How does IAB support the requirements of general insurance
In the current ‘soft market’ conditions the need for agility in deploying products and capturing distribution channels remains as important, if not more so, than ever. However, that agility needs to be achieved at a cost bearable to insurers operating in a difficult market.
Let's address how those soft market conditions affect the drivers and objectives of insurers and then progress to consider the capabilities that an IT infrastructure must offer in order to enable insurers to deliver those on those objectives. Finally we consider those features of IAB that make those capabilities a reality.
Commercial insurance, more than personal, is used for illustration throughout because the powerful product and channel creation capabilities of IAB are of even more benefit to the more complex and varied products of commercial lines insurance than they are in personal lines. In addition, the adoption of web technologies and web channels is, so far, less prevalent in commercial insurance. Obviously all the capabilities and features remain highly relevant to personal lines.
Market Conditions
The insurance market, both commercial and personal, is reportedly entering a 'soft market' phase where revenues will be squeezed compared to recent years. This follows on from a high claims year in 2005/6 due to unusually high natural disaster occurrences. Cash for investment and expected profits for the financial year are consequently low. Insurers will therefore naturally be focusing on costs reduction and market share as much as on new and expanded product ranges. In systems technology terms the challenges in a soft market requires capabilities similar to those in a growing market but these need to be harnessed and used to meet different immediate objectives.
Drivers and Objectives
Ultimately it is about being able to get products to the market, better targeted, better priced and more rapidly than the competition. In a soft market these term take on slightly different meanings.
- Better targeted might mean hitting a very specific group of companies within a sector (with a lower risk profile than the sector average) with a slightly lower priced product - instead of launching a product to coincide with the emergence of a strong new sector.
- Better priced might mean a deeper understanding of claims costs to reduce price in one sector of a market while increasing price in another to reduce overall claims liability - instead of simply reducing price and relying on increasing volumes to drive up revenue and cover liabilities.
- More rapidly than the competition is the ever present constant in any market.
The other characteristic of undertaking any development in a soft market is a squeeze on margins, the up-side to the business case for systems innovation is less, so changes need to be done at a lower cost whilst hopefully not lowering quality. This can be summarised as ever increasing need for agility and at cost bearable to insurers operating in a difficult market.
Capabilities
The fundamental capabilities required of IT solutions in the industry remain reasonably constant: agility to rapidly create (or modify) products; agility to create electronic channels through which those products are sold and administered; ability to provide accurate and statistically significant risk and claims data, on which to base product design, modification and pricing decisions; and a constant increase in process automation to drive reduction in the expense line.
These capabilities can then be used to: reduce end-price and drive volume, pay commission to capture a distribution channel, target a niche, enter a new market or improve profitability, and any number of other tactical objectives. The exact usage of the capability is a decision influenced by market conditions, immediate opportunities and wider company strategy. The key is that the technology is available and capable of making those choices available to the business rather than, as is sadly more often the case, to restrict the choices available.
Capabilities listed and defined.
- Product Agility - the ability to rapidly create or modify a product, for example, to add a new coverage to an existing product to differentiate it in a crowded market (e.g. add aphid infestation to shop cover to target florists).
- e-Channel Agility - the ability to rapidly deploy the system that supports the key business processes (Quote New Business, Mid-Term Adjustment, Cancel, Renew) for the new/modified product. And for those processes to be available through multiple channels (call centre, direct website, affinity branded website, intermediary).
- Accurate and Statistically Significant Risk and Claims Data - the ability to provide accurate claims data to analyse similar claims across multiple products and policies to provide the raw data for rapid future pricing decisions. And the ability provide accurate risk data to understand an overall exposure to a particular risk in order to dynamically adjust pricing to attract or reject further similar cover.
- Constant Increase in Process Automation and Self Service - after claims employees remain the single greatest expense to insurance companies. Systems need to seek to automate (as far as possible) all but the most specialised of tasks, or those where a human face is preferred by customers, leaving a small number of skilled people able to manage large volumes of business.
Aren't the first two of these saying increase revenue and the second two decrease cost - isn't this all a bit obvious? Yes, this is true and it is very difficult when talking about the business benefits of IT systems not to simply reduce down to that perennial truth. Here however we have tried to specifically picked out the key capabilities of the IT infrastructure that put the decision of how to increase revenue or how to decrease cost in the hands of the business' strategic decision makers.
The reason that it is important to have the capability to undertake initiatives to increase revenue or reduce cost (rather than reduce the requirement further to ‘increase revenue’ or ‘reduce costs’) is that market conditions will dictate which initiatives provide the best return on investment at any given time. This is a subtle but hugely significant difference in IT infrastructure terms. It means that rather than needing a new product and new e-channel quickly I need a ‘Product Factory’. Rather then automating a labour intensive process I need a ‘Business Process Orchestration Platform’ (and that is a topic for another whole article if not a book).
Features
This section identifies the features of a system required to implement the capabilities described in the previous section. All of these features are implemented to some degree in IAB, detail of how these features are supported in IAB can be found here.
- Library of product definition components used for the rapid assemble of new products.
- Key processes of new business, MTA, Renewal, Cancellation implemented out of the box from and configured through a non-technical insurance specific process language.
- Immediate generation of channel web interfaces to support new product administration.
- Multi-channel capability.
- Multi-language capability.
- Mulit-brand (white labeling) capability of presentation, layout and process.
- Use of corporate brand asset libraries for uniform generated UIs down to individual widgets.
- Management of conditional questions and eligibility questions.
- Built-in integration with rating engine for new products for immediate end-to-end testing.
The rest of this section describes how those features combine to deliver the capabilities previously identified.
Product Factory
in all practicality product agility and e-channel agility are inextricably linked, products cannot be launched or changed without the system to support them; without e-channel agility there is no product agility. So let's talk about them together and call the combined feature set a Product Factory, dedicated to speeding up the production cycle.
Accurate and Statistically Significant Risk and Claims Data
It is a well know problem in commercial insurance that the relatively low number of policies, especially at the mid and large corporate end of the market, makes getting statistically significant data samples difficult. This provides a challenge in using historic claims data for actuarial analysis to provide accurate pricing. Rapid and accurate pricing of new products is one of the key requirements to agility in the market whilst retaining the ability to make a profit. However if you look at insured volumes at a component level and across products: How many computers to we insure? How many buildings [of a certain construction] do we insure? The volume of data for analysis starts to look very different and statistically significant.
This requirement raises the age-old problem of data integration, an insurer we spoke to recently found that they had a least six different field names for Sum Insured (sum_insured, SI, SInsured, SumIns, etc.). Multiply this by the number of fields that represent the risk data of a typical commercial insurance product and the scale of the issue is daunting. It is simply never gong to be tackled by changing the underlying data structures in existing legacy systems.
The solution is for the risk data, at point of collection on a webpage, to be in the standard product definition language described earlier. It should be translated from this standard to that required by legacy systems at the point it enters that systems only. Any tools extracting data for analysis purposes should then do this using the structures of the PDL. It is then a relatively simple matter to aggregate data across similar components in difference products.
In conclusion for there to be any real possibility of using component level analysis to improving pricing one needs to start with the concept of standard component definitions which are used to assemble all product definitions. To try and do it the opposite way round; define products in an uncoordinated manor and then merge the data; is simply not going to work.
Features delivering capability: Product Component Library, Product Definition Language, Product Modification and version control
Constant Increase in Process Automation and Self Service
As previously stated the greatest expense line item for commercial insurers is people involved in service design and delivery. The reality is that many of the tasks undertaken could be automated if the the cost of doing so and the organisation’s capacity for change made it viable. In addition intermediaries and end customer themselves are often willing to undertake simple tasks if provided with the tools and information.
Increased Process Automation
Increased Process Automation is dependent on the ability to deliver solutions to automate processes at a cost covered by the savings made. All of the features described in this article contribute to the general capacity to deliver solutions. Significant productivity gains are made specifically from the ability to rapidly assemble products from pre-existing components (Product Component Library) and to be able to ‘surf’ those components in an accessible human readable form. And truly dramatic gains are made from the ability to generate a working solution directly from those product definitions. The generated solution is not likely to be the final version of the solution but it will allow functional testing and detailed user interaction design to be undertaken with business users sat in front of a working application.
Generally it is about capacity to deliver systems so all of the described counts.
Increased Self Service
More and more products and services are offered online direct to end customers, the number of insurers offering products directly to the SME market is growing rapidly. Even when the initial policy is created and sold through a face to face engagement there is are still elements of the policy administration that can be undertaken by the policy holder, if provided with the right tools. Intermediaries, of course, often undertake policy administration tasks either via their own tools or directly on the insurers platform.
This self and intermediated service requires the IT solution to have the following features:
- Multichannel - the functionality available to users need to channel specific. An intermediary will likely have greater access and require less guidance than an end customer. An internal users may have far greater permissions to make discretionary decisions. Although all users are interacting with the same risk data for the same policy or quote what they do is potentially very different.
- White-labeling - direct sales of a particular product may well be under a sub-brand of the underwriting insurer and that brand needs to be reflected in the interface call center users see. Direct sales may also be on the platform provided by the insurer but branded as the intermediary.
- Content/Information delivery - particularly important in direct sales of commercial insurance, the role of providing advice and guidance, traditionally provided by the Broker, is no longer applicable. Direct websites, or call centre operatives, now need to provide that advice the customer. On, for example, what to do should the customer spill a pollutant.
- Process Agility - ties in with multi-channel - need to provide different processes for different products to different channels for different users.
To Do:
- weave in 'the battle for distribution channels'
- add the future can not be predicted.