Tag Archives: software

Is M&A in Data and Analytics Setting a Path for Innovation?

The trend of acquisitions of software and data providers is continuing, but with a twist that may lay the foundation for innovation in the insurance industry. 

CoreLogic closed out 2013 with a bang by announcing its acquisition of Eqecat, a catastrophe modeling firm, on Dec. 20, adding to an already impressive list of acquisitions in the past year. CoreLogic added three real estate companies from TPG Capital Decision Insight Information Group–Marshall & Swift/Boeckh, DataQuick Information Systems and DataQuick Lender Solutions (credit and flood-services units)–further extending into the insurance data and analytics space.  

On Jan. 13, 2014, SNL Insurance, which provides a range of statutory data for insurers that links with public data, announced the acquisition of iPartners LLC, a SaaS business intelligence and analytics solution for both the property and casualty and life and annuity insurance industries. SNL says the acquisition will provide its clients a robust BI and reporting tool for operational needs.  

And Verisk Analytics, a supplier of data to insurers and banks, announced on Jan. 14 the acquisition of EagleView Technology, a provider of property images for nearly 90% of all U.S. structures. The images, based on digital aerial image capture, are analyzed to provide information to estimate property size and proximity to risks to assist in underwriting and claims assessments.

While the initial reaction might be to think of these as just another series of acquisitions, these actually point to the great possibility for change in how we access and use data in the insurance industry, a real mash-up of ideas and technology. As an industry, we are intensely dependent on data. But the data we use is fragmented across multiple organizations, accessed and paid for based on 10- to 20-year-old business/pricing models, requires significant integration and is often ineffectively used because of a lack of analytic capabilities. But these acquisitions have the potential to change this landscape.

These acquisitions and others are positioning the industry to be ready to move beyond long-held traditional offerings into “pay-by-use models” for both software (SaaS) and data (DaaS). Each offers the deepening analytics capabilities and expertise that can be used to analyze and create data from all the source data acquired, offering new data points for insurance business processes. Together, these create the opportunity to completely change the business model for data providers. This will enable the provision of new pricing, ease of access and new data based on analysis for many insurers, particularly mid-sized to small insurers, that may not have the expertise, resources or technology to do this by themselves.  

As new models emerge, the implications and the opportunities will be substantial. There could be a new wave of innovation for insurance products, business processes, markets, competition and business models. The playing field could be leveled for access to traditional and new data and information for insurers of all sizes and even for new entrants to the industry.

Who will take the first step forward in creating and offering a new model? How quickly will the innovator bring value and potential to the industry? If the traditional providers don’t, then companies outside our industry who see the strategic importance of data, cloud and new models will. Does Google come to mind? 

Insurance And Manufacturing: Lessons In Software, Systems, And Supply Chains

Recently, my boss Steve and I were talking about his early career days with one of those Big 8, then Big 6, then Big 5, then Big 4 intergalactic consulting firms. Steve came out of college with an engineering degree, so it was natural to start in the manufacturing industry. Learning about bills of material, routings, design engineering, CAD/CAM … “Ah yes,” he recalled, “Those were heady days.” And all those vendor-packaged manufacturing ERP systems that were starting to take the market by storm.

Eventually Steve found his way into the insurance industry, and thus began our discussion. One of the first things that struck Steve was the lack of standard software packages in the insurance industry. I don’t mean the lack of software vendors — there are plenty of those. Seemingly, though, each software solution was a one-off. Or custom. Or some hybrid combination. “Why?” we wondered.

The reasons, as we now know, were primarily reflected in an overall industry mindset:

  • A “but we are unique!” attitude was pervasive. Companies were convinced that if they all used the same software, there would be little to differentiate themselves from one another.
  • There was also an accepted industrywide, one-off approach. Conversations went something like this: “XYZ is our vendor. We really don’t like them. Taking new versions just about kills us. We don’t know why we even pay for maintenance, but we do.”

But the chief reason for a lack of standard software was the inability to separate product from process. What does this mean?

Well, you can certainly envision that your auto product in Minnesota is handled differently than your homeowners’ product in California. I’m not referring to just the obvious elements (limits, deductibles, rating attributes), but also the steps required for underwriting, renewal, and cancellation. Separation of product from process must go beyond the obvious rate/rule/form variations to also encompass internal business and external compliance process variations.

But there’s still plenty of processing — the heavy lifting of transaction processing — that’s the same and does not vary. For example, out-of-sequence endorsement processing is not something that makes a company unique and therefore would not require a custom solution.

Where the rubber meets the road, and where vendor packages have really improved their architecture over the last several years, is by providing the capability in their policy admin systems for companies to “drop” very specific product information, along with associated variations, into a very generic transaction system.

Once product “components” (digitized) are separated from the insurance processing engine, and once companies have a formal way to define them (standard language), they can truly start making their products “unique” with reuse and mass customization. Much like those manufacturing bills of material and routings looked to Steve way back when.

This separation of policy from product has been a key breakthrough in insurance software. So what is an insurance product, at least in respect to systems automation?

From Muddled To Modeled
The typical scenario to avoid goes something like this:

  • The business people pore over their filings and manuals and say, “This is the product we sell and issue.”
  • The IT people pore over program code and say, “That’s the product we have automated.”
  • The business people write a lot of text in their word processing documents. They find a business analyst to translate it into something more structured, but still text.
  • The business analyst finds a designer to make the leap from business text to IT data structures and object diagrams.
  • The designer then finds a programmer to turn that into code.

One version of the truth? More like two ships passing, and it’s more common than you may think. How can organizations expect success when the product development process is not aligned? Without alignment, how can organizations expect market and compliance responsiveness?

What’s the alternative? It revolves around an insurance “product model.” Much like general, industry-standard data models and object models, a product model uses a precise set of symbols and language to define insurance product rates, rules, and forms — the static or structural parts of an insurance product. In addition, the product model must also define the actions that are allowed to be taken with the policy during the life of the contract — the dynamic or behavioral aspect of the product model. So for example, on a commercial auto product in California, the model will direct the user to attach a particular form (structure) for new business issuance only (actions).

Anyone familiar with object and data modeling knows there are well-defined standards for these all-purpose models. For insurance product modeling, at least currently, such standards are more proprietary, such as IBM’s and Camilion’s models, and of course there are others. It is interesting to note that ACORD now has under its auspices the Product Schema as the result of IBM’s donation of aspects of IAA. Might this lead to more industry standardization?

With product modeling as an enabler, there’s yet another key element to address. Yes, that would be the product modelers — the people responsible for making it work. Product modeling gives us the lexicon or taxonomy to do product development work, but who should perform that work? IT designers with sound business knowledge? Business people with analytical skills? Yes and yes. We must finally drop the history of disconnects where one side of the house fails to understand the other.

With a foundation of product modeling and product modelers in place, we can move to a more agile or lean product life cycle management approach — cross-functional teams versus narrow, specialized skills; ongoing team continuity versus ad hoc departmental members; frequent, incremental product improvements versus slow, infrequent, big product replacements.

It all sounds good, but what about the product source supplier — the bureaus?

Supply Chain: The Kinks In Your Links
Here is where the comparison between insurance and manufacturing takes a sharp turn. In their pursuit of quality and just-in-time delivery, manufacturers can make demands on their supply chain vendors. Insurance companies, on the other hand, are at the mercy of the bureaus. ISO, NCCI, and AAIS all develop rates, rules, and forms, of course. They then deliver these updates to their member subscribers via paper manuals or electronically via text.

From there the fun really begins. Insurance companies must log the info, determine which of their products and territories are impacted, compare the updates to what they already have implemented and filed, conduct marketing and business reviews, and hopefully and eventually, implement at least some of those updates.

Recent studies by Novarica and SMA indicate there are approximately 3,000 to 4,000 changes per year in commercial lines alone. The labor cost to implement just one ISO circular with a form change and a rate change is estimated to be $135,000, with the majority of costs in the analysis and system update steps.

There has got to be a better way …

ISO at least has taken a step in right direction with the availability of its Electronic Rating Content. In either Excel or XML format, ISO interprets its own content to specify such constructs as premium calculations (e.g., defined order of calculation, rounding rules), form attachment logic (for conditional forms), and stat code assignment logic (to support the full plan).

A step in the right direction, no doubt. But what if ISO used a standard mechanism and format to do this? ACORD now has under its control the ACORD Product Schema. This is part of IBM’s fairly recent IAA donation. It provides us a standard way to represent the insurance product and a standard way to integrate with policy admin systems. What if ISO and the other key providers in the product supply chain started it all off this way?

Dream on, you say? While you may not have the clout to demand that the bureaus change today, you do pay membership fees, and collectively the members have a voice in encouraging ongoing improvements in the insurance “supply chain.”

In the meantime, the goal to be lean and agile with product life cycle management continues. We must respond quickly and cost-effectively to market opportunities, policyholder feedback, and regulatory requirements. That all starts at the product source … but it doesn’t end there. So while the supply chain improves its quality and delivery, insurance companies will need to gain efficiencies throughout every corner of their organizations in order to achieve those lean goals.

In writing this article, David collaborated with his boss Steve Kronsnoble. Steve is a senior manager at Wipfli and an expert in the development, integration, and management of information technology. He has more than 25 years of systems implementation experience with both custom-developed and packaged software using a variety of underlying technologies. Prior to Wipfli, Steve worked for a major insurance company and leverages that experience to better serve his clients.