Andesa Client Forum March, 2018 Proprietary and Confidential to - - PowerPoint PPT Presentation
Andesa Client Forum March, 2018 Proprietary and Confidential to Novarica, Inc. Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission. May not be used or distributed without our written
Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission. Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission.
March, 2018
Proprietary and Confidential to Novarica, Inc. May not be used or distributed without our written permission.
Robert Mcisaac, FLMI, LLIF SVP, Research and Consulting rmcisaac@novarica.com
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Preparing for change…
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the Internet
(Facebook and Twitter barely a year old)
Things that didn’t exist:
Preparing for change…
insurance as a viable concept
rates in the United States
insurance
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Most insurers believe the industry will be radically different in ten years. But few believe it will be radically different in the short term.
3% 6% 8% 18% 23% 55% 58% 73% 65% 55% 42% 36% 20% 17% 22% 0% 25% 50% 75% 100% Regulatory changes affect operating model Digital competitors affect distribution Cyber-Security "Day Zero" Event Predictive analytics create material effects Product changes driven by market or tech Likelihood of Real Change in 2017 High Probability Possible Low Probability
Preparing for change…
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On average, insurers are devoting 0.81 cents of each premium dollar to IT transformation in a time of unprecedented change being driven by technology. Preparing for change…
3.6% 3.6% 3.5% 3.5% 3.8% 3.6% 3.7% 0% 1% 2% 3% 4% 5% 2011 2012 2013 2014 2015 2016 2017
Average IT Spending Ratios 2011-2017 Run, 52% Grow, 26% Transform, 22% Average Run/Grow/Transform Split 2017
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Novarica Nine for 2018
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The insurance industry has one mission: use information technology to facilitate the transfer of risk from buyers to pools of capital. Unbundling
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People or Organizations with More Risk Than Capital Pools of Capital Willing to Take On Risk For Profit or Self-Perpetuation
Primaries Distributors Reinsurers
Facilitate communication Package and analyze risk Enable transfer of risk and money These are all intermediaries
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Cat Bonds and Other Derivatives Distributor Programs
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Primaries Distributors Reinsurers
Reinsurer-Funded InsureTechs Alternative Distribution Start-Up/ Reengineered Carriers
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Minimum Required Coverage Additional Coverage Advice Service Risk Management
come from the same provider?
some but not all of these capabilities?
ways to deliver some of these capabilities?
Unbundling
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Minimum Required Coverage Additional Coverage Advice Service Risk Management
Unbundling
Easy-purchase “compliance” products Stand-alone “add-ons” like umbrella or life product riders Fee-only risk management like IFAs Premium service levels Commercialized risk tools
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business
market in the next two years
from now
processes
serving underserved segments
providers InsureTechs will not… InsureTechs will…
InsureTech
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Decade Trend Examples What the Industry Learned What Happened?
1990’s “Internet- Only Banks” Security First, Wingspan People like the convenience of online banking, but online-only banks don’t have mass appeal. Start-ups acquired by tech providers or re-absorbed into major banks that funded them. 1990’s Online Trading E-Trade, Ameritrade People like online trading, bigger segment than previously understood willing to trade advice for low prices. Some sold their tech, some merged, some stayed independent and went head-to-head with existing discount brokers. 2000’s Innovative Lending OnDeck It’s possible to price loans using additional data/analytics beyond credit scores. It’s still hard to sell loans. Some banks partnered to use models. 2010 Mobile-Only banks Simple Mobile/Social banking has niche appeal Bought by major bank.
InsureTech
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“InsureTech” isn’t really a single category of thing. There are four main categories that serve very different purposes. Insurers should understand the potential values and threats
InsureTech
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Big data analytics tools, AI start-ups, and data aggregators offer insurers new ways to access and analyze information.
and data vendors
show traction Carpe Data (http://carpe.io), predictive scoring for life, personal, and small commercial based on third-party and big data. Praedicat (http://praedicat.com), data mining and modeling to improve catastrophe liability modeling. Tyche (http://tycherisk.co), a 2015 Global Insurance Accelerator company focused
InsureTech
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Drones, IoT, blockchain, and other new technology tools or platforms that can be leveraged to improve insurance processes and products.
dramatically, e.g.:
Human Condition Safety (http://hpsafety.com), wearable technology to reduce worker injury. AIG is a strategic partner. Meshify (http://meshify.com), industrial Internet of Things, acquired by Hartford Steam Boiler/Munich RE. PrecisionHawk (http://precisionhawk.com), drone surveying company with insurance applications, USAA is series C investor. InsureTech
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Innovative carriers designing new products or processes starting from customer need.
product offerings
to product or market
underwriting capacity
traction Trov (http://trov.com), insurance for individual items. Munich RE is reinsurer, GWRE is Series C investor. Slice Labs (http://slice.is), on-demand insurance for gig economy. Munich RE is reinsurer, Munich RE and XL Innovate are investors. Lemonade (http://lemonade.com), direct renters and homeowners, XL innovate and Sequoia Capital are investors. Hiscox (http://hiscox.com), direct online sales of small biz insurance. InsureTech
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New channel for incumbent insurers
channels, but more likely to be opening up new market segments than eroding current channels
addressing customer needs and expectations
distributors if they can manage growth expectations appropriately; may be acquired by major brokers or intermediaries
Chubb, American Family, and others. Insureon (http://insureon.com), online broker for small commercial insurance. AskKodiak (http://askkodiak.com), appetite marketplace for underwriters and carriers. Quilt (http://getquilt.com), online agency with simple UI centered around policyholder POV. InsureTech
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Insurers have many options for engaging with InsureTech and emerging technology…including doing nothing.
Partnering Direct Investing Seeded Start-Ups Innovation Labs Do Nothing Pros Low cost/risk Some control Influence Market access Control Connection Learning Focused R&D Relevance Team engagement Inexpensive Avoids management distraction Cons Lack of control Expense Limited control Expensive Politically sensitive Expensive Limited capacity Potential lack of fresh thinking Missing learning
Examples AXA partnering with Trov in Europe XL Innovate HSB Ventures AssureStart HavenLife AmFam Ventures QBE Digital Innovation Lab Most midsize insurers
Innovation
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and initiatives are growing.
investment, and willingness to innovate is primary determinant between
innovation and performing “innovation theater.”
26% 28% 31% 33% 37% 17% 23% 17% 5% 14% 23% 8% 32% 41% 23% 42% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Large P/C Midsize P/C Large L/A Midsize L/A
Maintain Expand Launch No Plans
Innovation
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Education and Evangelism Research and Development Venture Capital/ Investing Data Science Goal Bring in new ideas Coach adoption Prototype and pilot Innovative partners Find opportunities Organization Small expert team Engineering, product, SMEs Small expert team Small expert team Spend Level Medium High Medium OpEx, Medium/High AUM Medium/High depends on size Pros High engagement, high ownership Generate preliminary results Broad exposure Potential immediate tactical value Cons Limited ability to execute High failure rate must be tolerable Limited control Can be challenging to implement Risks BUs tend to tactical
Lack of adoption Conflict of IRR and tool value Over-focus on tactical value Risk Mitigation Team focus on pushing boundaries Persuasive champion Clear and separate goals Ring-fence exploration
Innovation
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Sources Analytics
Channels Processes
Modern Applications
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Technology Capabilities
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Data Digital Core Product Development Impact analysis in rate design Automated rate/ form filing Assemble from component coverages Marketing Customer behavior modeling Track website visitors in CRM N/A Distribution Extensive use of pre-fill data Mobile optimized portal Immediate commissions payment Underwriting Predictive scoring Paperless UW Workflow Skills-based routing Customer Engagement Analytics-driven service tiers Customized online video N/A Billing Analytics to prevent premium leakage EBPP Consolidated bill across product lines Claims Predictive fraud scoring Mobile adjuster/ case manager Triaged STP Finance/Operations Enterprise-wide customer value Self-service HR systems Automated budgeting/forecasting
Technology Capabilities
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Data and digital spending commands are larger portion of grow and transform spending. Technology Capabilities
69% 53% 38% 9% 22% 36% 11% 14% 17% 11% 11% 9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Run Grow Transform
Run/Grow/Transform Breakdown: Large L/A Insurers
Core Applications Digital Data and Analytics Security 60% 52% 51% 10% 16% 18% 18% 22% 23% 12% 10% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Run Grow Transform
Run/Grow/Transform Breakdown: Large P/C Insurers
Core Applications Digital Data and Analytics Security
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Technology Capabilities
Policy Administration System Rating Engine Underwriter Workbench Claims System Billing General Ledger and Financial Management Reinsurance Management Agent Portal Document Creation/CCM Business Intelligence: Repository CRM Customer Portal Distribution/
Specialized Components Business Intelligence: Analytics and Reporting Workflow/BPM Document Management/ECM
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While actuarial models predict risk across a book, predictive models are used to make specific determinations about individual cases (risks, claims, customers, etc.).
(fraudulent claims).
Data and Analytics
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There is a predictive analytics gap between large and midsize insurers. Midsize insurers are conducting more pilots, but large insurers continue to invest to maintain their leads. 18% of insurers believe there is a high probability that predictive analytics will create material affects this year. Predictive Analytics Capabilities in the Novarica New Normal 100:
data (pictured)
data
Data and Analytics
40% 30% 50% 48% 32% 66% 55% 80% 30% 19% 19% 43% 17% 20% 20%
0% 25% 50% 75% 100%
Claims UW Midsize L/A Claims UW Large L/A Claims UW Midsize P/C Claims UW Large P/C Current Usage Rate of Predictive Analytics for Underwriting and Claims Fraud Current Capabilities Pilot Program
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Few insurers use real “Big Data” data sets, but use of Big Data Technology to solve enterprise data problems is becoming more common.
No-SQL Columnar Appliance
Potential Uses Extremely large data intake. Analysis across TBs of data. Rapid, real- time capture
sets Data warehouse for analysis Vendor- managed approach to many of the
cases Industry examples Analysis across business to develop predictive models Agent and consumer portal click- stream capture Policy, claims, and billing warehouse Fast replacement
data warehouse Pitfalls Complex engineering required; quickly evolving technology Cannot use SQL or can
limited SQL Slower import/ export; poor transaction support Expensive
less flexibility and control Providers Hadoop MongoDB, Cassandra Vertica, SAP HANA IBM Netezza, Teradata, Oracle Appliance
Data and Analytics
Deployed in some areas 12% Active or planned pilot project 29% Still trying to understan d value 37% Decided this does not apply to us in 2017 22%
Big Data Usage and Plans at Insurers 2017
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Machine learning is the next stage of predictive analytics
using machine learning to improve rating algorithms.
potential for property underwriting and claims.
Processing virtual assistants have some application as chatbots, but insurers must beware the uncanny valley in voice systems. Data and Analytics
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“Digital” is not a thing, it’s an orientation. It’s about rethinking the relationship between data accessibility, transactional capability, users, and process in a digital world. Digital
29% 31% 45% 53% 66% 73% 37% 47% 35% 37% 25% 14% 33% 22% 19% 5% 8% 11%
0% 20% 40% 60% 80% 100% Enterprise Data Management Analytics Digitizing and Optimizing Internal Business Processes Corporate Site and Online Marketing Policyholder e-Business Agent e-Business
“What does ‘digital strategy’ mean in your organization?”
Definitely this This too Not this
Integrated with everything we do, 2% Well understood, and widely deployed 11% Deployed in some areas 32% Active or planned pilot project 31% Still trying to understand value 15% Decided this does not apply to us in 2017 9%
“Digital” or “Digital Strategy” at Insurers
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Agent Portal projects tend to be enhancements of existing environments rather than replacements; CCM and life customer portals are more evenly split between replace and enhance. Digital
0% 25% 50% 75% 100%
Midsize L/A Large L/A Midsize P/C Large P/C Percentage of Insurers That Rate their Own Capabilities as Strong or Very Strong Agent Portals Customer Portals Documents/CCM
0% 25% 50% 75% 100%
Midsize L/A Large L/A Midsize P/C Large P/C Percentage of Insurers Planning Replacements or Major Enhancements Agent Portals Customer Portals Documents/CCM
Fewer than 50% of insurers are enthusiastic about their basic digital capabilities. Investment in enhancing agent and customer portals is widespread.
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About 1/3 of insurers have some mobile capabilities, and about a 1/3 of those who don’t are planning pilots.
channel when researching providers
discussion Digital
4% 10% 7% 4% 21% 29% 24% 22% 23% 23% 0% 20% 40% 60% 80% 100% For Distributors For Policyholders For Adjusters/Other External Users
Mobile Usage and Plans at Insurers 2017
Active or planned pilot project Deployed in some areas Well understood, and widely deployed Integrated with everything we do
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Heavy volumes of “digital” communication with distributors are still via email. Digital
51% 37% 40% 44% 38% 40% 52% 46% 33% 50% 53% 42% 43% 50% 35% 21% 5% 5% 6% 3% 9% 2% 11% 7% 13% 17% 8% 2% 31% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Appetite App Submission Quote Add'l UW Reqs UW Decision Policy Docs Commissions General
Distributor Digital Channel Usage By Function: Small Commercial (Average Percentage of Communications Volume/Channel/Purpose) Email Portal Other Digital Offline
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Some use for ancillary applications is widespread, and core application use is growing, especially for expansion lines.
14% 47% 11% 20% 13% 27% 26% 0% 20% 40% 60% 80% 100%
SaaS for ancillary applications SaaS for core applications IaaS or PaaS Cloud Usage and Plans at US Insurers 2017
Integrated with everything we do Well understood, and widely deployed Deployed in some areas Active or planned pilot project
increasingly attractive
center/hardware management and cost
providers and awareness of own limitations is mitigating security concerns Core
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Security continues to consume about 10% of IT budget with no end in sight. Additional investments in…
Additional regulatory and compliance pressure to certify procedures, formal CISO requirements. Security
0% 10% 20% 30% 40% 50%
SSE-CMM Framework Adoption NIST Framework Adoption Audits and Procedures Current and Planned Development for Audits and Procedures, NIST Framework Adoption, and SSE-CCM Framework Adoption
Grow existing capabilities significantly Enhance existing capabilities Launch capabilities in this area for the first time Pilot/Test capabilities
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A boom in analytics and digital across multiple industries is making it harder for insurers. CIOs cite talent as their top challenge. Strategies:
Talent
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With so many areas demanding investment, 40% of insurers are improving governance to make sure resources are allocated effectively and aligned with strategy.
Alignment
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from Silicon Valley
Application and Use Cases
Mobile, Analytics, Big Data, Cloud, Digital, and IoT/Drones
Insurance
Insurers
100 Data, Digital, and Core Capabilities
References
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Novarica provides technology strategy research, advisory services, and consulting to more than 90 property/casualty and life/annuity insurers. Novarica’s research covers trends, benchmarks, best practices, case studies, and vendor solutions, drawing on the expertise of its senior team and relationships with nearly 400 insurer CIO members of the Novarica Insurance Technology Research Council. Through its advisory services, Novarica’s expert team becomes an adjunct member of its clients’ strategy and planning functions, providing a force-multiplier that facilitates faster, better, more informed decisions. Novarica’s consulting services focus on vendor selection, custom benchmarking, project assurance, and IT strategy, leveraging its proven methodologies, extensive knowledgebase, and broad network to rapidly deliver actionable insights and recommendations. Contact us at: Novarica, Inc. 175 Federal St, Suite 510 Boston MA 02110 617-342-8100 inquiry@novarica.com www.novarica.com
About Novarica
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Rob McIsaac is a SVP in the insurance practice at Novarica with expertise in IT leadership and transformation as well as technology and business strategy for life, annuities, wealth management, and banking. He has broad experience in IT strategy and management in the insurance and financial services industries. Prior to joining Novarica, he served in a series of senior technology management positions including leading the Business Transformation Office at Nationwide Insurance and as the CIO for First Citizens Bank, a rapidly growing regional firm based in Raleigh, NC. Rob spent the majority of his career at Guardian Life, where he was the Divisional CIO responsible for annuity, distribution and broker dealer operations and at Prudential Insurance, where he held a variety of positions including leading e-Business development efforts. Rob holds a BA in Economics from Montclair State University, an MBA in Information Systems from Seton Hall University and has received a number of business and technical designations including FLMI and LLIF. He can be reached directly at rmcisaac@novarica.com.
About Novarica