing that if you’re going to engage customers and get to that next level, those channels have to be truly integrated and real-time. That’s going to translate into more projects next year.”
Apple has set the new standard for ease of use, says IT strategist Miller, and insurers such as CUNA are increasingly adding familiar features such as icons, sound effects and graphics to help users understand financial products and the impact of their financial decisions. “It sounds kind of simple but, by the same token, the experience is one that people are accustomed to,” he says. “And when you’re talking about financial products, it allows us to take what can be confusing and represent it in a simple way.”
MORE SATISFIED CUSTOMERS
While technology is paving the way for more satisfying and seamless customer interactions, Capgemini’s Rachlin says technology is not what’s driving this trend. “Customer experience is being driven by questions that insurers have about their distribution mod- els,” he says.
“A lot of the newcomers in the industry have shown that it’s possible, particularly in personal auto, to interact with customers from sales to service in a completely unmediated way: without an agent. That’s a fundamental change in the nature of insurance and how insurance is transacted.”
The insurance landscape is very different from what it was even five years ago, notes Am Fam’s Cruz. A more competitive marketplace and heavier regulation have increased the pressure on insurers to create and offer new and compelling reasons for customers to interact with them — and to provide the technology to make those interactions easier.
“We’re looking at activities across channels and how those drive retention, satisfaction and other customer measures,” Cruz says. “We’ve always been focused on providing value to the customer, but we are doing that in a more rigorous fashion, using data and technology to prove whether we’re impacting the customer in a positive way.”
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