Before we head off for a good long weekend, we thought we’d celebrate the 2014 mid-point by reflecting on the trends we discerned at the beginning of the year. It looks like we caught a wave or two, and are still waiting when it comes to some others. We’d like your experience: how have your prognostications played out?
Core Systems Replacement – Navigating a Changing Roadmap
It was a no-brainer to suggest that legacy systems modernization would continue through 2014, since 30%-40% of insurers had started the journey. We added a caveat: there would be increased fiscal control placed on large projects.
We think we hit this one. The journey to modern technology is being guided as much by comptrollers as it is by competitive requirements. Scope control is the order of the day in many shops. Unfortunately the original business case, touting ‘business transformation’, may be going through its own transformation, with lowered expectations.
Along the same lines, we found examples of customers doing creative things to maintain existing legacy systems, rather than embarking on long projects which may yield limited results.
Partly Cloudy, with a Chance of Expense Control
We started the year thinking that Cloud was going to be a strategic darling at the dance. Looks now like the real-life cloud formations are more tactical than strategic.
Although there is a lot of mobile and hybrid software that relies on cloud technology for implementation, the emergence of clouds in insurance has been evolutionary rather than revolutionary. And the impact has been tactical, rather than strategic. For a number of organizations, the appeal of the cloud is lower cost, flexible infrastructure, rather than disruptive, innovative technology.
This could change as organizations look to adopt more flexible, on-demand business processes where technology is looked at as a utility, not a strategy.
Marketing Driving Telematics
We think this one was a hit for us as well. All things equal, the most important impact of telematics-enabled usage based insurance is the variety of data that becomes available for underwriters to use in risk selection and pricing. However, this assumes that insurers have the technical ability and human expertise to draw the lines between large data sets and profitable business. Not so easy with legacy systems and limited analytic capabilities.
It also assumes that regulators (and their political masters) have the capacity to accept new methods of underwriting and pricing. Not always a reasonable assumption, especially with respect to highly regulated products such as personal automobile.
However, there is a large segment of insureds (estimated at 25%-35% of the total personal automobile insurance market) who look towards UBI to validate that they are better than the average drivers, and are willing to sacrifice a bit of personal information for lower prices.
Queue the marketers. Turns out that many of the folks who are willing to have their behaviour measured actually have better claims history than the average. And, turns out, that 18-24 year olds will change their behaviour based on feedback that is tied to rewards.
Things Get Smarter and More Talkative
The Internet of Things (IoT) is a relatively new construct that could be more disruptive than all other technologies combined; if for no other reason, it is a combination of all other technologies.
Simply put, the IoT enables machine to machine communications. If you can put a sensor in something (like a drain) the IoT enables that thing to “talk” to other things (like water pressure measuring devices) which can talk to analytic mechanisms which can discern changes (like “the basement is flooding from sewer backup”).
Or , it can discern changes over time (like the wiring is fraying). Or….
In other words, preventative measures can be applied in an expedited fashion and risk exposure can be calculated at a significantly finer level of detail.
Insurers will have the opportunity of selecting and pricing risk differently for all manner of exposure, similar to automobile with telematics. The difference, among other things, is lower levels of regulation.
This, of course, assumes investment in analytic tools and human capital.
How do You See Things in the Mid-Summer Sun?
How do you find the year panning out? Is the plan going according to plan? Or did you hit some unexpected roadblocks? Regardless, it’s good to reflect in the beauty that is Canada in the summer. And, after all, there are 6 more months to go…..