Tag Archives: spreadsheet

Is a Spreadsheet Still the Right Tool?

Back in 2016, Microsoft reported that more than one billion people used its Office suite of applications, which includes the Microsoft Excel spreadsheet. Roughly one in every six people on Earth uses it, Microsoft said. There is no doubt that, when Microsoft first developed this application, the company was on to something important, and Excel still has its place within the Office suite for many users. Of course, Microsoft is not the only company that has produced and promoted spreadsheet programs; there are literally hundreds of similar programs, typically sold as single-seat, stand-alone applications not tied to any common database.

For some companies, spreadsheet programs are chosen for their lower cost, ease-of-use and routine reporting. In fact, over the years, employees have become so familiar with spreadsheet applications that they simply don’t want to work any other way. Some call this phenomenon “spreadsheet paralysis,” which refers to the insurer’s common argument that it’s always been done this way, so why change?

Reliance on spreadsheets seems especially common with smaller insurers, self-insured groups, public risk pools and their agents, all of which use spreadsheets to calculate and process data. The reason these insurers hesitate to phase out spreadsheets as a primary way to process data is because this dated technology works for what it was designed to do. When technology budgets are formulated, the typical question becomes: Why should we change if it works? It’s easier to simply continue; no extra training is required, and no changes are required in how workflow is managed.

See also: How Agencies Can Use Data Far Better  

Or are they? What happens when a spreadsheet error is found that affects an entire book of business and puts routine financial and regulatory reporting in a state of instant jeopardy? How long does it take to backtrack, examine the various versions of the spreadsheet’s values, calculations, source data and file history, and correct the error?

Or, consider what happens when the policyholder demands something that spreadsheets can’t produce. These demands can arise within customer service, claims or billing, and we know these demands are increasing, leaving many smaller insurers in a scramble to shorten steps, access more information and respond in real time to customer requests.

Let’s look further at billing. The complexity of this functional business unit requires access to data points on all things related to customers, their demographic information, policy history, premium, invoice amount and payment. When working in a common spreadsheet application, only one person at a time can access and edit this data, making real-time collaboration with other members of the billing department—much less the other pertinent business units that also touch the customer—impossible.

If the application resides within the insurer’s intranet, the data being manipulated by the last individual to touch the file most often represents data that was generated by multiple other sources and users, making accurate reporting difficult and delayed. For public entities and other self-insured groups, this problem could play forward to an audit disaster.

Even if reporting is 100% accurate, the spreadsheet approach does not take into account the critical importance of secure storage or backups of the data, which, as part of the organization’s core business applications, are typically kept onsite, putting the entire system in harm’s way should a natural disaster occur.

Like larger insurers, smaller carriers, self-insured and public entity groups have an opportunity to process data collaboratively, respond faster to customer and auditor demands and operate in a secure environment where data is controlled, available and safe from compromise. Because this method takes into account the importance of software as a service over a hosted cloud platform, data encryption (in transit and at rest) is employed to ensure comprehensive compliance and quality assurance.

This method also gives users greater control over calculations and provides audit trails to document every aspect of data access manipulation. The result is an immediate reduction in formula error, improved ability to perform all the routine tasks that a spreadsheet once did and the ability to perform sophisticated risk analysis based on accurate, real-time information. And because it’s a hosted application, output of the right information to the right audience is guaranteed when and where they need it.

See also: Understanding New Generations of Data  

Yes, there will be some hesitancy among users who are comfortable with the spreadsheet status quo. But the reality is that spreadsheets were never intended to be used to run the business, only support it. New technology enables insurers to do exactly what they had been doing with spreadsheets… and more. From the insurers’ point of view, having modern technologies is a great enticement to the hiring of new technology workers who are looking for the latest solutions to competently do their jobs.

At a time when smaller insurers, self-insured and public risk pools are feeling the pressure to become “digitally transformed,” the move away from stand-alone spreadsheets to a collaborative, cloud-based enterprise solution is a great first step.

The Challenges With Catastrophe Bonds

Catastrophe bonds are an increasingly important form of risk transfer for insurers. Cat bonds are a peculiarity of the U.S. reinsurance market, where about 125 to 200 natural disasters occur a year. They were first sold in the mid-1990s after Hurricane Andrew and the Northridge earthquake highlighted the need for a new form of risk transfer. The cat bond market has been growing steadily for the past 10 years, and more than $25 billion in catastrophe bond and insurance-linked securities are currently outstanding, according to Artemis.

Many insurers have moved away from managing their ceded reinsurance program with spreadsheets, which are time-consuming and error-prone, in light of current regulatory and internal demands. More carriers have installed — or are planning to install — a dedicated ceded reinsurance system that provides better controls and audit trails.

See also: Is P2P a Realistic Alternative?

Besides enabling reinsurance managers to keep senior management informed, a system helps carriers comply with the recent Risk Management and Own Risk and Solvency Assessment Model Act (RMORSA). It also generates Schedule F and statutory reporting, an otherwise onerous job. And technology prevents claims leakage (reinsurance claims that fell through the cracks).

Cat bonds add a layer of complexity. The cat bond premium is a “coupon” the insurer pays to the bond buyer. There are many potential losses behind each bond, and the potentially huge recovery amounts to as much as hundreds of millions of dollars for some insurers. Other complexities include a priority deductible, an hours clause, lines of business reinsured or excluded and attachment criteria to automatically identify subject catastrophe amounts. Without technology, tracking all this can be overwhelming.

The ceded reinsurance system can also be used to manage cat bond premiums. From a system perspective, it’s not terribly different. The same analytical split (per line of business and per insurance company in the group) applies to bonds just as it does to reinsurance treaties. With a little tweaking, a solid ceded reinsurance system should be able to handle cat treaties and bonds equally well.

While ceded premium management for cat bonds shouldn’t be difficult, claims present bigger challenges, especially when trying to automatically calculate the ultimate net loss (UNL) because additional factors and rules are often used to determine it.

For instance, it may be necessary to apply a growth-allowance factor, determine the number of policies in force when the catastrophe occurs and calculate growth-limitation factors. This allows the calculation of ceded recoveries in case of a catastrophe. Additionally, the calculation of UNL may be specific for each cat bond — and even for each corresponding peril.

See also: Insurers: the New Venture Capitalists  

Automating all this isn’t necessary because few events trigger those complexities. Once a manual workaround incorporating the audit trail and justification of the subject amounts is done, the reinsurance system can handle the remaining calculations. While it’s not necessary to fully automate all steps to calculate the UNL, it is still better to handle the whole process with an integrated information system than with multiple spreadsheets that are unwieldy and labor-intensive.

Without the right technology, managing cat bonds is daunting. With automation, they can be managed far more effectively.

How Algorithms Will Transform Insurance

I can’t stop thinking about algorithms. I am obsessed, and I want to tell you why.

Let’s be clear: I am not a data scientist. I am a guy who finds technology and applications of technology fascinating. I am not writing this for technology nerds. I am writing this for professionals who want a working knowledge of technology.

If you are reading this, then you understand computers. A computer is nothing more than rules programmed by a human. Those rules are then executed and create an output.

But algorithms are so much more; they are breathtaking. An algorithm is a computer writing its own rules and then creating output from those rules.

It’s easy to focus on the scary part of algorithms. In the Avengers movie, a super algorithm results in a machine – Ultron – bent on destroying the world. I will leave those scenarios to the Elon Musks of the world.

Algorithms can do so much good

Think about any repetitive task you do. An algorithm can be created to solve that task. Some algorithms are used for fun. For example, Facebook uses algorithms to suggest friends for you to connect with. Google Photos uses an algorithm to identify faces and group pictures of the same person together (which can lead to terrible results).

Algorithms are already being used in the insurance industry. Take a look at CoverHound or PolicyGenius; the algorithms behind these applications quote personal lines of insurance based on your needs.

How algorithms work (and why they are awesome)

Again, I am not a data scientist, but here is my simple explanation of how most if not all algorithms are created:

1. Create a seed set.

First, you identify a seed set, which is the core learning that is taught to the algorithm. Yes, that’s right, even a computer algorithm has to be taught something from a human! For example, with the Facebook algorithm, I’m almost certain that the algorithm was first fed a giant spreadsheet that contained information about individuals and how they were connected (you do know your data created Facebook, Google and every other big data company you can think of, right?).

2. Feed the seed set to the algorithm.

The algorithm then reads all of the information it is fed and starts making its own rules. For example, the Facebook algorithm may determine: “Oh, I see, Jimmy likes Teenage Mutant Ninja Turtles, and he is connected with Bobby from the same city, and Bobby also likes Teenage Mutant Ninja Turtles. I bet Jimmy also knows Steve from the same city who also has a love for Donatello. They should connect.”

3. A human reviews the results.

A human (see, you are still needed!) then reviews the output of the application of the algorithm rules. In the Facebook example, a human might determine if Jimmy and Steve should actually connect on Facebook. Maybe they are part of rival gangs, and the algorithm didn’t recognize this. The human would then add this data to the spreadsheet and feed it back to the algorithm.

4. The algorithm rules are improved based on new input.

The algorithm creates rules to account for the new information. “Don’t connect rival gang members even if they live in the same city and like the Teenage Mutant Ninja Turtles.”

5. Steps three and four continue indefinitely.

Now stop for a second and think about all the rules that are built up in your head about people you connect with. Maybe you prefer to hang out with people who brew beer or read Harry Potter. There are literally hundreds of millions of personal preferences that human beings use to associate with people.

What if you could store all of those preferences and use them to connect people?

That’s Facebook.

Algorithms are good for insurance workers

Now think about your work and all the stuff you know and all of the stuff your colleagues know. What if all of that information could be fed into an algorithm and used to create rules. You could then use those rules to more quickly do your work.

I can hear you thinking “But then I will be out of a job.” Therein lies the rub, one that has been discussed ad nauseum (more than 9 million results for a Google search on “technology will destroy jobs”). Fatalists argue that algorithms and the advanced software programs they create will destroy jobs. Famous technologist and investor Marc Andreessen expressed as much when he proclaimed in 2011 that “software is eating the world.”

But what happens if software starts doing repetitive tasks previously done by humans? I believe humans find new ways to be productive. And, I believe history supports my theory. But that’s a blog post for another day.

I will leave you with two questions.

What repetitive tasks do you despise?

Wouldn’t it be great if you could offload these tasks to a computer?

The Problem With Telematics

When I attended the Insurance Telematics USA conference in Chicago earlier this month, I expected to see much more enthusiasm. I first wrote about Progressive’s venture into telematics all the way back in the late 1990s, and technology has improved so much since then that the telematics industry would surely be bragging about its breakout into the mainstream or at least predicting that one was imminent. The idea just makes so much sense: being able to track cars so that insurance risks can be determined very precisely for individual drivers, while even providing feedback that improves driving.

While the telematics technology is, in fact, stunning and while there are reasons for great optimism, what I found was not an industry brimming with confidence. I found an industry still searching for the right business model.

Until the industry solves that problem, progress will remain limited.

The Problem

The current approach to telematics is generally to install a device in a customer’s car for six months and have it relay the driver’s actions back to the insurer for evaluation. At the end of the six months, the device is uninstalled, and the insurer tells the driver what sort of discount, if any, she will receive based on her driving habits. A key point is that the issue at hand only concerns discounts; insurers have promised that they won’t raise rates if they find that someone is a worse risk than expected.

Think about the expense that goes into that model: manufacturing the telematics devices; installing and uninstalling them; and transmitting lots of data over a wireless network on which the insurer has to buy bandwidth.

Now think about the benefits. The prospect of a discount has attracted enough good drivers that, if all telematics-based auto policies were rolled into one company, it would be close to being in the top 10 among auto insurers in the U.S. Ptolemus, a strategy consulting firm, said there are 4.4 million cars in the U.S. carrying usage-based insurance (UBI). That’s a lot of cars. But there are 253 million cars and trucks in the U.S., so the market penetration of UBI is just 1.7%. Even in the main ballroom of the conference, full of ardent proponents, only about 5% raised their hands when asked if they had UBI.

Many customers turn out to not be that focused on discounts. They would prefer receiving free access to other services, such as roadside assistance — but what services customers want, how to bundle those services, etc. has yet to be worked out.

Even if some new package of free services drove 10 times as many people to buy UBI auto policies, telematics wouldn’t do much to make roads safer. Insurers are offering incentives to a self-selected group of drivers who are already among the safest on the road but, because insurers have decided they can’t raise rates for bad drivers, won’t be doing anything about the people who cause a huge portion of the accidents and, thus, the costs.

The current business model works — barely. The costs are too high, the offering to consumers isn’t right and the benefits to insurers are too low.

The Potential

Help is on the way from two main sources, which I have seen drive innovation in industry after industry since I started following the world of information technology almost 30 years ago. One source is what I think of as the power of “free.” The other is the power of a platform.

The Power of “Free”

The behavioral economist Dan Ariely has done all sorts of experiments about the power of free and found that it is almost magic. For instance, if someone does volunteer work and you decide to thank him by paying him a little, he will likely cut back on the work he does for you or even stop. Ariely reasons that people evaluate paid work in a hard-nosed way — how many hours do I work, how hard or skilled is the work, how much do others get paid for this work, etc.? — and evaluate volunteer work based on altruistic measures, such as the quality of a cause. If you have people evaluate the return from their free work on a paid scale, you’ll lose them. Similarly, he says, you can get people to do all kinds of uneconomic things if remove a paltry cost and make something free.

The power of free computing and communication has driven the upheaval of business over the past 30 years, spawning the wide adoption of the Internet, smartphones, etc. and all the business models that have come along with them. (Obviously, we still pay for computers and storage devices, but they are essentially free by comparison with where they were in the 1980s — a gigabyte of memory, which cost $300,000 then, costs about a penny today. Communication costs have gone way down and are headed toward something approaching free, even though telecom and cable companies will fight a rear guard action as long as they can.)

Now the power of free is coming to telematics, because the cost of acquiring information on drivers is heading toward zero.

In the short term, that will be because of smartphone apps. Although some say the data they generate isn’t quite as precise as that from sensors in cars, the apps are good enough for the vast majority of uses, and they cost roughly nothing. There isn’t any need to make a dongle for the car and install and uninstall it. Nor is there a need for the insurer to buy a wireless data plan for the car. The app can do most of the analysis on the phone and just send modest amounts of data back to the insurer, using the driver’s wireless plan.

In the long term, things will get even better as “connected cars” move into the market. These cars, already connected wirelessly to the Internet, will automatically generate the kind of information that insurers need. Insurers will be able to know what kind of a driver someone is at the moment she applies, rather than having to guess and then wait six months to know for sure.

The Power of a Platform

From the 1950s through the early 1980s, when IBM controlled the computer industry, the pace of innovation was glacial by today’s standards. Part of the reason was that the pace let IBM milk maximum profits, but part was also because IBM had to produce what software types would call the “full stack.” IBM had to develop the semiconductor technology that allowed for faster processors; design those processors; manufacture the processors; design and manufacture just about all the support chips, especially memory; assemble the mainframes; code the operating system; and generate the major pieces of application software. Everything had to come together, from one company, before the next step in innovation happened.

When the PC came along in 1981, with its open architecture, innovation became a free-for-all. Intel owned the chip, and Microsoft the operating system, but everything else was fair game. Companies flooded into the market, innovating in all kinds of smart ways, especially with applications such as the spreadsheet, and the market took off.

The telematics market is well on its way to making the transition from the IBM mainframe days to the open days of the PC and beyond. Initially, Progressive had to pull an IBM and invent the whole process for telematics from beginning to end. Now, an ecosystem has developed, and all sorts of companies are free to innovate at any part of the process.

Verisk has announced an exchange, to which car makers and insurers can contribute data on drivers and from which they can pull information. GM has said it will contribute data from its OnStar system, and GM has one million 4G-connected cars on the road in the U.S. So, the need for everyone to generate their own data is going away.

The Weather Channel (represented on the panel I moderated at the conference) has information that can correlate bad weather very precisely with driving behavior — the company is even working to aggregate information on the speed at which cars’ wipers are operating, to understand in a very granular way just how severe a storm is in a certain spot.

Many other companies are innovating in new parts of the ecosystem, rather than just focusing on pricing risks better or acquiring customers. For instance, my friend and colleague Stefan Heck, a former director at McKinsey with whom I wrote a book (along with Matt Rogers) about how innovation can overcome resource scarcity, just unveiled an extremely ambitious approach to improving safety, through a company called Nauto. (A writeup in re/code is here.) Agero made a presentation at the conference about how telematics can speed claims processing and cut costs while making customers happy — essentially, the telematics system notifies the insurer instantly about an accident, so the insurer can provide whatever reassurance and help is necessary, while also sending someone to the scene so fast that it can take control of the process, rather than deferring to, among others, municipal towing companies.

The Future

The power of free and the power of a platform ensure that, before too many years go by, the costs for telematics will drop drastically and the benefits to insurers and customers will increase greatly. That still leaves insurers with the task of figuring out the right offering to customers, but, in my experience, once costs get low enough and lots of innovators get interested, experimentation eventually produces the right business model.

The question to me is: Who will that winner be?

8 Steps to Beat All 8 CPCU Exams

Now that we got you excited based on earlier articles such as this one, and you’re ready to start CPCU today, here’s some guidance on how to actually get it done and survive the tests. This article is lovingly dedicated to “those poor souls studying for the CPCU designation,”

Please keep in mind that doing CPCU is very much like trying to eat an elephant; there’s only one way to do it, one bite at a time.

I asked my friend and all-around Wonder Woman, Carly Burnham, to share the strategies she used in completing the designation. I met Carly in 2011 when she was at a turning point in her career. She felt stuck in her position as a call center sales agent and wasn’t sure of the next step. She wasn’t even sure whether insurance was an industry she could make a career in. She had an interest in underwriting but had no idea how to get there. We met through the Gen Y Associate Resource Group at Nationwide Insurance.

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I could clearly see she was bright and hard-working and was looking for a challenge, so I asked her if she had heard about the CPCU. Over coffee, I told her all about why CPCU is awesome and convinced her to go for it. To make things even more interesting, I challenged her to do it in a year, while working full time and finishing a part-time MBA program. To my surprise, she took me up on it. Even more impressively, she met the goal and finished all eight tests in just short of 12 months.

When I talked to Carly about this article, she shared the following thought with me, “The CPCU is usually done as a self-study program, and if you haven’t tackled online courses or some other self study program, it can be challenging to know where to start. I was lucky to have your mentorship, and, looking back, I’d say these eight strategies were really what helped me meet the audacious goal that we set.”

  1. Set Your Own Timetable

Decide up front when you are going to finish your CPCU. If you don’t choose an end date, you could stretch the entire process out for YEARS. On average, people take at least two years to finish, but many insurance professionals have been working on their CPCU for longer than that. Decide when you want to be done and commit to the deadline. If you are trying to finish to advance your career, focus on finishing before you begin to apply for new roles. If you want to finish in time to attend the annual meeting in a certain city, set your end date as the last month that you can qualify for that meeting. Having an end date and an understanding of your motivation will help you push through challenges along the way.

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  1. Find an Accountability Partner

Your accountability partner may be a current CPCU or someone who is also pursuing the designation. He or she should be someone with whom you can share the reason for your pursuit of the CPCU. If he or she understands your motivation, it will be easier to push you to stay the course and finish by your goal date.

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  1. Create a Spreadsheet on Google Drive to Share With Your Accountability Partner

On this spreadsheet, you will want to map out the dates that you will take each exam to achieve your goal date. Once you have mapped out exam dates, you can work backward using the chapter summaries at theinstitutes.org to identify when you will read each chapter of the text for the exam and when you will take your practice exams.

  1. Devote Certain Hours of Your Day to Studying

When studying, consistency is key. If you focus best at the beginning of the day, set aside an hour or two in the morning and commit to showing up the same place each day to read the chapters that you laid out in your spreadsheet for this day. Choose the time that works best for you, but aim to make it a routine, so that you don’t have to decide every day that you are going to stay at the office an extra hour or go to the coffee shop before work starts. If it’s part of your daily rituals, you won’t have to use willpower to get your studying done.

  1. Read the Entire Book

First, read The Institutes’ guide to preparing for their exams. As they mentioned, there is no single way to prepare. But I found that reading the entire book first helped me establish a base level of knowledge. Next, I would take a practice exam, as a sort of pre-test. The practice exam would let me know which chapters I was weak on. With this information, I could pinpoint the best way to spend my time. If I needed to, I could re-read chapters and test on those individual chapters until I felt comfortable moving on to the next chapter.

  1. Use the Mobile App

The Institutes have created a mobile app called Smart QuizMe for Apple and Android phones. Using this in any spare time you have will also help you feel confident with the information and the style of questions on the practice exams. You can set the app to run through certain chapters or the whole book depending on what you want to focus on. Because it’s on your phone, you can use it even if you only have five or 10 free minutes. The questions on the app tend to be clustered, so question 100, 101, 102 and 103 might be the same question with only one word changed. This really teaches you how changing a small part of a question can result in a different answer. The app is particularly helpful for the most detail-oriented tests, especially 520. One word of warning: Don’t depend entirely on the app without doing the online practice exams; you could easily fool yourself into thinking you’re ready when there are significant parts you haven’t yet mastered.

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  1. Pass the Practice Exams a Few Times

Leave at least at least four and preferably a full seven days before the real test to take the online practice exams. Passing the exams will give you the confidence you need to take the exam without feeling rushed or unsure of your answers. The practice exams are very similar and sometimes harder than the actual exams. You will also have the opportunity to research any questions you missed and make sure you understand the concept before test day. Nothing beats going into the real test feeling confident, and nothing gets you more confident that the online practice exams. The practice exams are the key to the kingdom!

  1. Get the Proper Support

Make sure your family, close friends and other support systems fully understand that the CPCU is a BIG DEAL and that you will require lots of support while you get through it. Make sure they know this isn’t just another license or minor designation but a serious commitment that only 4% of people in our industry have gotten through.

To help my family understand, I explained that I was pursuing something akin to a master’s degree in insurance, and I was doing it in a year, while working 40 hours a week — most people outside the industry will need the designation explained in a similar way to fully understand the commitment you’ve made. Also, join the CPCU Candidates Facebook Group; they’ll provide you with tons of encouragement and answer your questions. Most importantly, you won’t feel like you’re the only person in the world putting yourself through the challenge of CPCU.

One Bonus Tip:

Know ahead of time that 540 – Finance and Accounting for Insurance Professionals is a special beast of a test (see artist’s rendering below). To ensure proper preparation for this one, allow yourself 50% more time than usual; so if you have given yourself two months for 500, 520 and 530, give yourself three months for 540. Buy a financial calculator (preferably the Texas Instruments BA-II Plus) and learn how to use it. The book won’t teach you how to use it, so you have to get help from someone who knows how to use it – if you have a hard time finding someone, there are decent tutorials on YouTube or at Atomic Learning. Use the calculator for all the practice tests, and then don’t forget to bring it on exam day!

I am passionate about spreading the word about the CPCU, and I was glad to have met Carly at that turning point in her career. Her commitment has paid off, and she has recently became a commercial lines underwriter at Erie Insurance; she’s loving the new job, and she’s fully committed to the industry. She credits her designation with helping her get the interview but says it goes even further than that: “The knowledge that I gained in earning my CPCU gave me the confidence to pursue a true career in the industry, and I now use the knowledge every day in my role as an underwriter. This designation gives you a broad understanding of the industry, but it also gives you practical, technical information that is essential to being a successful insurance professional.”

If you’ve had similar experiences, share them in the comments. If you have questions about the pursuit of your CPCU, message me. There are really no excuses left. Let’s get going and get your CPCU. You will never regret it.

Good job making it to the end of our longest post yet; as a reward, here is another image for the awesome metaphor of eating an elephant one bite at a time.

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