Tag Archives: value chain

Innovation Trends in 2016

For the past few years, the innovation rate in the global insurance industry has run at peak levels, in good part because of digitization, which continues to be a pervasive influence—if not as disruptive as early projections.

Initial expectations of a departure from traditional distribution channels turned out not to be the case. Clients preferred direct, personal contact when buying insurance products. While online channels have not generated major changes—for example, in the vehicle insurance sector in Italy (5% of premiums today are generated online, compared with 1% in 2012) —telematics has had a substantial impact. It represents 15% of all insurance policies today in Italy. (These policies did not exist in 2002.)

Digital transformation is, of course, leaving its mark in four macro areas.

First, consumer expectationsA Bain survey suggests that more than three out of four consumers expect to use a digital channel for insurance interactions.

Second, product flexibility: The traditional Japanese player, Tokio Marine, for example, started offering temporary insurance policies via mobile phone, e.g., travel insurance limited to the dates of travel and personal accident coverage for people playing sports.

Third, ecosystems: They are created when the insurance value proposition depends on collaboration with partners from other sectors. For example, when Mojio sells a dongle (at, say, a supermarket) that requires connection to an open-source platform to be installed in a car, third-party suppliers are able to extract driving data from that platform and create services based on it. Onsurance, for one, offers tailor-made insurance coverage based on the data collected.

Fourth, services: Insurers today are moving away from the traditional approach of covering risks to a more comprehensive insurance plan, which includes additional services.

Connected insurance: a telematics “observatory” to promote excellence 

The fact that the Italian insurance market represents the best of international automotive telematics practices gave rise to the idea of creating an “observatory” to help generate and promote innovation in the insurance sector. Bain, AniaAiba and more than 25 other insurance groups are among its current participants.

The observatory has three main objectives: to represent the cutting edge of global innovation; to offer a strategic vision for major innovation initiatives while reinforcing the Italian excellence paradigm; and to stimulate research and debate concerning emerging insurance issues such as privacy and cyber risk.

The Observatory on Telematics Connected Insurance & Innovation, will focus not only on vehicle insurance (where Italy has the highest penetration and the most advanced approach worldwide), but on additional important insurance markets related to home, health and industrial risk, which, I am convinced, represent the next innovation wave.

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Italy is currently the best practice leader in connected insurance. Italian expertise in vehicle telematics is finding applications in other insurance areas, particularly in home insurance—where Italy is the pioneer—and in the health sector, where we recently launched our first products.

InsurTech on the rise

Another sector that has seen an increased number of investments in 2016 is InsurTech. Until last year, attention focused on many types of financial service start-ups. Today there is significant growth in investments in insurance start-ups: almost $2.5 billion invested in the first nine months of 2015, compared with $0.7 billion in 2014 [according to CB Insight]. Many new firms are entering the sector, bringing innovation to various areas of the insurance value chain. The challenge for traditional insurers will be to identify firms worth investing in, and also to create the means for working with those new players.

The challenge is integration

Ultimately, the main challenge for insurers will be to find ways to integrate the start-ups into their value chains. The integration of user experience and data sources will be key to delivering an efficient value proposition: It is untenable to have dozens of specialized partners with different apps in addition to the insurer’s main policy. It will be necessary to manage the expansion and fragmentation of the new insurance value chain.

To come up with an answer to this problem, start-ups are generating innovative collaborative paradigms. One example is DigitalTech International, which offers companies a white-label platform that integrates various company apps and those of third-party suppliers into a single mobile front end, even as it offers a system for consolidating diverse client ecosystems (domotics, wearables, connected cars) into a single  data repository.

Integrating and managing complex emerging ecosystems will be one of the greatest challenges in dealing with the Internet of Things (IoT) for the insurance industry.

(A version of this article first appeared on Insurance Review.)

‘4-Lanes’ Approach to Work Comp Claims

Claims operations have ascended the value chain from an “island in the stream” technical function into a key facet of the customer value proposition. To handle the growing demands, it’s important to think about work comp claims in terms of four lanes.

The first lane is governed by compliance rules and requires not just compliance awareness, but the knowhow to optimally integrate compliance into the operation.

The second lane is focused on vendor management. This needs to go beyond simply outsourcing non-core competencies. Successful companies concentrate on ways to leverage vendors to achieve superior outcomes and competitive advantage.

The third lane is defined by business rules. This is where automation is fully deployed and constantly improved. This lane draws from rules-driven facets of each of the other three lanes.

The fourth lane is the “interpersonal, interpretative and professional judgment” perspective. It relies on the subjective application of knowledge and human interaction. This lane leverages engagement, training, technology and analytics to continuously accelerate accurate decision making, enhance performance and improve quality.

The four lanes represent perspectives and should not be confused with a company’s organogram. Indeed, each lane touches every facet of any organogram found in the insurance industry today.

The compliance, vendor management, business-rules and professional judgment lanes all benefit from a strong commitment to business process improvement (BPI). Data capture and analytics that support measurement of performance along the entire claims’ value chain is integral to BPI. The BPI discipline uses data to identify best practices, implement those practices, assess their effectiveness and uncover opportunity for further improvement.

Embracing the four-lane view and BPI model will help carriers make strong, data-based decisions as they reconfigure their claims departments to control costs, stabilize case reserving and improve outcomes of their claims operations.

Great tools, talented people and sound business practices are the timeless ingredients of success, as is operational adaptivity. Today’s workers’ compensation carriers are operating in an environment of increased uncertainty and complexity. Carriers face headwinds because of a shift into a healthcare-centric business, which has caught many carriers flat-footed. Medical costs are approaching 70% of the total claims spending in many jurisdictions. The utilization and cost of pharmaceuticals is rising at a rapid rate. According to the California Workers’ Compensation Institute, pharmacy and home-medical-equipment costs have risen by  more than 250% since 2004. Today’s companies must adapt their models to concentrate on effective and efficient delivery of care that improves patient outcomes, exudes customer value and underpins superior combined ratios.

The undeniable reality is that the nature of work comp claims has changed. Traditional ideas on the core competencies necessary to operate an effective claims operation need to be challenged and adjusted. Positive differentiation and sustainable market leadership depend on effectively incorporating the ingredients of success into a well-defined strategy that produces desired results and provides an agile framework for continual business evolution.

Rethinking the Claims Value Chain

As a claims advisor, I specialize in helping to optimize property casualty claims management operations, so I spend a lot of time thinking about claims business processes, activities, dependencies and the value chains that are commonly used to structure and refine them. Lately, I have been focusing on the claims management supply chain — the vendors who provide products and perform services that are critical inputs into the claims management and fulfillment process.

In a traditional manufacturing model, the supply chain and the value chain are typically separate and — the supply chain provides raw materials, and the value chain connects activities that transform the raw materials into something valuable to customers. In a claims service delivery model, the value chain and the supply chain are increasingly overlapping, to the point where it is becoming hard to argue that any component of the claims value chain couldn’t be handled directly by the supply chain network.

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Which creates an intriguing possibility for an insurance company — an alternative to bricks and mortar and company cars and salaries, a virtual claims operation! Of course, there are third-party administrators (TPAs) that are large and well-developed enough to offer complete, end-to-end claims management and fulfillment services to an insurance company through an outsourced arrangement. That would be the one-stop shopping solution: hiring a TPA to replace your claims operation. But try to envision an end-to-end process in which you invite vendors/partners/service providers to compete to handle each component in your claims value chain (including processing handoffs to each other.) You select the best, negotiate attractive rates, lock in service guarantees and manage the whole process simply by monitoring a performance dashboard that displays real time data on effectiveness, efficiency, data quality, regulatory compliance and customer satisfaction.

You would need a system to integrate the inputs from the different suppliers to feed the dashboard, and you would also need to make certain the suppliers all worked together well enough to provide the ultimate customer with a seamless, pain free experience, but you are probably already doing some of that if you use vendors. You would still want to do quality and compliance and leakage audits, of course, but you could always hire a different vendor to do that for you or keep a small team to do it yourself.

Your unallocated loss adjustment expenses (ULAE) would become variable, tied directly to claim volume, and your main operating challenge would be to manage your supply/value chain to produce the most desirable cost and experience outcomes. Improved cycle time, efficiency, effectiveness, data accuracy and the quality of the customer experience would be your value propositions. You could even monitor the dashboard from your beach house or boat — no more staff meetings, performance reviews, training sessions — and intervene only when needed in response to pre-defined operational exceptions.

Sounds like a no-brainer. Insurance companies have been outsourcing portions of their value chain to vendors for years, so why haven’t they made their claims operations virtual?

If you are running an insurance company claims operation, you probably know why. Many (probably most) claims executives are proud of and comfortable with their claims operations just the way they are. They believe they are performing their value chain processes more effectively than anyone else could, or that their processes are “core” (so critical or so closely related to their value proposition they cannot be performed by anyone else) and thus sacrosanct, or that they have already achieved an optimal balance between in-house and outsourced services so they don’t need to push it any further. Others don’t like the loss of control associated with outsourcing, or they don’t want to consider disruptive change. Still others think it might be worth exploring, but they don’t believe they can make a successful business case for the investment in systems and change costs. Unfortunately, this may help explain why claims executives are often accused of being stubbornly change averse and overly comfortable with the status quo, but I think it is a bit more complicated than that — it all begins with the figurative “goggles” we use to self-evaluate claims operations.

If you are running a claims operation, you have an entire collection of evaluation goggles — the more claims experience you have, the larger your collection. When you have your “experience” goggles on, you compare your operation to others you have read about, or seen in prior jobs, or at competitors, to make sure your activities and results benchmark well and that you are staying up to date with best practices. At least once a year, someone outside of claims probably demands that you put your “budget” goggles on o look for opportunities to reduce ULAE costs. or legal costs, or fines and penalties, or whatever. You probably look through your “customer satisfaction” goggles quite a bit, particularly when complaints are up, or you are getting bad press because of your CAT response, or a satisfaction survey has come out and you don’t look good. Your “stakeholder” goggles help you assess how successful you have been at identifying those who have a vested interest in how well you perform, determining what it is they need from you to succeed, and delivering it. You use your “legal and regulatory compliance” goggles to identify problems before they turn into fines, bad publicity or litigation, much as you use your “no surprises” goggles to continually scan for operational breakdowns that might cause reputational or financial pain, finger pointing and second guessing. Then there are the goggles for “management” — litigation, disability, medical, vendor — and for “fraud mitigation” and “recovery” and “employee engagement.” Let’s not forget the “efficiency” goggles, which help you assess unit costs and productivity, and the “effectiveness” and “quality control” goggles, which permit you to see whether your processes are producing intended and expected results. And of course your “loss cost management” goggles give you a good read on how well you are managing all three components of your loss cost triangle, i.e., whether you are deploying and incurring the most effective combination of allocated and unallocated expenses to produce the most appropriate level of loss payments.

Are all those goggles necessary? You bet. Claims management involves complex processes and inputs and a convoluted web of variables and dependencies and contingencies. Most claims executives would probably agree it makes sense to regularly evaluate a claims operation from many different angles to get a good read on what’s working well , what isn’t and where there is opportunity for improvement. The multiple perspectives provided by your goggles help you triangulate causes, understand dependencies and impacts and intelligently balance operations to produce the best outcomes. So even if you do have a strong bias that your organization design is world-class, your people are the best and all processes and outcomes are optimal, the evaluation should give you plenty of evidence-based information with which to test that bias and identify enhancement opportunities — as long as you keep an open mind.

No matter what you do, however, there will always be others in your organization who enjoy evaluating your claims operation, and they usually aren’t encumbered by such an extensive collection of goggles. They may have only one set that is tuned to budget, or customer experience, or compliance, or they may be under the influence of consultants whose expensive goggles are tuned to detect opportunities for large-scale disruptive/destructive process innovation or transformation in your operation. On the basis of that narrow view, they just might conclude that things need to change, that new operating models need to be explored. Whether you agree or disagree, your evidence-based information should be of some value in framing and joining the debate.

Will we ever see virtual claims operations? Sure. There are many specialized claims service providers operating in the marketplace right now that can perform claims value chain processes faster, cheaper and better than many insurance companies can perform them. The technology exists to integrate multiple provider data inputs and create a performance dashboard. And there are a few large insurance company claims organizations pursuing this angle vigorously right now. I fully expect the companies that rethink and retool their claims value chains to take full advantage of integration of supply chain capabilities and begin to generate improved performance metrics and claim outcomes, ultimately creating competitive advantage for themselves. Does that mean it is time for you to rethink your claims value chain? I think the best way to find out is to put on your “innovation” goggles and take a look!