Blog | Customer Insight/Business Intelligence

Carriers Must Put Profitability Before Growth

Posted on March 10, 2010

Some thoughts on the subject of yesterday’s Insurance & Technology webcast Applying Analytics to Unite the Goals of Growth and Profitability, featuring speakers from Duck Creek, Advisen, and SMA:

In an insurance market where growth and even retention are harder than ever to achieve, it’s easy to focus on numbers of customers as the secret to success. But while it’s still true that the formula for success still depends on having solid underwriting and as many customers as you can, insurers need to think differently about what those things mean.
 
Everybody has seen the T.V. commercials of a certain auto insurer who blithely shares the rates of competitors and invites customers to take the lowest rate even if it is offered by another insurer. The smiling spokesman exudes candor and humility, but his insurance competitors no doubt sense cunning and triumphalism in the message.  Behind that spokesman’s nonchalance about losing customers to other insurers was his company’s ability to force adverse selection on his competitors, through superior underwriting, powered by sophisticated analytics. No wonder he was smiling.
 
This is the competitive world in which carriers must operate today.  Companies that effectively leverage analytics to refine their ability to segment risk, have a window into the profitability of customer segments. Those who lag behind in analytic capabilities are flying blind in this respect. And not only are they less able to gauge profitability, they are more likely to be stuck with the worst risks relative to their competitors.
 
Given this reality, insurance carriers have to approach strategy in a new light. They can no longer simply be experienced players in the art of underwriting a given range of business lines; today they must be a data-driven company that identifies its particular strengths and refines its underwriting appetite and target market segments through data analysis and predictive modeling.
 
Success today means knowing what kind of a carrier you are, knowing the markets and the customers in them, and knowing the distributors.  The goal is not merely to increase one’s presence in familiar markets through existing and new distribution channels; rather, it is to choose between risks, markets and distributors based on an empirically validated understanding of their profitability.
 
Growth and retention remain essential goals, but profitability means retaining and securing only the more profitable customers; dynamic distribution strategies are more important than ever, but carriers must discriminate between various producers and channels on the basis of their profitability; sustaining and increasing presence in markets is the essence of the business — but only those markets that will gain, not lose you money.  

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Progress on Analytics, Consequences of IBM/SPSS: A Conversation With SAS's Stuart Rose

Posted on September 14, 2009

While researching for an upcoming feature story on architecture, what I found suggests that insurers' adoption of analytics continues at a notably slow pace. Insurance & Technology's reporters continue to find good individual examples but the industry is still struggling to get into a position where it can take full advantage of today’s analytic technology’s potential for exploiting its rich data resources. My curiosity on the subject led me into a conversation with Stuart Rose, global insurance marketing manager, SAS.

Stuart affirmed that use of analytics in recent years has been largely restricted to reporting and data mining, using static information within back-office processes. This limited, typically point solution-oriented approach must change as regulatory, distributor and end-customer demands continue to evolve rapidly, he agreed. “Insurance companies need to consider applying analytics to the front-office environments to provide real-time decision making,” he said.

In order to do that, carriers will need a business analytics framework that can easily access different data formats from their multiple legacy transactional systems, according to Stuart.

When asked how that emerging need is likely to be addressed by IBM in the wake of its acquisition of SPSS — which I recently reported on in I&T — Stuart argued that pre-acquisition SPSS customers may now see a bigger focus on optimizing SPSS/IBM analytics to work exclusively with DB2, at the expense of Oracle, SAP and other insurance-focused vendor offerings.

Stuart expressed confidence in his company’s ability to retain what he calls its “overwhelming” leadership in the advanced-analytics market, with 33.2 percent of market share, according to a June 2009 IDC report, and asserted that SAS’ business analytics framework allows easy integration with virtually all data sources, and certainly with both DB2 and Oracle. He then threw down the gauntlet, effectively:

“Ten years ago, business intelligence was standard reporting and ad hoc query analysis; now it's profiling, forecasting, predictive modeling and optimization,” he said. “A challenge for SPSS, as with other recent acquisitions by large global corporations like IBM, is the ability to remain focused, agile and innovative. Being privately held gives SAS the ability to pump more than 20 percent of our revenue into R&D every year and keep innovation at the forefront.”

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Honor Roll: This Week's Top Insurance Blogs (Aug. 23-29)

Posted on August 27, 2009

Our favorite insurance technology-related blog posts from around the Web (August 23-August 29, 2009):

Bridging the Divides

"We really haven't solved the operational / informational divide but the rapidly emerging Digital Marketplace has uncovered a divide that had always existed but has now taken on more urgency: the divide between structured data and unstructured data," writes Barry Rabkin on his blog, Rabkin's ROI.
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Why Social Networking Can Be Bad For Your House Premiums

Catherine Stagg-Macey, a London-based Celent analyst, offers some perspective on a report out of the UK on an insurer that is considering the use of social networks in deciding on premiums.
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"Insurance Agents Without Web Sites Are Missing Business Opportunities…"

Hometown Quotes' Agent Lounge blog has a post for insurance agents on how to establish more visibility online.
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Honor Roll: This Week's Top Insurance Blogs (Aug. 9-15)

Posted on August 13, 2009

Our favorite insurance technology-related blog posts from around the Web (August 9-August 15, 2009):

Consider Giving Customers Fewer Choices

Forrester Research's Bruce Temkin, referencing a Financial Post article, suggests that sometimes customer satisfaction can be improved by offering a smaller selection of products.
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Build Your Website Quickly And Easily

The Insurance Copywriter blog has a few Web design recommendations for insurance agents.
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Novarica Agent Survey 2009: Small Commercial Lines: How Technology and Service Drive Carrier Choice

Novarica's Karlyn Carnahan gives readers a quick look at the firm's latest research -- its 2009 agent survey. "Convenience, relationship, responsiveness, and speed are the areas most likely to make a carrier the agents' top choice," she writes.
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A Bigger Piece of a Smaller Pie

"As shown in an upcoming Celent report on insurer response to the market crisis, companies are now taking or have completed the short-term cost savings/efficiencies steps such as staff redundancies, renegotiation with suppliers, asset rationalization, etc. But, once these actions have been taken, attention must move to top line growth," writes Celent's Mike Fitzgerald in this post on expanding market share.

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Honor Roll: This Week's Top Insurance Blogs (June 28-July 4)

Posted on July 02, 2009

Our favorite insurance technology-related blog posts from around the Web (June 28-July 4, 2009):

Health Care Needs More Empathy

Forrester's Bruce Temkin shares a few details from the executive panel discussion he led recently at Forrester's Customer Experience Forum. Included among the panelists were Ingrid Lindberg and M. Bridget Duffy, MD, chief experience officers at CIGNA and the Cleveland Clinic, respectively. "Health care needs more leaders like Lindberg and Duffy," Temkin writes.
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Twitter, Meet "Specialised" Insurance

If you didn't know that Celent's Catherine Stagg-Macey was based in London, her spelling of the word "specialised" probably gave it away -- although I suppose they spell it that way in Canada too. In this post, Macey discusses her skepticism towards social networking and her frustration with insurance industry call centers.
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Bucking the Cloud Computing Hype

Intelligent Enterprise's David Linthicum makes a case for reducing the amount of hype that has surrounded the cloud computing concept over the past several months. Also, his use of "all that and a bag of chips" in the opening sentence marks the first time someone has used the phrase since 1995.
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Sentimental Favorite: Data Mining on Twitter

Posted on February 06, 2009

Sitting in SAP's New York offices on Wednesday for a press conference announcing the launch of Business Suite 7, I couldn't help but be reminded of a blog written just a day earlier by I&T editorial director Kathy Burger.

Kathy, who had just created an account on Twitter.com (I have an account too, by the way: nconz), a micro-blogging site, was wondering about its possible business uses. Could a media outlet like I&T use it to find potential sources or bring more readers to its Web site? Could an insurance carrier use Twitter to interact with customers and producers? "I did a search on Twitter for 'insurance' or 'insurance companies' and found mostly individual complaints and concerns about their individual experiences with the industry," Kathy wrote.

It was that last line that I was reminded of at the SAP press conference. In a product demo, Ian Kimbell, VP of business process validation, SAP showed the audience SAP's "sentiment engine," which allows a company to see what users of a site like Twitter (which was used in the demo) are saying about it.

The sentiment analysis is accomplished using the SAP Business Objects Text Analysis product, Rick Fleischman, Director, CRM Solution Marketing, SAP AG, tells me in an e-mail. "It is part of our Business Objects portfolio and provides a sophisticated ability to mine unstructured data to extract entities, persons, organizations, sentiment, etc.," Fleischman explains.

The rule-based linguistic engine can be configured by customers for specific scenarios. "We plugged this engine (SAP Business Objects Text Analysis) into CRM and fed Tweets to it (via Twitter APIs). The engine parses each of the tweets and extracts the sentiment of the conversation from it," Fleischman says.

In the case of the demo, Kimbell used the sentiment engine to analyze "tweets" (Twitter posts) relating to a generic GPS device. The engine essentially aggregated the various mentions of the device and identified trends. In this case, it was determined that many Twitterers (I'm not sure if that's the preferred nomenclature. It could be Twits.) disliked a certain aspect of the device's design.

A similar application might work for insurers, particularly in the area of customer service. As Kathy pointed out, many insurance mentions on Twitter involve complaints and concerns. On an individual basis, those complaints and concerns represent anecdotal evidence at best. If aggregated though, a carrier might be able to identify trends. Perhaps there are specific areas of its customer service or claims operations that are lacking or causing an inordinate number of complaints.

Here's what ZDNet's Editor-in-Chief Larry Dignan (Who, now that I've seen his photo, I'm pretty sure was sitting next to me at the press conference. Hey Larry, wasn't that reporter sitting next to me laughing a little too loud at Ian's jokes?) had to say in his blog post on the sentiment engine:

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While Kimbell's demo, which was quite entertaining, doesn't reflect what enterprises are actually doing it does show an increasing amount of integration with social networking tools. If corporate data is merged with the anecdotal tips from customers and partners there could be real insight.

This Holy Grail of insight is what a lot of vendors–Salesforce, Oracle and SAP–are chasing.

Whether enterprises actually use Twitter remains to be seen, but it's not too often you seen an enterprise planning demonstration with a Twitter plug.

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East Hartford-based Full Capture specializes in data analytics and the mining of unstructured data. With regards to engines like the one SAP demonstrated, Full Capture CTO Bill Nadal says one key is to avoid false positives. For instance, if a financial services firm is mining Twitter or Facebook, the world "rollover" means two very different things in the context of an auto insurance claim or a 401k.

"In our view, a 'sentiment engine' such as released by SAP, is a very domain specific model targeting a specific context," says Nadal. "Without elaborating on the legal and privacy issues SAP, Facebook and Twitter face with mining this type of data, the analysis of this data will produce many false positives without some hard work in building specific customer vocabularies and contexts and integrating these models into the results. The sentiment engine might operate at a simple level of searching for a company's name or product, and this will have some value in this case. But the true value comes from more advanced levels of semantic analysis."

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Can Esurance Out-Gekko GEICO?

Posted on February 05, 2009

The essence of an effective fictional character is a certain indispensability, so no one can hope to outdo a beloved mascot at his own game. That's true of GIECO's inimitable Cockney-accented gekko. Esurance has come up with its own mascot, Erin Esurance, the animated secret agent who interacts with actual Esurance customers in television advertisements. Erin seems to have been a pretty effective mascot so far, though I wouldn't put her head-to-head in a popularity contest with the lovable lizard from London, or even perhaps against the fastidous, thin-skinned and perptually misunderstood GEICO caveman.

However, Esurance's marketing strategy has opened up into an interesting new channel aimed at reinforcing the impact and reach of its brand. Following the adventure theme of Erin Insurance, the carrier has partnered with Paramount Pictures to promote the studio's new Star Trek film via a microsite at Esurance's homepage.

It remains to be seen whether the partnership will include television advertising, but in the meantime the two brands mutually reinforce each other over the Internet. It's a fitting channel for the stereotypical Star Trek fan, and perhaps also for a certain portion of I&T's readership, if I can say that without redundancy...

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E&Y: Unprecedented Challenges, Opportunities for Life Insurers

Posted on January 12, 2009

Just as the subprime meltdown was more of a crisis for banking and securities than insurance in general, the insurance sector hardest hit is the one that sells investment-related products, such as guaranteed variable annuities. Life insurers suffer along with P&C carriers in as much as an economic downturn means consumers will buy less insurance, but the life industry will face special challenges—and enjoy special opportunities—over the coming year, according to Doug French, principal of Ernst & Young's Insurance and Actuarial Advisory Services.

"The global economic crisis has caused world-wide setbacks, and as a result many companies in 2009 will focus on developing new products and services to combat costs to run their businesses more efficiently," French says. "The U.S. life insurance industry is well-positioned to tackle these issues and move forward from this crisis by taking the lessons learned to develop opportunities and become a true partner to their customers."

In its newly published Life Insurance Industry 2009 Outlook report, a PDF of which can be found here, Ernst & Young has identified six significant challenges that the life insurance sector must address in 2009:

1. Shift product and investment focus to align with risk: Consumers have responded to the crisis by changing their risk appetites and moving away from variable products to fixed and universal life products that are perceived as more secure. Simultaneously, insurers face balance sheet challenges after years of stability. The US life industry has realized and unrealized capital losses of $36.5 billion from bonds and preferred and common stocks through the third quarter, representing a 12% drop in surplus, according to Ernst & Young and Conning Research & Consulting. Insurers agile enough to shift their focus to guaranteed-return products and create fixed returns may gain short-term advantages, while those companies able to squeeze performance from general account investments will likely gain longer term advantages.

2. Retool risk modeling and measurement: In 2009, life insurance companies will incorporate risk management lessons learned into their existing enterprise risk management processes to stay ahead of their competition. In terms of modeling priorities, line managers and corporate functions will have increasing responsibility to ensure that lessons learned are incorporated into the models. Companies that develop a holistic approach to ERM will be better equipped to maintain liquidity under future stress scenarios.

3. Anticipate changes in the regulatory environment: As a result of the financial crisis, one thing is certain - the industry will face increased regulation. The regulations will likely be more intrusive, including ongoing monitoring of activities and financial performance. Life insurers will benefit from regulatory convergence because geography matters little in product design or consumer preferences. US life insurers with international offices would benefit from dealing with a single federal regulator, particularly if the regulations are harmonized with Solvency II, which is being developed in the EU.

4. Expect changes in accounting requirements: As the industry prepares for new regulatory standards for financial reporting, life insurance companies must understand these accounting issues. There are several frameworks with planned implementations by 2012, including IFRS 4 Phase II and Solvency II. The companies poised with the appropriate infrastructure will hold an advantage.

5. Address increasing expense imperatives: Assets and net premiums are expected to fall in real terms in 2009. As a result, insurers will look to significantly reduce expenses to remain competitive. Insurers may look to outsource core functions of their business, such as actuarial support, billing and collection, and claims adjudication to further decrease spending. However, it will be important for insurers to manage these sourcing relationships vigilantly because the insurer, not the outsourcing vendor, ultimately holds the responsibility to maintain high-quality services. Companies may also need to seek scale through increased consolidation and M&A activity. For life insurers to be successful following a merger or acquisition, it will be crucial to manage the integration of business functions and cultures of the companies involved.

6. Capitalize on the retirement income market: By the end of 2007, more than half of the $17.6 trillion in US retirement accumulations was in defined contribution plans and IRAs, which reflects the long-term decline of defined benefit programs. As the retirement landscape changes, consumers and employers are seeking innovative alternatives to fund future income needs. This provides great opportunities for US life insurers in the retirement income space.

"Life insurance executives must remain ahead of their competition by staying current on trends in product innovation, understanding the regulatory environment and implementing a solid risk management system within their organization to better serve their clients in what is expected to continue to be a challenging economic environment," French concludes.

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IT's Impact on Insurance's Waning Workforce

Posted on November 07, 2008

Yesterday's note on privacy led me to reflect on how Web 2.0 has gone from being regarded as an indistinct, potentially over-hyped development to something that looms very large in the here and now and touches a variety of concerns—a conceptual trajectory very like that of the Internet itself. I believe we'll see the shrinking workforce theme follow a similar trajectory, from vague future concern to consuming reality.

That topic was the focus of I&T's Executive Summit keynote, delivered by author Rob Salkowitz on Monday. Kathy Burger's coverage of the speech captured Salkowitz's substance but the implications of the topic go beyond what Mr. Salkowitz could have addressed in the allotted time.

An Executive Summit attendee argued later in the day that Salkowitz's discussion assumed that the same number of employees would be needed in the future, and that the main issue was how to attract them. Even if that argument is not entirely justified, it points out an important opportunity that technology presents to insurers.

The value of IT is in its ability to accomplish certain tasks far quicker and in a manner that eliminates human error. Moreover, the tasks that IT is likely to do better and sooner are more mechanical activities that workers find tedious. The opportunity, then, is to leave many of the most dreary aspects of insurance work to machines and allow the workers of the future to focus on more challenging and meaningful activities. Thus insurance jobs simultaneously become both more efficient and more attractive to recruits.

In this respect, adapting to the emerging workforce of "Gen-Y" employees, or "Millennials," brings at least as much opportunity as labor. Web 2.0 shows up very strongly in this connection as in so many others. While it is true that insurers need to cope with what Web 2.0 does to the mind of the recruit and, as Salkowitz emphasized, with the risks that social networking technologies present to the insurance enterprise, it also provides new tools and styles for insurers to interact with their distributors and end-customers. The trick is not merely to take advantage of those opportunities but to do so in advance of one's competitors, both within the insurance industry and outside it.

One of the richest fields of opportunity is insurance claims. Accenture's Michael Costonis, who also attended the Summit as a sponsor, talks about a "talent time bomb" within the insurance claims force. As I wrote earlier this year,

Costonis argues that carriers aspiring to long-term competitive distinction need to thoroughly reevaluate their claims operations and achieve excellence in four key areas: information access, claims segmentation, organizational flexibility and human performance.

Costonis envisions a claims professional whose role is more advisory than administrative, who focuses on more value-added tasks, and who is able to share information on a real-time basis and solve problems at the point of need.

The kinds of styles and tools that are likely to appeal to the future claims professional are likely to be attractive to all potential recruits. Some applications make more sense in the external-facing roles of adjusters and agents, but technology presents plenty of opportunity for the back office as well. For example, decision-support technologies can provide access to more information of greater value in a far quicker timeframe than before. That presents value to senior managers of various sorts, but it can also ensure greater returns in shorter periods of time using fewer employees.

Here's a scenario that is already working itself out in some leading insurers: by conserving institutional knowledge and providing decision-support tools, fewer underwriters can tackle more cases faster, and sooner than they would have been able to in the past. In other words, automation can provide not one but two advantages to insurers struggling to maintain their underwriting capabilities against a dwindling pool of qualified recruits: it boosts efficiency while speeding the maturity of underwriting staff.

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I&T Executive Summit Keynote: Insurers Must Create “Millennial-Friendly” Brands

Posted on November 04, 2008

What’s the biggest challenge facing the insurance industry? If the concerns of attendees at this week’s Insurance & Technology Executive Summit are any indication, the urgent need to recruit and retain an effective workforce for the future ranks at the very top of most management priority lists.

So the comments of the Executive Summit’s keynote speaker, Rob Salkowitz, a writer and consultant specializing in the social implications of new technology and author of “Generation Blend: Managing Across the Technology Age Gap," were particularly relevant for the senior executives who participated in this year’s event.
“There’s one basic important question,” Salkowitz told the Summit attendees. “Where is the next generation of insurance professionals going to come from?” Clearly, he said, these professionals -– whether working in IT, claims, sales, or any other service-related area -– will come from the population segment known variously as Generation Y or Millennials. But so far most insurance companies have not done enough to convince these younger workers that the insurance industry can provide the kind of workplace, culture, and tools that they seek.
For example, Salkowitz said, the next-generation workforce is “very collaboration and team-oriented.” This stems directly about how they were raised –- or “socialized,” in Salkowitz’s words. Furthermore, “they literally are marinated in digital culture,” including videogames and mobile devices. So “Technology is transparent to them, the same way TV is transparent to Boomers,” he said, adding that another important characteristic about Millennials that insurers must understand is that “they are naturally multi-tasking.”
None of this means that 20-somethings come to the workplace with knowledge of specific industries such as insurance -– but according to Salkowitz, this in and of itself is not daunting to them. “They were educated for self-esteem,” he said. “Many don’t see a lack of experience as a barrier to rapid career advancement.” At the same time, their preferred method of learning is tapping into networks -– a practice Salkowitz described as “just-in-time competence.”
Perhaps the most critical change from previous generations, as far as insurers should be concerned, is that for Millennials “there are fewer boundaries between work and life,” Salkowitz explained. Also, “they are looking for opportunities, not careers. They [expect] to have 10 to 15 careers -– not jobs,” he emphasized.
These attitudes and expectations do not jibe well with the perception (and perception often is reality) that insurance “is an older industry that is not innovative in its approach to technology,” Salkowitz said. “They are looking for a good work experience that includes flexibility. Technology is a key enabler of that –- it facilitates the lifestyle and workstyle that Millennials value above all. Access to technology at work is critical.”
It’s not as simple as implementing the latest application development tools are architectural concepts. It’s actually consumer technologies that are more relevant in terms of creating the kind of culture and environment Generation Y seeks, Salkowitz said. “Consumer technology sets expectations. It is leading the way and shaping the experiences most people have,” he explained. Furthermore, this is creating a “more sophisticated and knowledgeable user base than we’re used to.”
And, in a pointed message to the Executive Summit audience, Salkowitz emphasized that the responsibility for changing insurers’ cultures and convincing Millennials to join the industry doesn’t lie wholly with human resources -– it’s an IT obligation, as well. Together they must partner to create what Salkowitz calls “a Millennial-friendly brand.”

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