Tag Archives: Celent

Overcoming Concerns by Millennials

According to a recent article by Policy Genius, “The cost of college has skyrocketed over the last decade, resulting in $1.4 trillion of outstanding student loan debt. The burden of educational debt weighs greatest on millennials — those born between 1981 and 1996.

Not surprisingly, college debt is influencing their behavior and spending habits. Research shows millennials are holding back on buying homes and making other big-ticket purchases because they are afraid of taking on more debt. Millennial families are also postponing other financial outlays, such as life insurance, because of debt concerns, according to a recent survey by SE2.

Marriage and kids continue to be the life-changing events that trigger purchases of life insurance. As millennials buck the trend, insurers have to be versatile to adapt to their consumer tastes and lifestyles to capture this vastly untapped market segment.

Start with technology

Speed and convenience are increasingly critical to a good brand experience. Those raised as digital natives do not want to wait for several weeks for underwriting to size up an applicant’s risk. To be sure, a number of insurers have leveraged technology to accelerate the cycle time, but there is still far more we have to do. According to a recent report from Celent, cycle times for modest face amount carriers has dropped from 33 to 26 days, which is a solid improvement but still almost four weeks.

See also: The Great Millennial Shift  

Insurers rely on a mountain of public information — from motor-vehicle records to credit information to property records — to properly assess risk and price premiums. One late monthly payment on college debt can cause a credit score to drop, which could drive up premiums. What if price-sensitive millennials could offset the negative of a low credit score by sharing data from their Fitbit exercise app?

New York’s top financial regulator is taking a step in this direction by allowing life insurers to use data from social media and other nontraditional sources when setting premium rates. Through leveraging data available through electronic medical records and health claims data, more and more carriers are able to provide a fluidless underwriting experience without an APS (Attending Physician’s Statement). In the digital era, many of these digital natives are tracking everything from the food they eat to the number of steps they take every day. Our research shows that millennials might be more willing to buy insurance if their real-time health data could reduce premiums.

Create an authentic experience

Millennials are increasingly more discriminating about the firms they choose to do business with, showing a preference for companies that are authentic, ethical and committed to social good.

This partiality stems in part from the 2008 financial crisis when a shortage of jobs affected the employment opportunities for older millennials. Younger millennials witnessed the pain of parents losing their jobs or their homes, or both. The scary economic news sowed a pessimism about the future and increased their desire for transparency.

See also: Why Financial Wellness Is Elusive  

Big companies have had to scramble to adjust to shifting attitudes. Mass marketing through TV advertising is proving less effective. Companies that target millennials with creative experiential campaigns are finding greater success. The engagement can be online, too, through gamification, loyalty programs and reporting on daily activities and life events. Some of the more innovative insurance carriers have seem immense success partnering with financial technology startup such as Life.io and Vitality to create customer engagement programs that has led to reduction in lapse rates and opened up new cross-sell and up-sell opportunities.

Despite their financial concerns, we found that millennials value insurance and the peace of mind it provides. It falls upon the insurance industry to meet this generation where they are by creating tailored products, tools and processes that connect with how they live and consume today.

How to Partner With Insurtechs

Incumbent insurers face both challenges and opportunities from concurrent forces. Dramatically changing customer expectations and low investment returns threaten both property and casualty and life insurers. Declining participation rates and indifference from millennial consumers restrict growth in life companies. Technologies such as driverless cars and sensors (Internet of Things) promise to shrink revenue in P&C.

To evolve their business and technology models, insurers are diversifying their approach to automation. Historically, in most insurance technology initiatives, the projects were fairly well-understood and had likely been implemented before. Policy, claims, and billing administration replacement efforts were typical of these automation investments.

In contrast, emerging digital approaches are uncertain and require new service models, products and capabilities. The continued rise in insurance-related technology startup funding reflects the changes that are underway in insurance IT. Insurers need advanced skills in emerging technologies. Technology startups need industry and regulatory compliance knowledge. The result has been an increasing number of partnerships between insurers and startups that go beyond a supplier-buyer relationship.

See also: Startups Take a Seat at the Table  

However, there are significant barriers to success on both the insurer and the startup sides of this equation. Insurers must address risk-averse behaviors and increase decision speed. Startups need to scale (gain customers), understand the regulatory environment and navigate opaque insurance products. Left unmanaged, partnerships do not work as well as expected.

The report titled Insurer-Startup Partnerships: Key Success Factors presents the feedback of 89 insurers and 78 insurance-focused startups from online surveys regarding best practices in partnership management. The major finding is that the two groups are generally aligned in terms of the importance of insurance innovation, but that there are key challenges related to initiative definition and accommodation of different cultural norms that must be addressed.

It will take time to work out the best ways to accomplish this new partnership model, but the barriers faced by both sides will force each to adjust. An analysis of survey results indicates that success will be improved by recognizing the following:

  • Cultural alignment and a shared vision are key.
  • Startups perceive that they are being more disruptive than they actually are.
  • Leaders of innovation initiatives must seek and implement bridging activities that join the two worlds.

See also: Engaging Employees: Key to Success  

Success will come to those insurers and startups that can make the necessary adjustments to their own preferences, cultures and working models to create meaningful partnerships.

How to Speed Up Product Development

The traditional product development cycle in property and casualty insurance moves at a snail’s pace. Drafts, approvals, revisions, verifications of key details and other steps place months between the moment a product is envisioned and the day it becomes available to customers.

As technology speeds the pace of daily life and business, the traditional product development cycle continues to represent a drag on P&C insurers’ efficiency and bottom line. Here, we discuss some of the biggest pain points in the product development cycle and ways to boost speed without sacrificing quality.

Cycle Slowdown No. 1: Outdated Processes

During the last few decades of the 20th century and into the 21st, speeding up the product development cycle wasn’t on most P&C insurers’ to-do lists, Debbie Marquette wrote in a 2008 issue of the Journal of Insurance Operations. Using the fax and physical mail options of the time kept pace with the as-needed approach to product development.

Marquette noted that in previous decades, product development not only involved a team, but it often involved in-person meetings. “It was difficult to get all the appropriate parties together for a complete review of the product before the filing,” Marquette wrote, “and, therefore, input from a vital party was sometimes missed, resulting in costly mistakes, re-filing fees and delays in getting important products to market before the competition.”

In the 1990s, the National Association of Insurance Commissioners (NAIC) realized that the rise of computing required a change in the way new insurance products were filed and tracked. The result was the System for Electronic Rate and Form Filing (SERFF).

SERFF’s use rose steadily after its introduction in 1998, and use of the system doubled from 2003 to 2004 alone, according to a 2004 report by the Insurance Journal. By 2009, however, SERFF’s lack of full automation caused some commentators, including Eli Lehrer, to question whether the system needed an update, an overhaul or a total replacement.

Property and casualty insurers adapted to SERFF and the rise of other tech tools such as personal computing, word processors and spreadsheets. Yet adaptation has been slow. Today, many P&C insurers are still stuck in the document-and-spreadsheet phase of product development, requiring members of a product development team to review drafts manually and relying on human attention to detail to spot minor but essential changes.

The result? A product development process that looks remarkably similar to the process of the 1980s. The drafts and research have migrated from paper to screens, but teams must still meet physically or digitally, compare drafts by hand and make decisions — and the need to ensure no crucial detail is missed slows the product development process to a crawl.

See also: P&C Core Systems: Beyond the First Wave  

Cycle Solution No. 1: Better Systems

The technology exists to reduce the time spent in the development process. To date, however, many P&C insurers have been slow to adopt it.

Electronic product management systems streamline the process of product development. The “new-old” way of using email, spreadsheets and PDFs maintains the same walls and oversight difficulties as the “old-old” way of face to face meetings and snail mail.

In a system designed for product development, however, information is kept in a single location, automated algorithms can be used to scan for minute differences and to track changes and tracking and alerts keep everyone on schedule.

By eliminating barriers, these systems reduce the time required to create a P&C insurance product. They also help reduce errors and save mental bandwidth for team members, allowing them to focus on the salient details of the product rather than on keeping track of their own schedules and paperwork.

Cycle Slowdown No. 2: Differentiation and Specificity

Once upon a time, P&C insurers’ products competed primarily on price. As a result, there was little need to differentiate products from other products sold by the same insurer or from similar insurance products sold by competitors. During product development, insurers allowed differentiation to take a backseat to other issues.

“Prior to the mid-1990s,” Cognizant in a recent white paper notes, “insurance distributors held most of the knowledge regarding insurance products, pricing and processes — requiring customers to have the assistance of an intermediary.”

Today, however, customers know more than ever. They’re also more capable than ever of comparing P&C insurance products based on multiple factors, not only on price. That means insurance companies are now focusing on differentiation during product development — which adds time to the process required to bring an insurance product to market.

Cycle Solution No. 2: Automation

Automation tools can be employed during the product development cycle to provide better insight, track behavior to identify unfilled niches for products and lay the foundation for a strong product launch.

As Frank Memmo Jr. and Ryan Knopp note in ThinkAdvisor, omnichannel software solutions provide a number of customer-facing benefits. A system that gathers, stores and tracks customer data — and that communicates with a product management system — provides profound insights to its insurance company, as well. When automation is used to gather and analyze data, it can significantly shorten the time required to develop insurance products that respond to customers’ ever-changing needs.

“An enterprise-wide solution enables workflow-driven processes that ensure all participants in the process review and sign off where required,” Brian Abajah writes at Turnkey Africa. “Subsequently, there is reduction in product development costs and bottlenecks to result in improved speed-to-market and quality products as well as the ability to develop and modify products concurrently leading to increased revenue.”

The Future of Development: Takeaways for P&C Insurers

Insurtech has taken the lead in coordinating property and casualty insurers with the pace of modern digital life. It’s not surprising, for example, that Capgemini’s Top Ten Trends in Property & Casualty Insurance 2018 are all tech-related, from the use of analytics and advanced algorithms to track customer behavior to the ways that drones and automated vehicles change the way insurers think about and assess risk.

It’s also not surprising, then, that companies using technology from 1998 find themselves stuck in a 20th-century pace of product development — and, increasingly, with 20th-century products.

See also: How Not to Transform P&C Core Systems  

As a McKinsey white paper notes, the digital revolution in insurance not only has the potential to change the way in which insurance products are developed, but also to change the products themselves. Digital insurance coverages are on the rise, and demand is expected to increase as the first generation of digital natives begins to reach adulthood.

Alan Walker at Capgemini recently predicted that in the near future property and casualty insurance product development will become modular. “Modular design enables myriad new products to be developed quickly and easily,” Walker says.

It also allows insurers to respond more nimbly to customers’ demands for personalized coverage. And while the boardroom and paperwork approach to development is ill-equipped to handle modular products, many product development and management systems can adapt easily to such an approach.

“Insurance products embody each insurance company’s understanding of the future,” Donald Light, a director at Celent, wrote in 2006. “As an insurance company’s view of possible gains, losses, risks and opportunities change, its products must change.”

Twelve years later, Light’s words remain true. Not only must insurance company products change, but so must the processes by which companies envision, develop and edit those products.

Just as the fax machine and email changed insurance in previous decades, the rise of analytics and big data stand to revolutionize — and to speed up — the product development process.

Digital Innovation: Down to Business

When presenting at DIA last year, I commented on just how far the industry has come in recognizing the opportunities for insurtech and adopting smart digital techniques in such a short time.

According to Celent’s most recent innovation outlook for insurance, 69% of the insurance innovation leaders surveyed have been pursuing an innovation agenda for somewhere between two and three years, with 11% having only just started. To me, this stat implies that we are no longer at the start of something. Instead, we’re slap bang in the middle of a movement.

See also: Global Trend Map No. 6: Digital Innovation 

And with that added maturity, I guess it should come as no surprise that the questions obsessed about by the industry are no longer focused on “how to engage with insurtech?” “what internal capabilities do I require?” or “will they eat my lunch?” and instead more directed toward understanding the source of value and execution. Simply speaking, conversations today are far more focused on “show me the money” than they were back in 2015.

For example, the global head of innovation at a client recently shared with me that they’ve “fixed procurement,” “fixed internal development,” “reskilled the team” and “embedded their innovation capabilities back into the business (to sit more closely alongside strategy execution).” Consequently, this client has become far fussier about potential partners. If an insurtech does not have any jaw-dropping, protected IP, then they’re unlikely to even get enough air-time to press play on their Prezi or pencil drawing app (of which there are quite a few to choose from now) before the door is slammed in their face.

Although this client’s story may not yet be representative of the industry as a whole, given that many are still struggling with aligning their organization behind new innovation capabilities, it highlights a shift in the general direction.

Aligned with this shift, there also seems to be a more concerted effort to move innovation capabilities back within the business (as can be seen in this chart).



Graph: Please indicate if you are utilizing any of the following innovation tools/techniques at your company (choose all that apply).
Source: Celent – Insurance Innovation Outlook 2018: Practitioners Predictions, n=29 chief innovation officers, innovation leads, digital leads).

Of course, central teams still play an important role. Often, they are the only places where more radical forms of innovation can be experimented with (helping to insulate them from the day-to-day pressures of running an existing business).

However, when considered altogether, the gradual shifts away from what can sometimes feel like an opportunistic mode of engagement (characterized by serial “proof of concept” projects, often sponsored by central teams), toward something more locally aligned, deliberate and focused on real customer value feels like a step forward.

See also: 3 Ways to Leverage Digital Innovation  

Are we now at the point where innovation is truly back with the business and we’re ready to talk real traction in volume and customer value that goes beyond just a great concept? I can’t wait to see!

This article was originally published here.

Finding Value in Insurtech (Part 1)

Insurtech is a poorly defined term, and as a result is little understood across the industry. At one end of the spectrum it can refer to early stage startup spun out of the world of fintech to focus purely on insurance; at the other end of the spectrum, it can refer to anything remotely innovative around the application of technology within an insurance context. This ambiguity, coupled with a high degree of media attention, has led to confusion and inconsistencies in understanding future value. Typical accepted signs of success, such as a flurry of startup activity in a given sector, higher levels of hiring activity, new inward investment or exit values, are not always good indicators of future value — despite being useful pointers. Furthermore, focusing purely on market-visible startup activity omits equivalent innovation activity underway within insurers, either as part of incubation or greenfield ventures.

Increasingly, we are being asked to help identify the source for future value for a few select concepts being explored within insurtech, specifically around distribution, proposition design and business model formation. Although there is a significant amount of public information available across the market for startup activity, venture activity and exit values, there is a dearth of data available on market traction and customer value. Consequently, in this research, Celent chose to break down insurtech into a set of characteristics that describe a future vision of insurance, around which some predictions around time-to-value could be made. They include attributes like a heightened level of digital engagement, a switch in proposition from purely indemnity toward active loss prevention, a fundamentally different business model and a shift toward a more agile way of working. We refer to these as “insurtech concepts,” and they can be evidenced in both startup ventures and an insurer’s innovation activity, helping to make them universal in their applicability.

See also: How to Embrace Insurtech Culture  

Given this inherent market and data collection difficulty at this early stage, we gathered 72 expert predictions of time-to-value for some of these specific insurtech concepts and general preparedness from our innovation leaders panel. The findings from this research have been insightful.

When the insurtech concepts are viewed in their entirety across all lines of business, a number of patterns begin to emerge when evaluating expert predictions for time-to-value. Using these predictions, innovations and new partnerships in distribution are likely to remain the primary focus of insurers for generating value in both the near and medium term. Given the activity already underway around robo advice, aggregators and digital platform partnerships, this observation may come as no surprise. With respect to the proposition, the focus on patterns for continuous engagement also attract a degree of attention (with 92% expecting a significant shift within the next five years), albeit largely focused on existing propositions and models. Experimentation beyond this for the proposition will differ depending on the market segment and product line. It is likely that retail propositions will continue to become more sophisticated in pricing and the use of external data (from sensors or otherwise) for tailoring the price to the end customer, while commercial continues to develop around disaggregation and the formation of alternative distribution, and active loss avoidance. Although the switch to becoming a more virtual organization appears to attract less attention today, Celent believes that the fast pace of AI maturation will provide a more certain path to value in the near term. This sentiment is also being echoed in client conversations we have had as part of the 2018 planning process, as can be seen in Celent’s latest insurance innovation outlook report.

Other highlights include:

  • When analyzing the expert predictions for a selection of insurtech concepts by line of business, the time-to-value expectations between retail personal lines and commercial lines, and among life, health and P&C, can vary by some degree.
  • Based upon these findings, it is clear that greater levels of change are expected sooner in retail personal lines than, say, either life or commercial P&C.
  • Regardless of line of business, there is an expectation that technology-led innovations focused on distribution will have a greater impact in the near term.
  • An overall shift in proposition toward continuous engagement (92% over five years) and move toward product distribution via aggregators (86% over five years) also appear likely in the near term.
  • Although still represented within an insurer’s innovation activity, the timeframe to achieve future value from new tech-enabled propositions and business models remains less certain; a longer time horizon is expected. Consequently, greater care needs to be taken when allocating resources.

Although still at a nascent stage, insurers should prepare to adapt innovation activities to recognize the different expectations for time-to-value between lines of business, while maintaining a strong focus on innovation in distribution regardless, because disruption in this part of the value chain is already clearly signposted.

See also: Key Insurtech Trends to Watch  

This report is the first of a two-report series. Part 1 focuses on time-to-value for given insurtech concepts. Part 2 explores how insurance company innovators are approaching insurtech in their ambitions to engage.

You can find the full report here.