Will Insurers Lead Transformation with the Internet of Things?

By Insurance-Canada.ca BlogEditorNo Comments

At the recent 2014 Insurance-Canada.ca Executive Forum, Donald Light, Director – Americas Property/Casualty Practice, Celent, gave an update on the progress of the Internet of Things and his view of the direction the IoT might give to the industry.  It is a bad news/good news story that — we think — needs careful attention.

Do you see the IoT on the insurance industry radar?

A Fresh Refresher on IoT

Light gave a succinct anatomy lesson on the IoT.  There are three major components:

  1. Things with Networked Sensors (e.g., telematics devices in cars; temperature, moisture sensors in homes; state sensors for equipment in manufacturing plants; remote control mechanisms).
  2. Data Stores to receive and store information in a variety of forms (data, text, images, voice/sound, rules/models).
  3. Analytic Engines (Learning machines, cloud based services).

Donald Light - Celent

Courtesy Donald Light – Celent

These components interact.

  • The Sensors provide internal and external state status to the Data Stores.  Light notes that these data are not only more accurate, but may not have been available before.
  • The Data Stores and Analytic Engines iterate the data to produce constantly updated information to inform decisions on underwriting, claims, marketing, etc.
  • The Analytic Engines provide feedback and control to the Sensors to direct machine behaviour automatically or trigger people to take particular actions or be informed of new developments.

This changes everything …

Light contends that this will impact every part of the insurance life cycle.  The most amount of change, according to Light, will occur with:

  • Product Design.  There will be massive amounts of data on which decisions will be made.  Care needs to be taken to understand:
    • They types of sensors and their output.  Insurers may not have complete control over the sensors that are deployed, so they will have to understand the variations.
    • If there is feedback to the sensors (raising lowering temperature, modifying a vehicle’s performance), the insurer needs to understand the  rules underlying control decisions and the effectiveness of the feedback.
  • Pricing.  New data (in large quantities) will be available which will drive new pricing and algorithms.  This will place new demands on exisiting rating engines.
  • Policyholder Service.  If the insurer is involved in directing any of the feedback and control (e.g., if premiums are changed dynamically, or if loss control processes are directed), the insurer has to ensure these will work well with their customers and must understand how these can be used to motivate specific behaviour.

Becoming a digital insurer today …

Light contends that the IoT is the foundation for becoming a digital insurer.  The goals  of this transition are:

  • Cheaper. Reducing expenses, increasing productivity.
  • Smarter.  Getting pricing, underwriting, and claims adjusting right, and getting it right consistently.
  • Faster.  Shorter cycle times.

Being a digital insurer tomorrow…

Digital insurers will be positioned to transform themselves and their products.  Light provided a peek with two new offerings.

The Climate Corporation was founded by two ex-Googlers who want to do crop insurance differently.  They take massive amounts of data (50 terabytes and counting)  from climate models, weather measurements, and soil observations.  These data are used to write and price insurance policies for specific plantings.  Claims are zero-touch, they are paid based on events, not on impact.  The company was recently sold to Monsanto for US$930 Million.

AirCare (part of Warren Buffet’s Berkshire Hathaway Portfolio), is a bundle of services, that is sold to travelers for $25 per domestic flight:

  • Bag Backer – The traveler sends a digital picture of a lost bag claim form and Aircare transfers $1,000 into the traveler’s bank account and manages the claims process
  • Deluxe Delays – If there is a 2 hour delay on a departing or connecting flight, $50 is transferred.
  • Route Repair –  If the traveler misses a connection due to a flight delay, $500 is transferred.
  • Tarmac Bonus – If the travelers’ plan sits on the tarmac for more than 2 hours, $1,000 is transferred.

All of the transfers are automatic, and Air Care monitors flight status for the flights on the traveler’s itinerary.  Pretty slick, considering the owner, as Light reminded the audience, that Buffet is famous for not investing in technology.

Are we leaders

Light concluded that, given the complex nature of insurance and its data, the industry is ripe for change and the IoT is a solid enabler.  Our question to you:  Do you see the industry taking this step?  Do you see your company being a leader in this?


Analytics, Claims, ICEF2014: Insurance 2024, Internet of Things, Underwriting

Social Reform in the Insurance Industry

By Peter PleckaitisNo Comments

Social — it’s no longer a term used exclusively by millennials looking to catch up with family and friends. Customers now have the ability to tweet and connect with their most hated or most adored organizations — and these organizations have the ability to communicate back. The concept of social businesses is alive and well in the enterprise space and has forced companies to change the way they interact with their most important stakeholders, their customers and their employees.

Consumer demand  is driving

Even in an industry as “traditional” as insurance, the need for social businesses has been driven by the evolving consumer demand that companies should know them as more than a transaction, more than a claim number, more than a demographic and be able to seamlessly interact with them through multiple channels.

In today’s world, if we don’t provide them with a consistent and satisfactory experience in a timely manner, someone else will. And our soon to be ex-customers will not hesitate to vent their frustrations on the World Wide Web.  In fact, 84% of millennials say social and user-generated content has an influence on what they buy. To make situations more complicated, the average response times that customers expect from a company once contacted via social media is 5 minutes but only 1% of social leads get a brand response.

Now that customers have the power to share their opinions, personal experiences, and horror stories  with millions of people in a matter of minutes using social platforms like Twitter and Facebook, it is imperative that insurance companies take on a new mindset on how they can leverage social media to improve the customer experience

Coming Trends

In the next 5 years, there are two social trends that we will likely see emerge and thrive in the insurance space.

Crowdsourcing – Although the majority of customers still make the final purchase through insurance agents (51.5%), many customers begin the process by flocking to the internet to research and compare rates amongst competitors. But with the different types of products, premiums, coverages, and other factors the process can be quite overwhelming.

Let’s imagine what we at IBM call “the art of the possible”. Imagine the 21 year old version of yourself – you have just bought your first car and are now in the market for car insurance. To find the best price, you start your journey on Google and begin to compare rates from some of the top insurance providers.

You quickly realize that you have no idea what the insurance jargon on the screen means and wish there was an easier way to choose the best product  for you. Using  technology to understand your key details (age, driving history, car type, city, etc.) and connecting information that with what other people like you are buying, you will get smarter product recommendations.

As well, your friends from Facebook or Twitter that may have also brought these products. This type of social platform will empower the customer to make decisions independently and likely increase the number of online claim purchases

Sharing Expertise to Increase the Bottom Line – Social does not always have to be between the business and a consumer. With constantly changing regulations, complex scenarios and multiple insurance products within a single company, there is great value to be realized by companies who use social platforms to allow employees to share knowledge and expertise with each other.

The trick is having an enterprise platform, which extends to  simple-to-use, but powerful, mobile apps, that can allow employees find these experts quickly and on the fly.  IBM currently uses a technology called IBM Expertise which allows IBMers to find experts around the globe by industry, skills, clients, projects, technologies which we use for advice, mentoring, information and resource transfer and allows us to capitalize on cross-selling opportunities, work more efficiently and ultimately allow each employee to provide their client a better experience.

Taking a capability like IBM Expertise and introducing it to industries like insurance will create smart, liquid, and collaborative workforces.


Editor’s Note:  Peter Pleckaitis leads the Customer Experience & Strategy team in IBM’s Interactive Experience organization. Peter works with clients to generate business models and launch new business to capture the benefits of disruptive technologies.  Peter recently presented at the Insurance-Canada.ca Executive Forum 2014.

Social Business

One-Stop Financial Shopping: Will We Find the Holy Grail?

By Patrick Vice, Insurance-Canada.caNo Comments

In the news stories surrounding the purchase of State Farm’s Canadian operations by Desjardins General Insurance Group, I saw a phrase that took me back to my insurance roots: ‘One-Stop Financial Shopping’. Conceptually, this has strong appeal for all parties – insurers, distributors, and clients.  In practice, however, results have been spotty.

I’m wondering if, in this new digital age, the concept of a single financial shopping experience is trending up, down, or sideways. I’d appreciate your thoughts.

Prime time became no time in the 1980s …

In the early 1980s, Aetna Canada adopted a program that had been developed by its large US parent.  The ‘Prime’ program was intended to provide independent P&C agents and brokers with products, services, and training to allow them to cross sell products from Aetna’s separate Life and P&C divisions.

From a marketing perspective it had appeal.   Operationally, it was a challenge.  Some agents/brokers were enticed by the prospect of having a wider portfolio, and greater support.  Others were dissuaded  by the thought of having to support multiple product lines in order to meet production goals.

At the end of the day, most existing agents/brokers took a wait-and-see approach.  The program slowly slipped off the radar.

This hasn’t changed much for brokers …

P&C Brokers have the opportunity of putting together a one-stop shopping experience on their own, by bringing in life specialists. But there doesn’t appear to be much momentum.

In a recent article, Randy Carroll, CEO of the Insurance Brokers Association of Ontario estimated that at least 45% of brokerage offices offer life and disability insurance products.  As to the future, Carroll said, “I don’t see it as changing that much. I still think it’s going to be something that needs to be available to consumers so you do have that opportunity for one-stop shopping if you want it.”

Will other channels have an opportunity, then?

Does the laissez-faire  attitude of brokers open the door for other distributor channels?  Probably not any more than the door has been opened to-date, at least for existing participants.

The State Farm,  single company model  (frequently called ‘captive agent’) has been around in Canada for quite sometime, and has garnered a respectable market share.  It is reasonable to expect that Desjardins will leverage this using its broad range of products.  This could be formidable, but not disruptive in its current construct.

Bank insurers are having some success in entering the insurance business, and ‘package’ products on their websites under the category ‘Insurance’.  However, there isn’t any obvious programme beyond that.

In the Management Discussion on TD’s 2013 Statements, TD describes its product and marketing strategies for its P&C and Life & Health lines in two separate paragraphs.  There is no mention of leveraging the two lines.  It is clear that a major thrust for its P&C products is towards affinity groups.  There is no mention of that for Life&Health.

So … business as usual?

Perhaps.  The problem is that in this era of rapid disruption, predicting stability is not always the best approach.  For example, Desjardins has demonstrated leadership in the Telematics area with its Adjusto product.  Could it build a strategy around using sensors to monitor homes and persons? (See, e.g. Will Insurers Help Consumers Get Ready for the Internet of Things?)

Could non-insurance entities with data gathering capabilities build out offerings leveraging their existing knowledge of a range of needs.  I’m thinking Amazon, Google, Facebook (see Google Embedding Innovation in its Insurance Foray).

Now, what do you think

We know that customers with multiple products are ‘stickier’ and more profitable than monoline buyers.  But the holy grail of cross marketing Life and  P&C products remains illusory for the most part.

Is a breakthrough possible?  I’d appreciate your comments below.

Distribution, Insurance Marketing

Baby Boomers’ Impact on Personal Injury Claims

By Sean Cassidy1 Comment

Population demographics may soon play a major role in the way personal injury claims — particularly accident benefits claims — are handled in Canada.  The real question is, what can be done proactively to minimize the impact?

Boomers drive on ….

Canada’s baby boom is larger than that of most other G8 countries, and next year the first baby boomers will reach the age of 70. In fact, more than one quarter of Canada’s population (27%) is comprised of baby boomers, and in the last 10 years the number of Canadians aged 65 and above increased by 15 per cent.

Economists are concerned about how this is going to impact Canada’s workforce. It is clear that insurance companies need to consider how this is going to impact their personal injury claims. Unlike previous generations, most baby boomers maintain two vehicle households, and do not plan to give up their licenses any time in the near future.

Results of a recent Liberty Mutual study in the United States can easily be extrapolated to Canada. Despite retirement and declining physical abilities, the study found that senior drivers still drive regularly with 41% driving every day and 38% driving several times per week. Seniors responded that they plan to continue their driving habits despite indicating that:

  • 78% feel they have declining physical abilities
  • 16% said they tire easily when driving
  • 13% report they have difficulty with hearing and/or vision
  • 9% indicate they often get lost or feel confused while driving

We can only anticipate these numbers continuing to go up as more and more baby boomers reach retirement age. Based on psychological studies of this generation it is clear that they will not give up driving as quickly as their parents because of a more determined and independent mindset coupled with increased generational wealth.

Known Impacts for Canadian P&C insurers…

Leaving aside the argument/assumption that older drivers present an increased risk on the roadways, we can agree that, all else being equal, the vast majority of people over the age of 70 are not as physically robust as they were in their younger years.

The human body starts to decline after the age of 40 and muscle tone starts to decrease at a more advanced pace. Other common physical ailments start to present themselves such as osteoporosis, osteoarthritis, back pain, type II diabetes, heart conditions, etc. These conditions clearly present more of a risk in the event of physical trauma, such as a car accident. We can make a confident assumption that the injuries sustained from the accidents that do occur will be more severe for elderly drivers and vehicle occupants.

But what are the known unknowns?

Distracted driving has now become one of the leading causes of vehicular accidents, and has resulted in an increased incidence of rear end collisions. Regardless of fault, these often result in injury.

Current Health Claims for Auto Insurance (HCAI) data reveal that at least 70% of the claimants receiving treatment are being diagnosed with strains and sprains which fall under the Minor Injury Guideline (MIG) and are often the result of this type of accident. HCAI data seem to indicate that at least 23% of these claims will progress and move on to non-MIG treatment.

The real question that we want to explore is what these numbers will look like when a full 27% of the population is older than age 65 and still driving. For example:

  • Will 70% of the soft tissue injuries remain in the MIG?
  • How would the same accident that left a 40 year old healthy female with neck strain and a bruised collar bone impact a 73 year old woman with mild osteoporosis and a bad back?

These are important questions that need to be examined from both the insurance side and the practitioner’s side. Would the injury even remain in the MIG at all?

We know that older human bodies do not heal as quickly, especially if complicating age related factors such as diabetes are introduced. How will this affect those 23% of treatment plans that become non-MIG claims?

What’s the last question?

There is no question that the aging of Canada’s population will impact personal injury claims and how they are managed. The question is how much and what can be done to proactively minimize the impact?


Editor’s note:  Sean Cassidy is Vice President, Sales and Marketing for Benchmark Independent Medical Examinations Inc. Benchmark provides professional staff and state-of-the-art customized software to provide a seamless, straightforward, and effective IME experience.


Data Science Implementations: Keep Your Eye on the MoneyBall

By Insurance-Canada.ca BlogEditorNo Comments

Data Science is a hot topic these days.  The ability to quickly turn data into actionable information using advanced analytics is seen as a major competitive advantage.

However, a sense of urgency to put analytics into place may be creating some longer term consequences.  We’d like your thoughts and experiences in implementing analytics.

Cheaper, Faster Silos

This blog has noted a number of examples of the development of departmental data/analytics silos within organizations (see, e.g. Analytics In P&C Insurance: Is a Good Start Good Enough?).

We have also noted the challenges of establishing effective data governance structures and procedures, and the implications of action in absence of direction (see Data vs. Data Governance? Chicken & Egg Dispute Resolved!).

There is one more concern.  Specialist knowledge replacing business expertise.

The rise of the Data Scientist

Until a few years, the term Insurance Data Scientist was rarely used.  Most organizations assumed that the actuaries would handle any complex analytic requirements.

Almost overnight, insurance got swept by a big data wave that was covering organizations across all sectors.  In a 2011 report, McKinsey predicted that by 2018,   “the United States alone could face a shortage of 140,000 to 190,000 people with deep analytical skills as well as 1.5 million managers and analysts with the know-how to use the analysis of big data to make effective decisions.”

Insurance companies started to find ways to fill its own perceived gap.  Now, many insurers have developed structural units of data scientists.  According to Adam Charlson and Kristen Bargem, writing in Insurance Networking News,  these employees are “mathematicians, computer scientists, academically trained scientists (astrophysicists, ecologists, biologists, etc.), hackers and software engineers who use the scientific method.”   Sometimes they are headed with a c-level officer, carrying a title such as “Chief Data Officer”.

So what’s the issue?

We see this trend as mainly positive.  We just see a little too much enthusiasm for the expertise, and not enough focus on the outcome.  In many respects the rise of Data Science mirrors the rise of Computer Science.  There is a lot of promise, a lot of delivery, and good value.  Until the science becomes a goal in and of itself.

Writing in Forbes.com, Florian Zettelmeyer, director of the Program on Data Analytics at Kellogg School of Business, and Matthias Bolling, a consultant with Egon Zehnder International, put it succinctly:  “big data isn’t a data science problem. … Big data is a leadership problem.”

The authors use the Moneyball book/movie story as the example.  The differentiator for Oakland A’s manager was not the use of data to pick good players. It was the use of data to find undervalued good players that created success.

Billy Beane had an economics problem, not a skills problem.  And, according to Zettelmeyer and Bolling, Beane “had the courage to use the insight gleaned from data analytics to drive the way he ran his business… and changed the organization so it could deliver on that potential.”

So it goes back to leadership….

Data science is very attractive, but it will not solve all of the issues of any insurance organization.  It must be pointed in the right direction, based on long term goals and objectives.

Kurt Vonnegut , Jr. wrote: We are what we pretend to be, so we must be careful about what we pretend to be.”  If our pretense is to be the best in data science, we may achieve that goal, at the expense of other objectives.

What do you think?

What is your experience here?  Are you looking at data science as a component of your strategy?  How is it positioned in your organization?


Analytics, Data

Personalized Marketing: What Do We Know and When Do We Know It?

By Patrick Vice, Insurance-Canada.caNo Comments

Reading between the lines of some recent reports, I am starting to think that the more we learn about personalized marketing, the less we know about how to implement it.  Fortunately, there is an opportunity to pose questions to leading experts next week.  I hope you can join me to ask your own questions and help all of us understand the answers.

What is personalized marketing?

Most of the articles I read use the term ‘personalized marketing’ without definition.  Maybe I’m just behind in my reading, but I finally had to look it up.

According to Marketing-schools.org,

Personalized marketing is the ultimate form of targeted marketing, creating messages for individual consumers  …  it is most often an automated process, using computer software to craft the individual messages, and building customer-centric recommendation engines instead of company-centric selling engines.

In other words, look at what Amazon.com does, and do it.  Unfortunately, it doesn’t address the information required to construct and deliver the message.  I want to explore a slightly different construct, but before I do, I think it’s important to look at the buzz around personalization.

Expectations are higher internally and externally…

A recent posting in eMarketer begins: “Marketers have heard it loud and clear: Personalization is important. But they’re still struggling to execute it.”  According to the post, the critical roadblock is the lack of integration of internal systems which prevents the development of a single customer viewpoint.

eMarketer cites a Forbes Insight survey of North American Executives which found that their companies were using an average of 36 different data gathering systems.  A quarter of the execs said that there was full integration with their companies.  Thirteen percent said there was no integration, and the majority of execs (56%) said that there was partial integration.  The balance, 8%, didn’t know (how that’s possible is another story).

This status quo was not acceptable for the majority: “Fully 62% said that creating a single, central customer marketing database that housed customer experience information was a priority, and 59% said the same about having a single system to deliver customer experiences across all potential digital channels,” eMarketer writes.

Is this feasible?

Integrating systems is tough stuff, unless there is a very clear, achievable target. I believe that a “single, central customer marketing database that housed customer experience information”  (emphasis supplied) is neither clear nor achievable for the vast majority of Canadian P&C insurers.  A few might be able to consolidate some of the information that is available within the organization, but creating an expectation beyond that is unreasonable.

However, there are likely some alternative approaches that might well serve the need at hand.

CRM 2.0

This blog has noted the history of the “Market of One” concept, which looks very similar to personalized marketing to me.

That post concluded that the next version of Customer Relationship Management (CRM v2.0) will be much more than a really big, fast database.  It will include high powered analytic tools and links to external data sources.  And it will be designed, implemented, and supported by a highly skilled, cross functional team (marketing, business, IT).

Enter Insurance 2024

CRM 2.0 is a long term commitment.  Fortunately the Insurance-Canada.ca Executive Forum: Insurance 2024, being held October 7 in Toronto,  will be focused on a 10 year horizon for the insurance industry.  There will be particular emphasis on digital customer experience.

Many of the sessions will address issues around marketing/CRM 2.0.  Two will be led by insurance practitioners who have direct, personal experience:

  • The Insurance Distribution Channel of 2024 – Jim Ryan, AIG will describe a multi- year initiative involving internal and external resources and a modern CRM platform to develop the insurance marketplace of the future.
  • Marketing in 2024 – Debra Ambrose, Aviva Canada, will moderate a panel to suss out issues and opportunities of a creating and managing a customer driven insurance enterprise .

Details and registration information is available at the the Insurance 2024 site.

What is your experience?

Have you been involved in a personalized marketing initiative?  Are you looking at this for the future?  Are you building components of CRM 2.0?  Please share your experience.  And join us  October 7 to pose questions if you can.

Consumer Insight and Action, CRM, Digital Insurance, Insurance Marketing

Why Wait? E-signature Technology Is Here Today

By Michael Laurie1 Comment

For many business sectors, going paperless is a major efficiency initiative – and insurance is no exception. So why wait?  Perhaps it is tradition, or misinformation, or just momentum.  Let’s look at some facts.

Tangible benefits from virtual documents  ….

E-commerce – including electronic contracting, electronic signatures, electronic delivery of documents, and retaining electronic records in place of paper records – automates and expedites business processes. The process can also cut operational costs and improve efficiency and collaboration. Importantly, e-signatures bring great improvements to the customer experience with a simpler way to complete paperwork on a PC, smart phone or tablet.

What about compliance and legal issues?

Naturally, there is resistance to ditching the pen for digital. But questions about the law have been addressed.  The Uniform Law Conference of Canada adopted the Uniform Electronic Commerce Act (UECA) in 1999. Subsequently, laws that include rules for the use of legal, secure electronic signatures have been enacted throughout the Canadian provinces. In addition, there is the Federal Personal Information Protection and Electronic Document Act (PIPEDA). According to the Office of the Privacy Commissioner of Canada, “the Act seeks to put electronic and paper media on an equal footing.”

Most often, pushback is based on uncertainties about legal compliance and security concerns. But according to Daniel Fabiano, partner at Fasken Martineau DuMoulin LLP and author of the advisory report on electronic signature and delivery commissioned by the Center for Study of Insurance Operations, these concerns are counter-intuitive. “There are obvious and powerful advantages to e-commerce – including the potential for heightened compliance measures and increased security. A well-designed e-commerce regime can address risks and mitigate them.”

And security concerns?

There is a lot of confusion – between SSAE16/SOC 1 and SOC 2 specifically – about what can attest to the security of a system. SSAE 16/ SOC 1 focuses on controls over financial reporting, while SOC 2 focuses on the security controls across a service company’s technological and operational environment. When considering e-signatures, SOC 2 is the certification that matters.

In addition to ensuring the security of the data center and the e-signature system, insurance companies and brokers need to be certain they are implementing an electronic signature application that is built on digital signature technology. This combination makes the e-signature reliable and helps strengthen enforceability. To make the e-signature ironclad, you need to address:

  • User authentication to reduce fraud and ID theft. Verification can be made through traditional login or password, secret question and answer, SMS code or a third-party authentication service.
  • Document security. Digital signatures placed at every signature in the document produces a tamper-evident seal and a reliable audit trail of how and when the document was e-signed and by whom. If someone attempts to make an unauthorized change the document and e-signatures are marked as invalid.
  • Process evidence to prove what took place throughout the progression of the workflow. This is accomplished by recording the web pages, documents, disclosures or pop-up windows that were displayed; emails or SMS messages sent; any voice or image capture; IP addresses and the time and date of each event.

Now, to the heart of the matter ….

While security and compliance are of the utmost importance to the insurance industry, an e-signature solution also needs to make a positive impact on customer experience and support the way brokers work. This is possible with a flexible e-signature solution that can adapt to the environment in which it is being used – in-person, at a point-of-sale, or remotely over the phone/web.. Without this, goals for adoption will be compromised.

Also, if signers need to jump through hoops to identify themselves, can’t print before signing, or are required to install software, they are more likely to abandon the process before the transaction is completed. A good electronic signature solution built on digital signature technology allows brokers to invite customers, to review, accept, and securely e-sign documents from any web-enabled device (computer, tablet or smartphone) at any time.

So, why wait?

The technology to mitigate risk and improve the customer experience isn’t on the horizon – it is here. The time is now to move forward into the digital age. We have developed an ROI Calculator to show how a clear e-signature strategy  opens the opportunity for increased revenue, improved customer loyalty, and lowered operating costs.


Editor’s Note:  Michael co-founded Silanis more than 20 years ago. Today he is
responsible for planning and growth strategies for product marketing and
product management

Digital Insurance

Climate Change Day Musings: Lessons from The Marshalls on Insurance and Technology

By Patrick Vice, Insurance-Canada.ca1 Comment

On this day of Climate Change Awareness,  I am proud of the leadership role that the insurance industry is playing in raising awareness of climate change impact, and supporting change adaption and remediation.

If you are not aware of our industry’s activities combating the effects of climate change, take a moment to check them out and see what you can do to promote and support them.  Before we do, will you join me on a trip to the Marshall Islands, where climate change is not a debate: it is an existeMap-Marshall_Islandsntial threat?

About The Marshalls …

Marshall islanders are proud, self reliant, strong people.  And they are great mariners.  They have to be … there are only a few commercial air strips in the island chain, and water landing on the Pacific ocean is not recommended.

The Marshall Islands are located 3,700 km southwest of Hawaii and span 300 km, lying between 5 and 7 degrees north of the equator. It is comprised of 29 atolls.  Important note:  an atoll is the rim of an ancient volcano, which creates a circle of dry land just above the ocean’s waters.  On Majuro, some parts of the land lie 30 cm above sea level.

The Marshall Islands have been strategic points for many nations, including Germany, Japan, and the US.  The first hydrogen bomb was tested on Bikini Atoll in the Marshalls.  The result was displacement of a a population for decades, devastating the way of life for the inhabitants.

In the first part of my career, I worked in the Pacific, doing disaster training and response.  I spent time in the Marshalls doing both.  I was on the islands once after a small typhoon.  I had never seen such complete damage.  The wind was bad, the water worse.  That was in the late 1970s.

The ocean levels have risen since.  In March of this year, there were ‘King Tides’, which caused substantial damage and evacuations.  Based on The Intergovernmental Panel on Climate estimates, the impact of these natural phenomenon could inundate two thirds of island chain.  This displacement would outpace the H-Bomb displacement by unknown orders of magnitude.

Insurance will be challenged …

All of this helps me understand that regardless of the causes of climate change, it will have consequnces for most commercial activities, insurance being a canary in the coal mine, so to say.  In June 2013, Macleans published predictions by Blair Feltmate, chair of the Climate Change Adaptation Project at the University of Waterloo, arguing that “Millions of Canadians living in many parts of the country could find their homes declared uninsurable, as the insurance industry grapples with skyrocketing water damage claims.”

The past year has played out enough examples to support this thesis, and we will be facing hard decisions on coverage for overland flooding. This is a daunting task, however work already initiated gives hope that we will address the challenges in an intelligent fashion.

Where did we start …

Canadian insurers have taken a leadership role in identifying exposures, quantifying impacts, and developing accommodation strategies.  One concrete example of industry cooperation is the Institute for Catastrophic Loss Reduction (ICLR).  Founded by the Canadian insurance industry in 1998, the ICLR is an independent, not for profit research institute, which works in conjunct with the University of Western Ontario.

ICLR’s broad theme is: “science to action: Canada’s insurers building disaster resilient communities”.  it researches and provides advice to homeowners, builders/developers, and municipalities to reduce the impact of natural disasters.

ICLR does not weigh into debates on the politics of climate change, but does provide required adaptation strategies. In 2011, it published research on trends, entitled “Climate change information for adaptation,” the purpose of which was to demystify climate change to “permit initiation of pro-active adaptation measures.”

 Where does technology fit …

The ICLR and other awareness and adaptation initiatives are only as good as the data behind the analyses.  The industry has supported private an public initiatives to understand climate and its impact.

Moreover, new technologies to allow devices to communicate their status in real time will allow more just-in-time solutions to crisis situations.  This blog has provided some examples (see, The Internet of Things&Impact on Insurance), and we expect much more to come.

Will this help the Marshall Islanders?

The threat of storms in the Pacific is ever present, so research will not immediately help people living 30 cm above sea level.  However, the work of ICLR on targeted mitigation schemes, combined with progressive thinking on building specifications will have spin off effects for all those listening and caring.

This is what make me proud of our industry’s approach.



Need Core Systems Replacement Success? Think Small!

By Insurance-Canada.ca BlogEditorNo Comments

To mitigate risk with large technology projects, experts suggest careful planning and on-going control of scope.  There’s an old adage that advises:  “Start small and be prepared to scope down.”  Now, some data from the US and anecdotes from Canada suggest there may be one more piece of advice for success:  “Be small, and be happy.”

We’d be interested in your comments.

Looks like size matters …

Analyst firm SMA is reporting that there has been progress in core insurance systems replacement.  Quoted in Insurance & Technology, Karen Furtado, an SMA partner, summarized progress from 2011 to 2013: “On average, 24% to 31% of companies have a modern current system in place — over a quarter of the market has modern and current solutions in place. That’s good.”

In addition, there seems to be an interesting twist to this, relating to the size of the organization.  One measure of core business systems replacement is the capability of retiring existing legacy systems.  From that point of view, it appears that smaller organizations (under $1bn in assets),  are rationalizing systems more quickly than larger counterparts.  Two thirds of personal lines carriers have only one system.  For carriers over $1bn in assets, the percentage with only one system drops 27 basis points to 40%.

But are they satisfied?

Furtado notes that the smaller organizations have a higher degree of satisfaction, noting that “struggling with the implementation actually is owned by the over $1 billion,” which includes business / technical  scope,  schedule, and budget. Moreover, according to Furtado, larger organizations have greater challenges with integration to other systems.

Small and happy in Canada …

We don’t have detailed data, but we have noted some smaller organizations which have had unique success in implementations.  Last year, CAA Insurance (Ontario) implemented the Guidewire InsuranceSuite™, which included rating, underwriting and policy administration, claims management, and billing functionality.   The really impressive part is that CAA completed all the functionality in parallel, including external integrations, in 14 months.

Let us repeat:  All Functionality … In Parallel … 14 Months.

Earlier this month, Norfolk Mutual successfully implemented the Mutual Concept Computer Group’s Insurance Business Solutions (IBS) product for enterprise back office  management.  Not that they were competing with CAA, but the project, from infrastructure set up to ‘go live’ was competed in 9 months.

We take a ‘pregnant’ pause here: Go Live … 9 months.

What’s even more impressive, the MCCG solutions has been implemented by 28 other mutual insurance companies in Canada.  Small can cooperate.

What do you think?

Smaller carriers have challenges in competing with larger insurance entities when it comes to capacity and scope.  However, it seems that they have some advantages when it some to deploying core systems packages.

We’d like your opinion.  Is it good to be small?  Give it a little thought, and drop a short note below.

Modern Technology

A Delicate Balance In Commercial Underwriting Technology

By Patrick Vice, Insurance-Canada.caNo Comments

Is effective commercial lines underwriting technology an oxymoron?  There are enough graveyards filled with projects that have arrived DOA to make this seem true.  But hasn’t modern technology had an impact?

Perhaps, but not on its own.  There is increasing evidence that technology solutions need to be blended carefully with business wisdom to balance efficiency with effectiveness.

I’d like to know what  you think.  Is there an issue with commercial underwriting technology projects?  If so, what needs to be done?  We have an opportunity to pose some questions to an expert at next month’s Insurance-Canada.ca Executive Forum.

What do underwriters say?

In mid 2013, Accenture conducted a survey of over 550 North American underwriters on the expectations and challenges of their work and the impact of the introduction of new data sources, modern analytics, and automated systems.  The report, North American Commercial Insurance Underwriting Survey, contained some sobering findings.

The top three challenges to achieving results were:

  1. Maintaining underwriting pricing and discipline (72% of respondents)
  2. High operating costs/expenses (55%)
  3. Lack of quality UW information (47%)

The underwriters see their companies addressing some of the issues with the introduction of:

  • Process automation (57% of respondents)
  • Predictive models for risk evaluation and pricing (51%)
  • External data for risk evaluation (51%)
  • Collaboration tools (49%)

Sounds like IT is aligned with UW needs, yes?

Efficiency gains only fill half the glass …

The problem the underwriters see is that effectiveness of the solution is lacking.  Only half of respondents felt the technology currently in use is very effective.

Worse, as the report says, “This lack of effectiveness rating is even greater among frontline underwriters.”  Over half of the respondents said that their workload  increased with the introduction of new technologies.

Consulting firm, Cognizant, came to similar conclusions in an analysis of performance impediments for commercial lines underwriters, writing:

Commercial underwriting is unlike other processes in the insurance industry in that it has an extremely complex and non-standard process, requires different types of skills, uses mostly unstructured data and is highly dependent on human judgment.

According to Cognizant, this underscores the historical common wisdom that the commercial insurance process is “not conducive to technological intervention.”

So, have the luddites won?

No. In fact, the opportunities are large.  Cognizant notes, “Compared to other core insurance processes, small improvements in underwriting can lead to tremendous benefits both on the top line and bottom line of the insurer.”

But technology improvements must carefully balance effectiveness and efficiency.  And be respectful of the knowledge workers’ changing requirements.   According to the Cognizant authors:

The work profile of underwriters is changing as market volatility has become the new normal and is something that they have to deal with on a daily basis. This change will cause underwriters to spend less time on their traditional submission management tasks and more time on relationship management and fulfilling the role of a risk consultant to their key clients. Systems need to quickly catch up to enable underwriters to shift gears.

Speaking of Change …

Both consultants’ reports stress the importance of delivering data and analytics to commercial underwriters in an effective manner.  Micheal Costonis, executive director of Accenture’s Insurance practice for North America, has developed best practice steps for analytic success, several of which seem to be specifically targeted at commercial lines initiatives:

  • Integrate analytics into the business processes. Data, technology and business must work as one team, and from the beginning of any effort.
  • Build a solid business case. Analytics should be used to solve defined business problems and answer specific questions.
  • Face up to the technology challenge. Insurers need to keep up the pressure, focusing on upgrading systems, digitizing processes and capturing data.
  • Leverage big data. Insurers deal with large amounts of unstructured data, but tools are getting better at dealing with this. And don’t forget about external data that is now available, including social media, telematics and data from external providers.
  • Initiate pilot projects to test concepts. Data and analytics lends itself to a test-and-learn environment, which can minimize sunk costs and enable faster innovation.

Michael will be presenting at the Insurance-Canada.ca Executive Forum, focusing on how insurers can effectively respond to the changing environment. I’ll be interested in hearing comments on commercial lines.

What do you think?

If you’re an underwriter, what have you seen that has worked for you?  What hasn’t worked.  If you are a technology supplier, do the challenges above ring true?  What approaches do you take?  If you are an executive, how do you create an environment that balances effectiveness and efficiency?


Analytics, ICEF2014: Insurance 2024, Modern Technology, Underwriting
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