Industry Innovation: Insurance

Industry Innovation: Insurance

The more you tighten your grip, the more star systems will slip through your fingers.”

Today’s insurance CIOs are shifting their focus away from cost reduction to speed, flexibility, and innovation. As insurance buyers’ habits change from face-to-face interactions with agents to Web-based and mobile virtual experiences, CIOs are looking to develop strategies to ensure that IT’s capabilities keep pace with — and even anticipate — business needs.

While strong interest in virtualization continues, insurance CIOs are evaluating alternatives for applications and infrastructure in the cloud and are supporting sales and marketing activity using social media. Given the installed base of legacy systems and insurers’ necessary conservatism, CIOs need to move cautiously but take concrete steps to adopt technologies that can significantly boost productivity and agility. They should identify the costs and benefits of these innovations while developing plans to protect their assets from security threats and other problems.

INNOVATION WITHIN THE INSURANCE INDUSTRY

The insurance industry has historically been conservative in using new IT technologies and services. However, it is also one of the industries with the greatest dependency on technology. As social media, mobile devices, advanced data tools, and other innovations have had an impact on other industries, we wanted to know which IT innovations insurers are interested in and how they are using these innovations. To answer these questions, we first reviewed information on the plans of insurance companies covering life, property and casualty (P&C), and health. Then, we asked 10 medium and large insurers two questions:

• 1. What is driving the need for IT innovations?
• 2. What innovations are you using and for what purpose?

What’s Driving The Need For IT Innovations In Insurance?

Insurers are subject to many of the same pressures as other industries. However, because of the longevity of insurance products, the high level of regulation, and the historically conservative nature of this industry, insurers are experiencing the following drivers of innovation needs:

• Cost pressure is nearly always present, but other drivers are increasing. Most of the insurers reported that their focus has recently shifted from cost reduction to growth, flexibility, and greater business agility.
• Regulations drive health insurers more than P&C or life. Insurance, in general, is highly regulated with US healthcare insurers feeling the brunt of recent federal legislation. Though these regulations are still changing and being analyzed, CIOs know that they will drive greater need for reporting, analytics, and security policies.
• Generational differences drive how people research and buy insurance. Most research and insurance purchases are done online. Young buyers, in particular, use this channel more than others.
• Legacy systems can’t accommodate the speed of product changes. Simple insurance products have morphed into more complex investment vehicles, such as weather- and satellite-imagery-based crop insurance. In addition, products — and associated premiums — are more closely tied to individual behaviors. The legacy mainframe systems are insufficiently flexible to accommodate these changes.
• New technologies are being added carefully. Greater acceptance of cloud computing, the widespread use of mobile devices, and the sophistication of data tools are opening up new areas of sales, as well as new liabilities.

TECHNOLOGY CHANGES INSURANCE FIRMS’ APPROACH TO BUSINESS CAPABILITIES

Although the basic insurance industry capability map has not changed, technology alters how insurance companies pursue their individual capabilities. Despite the industry’s historically cautious approach regarding adoption of emerging technology, firms are actively seeking to engage with an increasingly tech-savvy population of customers, prospects, and partners in ways that affect most areas of the insurance capability map. A glance at a typical life insurance company’s map shows many areas where technology is enabling new ways of being effective.

Sales And Service Find New High-Visibility Channels

New technology continues to introduce innovative approaches such as:

• Replacing travel with digital alternatives. Enhanced virtual meetings using cost-effective telepresence solutions can make distribution channel acquisition, onboarding, and customer service processes more effective and significantly less costly. Distance learning software and collaboration technologies can accelerate onboarding and promote a sense of community despite geographic distribution.
• Finding new ways to reach retail prospects. Smartphone apps offering price quotes and location-based information can reach customers and potential buyers more conveniently.
• Extending the reach of customer service. Firms are moving online self-help, including agent chat capabilities, to mobile platforms. Furthermore, analysis of social media channels can reveal critical customer service opportunities.

Cloud Is On The Horizon For Product Development And Administration

Long the stalwarts of insurance firms’ legacy investments, product development and administration are slowly moving to new platforms as companies:

• Continue to turn to off-the-shelf solutions . . . It is inevitable that the relentless drive away from the complexity and expense of custom-developed mainframe-based applications will eventually mean that package applications service even these business capabilities.
• . . . and even SaaS options. When packages are available, SaaS solutions will follow. As firms re-evaluate the commoditization of some of their product areas, they may find less justification for high-maintenance custom applications and opt for the capex to opex tradeoff of standardized SaaS offerings.

TECHNOLOGY-DRIVEN INSURANCE INNOVATIONS

Many of the insurance innovations are part of three themes — IT consumerization, better customer data, and new services options. Insurance CIOs should look at these technology trends to provide new value to their firms:

• Cloud computing. SaaS use is widespread, and both internal and external clouds are being deployed that span the spectrum from PaaS to IaaS. However, these are the early days of cloud computing for insurers, and so they are proceeding carefully. CIOs should evaluate the effectiveness for using cloud-based services for areas like email, collaboration, Web hosting, development environments, and potentially data warehouses and analytics — this last to leverage storage economies and the intermittent nature of processing.
• Mobile apps and devices. According to one CIO, “The iPad, Droid, and other mobile devices are being sanctioned by default.” Mobile apps are riding this hardware wave and being used for standard office automation (e.g., email and calendar) as well as industry-specific apps such as claims adjustment. Beyond the obvious uses of office automation, CIOs should develop a vision of “the office of the future” or “agent of the future” to explore all of the field and customer-facing touchpoints that would benefit from a mobile implementation. In parallel with this, CIOs need to update their security plans to determine how to protect these devices and the internal assets they access.
• Social media. Most CIOs have the same list of social media of interests — Facebook, Twitter, LinkedIn, and Yammer. In many cases, they are using these for sales and marketing activities. In all cases, the ROI for these channels is still to be determined. The primary concerns were: support costs, control of intellectual property, who represents the company, and, most importantly, security. As one CIO pointed out, “We are shrinking the perimeter of protected assets and being more selective about what to protect.” CIOs should continue experimenting with social media for sales and marketing but develop a social media policy that protects high-risk assets.
• Upgrades to information management tools and solutions. Interviewees cite a wide range of technologies for improving the usefulness of their data including predictive analytics, master data management, and more sophisticated business intelligence offerings. As organizations struggle to improve the maturity of fundamental areas such as data governance to preserve and extend access to a single source of truth for master and reference data, they should invest in mining unstructured (e.g., within social media sources) and semistructured (e.g., within XML documents) information and look to move beyond simple records and content management to text analytics and, eventually, social network analysis. Furthermore, CIOs need to develop corporate standards for data tools (e.g., business analytics), data management architecture (e.g., centralized or federated data warehouses), data elements (e.g., metadata), and methods of data oversight.
• Business process management (BPM). CIOs are largely consistent in their view of BPM tools — they have great potential, but the promised benefits are yet to be realized. Few are using these tools for core apps such as claims or policy administration, but some are developing BPM expertise by building non-core apps such as marketing distribution. Given the evolution Forrester sees in BPM, CIOs should identify where BPM should and should not be used and take a close look at the additional benefits of incorporating rules engines to enhance the automation potential of BPM technology. While doing so, insurers should measure the results to compare to more manual approaches and position BPM to drive broader enterprisewide adoption.
• Virtualization in all its forms. The cost of running huge data centers has already been significantly reduced for many shops by means of server, storage, network, and client virtualization, and increasing utilization levels while reducing support costs remains a focus area. Meanwhile, a variety of high-quality alternatives to physical travel in the form of telepresence offerings have brought new life to videoconferencing as a solution. The ever-increasing mobility of the knowledge worker population and the globally dispersed workforce should drive serious consideration of telepresence and mobile-device-based videoconferencing as way of virtualizing the workplace.