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The Next Great Year for Insurance IT?

Robert Regis Hyle | December 19, 2014

It’s been six years since America experienced the recession and what began as a slow climb from a deep hole has become an exciting period for the insurance industry marked by great growth and an unprecedented dependence on technology. As we prepare for the start of 2015, insurers and analysts are excited about the prospects.

PURE is one insurer that has achieved incredible growth in the seven-plus years of its operation. The company offers comprehensive insurance and risk management solutions for high-value homes, automobiles, and personal collections in 48 states and the District of Columbia and business has grown by an incredible 40 percent each year.

“We work with a select group of independent agents and brokers and offer innovative insurance solutions for the most responsible owners of the finest-built homes in the U.S.,” says Stuart Tainsky, CIO of PURE. “With our recent launches in California and Hawaii, we’re excited to build our membership across the country.  With each new member we add, we continuously look for ways to take member engagement to a new level.”

Through surveys conducted with members, the policyholder-owned insurer learned a select group prefers to do business in a more self-sufficient manner, so PURE launched a member portal last spring. It is not viewed as a primary means to communicate with the insurer, but to supplement what is offered via human touch points, according to Tainsky. As part of the portal, PURE launched a claim tracker, which includes notes, comments, payment history, and the vendors that will work to help make members whole. A member can go into the claim tracker aspect of the portal and learn what is happening with their claim in near real-time.

“With these initiatives we want to provide more transparency around the process of insurance,” he says. “We try to demystify insurance and keep things in plain English. We work with members to find the best way to satisfy them.  We learn a tremendous amount through our annual NPS survey.  It’s through that survey as well as frequent discussions with members that we can service them in the best ways.” 

The Internet of Things

One of the top discussion points in 2014 has been the possibilities offered through the Internet of Things (IoT).  Donald Light, director, Americas property & casualty practice for Celent, sees the value IoT offers, particularly in personal lines, but he prefers to dial back the expectations for 2015.

“The key phrase is an attitude of ‘watchful waiting,’” says Light. “With one notable exception, telematics for personal auto and commercial auto, insurers aren’t seeing many places where they can make investments now or even next year.”

Some analysts prefer not to include telematics in the IoT, but Light maintains it qualifies under any reasonable definition.

“It’s the lead dog in the pack, but I think the major constraint for not having faster development is a lack of data sources,” he says. “The nature of the IoT is they have to have sensors, they have to be networked, and they have to generate different kinds of data that insurance companies can analyze and learn from, such as preventing losses. It all starts with network sensors attached to things or people. That’s in a primitive state, frankly, except for telematics.”

Carriers need an adequate set of data from enough sources and an adequate set of loss data to decide how to get value from it. Light explains homeowners can install a new thermostat in their house, but it doesn’t do an insurance company any good unless they get a statistically significant number of these devices putting out data to be analyzed.

“Who is going to get the data generated? Should insurers be giving away network sensors?” asks Light. “Some are doing this in limited ways for things like moisture detection in the home, but to my knowledge beyond that it is wait and see to determine who is going to take the first step. Will it be the sensor providers or do insurance carriers help subsidize costs and publicize their ability to draw data from the devices.”

The Internet of Things is part of the conversation at PURE, but Tainsky points out nothing has yet been formulated. The insurer recognizes that when you look at the future of underwriting or risk management, there is a lot of data to be collected and privacy concerns needs to be balanced.

“We want to make sure we are a partner with the member, not Big Brother,” says Tainsky. “That’s the balance you have to deal with. We seek to provide the most appropriate service and be a partner.”

Light believes commercial property insurance will be the first insurance line to achieve the benefits the IoT offers because multiple systems already exist in commercial buildings that are networked, such as HVAC units, security systems, smoke detectors, and fire suppression units.

“The sensors are there in large commercial buildings, but the issue is finding someone to get that data in a form that is useful for insurance companies,” he says. “The data is not designed to be useful for insurance companies, but that is where it could have the largest financial impact.”

There are more homeowners’ policies than commercial property policies, but Light doesn’t believe anyone has cracked the code to understanding the specific kinds of value that network sensors can provide to the homeowners’ market.

“Moisture protection is certainly valuable as well as fire security, but it’s the same problem,” he says. “You have to get a stream of data headed to an insurance company so they can work their analytical magic and change how they price, underwrite, and address claims.”

John Lucker, global advanced analytics leader, strategist and evangelist for Deloitte Consulting, agrees insurers have displayed great interest in real-time connectivity with their customers.

“The concept of connectivity and real-time monitoring from the perspective of underwriting, pricing, claims loss control, and even premium audit are seeing great potential at a relatively low cost from the perspective of putting them in place,” says Lucker.

Data Standards

This connectivity is only useful if the industry is able to make sense of the data coming its way. Many insurers continue to operate in siloes across different product lines and business functions. Outdated legacy technology and business systems can make connectivity impossible to achieve, explains Lucker.

“Information governance continues to be a challenge,” he says. “There is a lack of standardization among IoT data exchange. Device A might have its data in one form and Device B in another. It’s up to the insurers to create an appropriate translation service between the devices to harmonize the data and the analytics. Over time there will be more standards around IoT devices, so there is a real need to create a standard language.”

One term Deloitte likes to use is the need for “information fluency” so data can flow between various business units and harmonize the insight it can provide, according to Lucker. Things as mundane as data governance or information governance are part of the DNA of some of these high-tech functions.

Light agrees there has to be network standards for data collected through the Internet of Things. Much depends on the nature of the data that is transmitted, but so far there has been no connection between systems that operate alongside each other.

A second issue that Light observes is the need for a protocol for generating and transmitting data. What data will be deemed relevant and in what format remains to be seen.

Insurers have gathered structured data for years, but none of that was generated by sensors, explains Light. Such new data is different, at least until you get the data in the hands of analysts. Also, some of what is collected through the IoT is Big Data, which creates another overlap, because not enough insurers have the capability to acquire, store, analyze, and act on Big Data.

“It’s a big picture, but I think it is going to push carriers in that direction,” he says.

Telematics Expands

Technologists have touted the value of telematics and usage-based insurance for several years, but midtier insurers may not have adequate internal R&D resources or organizational capabilities to do much more than a pilot program, according to Light. Insurers may also have to subsidize the cost of the UBI devices, not to mention find a way to accumulate and analyze the data and then make a decision based on that analysis.

“I don’t know if they will leap into the fray in 2015, however the more exciting prospect is by end of 2016 I think telematics is going to lead the R&D stage. Progressive is the big exception to that; they have been doing it for a while, but the other guys will leave the R&D stage and roll out to a sizeable portion of their book of business,” says Light. “When that happens, anyone writing auto insurance is going to have to get in line and do the same thing. If they don’t they will be subject to adverse selection.”

“Telematics offers the opportunity to give shopping options based on geo-positioning and it has the opportunity to sell safe-driving services for teen drivers,” says Lucker. “Those are all ways to decommoditize insurance products and insurers are getting the idea on how this can be valuable, but carriers have missed the opportunity to be the go-to spot for things people buy all the time. Roll the clock back. People used to go to the grocery store to buy bread, milk and cheese. Today, a significant amount of that spending is done at convenience stores, gas stations, and pharmacies.”

Beyond 2015

Another struggle all insurers face is the need to attract the best and brightest people to the industry and get them interested in insurance; not just in technology.

“To me insurance is one of the most interesting and impactful industries,” says Tainsky. “I think our industry is fascinating, but it’s not viewed as the most glamorous, particularly in technology. We’ve continued to invest in modern core systems here at PURE, but those insurers in replacement mode have trouble when they tell their people they are going to work on a policy system replacement for the next two years.”

If young people come to insurance and insurance IT, they need a career path. Tainsky says you can’t sit them in the back office; they have to be exposed to all aspects of insurance.

“We have made an investment for our staff in learning and development, more in the soft skills to get them polished and seasoned to ask great questions and build great requirements,” he says. “It’s about being a trusted advisor and being influential; understanding the business problems to create the best solution. Those are some of the investments we’ve made in the last two years to educate our staff as business people, not just technologists. The industry has to solidify those soft skills.”

It helps that business people are no longer afraid of technology and want to be a part of a technology project and be product owners.

“They want to know what is going on in programming. How do you build better workflows? The personal tech side has given us more people inside the business units that are interested in technology, although not necessarily as a career. It brings better results because you have more engagement up front,” says Tainsky.

Predictive Analytics

Members of the PURE staff monitor particular situations, such as wildfires, floods or inclement weather to be proactive in determining the path of storms or significant events. This allows the insurer to reach out directly to members to offer assistance and let them know their insurer is there for them.

“PURE is committed to helping members prevent losses before they happen. Prior to a major storm, we’ve had our staff go as far as to travel to members’ homes to tie down furniture and remove other dangerous projectiles to prevent loss,” says Tainsky. “We believe doing so not only reduces risk, it increases member enthusiasm. That shows when you look at our retention rates, which continue to be in the high 90s. ”

“Companies are budgeting for it and creating organizations within the company to perform analytics functions, but what I see as a management consultant is they continue to struggle with the execution of the solution that ultimately analytics can provide,” says Lucker. “Don’t confuse effort with results is one quote that comes to mind. Every organization struggles with execution and success or non-success is dependent on execution. While that doesn’t sound like an exciting technology trend, it’s the heart and soul of what companies struggle with.”

New systems are more decomposable and scalable and use service-oriented architecture, which allows carriers to plug in new functions much easier than before, points out Lucker. The new technology has played a tremendous role in a company’s ability to do things quickly and with lower expenses.

“The adoption problems have to do with the plumbing—moving data from different systems and siloes. New systems were designed to do specific business functions like quoting and issuing policies and not the ancillary functions companies are moving to,” he says. “Despite the fact the systems are new, there is some retro-fitting that is required.”

Disruption

Buyers understand they can shop for themselves. In PURE’s business, the trusted advisor that members work with to satisfy their complicated risk management needs is a critical part of the business and the insurer values those brokers tremendously, explains Tainsky.

“Our brokers provide tremendous value to our members. Thanks to the consumerization of the auto end of the market, where you can get a quote in 15 minutes, there has been a big need to add automation and speed in working with P&C carriers.” 

Lucker won’t concede that a retail or online company will enter the insurance market in the near future, but he does believe it is a significant threat. The opportunity is there for a business to become the consumer portal for insurance.

“The question becomes, does the traditional business model of going through agents or buying direct need to be maintained or is there some type of e-commerce site where we normally buy other things and we can buy insurance there,” he says. “I for one am always looking for simplification in my life. I like that I can buy my cable TV, telephone, and Internet service from one company.”

“There are all sorts of things people could enjoy by simplifying things through one provider and I see no reason why insurance should be any different,” Lucker adds. “Some of the e-commerce companies are drowning in cash, but are they prepared to acquire an insurance company and invest that kind of money? Or, are they prepared to incur the capital requirements necessary to start an insurance company? Is that the best possible way for them to deploy capital?”

Lucker seems certain outsiders are thinking about it because it’s nice to sell something everybody has to buy. But is it viable to sell a commodity just because they have a better distribution system?

“Is that the benchmark their shareholders will be happy with?” he asks. “If you look at the stock performance of those e-commerce companies, they have significantly out-performed P&C insurance companies, so it’s not as gloomy as some think from the perspective of the P&C industry.”

The Future

With the incredible growth that PURE has achieved, staff members are constantly being added and Tainsky points out this can bring about a cultural challenge for companies that aren’t careful.

“We want to make sure the entrepreneurial spirit and the focus on empathy for our members continues,” he says. “We put new people through emotional intelligence training so they can understand what the person on the other end of the phone is feeling. That component makes us different and we believe special. We continue to make sure every opportunity we have to work with a member is exceptional and empower our employees to be creative in crafting solutions for them.”

PURE also looks internally to figure out how to get better each day and that takes great focus.

“Unless you focus on innovation and on the needs of your customers you have the possibility of not continuing down that road,” says Tainsky. “So we focus on that every day to make sure our culture stays as strong as it is. When you believe in these things and it is a true mission of what you want to do, it becomes inherent in your staff. It is amazing the level of empathy these people have. Not just because they’ve been trained or they are reminded to do it, but because that’s the way they are wired. We focus our hiring efforts on people that can keep insurance human.”


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