Tag Archives: modernization

Skills Needed for Modernization?

One of the happiest, most inspiring headlines I’ve seen in recent months read – “Nationwide announces five-year, $160M Future of Work investment.” Finally, an insurer was putting a stake in the ground, announcing a major commitment to address a looming and significant reality – the nature of work is changing. The article addressed the “how” of the initiative with phrases such as “reskill and upskill,” “future-ready skills” and “technology-enabled.”

A recent SMA research report, 2020 Strategic Initiatives: P&C Personal Lines, shows that personal lines insurers are strategizing and deploying around transformative technologies such as AI/ML, IoT and blockchain. Success is not going to happen without the supporting skills, so there is a clear need that must be addressed. Nationwide is stepping up, and that is very important.

But there’s another angle to this. It’s not just about technology skills training. It’s also about restructuring the workforce. If one believes that it’s all about the technology – technology for technology’s sake – then going about skill training alone is just fine. But I have met very few people who believe that – including at Nationwide, as explained in press releases and articles. Given the enormity of the changes in motion related to customer and agent expectations and digital transformation, technology skills alone will not suffice. Personal lines organizations need to look at their business structures from an outside-in, consumer perspective, as well as traditional inside-out, operational perspective, and then reimagine business units and operational outcomes.

Make no mistake; this is very hard to do. SMA survey results show that 23% of personal lines insurers are not addressing the structure of their workforce at all. The percentage of insurers that are strategizing around this topic has stayed relatively the same for several years – again confirming that it is very difficult to move beyond tradition and culture and view the organization through a new lens. One of the things that makes this challenging is that the industry has historically reorganized itself around the goal of ROI, i.e., put in a new system and offset the cost through staff reductions. Unfortunately, this generally results in shuffling and redistributing work to remaining staff for quick pay-back versus actually realigning and reimagining processes.

See also: Emerging Technology in Personal Lines  

Many personal lines insurers are in the enviable position of having newly modernized core systems, and opportunities for operational efficiency abound in this environment. But modern core systems are also a launchpad for workforce modernization. Paper-based workflow walls can come down and claims organizations can reorganize around improving service. Underwriting and product development can unify around insight-driven new market opportunities with personalized coverages and services, and actually deliver in weeks versus months and years. Most importantly, reskilled and technology-empowered employees can focus on complex business needs and not waste valuable time on ticking workflow boxes. While it may seem like an over-worked topic, the retiring baby boomers are creating an urgency around workforce restructuring. There has been a long ramp-up to the tidal wave of retiring skill sets, but the moment is at hand. And there is no time to waste.

The new workers entering the workforce will not sit in the same seats as those who are leaving. Fortunately, that is not necessary if personal lines executives take the opportunity to align customer and digital strategies with transformational technology adoption in innovative new ways within organizations that are structured for the new reality of continuing change. Every insurer will have a different price tag to achieve this state, but it will be money well spent!   

Insurers’ Imperative to Modernize

McKinsey recently published a paper titled IT Modernization in insurance: Three paths to transformation, in which the report authors say: “Insurers too often treat systems transformations as IT projects rather than acknowledging them for what they are: overall business transformations.”

For insurance, the transformation at hand is moving from a disconnected, product-centric sale to a hyper-connected, consumer-centric buying experience. The challenges are well-known and include analog processes, siloed data and a distribution strategy — consumer-adviser-insurer — that has traditionally left carriers one step removed from their own customers.

As McKinsey said, overcoming these challenges takes more than an IT project or two. Insurers need a framework for evaluating opportunities to modernize, and the best place to start is by taking a deep dive into the market drivers: customer acquisition and retention, as well as operational effectiveness and cost reduction.

Consumers Are the Key

This observation comes as a surprise to no one, yet a survey of insurance customers by Accenture found that declining loyalty and poor customer service has resulted in $470 billion in insurance premiums “up for grabs.” Clearly, our ability to meet modern consumer expectations is a business imperative.

There are two sets of consumers to keep top of mind as the insurance industry takes steps to modernize: the customers you already have and the consumers you are trying to convert. Both types are online (90% of adults in the U.S. use the internet, according to The Pew Research Center), so leveraging digital channels in our efforts to acquire and retain customers is a classic no-brainer.

Customer acquisition in the digital age presents an unprecedented opportunity to deliver an online, consumer-centric buying experience no matter what channel the sale converts through. In fact, agents continue to have a very important role to play in the insurance buying journey, so the more we can arm them with consumer data, collected from online interactions, the better. Moreover, by tracking client behavior and measuring conversion, companies are also learning about what works, and what doesn’t, which is increasingly imperative to maintaining competitiveness.

Likewise, digital channels and data are critical to retaining customers and building brand relationships. For example, car insurance companies track driver behavior, and health insurance companies are providing fitness trackers BECAUSE THEY WANT THE DATA to help manage and reduce risk. At the same time, these trackers are also enhancing customer relationships with the brand and potentially benefiting the customer by reducing rates based on behavior – a classic win win.

See also: Thinking Big for True Transformation  

When it comes to acquiring and retaining customers in the digital age, building relationships is critical, and data is how it’s done. Today’s consumers have different expectations, and there are typically many more touch points, resulting in more data that can be put to work in service of these relationships.

Operations: Managing Risk and Reducing Costs

Cost reduction and operational effectiveness are, for many businesses, the main driver for modernization, and the insurance industry is no different. When evaluating opportunities to modernize operations, consider where you are likely to get the biggest return.

Insurance professionals are in the business of reducing risk, so it stands to reason that risk management is an integral part of the business of insurance as well as a great example of where modern technology can deliver meaningful ROI. Data analytics makes it easier to identify riskier populations and customers, improve product development, targeting and underwriting and ultimately share risk more effectively. Data that isn’t available and actionable slows the pace of business, increases the chance of human error and limits the ability to make data-driven decisions.

Other opportunities to modernize and deliver savings include tackling distribution challenges, specifically reducing the cost of customer acquisition and improving agent efficiency. Another McKinsey report noted that the individual insurance companies that will outperform competitors over the next decade will do so, in part, by “using analytics to build competitive advantages in distribution.” Superior distribution networks enable insurers to reach new customers while keeping costs low to ensure profitability.

Next Steps

Perhaps you are on one (or more) of the three paths McKinsey describes: modernizing the legacy platform, building a proprietary platform or buying a standard software package. When the question is build vs. buy, conducting a thorough build-vs.-buy analysis is a great way to compare costs, timing, flexibility and user experience. It’s an effort, but worth it when you consider the cost of missed opportunities.

For example, insurtech disruptor Lemonade wrote $57 million in premiums in 2018 thanks to its consumer-centric buying experience — a $57 million missed opportunities for carriers that sell renters and homeowners insurance. Another much larger example is the middle market opportunity, which Accenture estimates to be around $12 trillion in missing coverage potential and $12 billion in revenue to be gained by serving it.

See also: How to Evolve the Business Model  

For some companies, the build-vs.-buy choice is easy. Partnering with an insurtech to address critical opportunities is typically much faster and less risky than other approaches. Regardless of the modernization path you choose, start with your top business challenges and identify opportunities for quick wins. Remember, modernization isn’t an IT project. Meeting modern consumer expectations is a business imperative; exceeding them is how insurers can stay relevant and competitive.

The 10 Top Trends From a Pivotal 2015

Many will pinpoint 2015 as a pivotal year – the turning point in the transformation of the business of insurance. External influencers and rapid technology advancements are resulting in major shifts in strategy, areas of focus and investment. Many insurers are thinking big – beyond the typical incremental change and toward bold moves that will establish them as leaders in the digital age.

Here are the top 10 trends that laid the foundation for this pivotal year and positioned the insurance industry for an amazing 2016 and the years beyond. The trends are dominated and enabled by technology developments, which continue to be interwoven into the fabric of insurance. The trends are:

  1. Digital transformation is taking hold, even in insurance.
  2. Innovation and innovative thinking have no boundaries.
  3. Huge $dollars$ being are being poured into start-ups.
  4. New ecosystems are emerging.
  5. Distribution channels are under strain, leading to shifts in investments.
  6. Core modernization is required and continues to consume insurers.
  7. Positive shifts are occurring in customer focus and priority.
  8. New tools, data and models are being embraced but are still a struggle to adopt.
  9. Many technologies are maturing and being adopted – cloud, analytics…
  10. Tech advancement is still outpacing the ability to consume.

Insurance executives can no longer ignore or play down these trends. Although the terms “disruption” and “transformation” are popping up everywhere, they are no longer buzz words but reality.

It would be a mistake to dismiss the magnitude of the shifts. As one senior industry executive put it, “Our industry will be substantially different five years from now. Companies that do not aggressively transform will be at risk of failing.”

This view is shared by many industry leaders, who sense that the tide is shifting in the new digital era. Unfortunately, many others are hoping to ride out the rest of their career without driving change, an approach that is risky.

The full research brief describing the trends is located here.

No More Need for Best-of-Breed Solutions?

Every five years or so, the insurance industry changes course. Hard market, then soft market. Keep the lights on, then innovate. Build, then buy. Outsource, then in-house. Best-of-breed, then suite.

Unlike with most politicians, some measure of this waffling is certainly beyond the control of insurers truly in the thick of it. However, other preferences reflect the uncertainty of markets and economies, the fluctuation of consumer expectations and demands and what some may call downright desperation to stay ahead of the curve.

Technology has long been recognized as an enabler, and it definitely fills that role when planned for strategically and implemented well. As the industry has taken up the challenge of providing faster, better, more personalized service to consumers, the demand for technology to facilitate the necessary processes has increased, as well. Core system modernization has become a top priority for insurers across all lines of business (LOBs). This means analyst firms and consultants are being engaged at a staggering (and expensive) rate to help spec out requirements, develop the request for proposal (RFP) and narrow things down to a very short list.

Interestingly, the biggest question for most insurers is not whether all of the core administration systems need to be replaced, but rather how and when is the best time to do it. Enterprise rip-and-replace projects traditionally come with a big stigma, a heavy dose of fear and bit of skepticism. Can it be pulled off successfully? With advances in technology such as the move toward cloud for deployment, the incorporation of configuration tools that promote insurer self-sufficiency and better implementation methodologies, the dark skies are definitely clearing.

Today’s most modern enterprise suites provide better integration, better capability and better results than niche-focused solutions of the past. While suite components can, by and large, all be implemented individually, pre-integration, reliance on a single data repository, use of a common architecture, an ensured upgrade path and common user interfaces mean these solutions still have a serious competitive edge over standalone systems. But does this really mean there is no more need for best of breed?

Better Integration

Once famous for creating silos and building “kingdoms” within the enterprise, insurance technology has come a long way. Recognition that insurance processes could be completed faster, and with greater assurance of accuracy, if every relevant employee was looking at the same information, insurers are turning to enterprise suites as the solution of choice. The core administration (policy, billing and claims) components of most modern enterprise suites offer increased integration and conveniently draw information for customer service representatives (CSRs), agents and underwriters from a single data or document repository. Further, by building on similar workflows, user interfaces (UIs) and processes, enterprise suites minimize change management issues and decrease downtime needed for training.

Better Capability

It’s pretty common to hear technology vendors talk about how their solutions let insurers concentrate on core competencies, but rarely is this turn of phrase actually applied to technology vendors. Insurance suites of the past typically built out full, robust capability for core administration processes, but only invested in the bare minimum when it came to supporting processes, functions and components. The best enterprise suites available today not only handle, but excel at, providing capability for peripheral processes that support core administration, including reinsurance, underwriting, document/content management, accounting/general ledger, agent/producer and consumer portals. This depth of capability was once only available to insurers through best-of-breed solutions, but now only highly customized situations and processes require such niche-focused systems.

Better Results

Even though everyone suspects it’s a much higher number, best guesses throughout the industry say that insurers replace core administration systems only once every eight to 10 years. That low frequency hardly allows internal IT staff to gain any kind of proficiency in implementation methodologies or change management. The tightly integrated nature of suite components eases implementation challenges measurably, and at the end of the day, once you get into a groove, why get out? By taking advantage of teams already established for one replacement project for another, insurers can lessen business interruption significantly. Plus, using an agile implementation methodology that incorporates iterative releases will eliminate the scope creep and missed expectations inherent to waterfall projects.

Conclusion

Five or 10 years ago, it may have been necessary to buy a best-of-breed technology solution to get capability specific to a certain LOB or process. However, modern enterprise suites, whether implemented together or individually, today offer the same robust capability once offered only by best-of-breed solutions, but with better integration, faster access to critical data, significantly easier upgrades and ultimately, better results.

Integrating Group Life and Voluntary Benefits

Group and voluntary benefits providers vary in a hundred different ways. If you are a supplementary benefits provider that only provides one product to the group market, your data integration issues with multiple brokers and employers may still be complex. The more products you sell into the group and voluntary space, the more difficult your data integration will be.

Let’s say that your organization carries group life, voluntary supplemental life, dependent life, LTC and AD&D products. Without modernization, it is likely that your organization will have several hurdles to surmount. The first is to develop one consolidated repository from all of the data that is likely held on multiple systems. The second is to make that set of data available to the many different people and institutions that have a vested interest in access. On the flip side, insurers need to be able to receive data efficiently, as well. Carriers must be able to import data received from various benefit partners into their source systems through a single point of entry. Without this, entry or import issues could lead to benefit integrity issues, where data is are correct on one platform but incorrect on another. These types of basic data errors will quickly erode relationships with employees and benefit partners.

One way to help alleviate potential data issues is for insurers to focus on providing simple products with simple rate structures. Focus on guaranteed issue limits. Anything that has to be approved or underwritten after payroll deductions begin will cause deduction and billing issues. An exception could be made if an insurer is able to provide automated underwriting decisions at the point of sale.

The data requirements for employers and enrollment partners vary widely (in part because no standards exist), which places more of the data integration responsibility on individual carriers to interact with individual employers or benefits companies. So, the easier it is for your IT teams or vendor partners to make those connections, the better off you are likely to be when it comes time for an employer to renew their contracts. It makes sense to pursue a course that keeps your systems agile.

What about a fresh start?

When it makes sense, we regularly recommend that, instead of attempting to migrate current and past business to a new platform, insurers start fresh with a new system dedicated solely to the one program. If an insurer is moving into a new market or launching new products, why not learn from past system issues and product issues and embrace a clean slate, eliminating the need to translate and carry cumbersome legacy programming into a new environment? Start with a brand new set of products and filings, a brand new marketing plan…perhaps even a brand new name to signify the difference.

Within group and voluntary benefits, this approach makes its case when looking at just a few of the benefits, including simplified testing, fewer resources required to launch, less expense, less risk to the old system and old data and dramatically increased flexibility in data usage, capability development and integration points. Managers who touch the system are far more likely to trust the data they see, reducing a “checks and balances” approach to billing, reconciling, correspondence and a dozen other areas where the need for clean data and quick visualization are essential.

We’ll discuss more about data strategies in the coming months, including ways you can build effective technology bridges and keep a high level of data integrity.