Creating a great customer experience is one strategy to build brand loyalty. Many of us have had bad experiences working with insurance companies – poorly handled claims, unresponsive agents, lack of timely payment – which can lead to customer churn. However, if insurance companies develop and implement strategies that provide great customer experiences, ones that are supported by digital technologies that streamline operations and simplify how customers interact with the insurance providers, then customer loyalty will remain high. 

According to the Harvard Business Review’s The Pitfalls of Overlooking the Back Office, “As customers, we all know the customer experience travels across organizational silos and in and out of management tiers. We all know the experience of giving our identification information again and again at different stages of one call to one organization. This is a poor customer experience, and it reflects an absence of back-end integration,” said Karen Cham, professor of digital transformation design at the University of Brighton in England.

Here are three recommendations for how insurance providers can improve the customer experience and turn those customers into lifelong advocates for your brand. 

Pay claims in real time

After incurring damage to a house or in an auto accident, people must go through the dreaded process of working to file an insurance claim: fill out the paperwork, provide supporting documentation, have it reviewed by an agent, submit additional paperwork and finally receive payment many weeks later. It’s a tedious process that is time-consuming and often creates customer friction. The lengthy process of getting paid for a claim can damage the relationship between the customer and the insurance provider. 

Taking advantage of the speed and efficiency of digital technologies, insurance providers can reduce the pain and shorten the time it takes to disburse funds. There are many ways that customers can receive payment in a timely manner, most notably via digital payouts. For example, an insurance company can pay a customer digitally via digital wallets, through Venmo and PayPal or directly to the customer’s bank account rather than issuing a check and sending it in the mail. This allows the customer to control where the funds are delivered and helps reduce operational costs. 

Deliver personalized experiences

Digital technologies not only make processing and paying claims faster, they also help insurance providers gather volumes of customer data. When customer data is compiled (through such avenues as the Internet of Things, mobile-enabled insurtech apps and wearables) and analyzed, it gives insurance providers a better understanding of their customers and each customer’s unique interests and shows trends about larger demographics. By understanding how certain customer groups behave and interact, such as those based on age or income, insurance companies can provide services and promotions that are tailored to each customer’s specific needs. 

Younger customers, such as millennials and Gen Z, prefer to use mobile technologies for most aspects of their lives. Insurance companies need to make sure that all channels, including website, mobile and desktop, are unified and provide the same experience to the customer. Likewise, having single sign-on for customers, so that they can view multiple accounts, makes it easy to see all of a customer’s accounts at once. Mastering omnichannel marketing, making it easy for customers to engage with insurance agents and delivering personalized experiences are proven methods for improving the customer experience. 

See also: 6 Ways to Transform Customer Experience

Cultivate emotionally intelligent agents

Insurance agents serve on the front line of almost every customer's experience. When a customer is in an auto accident or if a storm damages their house, the first person they call is their insurance agent. This is a critical time in the relationship between the customer and the carrier because the customer is often scared, angry or possibly injured. This is the time when an agent needs to demonstrate compassion and display a high level of emotional intelligence to tackle the situation. 

Insurance providers should consider implementing emotional intelligence training for their agents who interact with customers on a regular basis. Having insight into what a customer is feeling, being concerned about fixing the situation or simply lending an ear to let the customer vent goes a long way toward strengthening the relationship between the provider and the customer.

For me and my organization, we understand what it means to make customers happy around the world. Training insurance agents to provide emotional support to customers and implementing digital technologies to streamline operations, lower costs and improve the customer experience helps give your company a competitive advantage.

In an era where customers can easily jump ship to go to another provider, it’s imperative that insurance companies devote time and energy to creating a great customer experience that ensures loyalty.

The insurance sector is facing unprecedented change in a rapidly evolving environment. Energy transition, circular economy, urbanization, digitization: These trends have far-reaching consequences for the way we live and work. From sustainable investing to healthy living, from sensor revolution to climate change, the playing field has become incredibly varied and complex over a relatively short time. How is this playing out for the insurance sector? 

Amid the abundance of sector reports by industry analysts, reinsurers, sector associations and consultancies, we provide you with a recap of what we believe are the key trends to monitor closely for 2022 and beyond. 

Trend 1: Insurtech has matured and gains even more momentum 

While insurtech has been around for some time, the past year's growth has been picking up substantially. We’re well past the days of simplistic disruptive thinking, where startups would present themselves as the Uber of X. Traditional insurers clearly understand the importance of becoming digital. And insurtechs have learned the underlying complexities of the insurance business model they aim to renew. It’s not all that easy, otherwise it would have been done by now!

The opportunity to transform traditional, legacy-driven processes remains massive, as is reflected in global investment transactions in insurtech – by the end of the third quarter of 2021, up another 23% from the year before and hitting $10 billion. The largest financing deals were Wefox (Germany, a digital insurance carrier, $650 million) and Bought by Many (U.K. pet insurance, $350 million. Compared with overall fintech data, insurance actually still remains an underinvested sector. 

Reinsurers are increasingly become active through their own venture capital arms. Their urgency to develop solutions to build resilience in our turbulent environment (pun intended) is clear. In October 2021, Munich Re announced a $500 million fund to invest in early/growth stage companies across insurance and climate technology, cybersecurity and privacy (more on that later!), commercial and industrial equipment tech and the future of transportation. 

Insurtechs will provide a continuous stream of innovative products and services to the sector, working with (re)insurers to improve their products or to access markets. Insurers will have to monitor closely how they can tap these opportunities to enhance their competitiveness, through incubation, partnerships or investment funds (e.g., the Achmea Innovation fund). We expect to see more collaboration between incumbents and new entrants as they often complement one another. At the same time, just as in other sectors, new entrants will continue to shake things up and trigger the incumbents to take action. 

See also: How to Work With Insurtechs

Trend 2: The past is gone – the present is the best indicator for the future 

Insurance is a long-term numbers game carefully balancing risks and premiums, traditionally using data sets with limitations in accuracy, reliability or predictive power. In a turbulent environment, historical patterns will no longer be a reliable predictor. This has implications for the way insurers collect their data for risk assessment and policy pricing. 

Enter IoT, smart sensors and telematics -- and the ability to harness the data and link this to alerts, warning signs or smart workflows. Being able to register, connect, collect, analyze and understand data in often near-real time is a game changer for a data-driven sector like insurance. 

The number of devices connected to the internet is expected to triple over just a few years – from 20 billion in 2017 to 60 billion in 2025 -- enabled by cloud computing, exponential growth in computational power and ever more powerful mobile internet (5G). 

The Internet of Things (IoT) generates vast amounts of data through sensors in networks, cameras, industrial sensors, mobile phones, traffic lights, cars, bicycles, smart home appliances and devices, sea containers and postal packages. Sensors help to reduce failures, incidents or accidents. There are endless possibilities and of course all kinds of privacy concerns that require attention. Still, looking at personal lines: Each year the proportion of customers willing to share data (home, car, health) in return for rewards or value is increasing as the digital lifestyle becomes more widespread. 

Harnessing real-time alerts in the context of comfort, safety and insurance will become a key capability for insurance providers. Data may serve to boost customer engagement, nudge customer behavior (e.g. safer driving) and trigger rapid response services. Telematics and fleet management solutions have become mainstream, but every other insurance sector will become smart or connected – there are simply too many benefits. This way, insurance becomes augmented, providing prevention and mitigation of a wide range risks while closing the engagement gap to customers. Insurers that are not able to process the new data streams will find themselves at a disadvantage. 

There are not only benefits, there are also serious concerns and risks with these developments. There will be a continued discussion on the ethical framework for leveraging ubiquitous sensor data. Where lies the balance between personalized profiles and solidarity? The technological possibilities are taking us into uncharted waters, and we have to find our bearings to plot a course. 

There is also the necessity to deal with a parallel increase in cybercrime. Insurance solutions are augmented with a wide range of IT security services to prevent or mitigate cyber-related incidents. Cyber resilience is a critical element as countermeasure against deliberate cyberattacks (ransomware, phishing) but also prevents unwanted incidents causing business interruptions. The cyber insurance market is expected to grow at a record pace in the coming years, and insurers need to arm themselves and their policy holders. 

Trend #3: Insurance is more attractive when embedded in something else 

Insurance has always been a necessity -- either by law or because it’s simply smart to have. It's not particularly appealing or attractive, but if you add insurance to an existing transaction where people buy or rent something they actually want, that helps a lot! 

Embedding insurance has been around for decades: Think bancassurance or travel insurance you bought when booking a flight. What has changed is that this has now been digitized, turned into a fully automated workflow, reducing unit costs to an absolute minimum and being incredibly scalable through modern technology. So it now becomes viable to offer day-to-day travel insurance or extended guarantees right in your digital shopping cart. These policies can be switched with a swipe or even automatically. Embedding insurance solves the typical drawbacks of traditional insurance: It’s fast, easy and personalized. And becoming an additional revenue stream for all kinds of organizations. 

Leveraging driver data to make better underwriting decisions is done by Tesla. Now that people are increasingly shopping online (COVID-19 being one of the drivers), there will be a wide range of opportunities for embedding insurance in trusted digital channels.

While embedded insurance is focused on the point of sales, parametric insurance is a similar way simplifying the claims process. If a certain index (wind speed, rainfall, water level, crop index) reaches a threshold, a payout is triggered automatically. 

Trend #4: (Re)insurers accept their responsibility to build climate resilience 

The reality of climate change and the need to increase resilience against extreme weather events is something that is becoming a hot topic for the insurance sector. Insurance Europe, the European insurance and reinsurance federation, issued a statement for COP26 expressing their unequivocal support to the collective global momentum to combat climate change, in line with the Paris agreement, the European Green Deal and Europe’s targets to reduce its greenhouse gas emissions by 55% by 2030 and achieve a net-zero economy by 2050. 

2021 is expected to become one of the costliest years in terms of weather-related losses following floods, wildfires, hurricanes, hail and extreme cold, with tremendous human costs but also affecting economies for years to come. Insurability is already becoming problematic in some coastal regions, suffering from more frequent and extreme disasters. The moment that an insurer and its reinsurer will not be able to fulfill their obligations following a catastrophe is getting closer. 

The insurance sector has a pivotal role in dealing with the effects of climate change, well beyond disaster recovery -- from an investment perspective, by adopting environment, social and governance (ESG) strategies; by developing solutions that provide protection against climate-related events; by providing investment capacity for the transition toward a more sustainable economy; and by offering risk management expertise to build awareness, reduce exposure and increase resilience. The insurance sector has a clear understanding of the long-term costs of unmitigated climate change. With a direct financial interest to act, the industry will be an important element in the transition to a more sustainable planet. 

See also: Insurtech Is Much More Than Just Hype

In closing 

It may sound counter-intuitive, but digital technology may just be the thing to restore or enhance the customer relationship. Digital flows can reduce the friction in quoting and binding policies or radically reduce lead times in handling claims, replacing on-site with remote inspections. This does not mean the end of personal channels. There are complex situations and products that call for advisers and face-to-face discussions. And while personal contact may have become too expensive or time-consuming, having a brief online meeting can be an excellent alternative. But simple, administrative tasks need to be automated, as there is no sustainable competitive advantage in performing these by hand. 

We’re living in a world of digital transformation, with insurtechs looking to exploit inefficiencies across the insurance value chains. It’s critical for all players to improve their digital capabilities. Insurers have essential qualities: capital, distribution channels, talent and a huge repository of knowledge and expertise. It’s becoming increasingly important to be able to harness those assets. The cost of falling behind isn't because you witness a sudden drop in revenues but because, to remain relevant in the long run, you must provide a great place to work for top talent and foster your position and relevance in today’s society. 

We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run (Amara’s law). In other words: Change happens gradually, then suddenly. Do you also feel we’re now getting to the sudden part? We’re interested in your thoughts!

Nothing is stitched together like a baseball.

A baseball uses only two pieces of leather, each cut in an hourglass pattern and sewn in such a manner that there is a continuous line of nestled Vs, like the birds you might have drawn as a kid. The stitches are raised, allowing pitchers to vary the spin on the ball, which affects the trajectory and better enables strikes. In this way, every stitch has a small impact on the outcome of the game.

Today we’re discussing insurers and the ways that they can grow business by providing the next-generation agent experience. This experience will incorporate agents and customers in a digital process. Can insurers cut two pieces of experience that align and fit together, then bind them with technology that will give them strength and allow them to work together as one, cohesive distribution tool? Can they use all of their resources to put their creation into action, pulling together a digital dream team that’s built to compete?

Majesco has been focusing on how insurers can Build a Field of Insurance Dreams by using next-gen technologies to prepare themselves to compete. Some insurers are making their strategies come to life by stacking in cloud-native computing, microservices, API-ready connections, data and automation. Insurers must be very thoughtful in how they pull together the best of the best to achieve optimal results. 

In September, Celent expanded our study of the agent/insurer relationship with the release of a Majesco-commissioned report, Reshaping the Distributor Insurer Relationship: A Survey of Independent Insurance Agents. I then discussed the findings with Karlyn Carnahan, head of P&C insurance, Celent, and Brad Denning, principal at PwC who leads their distribution management practice, in a fascinating webinar, Seismographic and Technology Shifts Reshape the Distributor-Carrier Relationship. Our conversation was instructive for any insurer that uses agents as a part of distribution, because it covered not only what is needed to foster the best relationships but discussed the overall philosophy and strategy for forging valuable tech solutions. Below are excerpts. We started with Karlyn’s overview of the Celent report.

A field in the midst of change

Demographic pressure, customer experience pressure, ease-of-business issues and digital technologies are sweeping through the industry and shaking up the distributor-insurer relationship.

Karlyn Carnahan

“Agents are going through a lot of changes that they are trying to deal with just as insurance carriers are. The shifting customer expectations that carriers are facing are also impacting insurance agents. Customers expect to be able to interact 24 hours a day, and independent agents don't typically work 24 hours a day, so they're trying to figure out how to create their own digital transformation in order to manage these customer expectations. Most agents aren't equipped to do that.”

And there are changes within the agencies themselves. Partners are retiring. Mergers are more frequent. Insurers need to educate new agents quickly at the same time they are helping them to put together relevant offerings.

Of course, the insurer has its own goals. They are looking at this generation of customers and knowing that digital service must be broad and, in many ways, automated to achieve the speed customers want as they gather information or transact business.

See also: Future of Digital Insurance Claims

Did the path to digitalization end with agent portals?

Denise Garth

Digitalization is a wide-open topic, and there are a lot of definitions relative to distribution. How do you define it? Why is it more than just agent portals? Why does a digital initiative need to accomplish improvements for both the front and the back office?

Brad Denning

“When we first started down this path, [digitalization] was focused on efficiencies and taking costs out of the system. Insurers were trying to automate and bring efficiencies to all of the manual processes and the movement of paper. Once that was accomplished, it seemed as though everyone just moved toward an agency portal type of solution. People thought, 'If we’ve put everything on the portal, we've digitized everything.'

“But sometimes we see challenges when carriers don't necessarily take into account what digital transformation really means for their agencies and their producers — thinking about their distribution force as true customers. You have to take that customer-centric view of what it means to be digital. And if you don't look at both the front and back office, you're going to be neglecting an important part of the value chain.

“There is a wide variety of distributor expectations, and, certainly as they move forward, that has to be keenly monitored by carriers so that they are meeting and exceeding expectations to maintain those strong relationships with key producers, attracting new producers as each generation continues.”

Agent to Carrier — “Know me. Know my business.”

If you’re wanting to create a distribution dream team, you want to give the agents with the skills the best tools to help them do what they do best. Interacting with agents requires knowing agents — not just knowing a little bit about the agent mindset, but deeply understanding agents and the way in which they work to get their jobs done; otherwise, digital work is wasted. The agent perspective provides competitive knowledge.

Denise Garth

“Let’s look at the agency perspective, rather than the operations perspective and expand on the outside-in view.”

Karlyn Carnahan

“The challenge that insurance companies have is that we've been thinking about the customer experience, but from an internal perspective. We think very transactionally around our own workflow. How do I process a payment or make a claim? It's important to streamline, eliminate friction and automate where possible, but that is driven around our own workflow. That's not necessarily how an agent or policyholder thinks about the customer experience.

“From an agent's perspective, it's much broader than the pure transaction. The agent is thinking, 'Know me and recognize the value I have and help me protect my clients and help me service my clients. Contractually speaking, they are my clients, not yours, so don’t disintermediate me and don’t get in the way.'”

Not knowing the agent — an example

Knowing the agent may sound simple, but, in reality, understanding must go beyond surface workflow into the deeper motivations and activities. The problem with minimal understanding is that an insurer will inadvertently create great capabilities that may never be used because they aren’t built using the agent perspective.

Karlyn Carnahan

“I was interviewing a CSR, and she was talking about a particular carrier. She said, 'I could request my endorsements online. They've enabled it. It's faster. It's easier. I could do it and get it over with, but I will never use their functionality,' and I said, 'Well, why not? That doesn't make sense.'

“She said, 'Because when I put in the information requesting the endorsement, I don't get confirmation. So, here's the use case: I put in my information. The underwriter takes a few days and between the time that they process it and I request it, there’s a loss,' she said. 'I have no proof that I asked for that endorsement. And that puts me in an E and O situation.'

That’s an incredibly thoughtful response that confirms the issue. Carrier digitalization of agency processes must include thorough research into actual agency usage and needs.  

Are insurers aligning user experiences?

Brad Denning

“Up until recently, most carriers have looked at customer experience as the policyholder experience — and the producer experience as a completely different set of priorities and governing principles. This can leave the producer experience lacking. When you're not aligning your customer experience at the enterprise level to your strategy or to your producer, you find producers running into experiences that carriers would never put upon their policyholders. How do you interweave and collaborate so that those experiences are unified? Accounting for nuances is extremely important for carriers.”

Preparing for next season — how do insurers begin making distribution changes?

Brad walked us through a Distribution Management Maturity Model that accounted for five states of distribution inside an insurer. These ranged from “Current state chaos” to “Predictive analytics & AI.” I then asked Brad and Karlyn to help insurers envision moving through these states of distribution and what is involved. The idea isn’t to go from one to five overnight. The idea is to progress. How should insurers begin their journeys?

Brad Denning

“I would encourage insurers to first document pain points and use data to highlight the impact of those pain points on your organization.

• How many people are used to doing “X” process?
• How many different manual processes are used to satisfy a particular enterprise process?
• What's the spending associated with maintaining X, Y and Z?

“It’s not that difficult to come up with five to 10 metrics and measurements of that current state. And usually when you're in that state, the data is easy to find, and it's hard to refute. You then build the story of, 'Wouldn't it be better if we could do X, Y and Z?' Build a fact-based case to get alignment within the organization that there is a problem, but there is an opportunity for operational efficiency.”

See also: Underwriting in the Digital Age

Karlyn Carnahan

“Here is a relatively simple and easy thing to do. Start by sending a quick survey out to your agents, and say, 'Here are 12 items. How important are they to you?' Ask, 'How well are we doing these things?' You’ll see whether or not you're providing the agents with the things that are most important to them.

"Follow that question up with, 'If we were able to improve it, how likely is it that you would send more business to us?'

"Now you have your answers. You have both the internal piece, as Brad suggested — 'What is the cost of being inefficient?' Then you have the external piece — 'Where should we begin thinking about these inefficiencies to find that low-hanging fruit, and what kind of an impact would it make in terms of new business production?'”

"Some insurers will be sidelined at this point because they think, 'I can’t do this until I replace my core system.'

"That's not true. There are other options than replacing your core system. It might be a strategy to think about, but there are other things that you can do faster in order to deliver a better experience for your agent and provide the capabilities that they're looking for. Wrapping with a digital platform is a very realistic option to provide some great capabilities.”

Are you ready to play the game?

The Field of Insurance Dreams is filled with opportunities. Can we design and build the insurance experiences that are meaningful for customers and the agents who serve them? Transformation begins with understanding. Alignment is crucial. Technology can bring us efficiencies and satisfy user expectations. If it’s time to look at your distribution with an eye toward the future; don’t delay!

For the full set of distribution insights, be sure to download Reshaping the Distributor Insurer Relationship: A Survey of Independent Insurance Agents, or view the full conversation in to our Majesco webinar, Seismographic and Technology Shifts Reshape the Distributor-Carrier Relationship.

The growth of so many organizations is slowed by the reluctance to hold team members accountable for producing results. We have to reframe the way we think about accountability and stop looking at it in such negative terms.

Accountability is a reflection of how important each team member is to your success.

Agencies struggle with accountability for two reasons. One, they fear it and only think of it in negative terms. Two, they aren’t sure how to create a healthy culture of accountability.

Removing the stigma

When you hear the word “accountability," what immediately comes to mind? Chances are you cringe a bit and start thinking about having difficult conversations and critiquing your team members. And that can be part of accountability. The ironic thing is, though, a culture of accountability prevents most of those types of conversations from being necessary.

Every role on your team is critically important; there are results you must get from each. If those results don’t happen, the team and the business suffer. If you don't hold the individuals filling those roles accountable for making necessary contributions, the message is that they, and their role, aren't that important.

Imagine if the leader sat five people down and asked four of them to discuss their progress toward their goals but didn't ask the fifth. I promise you that the fifth person would walk away feeling as if they weren't important and that their contributions didn't matter.

A healthier cadence

Perhaps people have such negative connotations associated with accountability because accountability is a step of last resort—it only happens once something has gone horribly wrong. Accountability should be part of regular and frequent conversations that take place among the team.

It isn’t about looking for reasons to criticize. It's about monitoring progress toward goals and ensuring each team member carries their weight. The opportunities to celebrate that progress then become more apparent for individuals and the collective team.

In an even marginally successful organization, accountability results in far more opportunities to celebrate than it does in criticism.

Believe it or not, your team, especially the highest performers, wants to be held accountable. They want to know that their efforts are important, recognized and celebrated.

See also: The Sharing Economy and Accountability

Building a foundation of healthy accountability

The steps to successfully introducing and maintaining a healthy culture of accountability aren't difficult to follow. Because agencies tend to hold their salespeople the least accountable of any team members, I will use that role in my examples where appropriate.

Step One

Define the key results you need to get from each role on your team. Fight the temptation to list all the results you may get; stay focused on the two or three that are most important.

Producer example — The key results would be to (one) write new business and to (two) retain current clients.

Step Two

For each of the results identified in Step One, identify the primary behaviors necessary to produce results. Again, stay focused on the two or three most important behaviors.

Producer example — (using the new business example) For a producer to write new business, they must (one) regularly add new opportunities to their pipeline and then (two) efficiently and effectively close those opportunities.

Step Three

Determine how to validate and quantify that the behaviors identified in Step Two are happening. These become the key performance indicators (KPIs) for each role.

Producer example — The KPIs for the goal of writing new business should be (one) the number of opportunities recently added and (two) the conversion and close rates of the opportunities already in the pipeline.

Step Four

Nobody should be more vested or invested in the success of a position than the individual filling it. Provide your team with the tools to track their KPIs and give them the responsibility to track them. This act alone will usually improve results. The things we measure tend to improve.

Step Five

Review those KPIs in regular one-on-one meetings. At a minimum, leaders should have monthly one-on-one meetings with each team member to review their KPIs. There will then be frequent opportunities to celebrate progress and, if results are lagging, a chance to correct the behaviors in a timely manner.

See also:Eliminating AI Bias in Insurance

It’s the right thing to do

In an organization that has avoided accountability, getting started may be a bit uncomfortable. But, for the benefit of the business and especially for each individual depending on the business, it’s the right thing to do.

If you deal with the initial discomfort of accountability, you'll likely never have to deal with the pain of missing your goals.

Download the Producer Planning guide for an outline of the KPI tracking plan.

The Tax Cuts and Jobs Act of 2017 (TCJA) changed the landscape of the municipal market in several ways, as the buying behavior of both P&C and life companies altered their allocations to the asset class. P&C companies shied away from increasing the amount of tax-exempt municipals they owned, in some cases reducing holdings. Life insurance companies used the increase in taxable supply to complement longer-duration corporate allocations. 

In the past four plus years, relative value has diminished across investment-grade fixed-income sectors. However, Conning notes that segments of the broader $4 trillion municipal bond market offer insurers opportunities not only for diversification but to also to enhance portfolio yield and improve aggregate credit quality. 

The municipal market has a larger percentage of securities rated A- or better than the corporate market, and they often offer higher yields than corporate debt of similar quality and duration. Municipal securities, particularly taxable deals, will typically have a longer duration and a lower history of defaults than corporates (see Figure 1).

Figure 1 Municipal vs Corporate Bonds

Starting high level and then homing in on a specialized subsector, Conning has identified four municipal market segments that could offer value to an insurer’s portfolio: taxable municipals, not-for-profits institutions, lower-coupon tax-exempt securities and tax-exempt mortgage securities (TEMS). 

1. Taxable Municipals 

The less mainstream taxable municipal market offers insurers more opportunities to invest in longer-duration, higher-quality securities that, on average, offer greater yields than corporate debt of similar tenor and quality. 

The taxable municipal market grew out of 1986 legislation that limited issuance of tax-exempt bonds, and issuance has spiked twice in the interim. When the tax-exempt market seized up amid the financial crisis in 2008, municipal issuers turned to Build America Bonds (BABs), which were issued as taxable securities but provided municipal issuers a direct 35% federal subsidy (see Figure 2). The second spike resulted from the aforementioned TCJA passage, which ended the advance refunding of tax-exempt debt with other tax-exempt debt, effectively reducing new tax-exempt issuance and driving up taxable issuance. 

Figure 2: Taxable Municipal Issuance 2008-2020

Insurers with concerns regarding the dwindling supply of higher-quality corporate debt issuers may find taxable municipal securities an effective alternative. In addition, the National Association of Insurance Commissioners (NAIC) has adopted new risk-based capital (RBC) bond factors for year-end 2021, and the larger amount of higher quality debt available in the municipal market offer insurers more options to potentially address RBC concerns. 

The taxable municipal market today features more robust liquidity, and demand from domestic as well as foreign investors has increased at a rapid rate. According to Municipal Securities Rulemaking Board, total municipal trading volume in 2020 was $1.93 trillion, with $371 billion, or nearly 20%, being taxable. The federal government’s current focus on an infrastructure bill may lead to additional opportunities, including the possible return of a financing program like BABs with a subsidized interest component. Reintroduction of such a program could see issuance of $150 billion to $180 billion in the first year alone.

2. Not-for-Profit Institutions 

Debt issued by not-for-profit entities such as hospitals and higher education institutions via the corporate bond market rather than the municipal market offers insurers diversification and greater spreads than comparably rated investment-grade corporate debt. 

Known as “corporate CUSIP taxables,” this growing class of securities is a sub-class of municipal bonds that utilize a corporate CUSIP identifier. Issuers decide whether to issue via the corporate or municipal market based on financial considerations, such as the use of funds, funding costs, depth of investor pools, and ease of registration, and typically access the corporate bond market to issue longer-dated structures. While these issuers come to market with corporate CUSIPS, they are issued by a municipal syndicate, traded off municipal trade desks and covered internally by Conning’s municipal research analysts. 

See also: Death, Taxes and Life Insurance Trusts

Hospitals and higher education institutions combine for more than 80% of this market’s issuance and offer insurers opportunities to expand their investable universe from a pool of higher quality debt than traditional corporates. One recent example demonstrates the type of opportunities available. Conning was able to invest in a new issue 20-year debt of an A1/AA- rated healthcare institution at 90 basis points over Treasuries, a significant pickup to similarly rated corporate debt in that part of the curve. Conning initiated internal coverage of the credit with a Low AA rating and Stable outlook based on a strong market position and financial metrics that held up during the pandemic. The credit also has a successful growth strategy which made us confident in the institution’s long-term prospects.

3. Lower-Coupon Tax-Exempts 

Tax-exempt municipals issued with coupons below 5% offer investors to take advantage of yield differentials which affect retail and not institutional investors known as the "down in coupon" trade. For example, in the current market, the average 3% coupon currently offers around 35 basis points of additional yield over 5% coupons in the 15-20-year part of the curve (see Figure 3).

Figure 3: "Down in Coupon" Yield Comparison

This opportunity comes about because of a change in tax laws 30 years ago that was aimed not at institutions but at the largest holders of municipal bonds: retail investors. Conclusion Despite the dramatic changes in the U.S. municipal capital markets during the past four years, insurers should not ignore the sector altogether. There are pockets of the municipal market that may offer relative value in a market where value can be hard to find. Conning encourages insurers to keep their eyes open for select opportunities in both the taxable and tax-exempt municipal markets. Our experience reminds us that markets are always evolving, and our goal is to help insurers take advantage of unique opportunities as they arise and help clients build portfolio investment solutions to address their business needs. 

A provision of the Revenue Reconciliation Act of 1993 focused on retail investors’ purchases of municipal bonds at a “discount” (a formula determines the minimum discounted purchase price). The new law decreed that, if a “discount” security was eventually sold, transferred, or redeemed, the accrual of that discount would be taxed as ordinary income rather than at the holder’s capital gains tax rate. 

This law change does not affect insurers, which pay the same tax rate for both ordinary income and capital gains. However, individuals in the highest tax bracket could be faced with more than double the tax liability for these securities (the 35% rate for ordinary income versus the 15% for capital gains) should they sell them before maturity. The additional yield is intended to compensate the retail investors for the potentially higher tax liability, but insurers can take advantage of the higher yields when presented. With Conning’s deep experience in the municipal bond market, we can identify and assess these opportunities on a security-by-security basis.

4. Tax-Exempt Mortgage Securities (TEMS) 

A narrow but potential opportunity to enhance yield and diversification also exists in tax-exempt mortgage securities (TEMS). 

TEMS are long-dated debt issued by the housing finance authorities from two state housing agencies: Utah and Idaho (the latter no longer issuing new debt). The securities are structured as mortgage-backed securities with cash flows mapped to a specific Ginnie Mae pool. Each monthly series of issuance is secured separately from previous offerings and must be evaluated on a deal-by-deal basis. The first TEMS issuance was in May 2014 and to date there has been $2.66 billion with the average monthly issuance over the past 12 months of $43.3 million.

See also: Self-Insured Retention vs. Collateral – What is the True Cost of Risk?

These securities are slightly more expensive than if the underlying GNMA collateral were purchased directly, but investors are compensated as most income received is tax-free, thus at times offering relative value to Ginnie Mae MBS and other tax-exempt alternatives. As the debt is backed by mortgages, it offers insurers diversification and an amortizing structure with a much shorter duration profile, albeit with refinancing risk. 

Conning has long experience with the underwriters of these securities and municipal traders collaborate with our MBS desk to assess relative value on each offering. Our recommendation to clients who find this subsector attractive is to participate not just in one deal but a number over time, redeploying cash flow from prepayments to maintain a target TEMS allocation in a portfolio over time.

Conclusion 

Despite the dramatic changes in the U.S. municipal capital markets during the past four years, insurers should not ignore the sector altogether. There are pockets of the municipal market that may offer relative value in a market where value can be hard to find. Conning encourages insurers to keep their eyes open for select opportunities in both the taxable and tax-exempt municipal markets. Our experience reminds us that markets are always evolving, and our goal is to help insurers take advantage of unique opportunities as they arise and help clients build portfolio investment solutions to address their business needs.

Board members and company executives can be held liable for an increasing range of scenarios. Today’s market volatility, with the increased threat of asset bubbles and inflation, the prospect of a growing number of insolvencies due to the pandemic environment, together with rising scrutiny around the environmental, social and governance (ESG) performance of companies and the urgency for robust cyber resilience are key risks for directors and officers (D&Os) to watch in 2022, according to the latest annual D&O report by Allianz Global Corporate & Specialty (AGCS).

Uncertain insolvency issues continue to be key topic in the D&O space

The withdrawal of support for companies established during the pandemic sets the stage for a gradual normalization of business insolvencies in 2022. The Euler Hermes Global Insolvency Index is likely to post a +15% y/y rebound in 2022, after two consecutive years of decline (-6% forecast in 2021 and -12% in 2020). 

While the wave of insolvencies has so far been milder than anticipated, mixed trends are expected across the world. In less-developed markets, such as Africa or Latin America, the number of insolvencies is expected to increase faster compared with more developed economies, such as France, Germany and the U.S., where the impact of the governmental support is expected to last longer. 

Traditionally, insolvency is a major cause of D&O claims as insolvency practitioners look to recoup losses from directors. There are many ways that stakeholders could go after directors following insolvency, such as alleging that boards failed to prepare adequately for a pandemic or for prolonged periods of reduced income. 

Market volatility, climate change and digitalization key issues 

The financial services industry, but also companies from other sectors, continues to face multiple risk management challenges in the current economic climate. Markets are likely to become more volatile with the increased risk of asset bubbles and inflation rising in different parts of the world. At the same time, more banks and insurers are expected to assign individual responsibility for overseeing financial risks arising from climate change, while investors are paying closer attention to the adequate and timely disclosure of the risk that it poses for the company or financial instrument they invest in. The tightening regulatory environment, the prospect of climate change litigation or ‘greenwashing’ allegations could all potentially affect D&Os. 

Meanwhile, digitalization has accelerated following COVID-19, creating enhanced cyber and IT security exposures for companies. This requires firms’ senior management to maintain an active role in steering the ICT (information and communication technologies) risk management framework. 

See also: CISOs, Risk Managers: Better Together

IT outages and service disruptions or cyber-attacks could bring significant business interruption costs and increased operating expenses from a variety of causes, including customer redress, consultancy costs, loss of income and regulatory fines. Last, but not least, brand reputation can also suffer. All this can ultimately affect a company’s stock price, with management being held responsible for the level of preparedness.

Heightened litigation risk in the U.S.

Litigation risk continues to be a top D&O concern, in particular around shareholder derivative actions, which are increasingly being brought on behalf of foreign companies in U.S. courts. 

Since early 2020, a group of plaintiffs’ firms has brought more than 10 derivative lawsuits in New York state courts on behalf of shareholders of non-U.S. companies seeking to hold directors and officers legally and financially accountable for various breaches of duty to their corporations. 

The financial hurdles to bring suit in the U.S. are significantly lower than in many other countries, and U.S. courts and juries are considered more plaintiff-friendly than many others around the world. The consequences to directors and officers forced to defend themselves in derivative litigation before U.S. courts can be severe. In what may turn out to be a record-setting settlement for a U.S. derivative lawsuit, in October of this year defendants agreed to pay a minimum of $300 million to settle litigation brought in a New York state court by shareholders of Renren, a social media corporation based in China, and incorporated in the Cayman Islands, after allegations of corporate misconduct.

Elsewhere in the U.S., the report notes that a decision by the Delaware Supreme Court in 2019, Marchand v. Barnhill, which focused on the fallout from a listeria outbreak, is potentially leading to greater exposure for individual corporate directors in the form of shareholder derivative suits, as it is seen to have lowered the previously high standard required for plaintiffs to prove a board’s failure to comply with their duty of care, as established in the landmark Caremark Int’l verdict in 1996. Board members must accordingly re-examine whether there is sufficient Side A cover (which covers liabilities incurred by an individual in their capacity as a director or officer) in their D&O insurance program.

Scrutiny over SPACs

Another emerging risk in the global D&O insurance space comes from the growth of so-called Special Purpose Acquisition Companies (SPACs), also known as "blank check companies." These represent a faster track to public markets. Advantages fueling the growth of SPACs over traditional initial public offerings (IPOs) include smoother procedures, less regulatory and process burdens, easier capital sourcing and shorter timelines to complete a merger with target companies. 

During the first half of 2021, the number of SPAC mergers in the U.S., both announced and completed, more than doubled the full year total of 2020, with 359 SPAC filings raising a combined $95 billion. The growth of SPACs in Europe may not match the scale of the U.S. boom, but there is still a growing expectation that it will increase despite a less favorable company law environment compared with the U.S. In Asia, the market is slowly gaining momentum, with a significant uptick in companies in China, Hong Kong and Singapore as a new route to accessing capital markets.

See also: Where Were the Risk Managers for King’s Landing?

SPACs carry a set of specific "insurance-relevant" risks, and losses are already reported to be flowing through to the D&O market as both the SPAC and the private target company typically obtain D&O coverage. Exposures could potentially stem from mismanagement, fraud or intentional and material misrepresentation, inaccurate or inadequate financial information or violations of rules or disclosure duties.

In addition, a failure to finalize the transaction within the two-year period, insider trading during the time a SPAC goes public, a wrong selection of a target to acquire or the lack of adequate due diligence in the target company could also come into play. Post-merger the risk of the go-forward company to perform as expected or failure to comply with the new duties of being a publicly listed company also needs to be considered.

To learn more about D&O risk trends, please see the full report at AGCS annual D&O report: 2022.

People love to play games. And gamification can help carriers leverage behavioral psychology to increase sales and reduce customer churn — especially as people buy more insurance online. 

Carriers that have adopted gamification in their marketing strategies are already experiencing the benefits. For instance, Aetna, a health insurer, saw a 50% increase in healthy behaviors from their clients after implementing gamification techniques companywide. 

What Is Gamification?

Gamification refers to the use of game design elements to improve customer experience and customer engagement. They can include quizzes, contests, point systems and leaderboards.

Gamification can make tedious processes fun! Some of the best ways to gamify your customers’ interactive experience include: 

Several insurance companies have adopted gamification in their marketing strategies. Some of the most common applications of gamification in insurance include: 

• Educating customers on products/services 
• Simplifying complex processes 
• Promoting innovative business models 
• Promoting the company’s brand 
• Promoting awareness for healthy behavior 

Gamification in Insurance

Lead Generation 

Some insurers are using gamification to educate clients on their products. Carriers can facilitate this by creating gamification systems and applications that provide customers with information about the different insurance plans available to them. 

For example, Tryg, a Danish insurer, created a quiz about dental health. The quiz was intended to generate leads for their outbound team and increase awareness of their dental insurance products. The test had five teeth-related questions, such as, can white wine stain your teeth the same way red wine can, etc. 

The quiz produced 595 leads, and a 29% conversion rate for those who completed it. Those who participated were informed beforehand they’d receive a call from Tryg’s outbound team, who answered questions about their products and gathered even more leads. 

This method of gamification taps into the user’s emotions by making them feel like they have accomplished something by completing the quiz while the insurer promotes their brand and educates clients on their products/services. 

See also: Gamification: Key to Engaging Sales Force

Encouraging Healthy Living

Gamification can also influence people to change their behavior for the better by raising awareness for healthy behavior. 

For example, UnitedHealthcare, a health and life insurance company, created a program called “UnitedHealthcare Motion” that uses a gamification app to help companies improve the health and well-being of their employees. 

Each plan member is given an activity tracker and an app to record their daily activity. The app is personalized using local maps so users can know what 10,000 steps look like. If an employee meets their daily walking goals, they get an opportunity to earn $1,000 for out-of-pocket medical expenses. 

UnitedHealthcare’s gamification is successful because it generates competition and accomplishment among the users who meet their goals and allows the users to progress over time. 

Building Brand Affinity 

Some insurers are even integrating branded elements with existing games and applications to increase brand affinity with a new user base. 

For example, Farmers Insurance Group, a home, auto and life insurance company, integrated a Farmers-branded blimp to Zynga’s popular FarmVille simulation game. In the FarmVille game, each user is given a virtual farm with crops to protect and harvest. 

The carrier-branded blimp can help protect players’ crops from withering away. Thanks to one retro-pixelated blimp, the Farmers brand is now associated with the concept of protection -- in a fun way -- in the minds of countless players.

This is an excellent example of how insurers can use gamification to their advantage without creating an entire system or application from scratch. 

Tapping Intrinsic Motivation

Insurance companies need to understand how gamification can influence emotions and behavior. 

Psychologists point to two types of motivation: intrinsic and extrinsic.

• Intrinsic motivation occurs when we perform an activity for our internal satisfaction and internal rewards rather than material rewards. 
• Extrinsic motivation happens when we complete a task based on external causes, such as avoiding punishment or receiving a reward. 

While extrinsic motivation is helpful in the short term, intrinsic motivation produces more lasting results. 

When customers are intrinsically motivated through personalized gamification strategies, they are more likely to have long-term loyalty and be satisfied. This is because intrinsic motivation goes beyond points and badges; it affects a user’s sense of competence and self-efficacy. 

For example, suppose an auto insurer created a customer engagement/road safety awareness program where users track their driving behavior through telematics. The insurer could identify hazardous driving behaviors the user shows and improve their safety based on the data. In that case, gamification ultimately affects intrinsic motivation because the user's action is motivated by the internal satisfaction of driving more safely, continuing to best himself and potentially lowering his premiums.

Creating a Meaningful Gamification System

Scott Nicholson, an author and professor of game design and development at Wilfrid Laurier University, says scoring systems are based on assumptions and biases of businesses that created the game. To create a gamification system that has long-term success, carriers must generate games that connect with users’ goals and values. 

For example, people have different priorities when it comes to their health. Insureds experiencing high levels of stress might find more value in a game that rewards them for meditation. Overweight customers might prioritize a game that encourages them to exercise daily. By adding options to the game, insureds can focus on areas that are most important to them and establish a more prosperous relationship with their carrier. 

See also: Building Healthy Workplaces

Get in the Game 

Insurers need to understand how gamification can help customers stay engaged, understand insurance products better, lower their premiums and improve their lives all at the same time. As insurance becomes more digitized, carriers should experiment with gamification across their digital properties to better connect with customers. With gamification, they can better understand what customers want and simplify complex processes to speed purchasing of insurance products. 

Of course, insurers also need modern systems for underwriting, rating and processing new and renewal business before committing to gamification.  Without state-of-the art internal systems, gamification is more likely to fizzle than sizzle and frustrate rather than entice.

Robin Merttens, a partner at InsTech London, posted a clever essay last week laying out a New Year's resolution for the insurtech community he serves. It is: "Please can we collectively resolve to rein in the use of superlatives and hyperbole in 2022 and get back to describing what we do in clear, simple and proportionate language?"

I'd like to broaden that resolution to the whole industry, as part of my occasional rant on how the insurance industry's language holds it back.

In his essay on LinkedIn, Robin goes off on the use of superlatives, such as "best" (especially "best of breed" and "best in class"), "unrivaled" and "leading."

He writes, "You are saying that you reign supreme and that there are none better at what you do worldwide/in your class/of your breed. This is wrong at so many levels, starting with the fact that in most cases it’s simply not true.... To make matters worse, the words are so overused as to have become meaningless. You can’t all be the best, although one of you is, and that doesn’t matter because no one believes you anyway!"

He also takes a shot at empty buzzwords, such as "next generation," "new era," "cutting edge," "revolutionary" and "state of the art."

He then offers a solution: "an application that sits on your browser and detects and deletes meaningless words and inappropriate superlatives in all marketing material. It’ll be like cyber protection, but instead of detecting inbound malware it will filter hyperbole."

Robin says he'll call the app Hogwash, use the domain name www.hogwash.bs and, using the lingo currently employed by insurtechs, describe the app like so:

“Hogwash is a unique, state-of-the-art drivel detector which combines best-of-breed technology and cutting-edge AI to provide an unrivaled way to eradicate technological trumpery. It is a world-beating solution that makes the very best use of next-generation technology to detect and filter hyperbole.”

The app would strip out all the fluff and tell you that “Hogwash is a bullsh*t detector.”

I'd sign up for that app. You?

I'd just add, having edited thousands of articles from established companies for ITL, that I can assure you the insurtechs aren't the only offenders. Incumbents aren't quite so likely to claim that they've discovered fire, but they still can't resist hyperbole that we'd all be better off without.

Some of my pet peeves, which I hope we'll all see less often in the New Year:

Companies rarely write about "crises" and "catastrophes" when they can write about "major crises" and "major catastrophes" -- there can be a minor crisis or minor catastrophe? It's bad enough that "transformation," "disruption" and "revolution" get tossed around so liberally when most change is incremental, but I'll often see references to "major transformation" and "major disruption," even though, again, such upheavals don't come in "minor" varieties.

"Proactive" is another one that generally sets my teeth on edge. People sprinkle that word throughout their writing to try to show they're really working hard, generally at serving customers. But step back for a second. Verbs are actions. Putting "actively" in front of a verb, which people do often, means you're saying you're actively taking an action. Now add "pro-," which connotes another level of aggressiveness, and you're saying that you're aggressively, actively taking an action. We get it.

I can see a use for "proactive" when it's used to distinguish from a reactive stance, but not otherwise.

One more: "New" is a great word, but it doesn't need to be used three or four times in a paragraph, let alone in a single sentence. Yes, you're introducing new products, creating new businesses and setting new records, but could you really be introducing old products, creating old businesses and setting old records? And don't even get me started on "new innovations" -- new new things -- which I actually see quite a bit. What you're doing comes across loud and clear without "new" sprinkled everywhere, and the writing will feel much stronger without it and the other superfluous words that Robin and I are harping on.

Those words aren't, by any means, the only problems that sap power from the writing I see in the insurance industry. (Looking at you, "decisioning" and "trialing.")

And the sorts of problems Robin and I describe are hardly the worst of the language problems facing the industry. I've written previously about what I think of as the bigger problems, which concern obtuse language that confuses customers and that can even make them believe we don't have their best interests at heart. I've written about those bigger problems here, here and here.

But, at the risk of scaling back my ambitions for the industry, I'll settle this coming year for less hyperbole. The industry has a great story to tell, and we'll tell it better if we strip out the over-the-top language. Doing so would represent a major, new, best-of-breed, unique, transformative step forward.

Happy New Year!

Paul

The Real Threat to Auto Insurers Paul Carroll, Editor-in-Chief of ITL For decades, executives at auto makers have complained about all the revenue and profit they create for others but don’t get a taste of themselves. The manufacturer generates, say, $3,500 of gross profit on the sale of a $30,000 car while creating far larger opportunities for others — the commission paid to the dealer, plus revenue from repairs, service, insurance and more. Auto makers have repeatedly tried to capture more of the downstream revenue related to car sales and are now taking dead aim at insurance. There’s reason to think they’ll make inroads, too, because insurance is increasingly based on data on driver behavior — and auto makers have easy access to all that data. continue reading > An Underwriting Arms Race Join Denise Garth for an all new podcast featuring Vantage Risk's Gail McGiffin where they discuss what are the underlying drivers in commercial/specialty lines segment, how data is driving the volution of underwriting, and insights in how to change your mindset to achieve speed to market. Listen Now SIX THINGS The Opportunity in Ecosystems by Toni Tomic Ecosystems are laying the groundwork for a network-based economic order that promises to reshape our lives and our lifestyles as consumers. Read More Managing New Age of Construction Risks by Michael Pignataro While digitizing has improved customer The global construction market is set for a sustained period of strong growth post-COVID-19, with radical changes in design, materials and processes. Read More The Virtual Insurance Agent Sponsored by Creative Virtual  With conversational AI, insurance companies can deliver easier and more convenient digital support to customers, improve agent experience and productivity, and reduce contact center traffic. Read Now Incumbents Are Slow on ‘Open Insurance’ by Maarten Bakker Incumbent insurers and banks still seem in no rush to strengthen their currently weaker position to capture the value from Open Insurance. Read More Insurers Must Bond With Agents by Denise Garth The future is going to include stronger insurer/distributor relationships. Agents want it. Insurers need it. Customers will benefit from it. Read More 3 Powerful Data-Driven Strategies by Leandro DalleMule With super granular data continuously becoming more accurate and available, some companies will take advantage and win the market Read More Emerging Risks With Long Tails by Donna Galer Brokers and risk managers should prepare for possible claims many years from now related to climate litigation and "forever chemicals." Read More Soft Landing, Headwinds and Rebound Sponsored by Rimini Street  Paul Carroll Editor-in-Chief and Dr. Michel Leonard, CBE, head of the Triple-I’s Economics and Analytics Department, discuss the Triple-I’s latest Insurance Economics Outlook for Q4 2021 focusing on this year’s unusually wide range of growth and inflation forecasts and key performance indicators for the P&C industry in 2021 Read More MORE FROM ITL December Focus: Smart Home "Even before a commercial version of the internet browser was invented in the early 1990s, the rich, geeky types I dealt with in my travels at the Wall Street Journal were figuring out ways to wire their homes to ward off possible intruders." Read More Global Insurance Forum Experts Series   Sponsored by International Insurance Society  Over this six-part series, hear from industry leaders about building an innovation culture, leveraging data for success, and more. Watch Now Partner with ITL to create expert thought leadership content. Custom Content Promoted Content Display Advertising Custom Webinars Monthly Topic Sponsorships ITL Partner Packages and more Learn more and get the 2022 Media Kit GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started SPREAD THE WORD Share Share Tweet Forward SUBSCRIBE TO SIX THINGS

 

For most organizations, cloud migration is more than just a change in software. It’s a transformation that requires a culture change and buy-in from not only IT but also the business units whose processes are ultimately affected.

In today’s business environment, moving from legacy to the cloud most often means moving to a software-as-a-service (SaaS) solution that resides in the cloud. A recent report by Gartner forecasts that end-user spending on cloud services in 2022 will reach $482 billion. SaaS will remain the largest segment of cloud services, with spending expected to reach nearly $172 billion, Gartner indicates. 

For surety companies and insurance carriers in general, the legacy system may vary. In some cases, the migration might mean moving from an older, on-premises version of software, while in other instances it involves moving from a custom-built, in-house system.  

But the success of any cloud migration or modernization project is hinged on factors outside of the technology itself. Organizations tend to gloss over the culture change, but it is critical to the success of any modernization, migration, or digital transformation project. 

Deloitte explains: “Digital transformation calls for more than just updating technology or redesigning products. Failure to align the effort with employee values and behaviors can create additional risks to an organization’s culture if not managed properly, whereas a comprehensive and collaborative effort can help shift the culture to understand, embrace, and advance digital transformation.”

The culture shift may include rethinking the way projects are completed, and which teams and stakeholders are involved in the modernization process. The reshaped culture and the change management team will inform the various phases of the legacy-to-cloud migration process, and, to be successful, an advocate must guide it. 

Understanding the role of the change manager

That advocate is the change manager. In advocating for the implementation, this individual will drive the culture change. Organizations frequently discover that the biggest naysayer, or person who at first is opposed to change, can end up as the most vocal cheerleader once they understand the benefits of change. A good advocate helps to spread the buy-in to others in the organization. For this reason, the change manager can’t be an outsider. That person must be a key stakeholder who understands and wants the process improvement and its resulting benefits for the organization and who is trusted by others within the organization.

See also: 3 Powerful Data-Driven Strategies

One accountable and empowered business owner

Along with the change manager, it is also critical to designate one person as the business owner — a business decision maker with the authority to make key design decisions and say yay or nay to requested changes as they unfold, understanding clearly the impacts to the project. Decision making by committee can kill a project. 

Time commitment is a significant consideration when determining the right business owner. As this individual will set the tone for the direction of the project and is often the project’s greatest champion, the business owner must be visible, must understand key risks and issues and must be able to dedicate the amount of time required for the life of the project.

Rethinking the preparation stage

Planning and gathering requirements are crucial for any successful modernization or cloud migration project. This preparation stage includes a vital gap analysis, in which current processes are evaluated against a forecast of future needs. Once the gap analysis is complete, the results can be compared with the future SaaS solution’s capabilities.  

The business users who will be most affected by the cloud migration must be part of the requirement-gathering phase. Here’s why: The SaaS implementation will be smoother and more successful if they, rather than the IT department, specify the required capabilities of the new system. This departure from the traditional IT-directed approach requires a shift in thinking but will pay off. 

Be realistic about project scope and resources

When taking on a migration to cloud, or any type of digital transformation, organizations need to move away from “big bang” or “flip a switch” expectations, which are unrealistic for a successful modernization project. It’s critical for the organization to understand the scope of any digital transformation or cloud migration project, including how much and what level of work is involved, and what resources are necessary.

The availability of business and technical resources is a common challenge when implementing a SaaS solution. Internal resources involved with the implementation must be able to commit for the entire project, from the business owner and change manager to every other modernization team member. Organization leaders must recognize that the project will be impaired if resources or subject matter experts are not available. If a key person can dedicate only a minimal amount of their time to the implementation, the project will quickly lose ground. 

Rethinking IT projects as business solutions

Moving from a legacy system to a SaaS solution looks different from traditional IT projects and often means a new way of thinking about systems and IT, particularly in the insurance industry. Modernization projects must be reframed as business solutions, not merely IT changes, that transform the entire business model. 

McKinsey wrote in an article about the effect of IT modernization in the insurance industry: “Insurers too often treat systems transformations as IT projects rather than acknowledging them for what they are: overall business transformations.” 

Business users must play a more active role when implementing a SaaS solution. Because SaaS solutions are typically built using low-code models, organizations don’t always need IT resources involved from a traditional software development standpoint. Although IT team members will be involved in application programming interface (API) integrations, data migration and security, most of the testing can — and should — be done by the business users, not IT. 

See also: Data Security to Be Found in the Cloud

Keeping future evolution in mind

There are a variety of benefits and advantages to choosing a SaaS solution over proprietary systems for modernization. As McKinsey notes, “Standard systems are typically much more streamlined and include ready-made functionality for pricing, underwriting, customer self-service and automation and claims processing. As a result, they can improve efficiency across the enterprise.”

When implementing a SaaS solution, it’s recommended that organizations stick as close as possible to the base functionality of the software. If the base SaaS system is too modified or customized, every future deployment will require more work, from the SaaS solution provider’s development, deployment and testing to the client organization’s testing, that will strain resources and drive up costs. If the original solution is altered too drastically, future upgrades could be a problem, as well.

To avoid having to customize a SaaS solution, it’s better to make sure the solution fits your organization’s needs from the start. Finally, the culture change necessary for a successful and effective modernization project needs to start from the top. Bringing teams together is a must to set goals and expectations when moving to a cloud-based solution. But culture change is most effective when steered by the leadership team. They must make the transformation a clear priority for the organization, or the move forward will be unnecessarily challenging.