Tag Archives: lessons learned

What Amazon, Netflix Can Teach Insurers

What insurers face now, digital giants like Amazon and Netflix faced when they moved to operate exclusively in the digital marketplace: transactions increasingly shifting to digital, and operations affected by an unprecedented wave of automation. Let’s explore the lessons these companies learned as they confronted the challenges that insurers face as they adapt to the digital marketplace.

One critical change for Amazon and Netflix was making a fundamental shift in the way their core systems and architecture were developed: they evolved – out of necessity – to migrate to a more flexible and responsive architecture by incorporating microservices. The factors that led to this shift sound strikingly similar to those affecting the insurance world. Here are five key factors for insurance companies to consider when planning their future technology directions, with examples of how Amazon and Netflix addressed similar issues.

  • Availability is a fundamental need when designing a digital user experience. Streamlining customer journeys depends on having technology and data at the point of the transaction. Netflix’s big availability issue was with its video library – which is a key selling point of the service. From a customer perspective, being able to watch thousands of movies and other content is less attractive if the customer can’t access the catalog any time. Netflix brought microservices to bear on this challenge, isolating the library functionality and running it independently from the rest of the user experience. This provided the capability to continually and frequently upgrade the catalog. For insurers, intermittent outages – especially on nights and weekends, when consumers and small business owners shop for insurance and digital agents are still working – are equally unacceptable.
  • Scalability and availability go hand in hand. When the volume of transactions goes up, processing power must be able to scale up, too. Monolithic tech stacks struggle here, especially because the points of failure can be so small – as insurers well know! Amazon’s shopping cart functionality had plenty of capacity for regular traffic but was challenged when required to scale up for the incredible volume of purchases on Black Friday and Cyber Monday. Inventory control is critical because you have to understand what products are in shoppers’ carts, what inventory can still be offered and when to cut off the sale of a specific item. Amazon decoupled the cart functionality from its monolithic tech stack and deployed a microservice that ran alongside the rest of their tech environment. The shopping cart microservice had the much simpler task of checking the inventory and maintaining customers’ carts. It could access additional processing power as the volume went up without relying on the same servers running the rest of the Amazon architectural stack. And because the shopping cart service was decoupled from the main system software, it could be continually updated and enhanced.
  • Speed is critical for scalability, and microservices have a lot to offer here. Both Netflix’s library and Amazon’s shopping cart experience are changing rapidly, with requests coming from thousands of users at a time from different front ends. Digital giants are known for providing a responsive user experience that is highly scalable without the need for serial data processing. Using microservices to support multi-threaded requests have given both companies an edge. For insurers, the support of an increasingly complex maze of distribution outlets requires rating capabilities that can consistently deliver sub-second responses. The ability to decouple this from core processes while dynamically scaling based on the needs of the front end is critical, regardless of line of business.
  • Maintainability and upgradability are significant areas of consideration for all insurers, based on the current state of their technology environments. As we look to the policy, billing and claims systems or the front-end user experiences, etc., insurers need the ability to increase the speed of software upgrades to be a more continuous, less disruptive and therefore higher-value undertaking. As we look at the dynamically changing user experiences needed in today’s digital world, the ability to upgrade these components and reuse discrete services at a greater frequency than back-end functionality is becoming a critical capability.

This is where microservices really shine. Each isolated process supports a small, discrete function. Therefore, it is easier to focus on a very specific capability with an update. There is flexibility gained in adapting to new integration points and integrating new services. The magnitude of the testing effort decreases significantly.

See also: What if Amazon Entered Insurance?

These are game changers for insurers that have been struggling with a monolithic architecture where everything affects everything else. And microservices give insurers the ability to ease pain points in their current technology environments and add capabilities without going through a full rip and replace.

We have much to learn from other industries’ successes and failures within the digital marketplace. But, let’s not reinvent the wheel. Let’s look at the lessons learned by the leaders in other markets and apply the knowledge they have gained.

Lessons Learned: Wisdom of Scar Tissue

It’s what you learn after you know it all that is really important. This often includes scar tissue gained when things don’t go as planned.

In 2009, I was asked to present at a conference and was struggling to find a topic that would engage a bunch of folks smarter, more experienced and richer than me. I walked into a coffee shop in Baton Rouge and saw a magazine cover celebrating the 20th anniversary of the movie “Sex, Lies and Videotape.” (The writer and director was Steven Soderbergh, a Baton Rouge native).

That movie became the title and theme of my presentation. I included a slide for each of the terms in the title.

The SEX slide involved five examples of clients of the financial services industry believing they got screwed when they’ve dealt with agents, brokers, advisers, etc.:

  • “Sure your HO policy covers hurricanes, but your loss was from a levee breach.”
  • “In today’s news, it was revealed that companies colluded to fix prices.”
  • “You have a great major medical policy, BUT it doesn’t cover experimental treatment.”
  • “Our universal life projections are very conservative; we’re using 12% returns, and right now our company is paying 14%.” (A real statement from 1983. A few years later, the returns were in the low single digits.)
  • “The investment model mixes the most conservative stocks with bonds to protect your principal and still ensure a reasonable return on your investment.” (Yeah, but stuff happens.)

See also: ‘Organic Insurance’: Back to Basics  

LIES included the following four statements:

  • “We don’t sell products, we sell peace of mind.”
  • “Don’t buy cheap – buy quality – buy stability, like Merrill.”
  • “AIG is a stable insurance market.”
  • “The merger of Travelers and Citicorp into Citigroup creates the financial services model for tomorrow.”

VIDEOTAPE included pictures of the following industry leaders:

  • Bernie Madoff
  • Hank Greenberg
  • Allen Stanford

If you don’t know them, look ‘em up.

We sell a “promise to pay.” Our luckiest clients never have a loss. Those who do suffer losses expect to be paid. Yet, they fear that they won’t be. You can be the best broker, agent or adviser in the industry, and you will still have claims that won’t be paid as you would like them to be. When such unfortunate outcomes occur – you may be painted with the same brush as those less than honorable characters who occupy a share of our world.

Our industry should be at our best when client circumstances or at the worst. We have to be at work to pay claims when our clients are staying home to clean up their losses. I know we’re only human and can only do what we can do as time allows.

Our problem is that the only claim that matters is the claim of the client at your desk or on your phone. And in times of disasters, our clients are under great stress, so they may not be as understanding as they were when they purchased our policies.

Perhaps the most interesting lesson I learned following Hurricanes Rita and Katrina (2005) involved flood losses. Many agents explained that when we told our clients that their property policies would not cover flood (only a flood policy provides this protection), they would get angry. When we showed them a document THEY had signed acknowledging that they had “chosen to reject this coverage,” some got violent.

See also: Insurance and Fourth Industrial Revolution  

Some agents believed that most folks who did not have the coverage knew they didn’t but wanted to blame the mistake on the agent rather than on their own bad decision. When we showed them the document that covered our behinds and exposed theirs, we left them open for criticism from their partner, spouse or significant other.

What we do is very important, so do it as well as possible and understand that the client screaming at you is hurting and that yelling at you is good for their soul (if not yours)! Peace.