Evolutionary Strategies for P&C Insurers

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Evolutionary Strategies for PC Insurers
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Value Envisioned. Value Delivered.
Evolving PC Insurers
Executive Summary
The insurance industry has undergone a
gradual,technology-driven transformation over
the last
Carriers have historicallybeen backwards-focused
four decades. From the 1970s through the
1990s,mainframe and client server applications
changedthe efficiency equation. At the end of
the 20th
and have tended to maintainestablished processes
century, the Internet signaled the beginningof a
new era of complex interaction betweeninsureds,
agents, and carriers. Today, entirelynew
technologies such as telematics, mobile
without question. Theyalso have the
propensityto be risk-averse. Thesecharacteristic
s need tochange. Carriers must bewilling to try
new things
technologies, advanced underwriting models,
andthe shift to a customer-centric paradigm are
furtheraltering the industry.
Signs indicate this third wave of
transformationmay be more significant and
far-reaching than
those preceding it, surfacing significant issues
andexposing inefficiencies. The recent soft
market,
without betting the ranch orsubjecting the
company toundue risk.
combined with broader economic challenges suchas
the sudden decrease in investment income
thataccompanied the most recent recession, have
exposed carriers with less efficient operations
orpoor underwriting disciplines. Carriers that
thoughtthey could wait-out the cycle as they
have in yearspast now face a new reality.
The transformation currently underway is
causingoperational, organizational, and IT pain
points.
Carriers that fail to address process
inefficienciesand evolve business processes to
address currentchallenges risk being left
behind. The insuranceindustry has traditionally
been slow to evolve. Intodays business
environment a slow evolution isno longer an
option
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Insurers need to embrace
commoditization, at least partially,and develop
boxed productsdemanding better
predictiveanalytics, automated
underwriting,analysis of abundant social
data,and distributor-friendly salessupport
systems.
Introduction
In the past, the insurance industry operated in
aworld that required little transparency.
Insurancecompanies could hide behind walls. The
relativelylong cycle times accepted in the
market allowedcarriers to mask underwriting,
servicing, and
outmaneuvered by affinity companies at the
locallevel. Mid-sized companies that are not
hyper-specialized or extremely good at serving
specificneeds are at risk. Mitigating this risk
requires
adapting in three major areas
claims inefficiencies. Waiting days or weeks for
aquote was acceptable to the average buyer.
Butconsumer expectations have changed.
Todaysconsumers demand instant service,
transparency,and convenience. New expectations
are forcingthe insurance business to evolve from
a product-
Embrace Commoditization
Ten to 12 years ago, before the widespread useof
online insurance quoting and servicing, carriers
relied on agents to sell insurance for products
suchas personal lines auto and home coverage.
Today,because of the availability of Internet
research,
centric model to a customer-centric model. To
keepand grow business, carriers need to redesign
andrefocus their entire business process around
the
ratings, and reviews, the ability to run
real-timequotes, and the overall explosion of
information,
these products have become more
commoditized.There is no longer a special
sauce for generalproducts. Perceived and actual
differences in
individual buyer.
Implementing a customer-centric model
placessignificant pressure on carriers to invest
in
products and service continue to be
eroded.Rating models are more sophisticated.
Pricing
technology and operations that use personnelmore
efficiently. As the industry becomes more
parity is matched with service parity, and the
bar isconstantly rising. While such innovations
take timeto percolate in a highly regulated and
conservativeenvironment, carriers need to foster
innovation inmeasured steps.
competitive, carriers that are not extremely
efficientor specialized will no longer compete
effectively.Already, less efficient, middle-tier
carriers are
getting squeezed by large, national players or
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Value Envisioned. Value Delivered.
A J.D. Power and Associatesstudy of U.S.
insurance
Respond to Customer Demandsfor Transparency
shopping found that, despitethe growing
popularity of
Today, not all consumers are interested in
buyinginsurance in the way most insurers sell
it. Demandsfor better and faster service from
insurance
online shopping, insuranceagents still have the
upperhand when it comes downto an actual
purchase. Over
carriers continue to rise. Todays customers
expecttransparency and convenience. People on
the roadshop their business from anywhere at any
time.
They expect up-to-the-second information,multi-ch
annel access, and immediate responses,as well as
the ability to purchase multiple productsacross
lines of business, regardless of theback-end
environment.
50 percent of quotes initiatedonline were
eventually
closed by an agent or callcenter representative.
Demand for multi-channel strategies will
explodeas focus shifts from selling to buying
preferences.While some will continue to be
comfortable withlocal agent models, others,
particularly those of
Generations X, Y and Z, will choose to buy
throughretail, banking, or online channels.
Operational efficiency and IT effectiveness
arenow table stakes, as opposed to being goodto
have in years past (heading in the directionof
personal banking, where interactions and
Despite all this, there remains a need for the
trustedadvisor role an agent or broker provides.
A J.D.
Power and Associates study of U.S.
insuranceshopping found that, despite the
growing popularityof online shopping, insurance
agents still havethe upper hand when it comes
down to an actualpurchase. Over 50 percent of
quotes initiatedonline were eventually closed by
an agent or callcenter representative.
transactions are becoming increasingly
efficientand less mysterious). Insurers need to
embracecommoditization, at least partially, and
developboxed products demanding better
predictiveanalytics, automated underwriting,
analysis of
abundant social data, and distributor-friendly
salessupport systems.
Invest in Flexible Technology
In the 1980s and 1990s, most insurance
carriersbuilt proprietary policy administration
systems thatallowed for little flexibility.
Technology was oriented
While certain niche markets and very
largecommercial accounts may be somewhat
insulatedfrom the forces of change, most small
and mid-market products are already heading in
thisdirection. Business managers and corporate
riskmanagers are applying the same lessons
theylearned in managing their personal policies
andasking for the same or better from their
commercialcarriers. This trend may be lagging
personal lines bya few years, but it is evident
none-the-less.
toward developers and long testing lifecycles.
Carriersoffered a limited number of packages,
which were
rated and underwritten as a package. Each
packagemight take a year to put together, and
changes
required significant business process changes,
newunderwriting, new forms, etc. Today, most
carriersoffer configurable products, allowing
consumers to
1J.D. Power and Associates 2011 U.S. Insurance
Shopping Study, June 2, 2011.
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SMA Research reveals thatone-third of North
Americaninsurers plan significantinvestments in
mobile in 2013,up from one-quarter in 2012.
select indefinite combinations of coverages. And
theentire process has sped up dramatically.
modeling and advanced analytics can also
beinstrumental in a carriers quest to
differentiatethemselves through more efficient
underwriting,
Competition is increasing the focus on
nichemarkets. When a niche market is identified,
a carrierneeds to put a product together,
package it, sell it,and be ready to process
claims in a month ratherthan in a year. Yet
carriers today often operateutilizing a
hodge-podge of technology systemsthat limit
their ability to respond to market
changesquickly. Additionally, the cost of
supporting andmaintaining or propping up such
systems can besignificant, with some carriers
spending two to threepercent of gross written
premium on IT simply tomaintain the status quo.
enhanced customer experience, and fraud
control.Meanwhile, the mobile space is becoming
a key
battleground. Mobile features and functions
offeredby the leading carriers are becoming
increasinglysophisticated. SMA Research reveals
that one-
third of North American insurers plan
significantinvestments in mobile in 2013, up
from one-quarterin 2012. This is yet another way
mid-level carriersare feeling the squeeze. A
lack of mobile capabilitiesmay give consumers
the perception of lower serviceand support
levels or more importantly, could
affectcustomer acquisition or retention.
The technologies carriers invest in today
mustallow them to turn on a dime. Toward this
end,some carriers have abandoned their
homegrownsystems over the last five to six years
in favor ofthird party systems. Newer
technologies such as
Evolve with the Times
The key take away of this third wave
oftransformation is that it cannot be ignored.
Doingnothing is not an option. Carriers have
historicallybeen backwards-focused (relying on
actuarialtables, loss history, etc.), and have
tended to
cloud computing offer opportunities to migrate
offlegacy core systems, improve operational
efficiency,and challenge existing business
norms. Predictive
2Top 10 Mobile Trends in Insurance 2013, an SMA
Research Brief, February 28, 2013. 4
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Value Envisioned. Value Delivered.
maintain established processes without
question.They also have the propensity to be
risk-averse.
About Paragon Solutions
Paragon Solutions is an advisory consultingand
systems integration firm that specializes in
These characteristics need to change. Carriers
mustbe willing to try new things without betting
the ranchor subjecting the company to undue
risk.
enterprise information management to help
clientsleverage information assets for better
business
PC insurance carriers need to focus on
integratinginternal and external innovations to
create
results. The company does this through its
industrypractices, solution accelerators and
specialized
end-to-end customer experiences that achieve
thelevel of customer-centricity necessary to
improveloyalty, reduce churn, and grow revenue.
They
technology competencies that help clients
achieveoperational efficiency, business
scalability, and
regulatory compliance.
need to build change-capable organizations
andfocus on becoming operationally excellent
usinglean processes.
Paragon works with businesses that are focusedin
a few key industries - communications,
financialservices, healthcare, insurance, and
life sciences.
To achieve these goals, carriers need a
measuredapproach and a long-term strategy. A few
The industry-focused practices work with
Paragonscompetency groups to address todays
client
strategic drivers should be selected and
floatedto operational and technology initiatives
that arewell funded, supported by a
change-capable
concerns in Process Optimization,
InformationManagement, and Information Insight.
For more information, please visit the
Paragonwebsite at www.consultparagon.com, or
call
organization, and driven with a sense of
urgency.Many PC insurers pride themselves on
their abilityto respond rapidly to emergencies
and/or naturaldisasters. Those urgent response
mechanisms andthe all hands on deck mentality
should be used toaddress todays business
issues, ensuring a carrieris prepared to survive
both hard and soft markets,the changes happening
now as part of the thirdwave, and changes yet
to come in the future.
1.800.462.5582.
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