Trend #7: Partnerships and alliances are the way forward in internal innovation; incubation and maturing of capabilities will no longer be the optimal option. And dynamic innovation will require aggressive external partnerships and acquisitions.
As such, a model that encourages collaboration and embraces partnerships and alliances with third parties has the best chance of driving successful innovation.
Incumbents can innovate from within, but this is often difficult because of the challenges of innovating within an existing business, the risk of disrupting BAU activities and the different motivations that drive individuals.
At Eos, one of the core principles underlying our vision is that insurtech will deliver the most value through a collaborative approach between incumbents and startups. Identifying common goals will be key to ensure the collaboration is a success, particularly given significant cultural differences.
Another challenge in the current environment is that the sales cycle is painfully long. The average is 12 months, an awfully long time for a typical startup. Even with senior buy-in and a decision to proceed, it can still take six months to get a startup to launch. In many instances, the process adopted by an insurer to onboard a large technology provider — like Guidewire or SAP for a major transformation project — seems to be the same as for the startup.
In response, an increasing number of startups have decided to apply for a license and set up a full-stack insurer. This is a challenging model and will require significant investment capital, but many are succeeding, and others will, too. However, it would be a real shame if insurers cannot find a way to become more open, agile and responsive. They bring customers, distribution, products, underwriting capacity and a wealth of experience that can be applied. They are also working on internal innovation projects that can play a key role.
The Eos model has been designed to address this challenge; we have created a bridge between incumbents and startups. The investors in our fund are from within the insurance sector, are reinsurers, are insurers and are brokers. They make the investment for two reasons: the prospect of strong financial returns and, more importantly, an opportunity to create a strategic partnership that gives them the ability to access and engage with cutting-edge innovation. By creating an ecosystem that supports collaboration and embraces development, we significantly shorten the adoption cycle.
One of the interesting dynamics as we embrace new technology is that AI sits at the center of three exponential forces:
Moore’s law refers to the fact that computing increases in power and decreases in relative cost at an exponential pace;
Kryder’s law refers to the rapid increases in density and the capability of hard-drive storage media over time; and
Metcalfe’s law refers to the community value of a network that grows as the square of the number of its users increase.
Those laws mean that change happens so fast that, if you miss the boat, there will be no way of catching up….
The cost of sitting on the sidelines and not embracing insurtech could mean the death of your business.
We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future.
The next article in the series, “Trend #8: Simple ‘Grow or Go,’” will showcase how decisions of the last decade will be sub-optimal as the dust settles in insurtech and how degrees of freedom will be the key.
With the announcement that Insurity has acquired Valen Analytics, the core and analytics landscape has changed again. We have been tracking M&A activity and outside investments in the core systems space for some time, and the past year has seen a marked trend toward the acquisition of data and analytics firms by core systems providers.
Insurity and Valen are only its latest manifestation. Duck Creek acquired Yodil. In March 2016, Guidewire acquired EagleEye Analytics, and prior to that Millbrook. The momentum of these acquisitions and core providers’ other investments in expanded capability is morphing the core provider landscape significantly.
The insurance industry is awash in data, and more and more data presents itself every day. Historically, insurers had three choices for how to extend data and analytics capabilities across the enterprise. Many contracted with outside providers, for example, SAS, SAP and IBM. Others chose to build their own data and analytics capabilities. Both of these options had expense and skill set considerations that put these paths beyond the reach of most small and mid-tier insurers. They most frequently turned to the third option: spreadsheets. The big players had the best options – and smaller insurers having to make do struggled to join their ranks.
When SMA surveyed insurers on their plans for becoming Next-Gen Insurers, we found out just how important data and analytics are. We measured insurers’ progress along seven “bridges” – initiatives that provide defined pathways upon which insurers can build transformation strategies critical to becoming a Next-Gen Insurer. The results were published in the recent report, Insurance in Transformation: Building 7 Bridges to the Future. The number one bridge was “majoring in data and analytics.” 95% of insurers are making progress in this area. It is imperative, therefore, that insurers look for ways to further their data and analytics capabilities.
Based on insurers’ three options for data and analytics, smaller insurers have been at a disadvantage. Although they are well aware of the importance of data management and analytics, they are limited by resources and skill sets.
While core systems have advanced in many areas the past 10 years, their data and analytics capabilities have typically focused on business intelligence functions, like operational reporting and data standardization. Predictive analytics and link analysis have not been within the scope.
The analytics firms that we are seeing acquired by core solution providers, however, have the deep expertise in these areas that many insurers have never been able to access. Smaller insurers and others who depend heavily on the built-in capabilities of their core systems stand to gain the most from this trend of core providers acquiring data and analytics expertise. The benefits are significant. Insurers that previously were not able to gain necessary insights from their data will now be able to obtain them. New insights that will allow insurers to innovate will go a long way toward leveling the playing field.
Integrating the new acquisitions is a work in progress for the core providers. The major upside for insurers is that pre-integrating analytics into the core environment supports the trend of bringing analytics closer to real-time transactional processes. This is an important goal for all insurers to attain.
With $5 trillion in premiums, an incredibly low level of customer satisfaction, aging infrastructures, an analytically based, high-volume business model and a “wait until we have to” approach to innovation, insurance is now fully in the sights of the most disruptively innovative engine on the planet, Silicon Valley. The tipping point for insurance is here.
More than 75 digitally born companies in Silicon Valley, including Google and Apple, are redefining the rules and the infrastructure of the insurance industry.
Inside the Insurance Tipping Point – Silicon Valley | 2016
It’s one thing to listen to all of the analysts talk about the digitization of insurance and the disruptive changes it will bring. It’s quite another to immerse yourself in the amazing array of companies, technologies and trends driving those changes. This post is the first of a series that will give you an inside look at the visions, culture and disruptive innovation accelerating the digital tipping point for insurance and the opportunities that creates for companies bold enough to become part of it. (Join us at #insdisrupt.)
Rise of the Digital Ecosystem – Expanding the Boundaries of Insurance
Digital ecosystems are innovation catalysts and accelerators with power to reshape industry value chains and the world economy. They dramatically expand the boundaries within which insurance can create value for customers and increase the corners from which new competitors can emerge.
Silicon Valley is home to companies acutely aware of how to establish themselves as a dominant and disruptive platform within digital ecosystems. That includes Google, which is investing heavily in the automobile space with Google Compare and self-driving vehicles and has acquired Nest as an anchor in the P&C/smart homes market. Fitbit is already establishing health insurance partnerships. And let’s not forget Apple. The Apple Watch already has insurance-related partners. Apple has clear plans for the smart home market and has recently launched AutoPlay, its anchor entry into the auto market. There are rumors that Apple plans to develop an iCar. And that’s just what we know about.
Customer Engagement and Experience – New Digital Rules, New Digital Playbook.
When your customer satisfaction and trust is one of the lowest in the world and companies like Apple and Google enter your market place, it’s really time to pay attention. There is a customer value-creation and design led innovation culture in the valley unrivaled in the world, and the technology to back it up. Companies like Genesys, and Vlocity are working on perfecting the omni channel expereince. Hearsaysocial and, declara, are working on next gen social media to help customers and the insurance industry create better relationships. Many of the next generation of insurance products will be context aware, opening the door to new ways of reaching and supporting customers. Companies like mCube and Ejenta, are working to provide sensor based insight and the analytics to act on it. Trunomi, Beyond the Ark, and DataSkill via cognitive intelligence are developing new innovative ways to use data & analytics to better understand and engage customers. Lifestyle based insurance models are being launched like Adventure Adovcates and Givesurance, And some of digital marketing automation’s most innovative new players like Marketo, and even Oracle’s Eloqua are rewriting and enabling a new digital generation of marketing best practices.
Big Data and Analytics – Integrated Strategies for the New “Digital” Insurance Company
The techno buzz says big data and analytics are going to affect every business and every business operation. When you are a data- and analytics-driven industry like insurance that deals with massive amounts of policies and transactions, that buzz isn’t hype, it’s a promise.
The thing about big data and analytics is that when they are used in operational silos, they provide a tactical advantage. But when a common interoperable vision and roadmap are established, analytics create a huge strategic advantage. That knowledge and the capability to act on it is built into the DNA of “born digital” entries into the insurance market like Google.
The number of companies working on big data and analytics within the valley is staggering. We have already discussed a few in the Customer Engagement section above. Here are a few more, In the area of risk: RMS is building its stable of talent in the big data space; Actian is delivering lightning-fast Hadoop analytics; Metabiota is providing epidemic disease threat assessments; and Orbital Insights is providing geo-based image analysis. In the areas of claims and fraud, Palantir, ScoreData, Tyche and SAS are adding powerful capabilities for insurance. Improved operational effectiveness is being delivered by Saama Technology, with an integrated insurance analytics suite; by Prevedere, with data-driven predictive analytics; by Volumetrix, with people analytics; and by Sparkling Logic, which helps drive faster and more effective decision making.
Insurance Digitized | Next Generation Core Systems
With insurance boundaries expanding, integration with digital ecosystems, increasing reliance on analytics and the demand for personalized and contextualized outcome- and services-based insurance models, core systems will have huge new sets of requirements placed on them. The requirement for interoperability between systems and data and analytics will grow dramatically.
Surviving the Tipping Point – Becoming One of the Disruptive Leaders
This is a small sampling of the technologies, trends and companies just within Silicon Valley that are shaping the digital future of insurance. The changes these will drive are massive, and they are only the tip of the iceberg.
An Insurance Tech meetup group open to all the insurance-related companies within Silicon Valley was just announced by Guillaume Cabrere, CEO of AXA Labs, and already has 64 members. For established companies to survive the tipping point and thrive on the other side of it requires more than handing “digital transformation” off to the CIO or marketing team. Success requires a C-Suite that has become an integral part of the community and culture building the digital generation of insurance companies.
For technology companies and next-generation insurance companies, success requires building partnerships with established and emerging players.
This blog series is designed to inform and accelerate that dialog and partnering formation. It will include a series of interviews with disruptive leaders from industry and Silicon Valley. If you or your company would like to be a part of that series, please let me know.
Join us for the next Insurance Disrupted Conference – March 22-23, 2016 l Silicon Valley
ITL readers receive a 15% discount when registering here.
Here is a baker’s dozen (plus one) of technology firms that I find exciting or interesting and feel are companies to watch. Some, like Guidewire and Salesforce, I have followed and written about for many years. Others are technology firms I have recently written about (e.g. Clari). Some technology firms are public, and others are private.
The following 14 companies to watch (including two pairs of partnerships) are technology firms that I think insurers should be watching or possibly consider whether to use in 2016.
I didn’t use any “scientific reasoning” or market share data to include (or exclude) companies. Other than Apple, Google and IBM, I do not own shares in any of the technology firms. (Not that I own enough shares of any of these companies to retire to the beaches of Maui anyway….)
By including technology firms on this list, I am in no way implicitly or explicitly saying that I will only follow/research/write about these firms in 2016. That is not the case: I plan to write about other technology firms in 2016.
My personal list of exciting or interesting technology firms
Here is my list in alphabetical order:
Apple-IBM partnership (specifically the insurance industry applications)
Google (specifically, Google Compare)
Librestream-Symbility partnership (Symbility is Librestream’s partner to go to market in insurance)
Do with this list what you will.
Next year, I plan to create short snapshots of these firms (or partnerships) in which I discuss why insurers should care about these technology firms.
However, I do suggest that you – whether an insurer or technology firm – create your own watch lists. Add to them, delete from them and otherwise keep your lists (and the reasons you have certain firms on the list) vibrant.
In a prior life, I worked as a business systems analyst for a global hard drive manufacturer. After successfully navigating the Y2K crisis, we found ourselves inundated with custom report requests. We did an analysis and found that our enterprise system had more than 2,000 custom-coded operations reports, only 70 of which had been run in the last 90 days. Of course, the actively used operations reports were the source of endless user complaints and enhancement requests. That’s how we knew we had a good report: Complaints signaled actual use. Perhaps you’ve heard this broken record before; it happens everywhere.
It’s not hard to understand how this happens. A business person is trying to make a decision. Do I have enough resources? Are there bottlenecks I need to address? Was the process change I made last month effective? To guide the decision, she needs information, so she asks for a report. In the change request, she identifies data fields and recommends an output format. If the report is done well, it helps her make her decision. But that’s not the end of the story. Once the decision is made, the business person needs to make the next decision. Now that I know I need more resources, where should I position them? Last month’s process change wasn’t effective, so what can I do now? The old report becomes obsolete. The person needs another report (or an enhancement of the one requested). Rinse and repeat 20 times for 100 business users, and you get what we had: roughly 100 active reports and 1,900 inactive ones.
Let’s face it, operational reporting is like fighting a land war in Asia. There are no winners; there are only casualties. Although some reporting is unavoidable, there are three things you can do to drive improved business impact:
Get closer to the decision: Business users may request information, but they’re looking for advice. Put the effort into understanding the decisions they are trying to make. It will affect how you conceive your solution.
Apply the 20/80 rule: Providing information is an infinite and unending task. Put 20% of the effort to get 80% of the business value. Then take your savings and…
Invest in innovation: Stop reinforcing outdated paradigms. Columns and rows are food for machines, not humans. Data visualization, advanced analytics, social media and external data sources – the opportunities abound. Save some capacity to pursue them.
Operational reporting is a paradox: Business users sometimes get what they ask for, but they never get what they need. What they ask for is information; what they need is advice. The historical paradigm for reporting is primarily financial: a statement of fact, in a standard format, used by external parties to judge the quality of the company. A financial report has no associated internal decisions – the only purpose of a financial report is to state unadulterated fact. Operational reporting, on the other hand, is fundamentally about advice. A business person needs to make a decision to influence the financial outcomes. The facts are simply just a pit-stop on the journey toward a decision.