Q1 | 2018

OPERATIONALIZING IoT IN INSURANCE

PROPERTY/CASUALTY & LIFE/HEALTH/ANNUITY

POLICY ADMINISTRATION SYSTEMS VENDORS

BEST PRACTICES FORCUSTOMER PORTAL

IMPLEMENTAION

EMERGING TECH IN INSURANCE :

AI, BIG DATA, CHATBOTS, IoT, RPA, AND MORE

QUANTUM COMPUTING AND INSURANCE

BUSINESS AND TECH TRENDS IN

REINSURANCE

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Contents

Council Studies & SurveysEmerging Technology in Insurance: AI, Big Data, Chatbots, IoT, RPA, and More

IT Value Metrics: Six Common Measurements of Business Impact

Cloud Adoption in Insurance: Trends and Issues

12 CIO Checklists Best Practices for Evaluating SaaS Core Solutions

Core Systems Project Readiness

6 Executive Briefs & ReportsNovarica IT Financial Management Maturity Model

Quantum Computing and Insurance: Overview and Potential Players

Broker/Carrier Technology Trends and Challenges

Operationalizing IoT in Insurance

13 Novarica Market Navigators IT Services Providers for Insurers

Property/Casualty Policy Administration Systems

Life/Health/Annuity Policy Administration Systems

9 Business & Tech TrendsReinsurance

Group Life/Annuity/Voluntary Benefits

Large Commercial Brokers

Welcome to the Novarica Research Quarterly! Each issue provides a summary of recently published reports, including studies of insurers’ technology experiences, capabilities, and plans from our Research Council; business and technology trends; CIO best practices; vendor information in our Novarica Market Navigators; and recent webinars and presentations. All of the research summarized here is available for download by our advisory clients at novarica.com. Research reports can also be purchased individually.

If you’d like to learn more or arrange a conversation to discuss any of these topics with our senior team, please contact us at inquiry@novarica.com or 617-342-8100.

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Council Studies & Surveys

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Artificial intelligence, augmented and virtual reality, big data, blockchain, chatbots, drones, robotic process automation, sensors and telematics, smart home automation, and wearables are not yet widely deployed in the insurance industry, but many of these areas are showing positive results and are poised for growth. Mobile and predictive analytics, often still classed by insurers as emerging technology, are approaching ubiquity.

This report analyzes the results of a study of 116 insurer CIO members of the Novarica Insurance Technology Research Council.

Key Points and FindingsThe most pilot activity is in digital and analytics areas like artificial intelligence, big data, sensors, drones, RPA, and chatbots. Insurers are looking to these technologies to improve risk selection, claims, service, and operating efficiency.

Property/casualty insurers are more likely to focus on underwriting and claims, life/annuity insurers on marketing and service when leveraging emerging technologies.

Areas with low consumer adoption aren’t generating much interest from insurers yet. Augmented and virtual reality, blockchain, smart home automation, and wearables are still over the horizon for most insurers.

Topics• Current deployment rates and planned pilot activity for 2018.

• Functional areas in which these technologies have been deployed.

• Return on investment for insurers who have already deployed these technologies.

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Insurer IT leaders benefit from using simple, meaningful metrics to communicate the value of technology investments to their business peers who are focused on the speed, efficiency, and effectiveness of key business processes. This report presents a proposed framework of 21 KPIs tied to IT capabilities and an analysis of more than 100 case studies on impactful IT projects to determine which KPIs are used most commonly.

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Key Points and Findings Keep it simple and meaningful. Good IT value metrics are easy to track and meaningful to business executives’ operational challenges.

Value metrics may not be fully under IT’s control. Unlike engineering metrics or performance metrics, value metrics depend on business units’ use of technology to achieve a result. But value is measured in results achieved, not capabilities delivered, and IT leaders should operate accordingly.

Feel the need for speed. Five of the six most common KPIs have to do with accelerating cycle times. Insurers are feeling the need for speed in the face of changing customer and distributor expectations and a highly competitive market.

Topics• The importance of value metrics.

• Proposed framework of 21 KPIs that are easy to track and understand.

• Six most commonly used KPIs with example case studies of successful insurer IT initiatives that used these KPIs to demonstrate value.

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Novarica estimates that use of cloud has more than tripled in the last few years, with most insurers incorporating it into their technology architectures. Insurers are realizing significant benefits in speed, flexibility, and capacity compared to traditional infrastructures. Security, long seen as a disadvantage of cloud usage, is now understood as an advantage, while cost benefits are more elusive than some anticipated.

This report presents data from a recent study of 89 insurer CIO members of the Novarica Insurance Technology Research Council.

This study defines cloud as Infrastructure as a Service (IaaS) or Platform as a Service (PaaS), not Software as a Service

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Key Points and Findings Cloud computing is mainstream. More than 70% of insurers use some cloud, and those that do are planning to use more. About 10% of insurers run most of their infrastructure on cloud.

The conventional wisdom on security and cost has flipped. Security is now widely viewed as a benefit, while realizing cost advantages is understood to require careful management.

No magic bullets. As with any new beneficial technology, getting the most out of cloud requires careful planning, management, and upskilling.

Topics• Current and Planned Adoption, including application areas and examples of recent initiatives.

• Security, including shifting perception of security from a disadvantage to an advantage.

• Advice from CIOs, including the impact on architectures, team skills, and managing costs.

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Executive Briefs & Reports

IT is the largest single expense area for insurers besides claims and commissions. Given its intangible nature, it’s also the area whose value is questioned most often. IT Financial Management (ITFM) is the practice of managing, optimizing, and demonstrating the value of these costs. In many insurance organizations, the practice of ITFM is immature, which leads to internal management conflict and lack of agreement about IT value.

In this report, Novarica introduces a new framework, the Novarica IT Financial Management Maturity Model. This four-stage, seven-dimension model enables an organization to determine both its current and desired levels of maturity as it considers the evolution of its ITFM capabilities.

IT Financial Management is neither free nor easy. It requires dedicated resources, coordination across the enterprise, leadership, and commitment. But it also has the potential to lower costs, improve ROI, and demonstrate IT value.

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While artificial intelligence is poised to have significant impact on the insurance industry, the technology is still limited by barriers imposed by classic binary computing. Quantum computing addresses these concerns but will also have a profound effect on the fundamentals underlying data usage and protection, risk modeling, and the nature of insurance core systems.

This report provides an overview of the definitions of quantum, potential areas of impact, and current players in the space. It begins with a comparative overview of classical binary and quantum qubit computing, moves on to address several potential areas of impact for insurers, and then culminates in a discussion of potential players actively developing solutions in the space.

Though not yet an immediate issue, insurers should begin incorporating the technology into five-year outlook plans. Given the increasing research and discovery in this field, insurers should understand how it will affect the way they do business.

At present, several large technology providers—among them Google, IBM, Microsoft, and Intel—and targeted startups are vying to be the first organization with a quantum computer that can achieve quantum supremacy: the point at which conventional supercomputers become obsolete against this new technology. And this point is drawing near.

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Insurance brokers and specialty/large commercial carriers are lagging behind other segments when it comes to automating communication. Email is still the dominant form of data exchange for new business and renewals, both because of the industry’s inability to standardize data models and business processes and a cultural belief that email is more personal. Looming cybersecurity issues further complicate automation efforts. Carrier CIOs are adopting new technologies in support of their digital strategies and operations, while broker CIOs tend to be more conservative in adopting new technologies.

This brief provides an overview of key issues and trends in broker/carrier technology.

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Internet of Things (IoT) initiatives are of keen interest to insurers. While overall deployment is fairly low, the sensor and connectivity technology that enables IoT continues to improve. Insurers will likely need to address IoT in the coming years, even if many are taking a “fast follow” approach.

Operationalizing IoT products introduces complexity beyond traditional pricing and service issues. Full IoT deployment requires sophisticated sampling and analytics capabilities, and many carriers struggle with how to begin initial pilot programs or how to move from pilot phases into more complex products and services.

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Key Points and FindingsIoT has low deployment but high interest among insurers; deployment rates are likely to grow. Only 10% of insurers have currently-deployed IoT programs, but about a quarter are planning pilots and almost half are closely watching the area.

Bundled services are a key component of the IoT value proposition. IoT enables value-added services that can both draw customers and help carriers offset the costs of IoT programs.

Carriers can start small, with plans to enhance capabilities. Carriers can gain access to scored IoT data through vendors to experiment with incorporating key metrics into products. As these carriers gain experience and build out big data capabilities, product complexity can increase.

Topics• Current State of IoT in Insurance, including adoption and pilot program data as well as examples

of initiatives.

• IoT Value Creation Framework, courtesy of the IoT Insurance Observatory, with which Novarica has a research alliance.

• Best Practices and Key Issues in acquiring, analyzing, and acting on data from IoT programs.

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Business & Tech Trends

Reinsurers face pressures from a prolonged soft market followed by an erratic business cycle. They are focusing their technology strategies on attracting insurer clients and improving profitable decision-making, including core systems replacement and investments in business intelligence and modeling. At the same time, they are actively monitoring the potential impact of emerging technologies like blockchain.

This report provides an overview of reinsurers’ business and technology issues, data about the marketplace, and more than 20 examples of recent technology investments by reinsurers.

Key Points and Findings Business intelligence and modeling are critical. Data analysis is central to the reinsurance business. Pressure from competitors means moving from Excel-based analysis to more sophisticated technology. The larger reinsurers are investigating AI and machine learning.

Reinsurers are replacing core systems. Reinsurers are centralizing the business and dealing with an increase in audits and regulation, rather than a drive for modern technology.

Alternative capital is providing stability. Despite expectations that investors would flee at the first significant cat activity, most are recapitalizing. The availability of capital is a factor in subdued rate increases.

Reinsurance may offer the perfect use case for blockchain. Several insurers and reinsurers have developed prototypes for complex, multi-party reinsurance treaties or conducted pilots for reinsurance and cat bond swaps.

Topics• Recent market and financial trends

• Active reinsurer landscape

• Technology issues, priorities, and examples by functional area

• Top technology priorities for 2018 and beyond

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Key Points and FindingsSales growth is robust for voluntary lines. Hospital indemnity, universal, and whole life products in particular are showing strong growth.

Analytics are widely used for voluntary products. Applications include enrollment, identifying claims fraud, member conservation, sales reporting, underwriting, and more.

With no clear standard for group benefits information exchange, carriers are considering their next move. ACORD has proposed an enrollment standard, but with it based on one vendor’s offering, traction is uncertain.

Insurers are still heavily focused on bread-and-butter issues of product design, enrollment, marketing, and continuing improvement of administrative systems. Innovation is still taking a back seat to execution, although carriers are expressing increased concern about the need for “digital capabilities.”

This report provides an overview of group benefit providers’ business and technology issues, data about the marketplace, and over 40 examples of recent technology investments by group benefit providers.

True sales growth, as opposed to increases in face amounts or takeovers, is challenging for many lines. Combined with price sensitivity on the part of plan sponsors, this makes efficiency of operations a key driver for carriers, along with improved marketing across multiple channels.

Top technology initiatives for group benefit providers include benefit and policy administration systems and distribution enablers such as underwriting workbenches, customer portals, agent portals, and easy enrollment capabilities.

Topics• Recent market and financial trends

• Active insurer landscape

• Technology issues, priorities, and examples by functional area

• Top technology priorities for 2018 and beyond

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Key Points and FindingsBrokers are investing heavily in analytics, business intelligence, and (more recently) AI and related technologies. From customer acquisition to customer service, brokers are using any tool possible to profitably grow their business and to provide differentiated customer service.

Mobile and portals are also important areas for investment. Mobile capabilities and self service are increasingly important. Chatbots and social media are of growing interest in reaching prospects and existing clients.

Workflow is the number one problem brokers face. The issue of carriers having their own application forms and processes is not a new one, but it is particularly acute for large commercial brokers.

The large commercial brokerage space is being transformed by technology. Brokers are seeking to differentiate themselves in a competitive marketplace through use of AI, analytics, and workflow technologies.

This report provides an overview of large commercial brokers’ business and technology issues, data about the marketplace, and 31 examples of recent technology investments by large commercial brokers.

Topics• Recent market and financial trends

• Active insurer landscape

• Technology issues, priorities, and examples by functional area

• Top technology priorities for 2018 and beyond

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CIO Checklists

9 Consider the Location of the Solution’s Servers

9 Determine a Preference for Multi-Tenant or Single-Tenant Architecture

9 Confirm the Time Involved with Establishing the Account

9 Plan for Solution Updates and Clarify an Update Release Process

9 Confirm the Vendor’s Fee Schedule

9 Understand the Vendor’s Disaster and Business Continuity Plan

9 Confirm the Vendor’s Policies Around Data

9 Understand the Benefits of a Software Code Escrow

Novarica predicts that, by 2020, more than 50% of new insurance core system licenses will be a Software as a Service engagement. The advantages of this approach for insurers include a better ongoing maintenance and upgrade path, infrastructure and security ownership by dedicated experts, more flexible pricing models, and an architecture that supports modern best practices.

Not all vendors, however, mean the same thing when they talk about SaaS. Insurers must have a plan in place not only for evaluating the system and technology of a vendor, but also for hosting, maintaining, and licensing the service in the cloud.

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Insurance core systems projects require careful planning and an enterprise-wide understanding of the changes required to be successful.

This brief presents a framework of key assets and steps required during the planning phase. It covers three critical areas: business readiness, IT/technical readiness, and program readiness.

Collaborating with partners to plan a project before it starts will improve insurers’ chances of both a successful implementation and realization of the many business benefits modern solutions deliver.

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Novarica Market Navigators

Insurer IT organizations and those who run them face heavy challenges with needs for modernization, innovation, and investment in skill sets that are often in short supply. Insurer IT groups can address these challenges by enlisting the help of service partners, which supply variable capacity and rare skills beyond just outsourcing.

IT services partners provide capabilities to implement best practices through organized, structured processes and supporting procedures that then play key roles in the challenges facing IT organizations, along with creating IT capacity by performing tasks, processes, and services that incumbent IT resources normally perform, allowing for resource allocation to add strategic business value. In this way, IT services providers enable insurers to be more competitive and profitable in their chosen markets.

It is more important now than ever for IT organizations to be correctly prepared and positioned to respond to the needs of their business partners—this means engaging with partners that can both complement and supplement their internal resources, effectively giving insurer CIOs a multiplier on the resources that may already be part of their own full-time organizations.

This report provides an overview of 41 major IT services providers for North American insurers, with a focus on their experience levels in key functional areas. The information in this report was collected directly from the providers using a proprietary Novarica RFI. The report contains a brief profile of each vendor, including a chart detailing the provider’s experience levels in specific, targeted functions.

Providers include: Accenture, Birlasoft, Capgemini, The CastleBay Companies, CGI Group, Cognizant, Deloitte Consulting, DXC Technologies, Ebix Consulting, Edgewater Consulting, Equisoft, EY, Genpact, HCL Technologies, Hexaware Technologies, HITSS, HTC Global Services, IBM, Infosys Limited, Jarus Technologies, LTI, Majesco, MFXchange US, Mindtree, Mphasis, msg global solutions, NIIT Technologies, NTT Data, PwC, Red Hawk, Slalom, Synechron, Syntel, TCS, Trianz, UCT, ValueMomentum, Virtusa, Wipro Limited, Xceedance, and Zensar Technologies.

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Policy administration systems (PAS) replacements and expansions remain top of mind for property/casualty insurers. Carrier goals include: improving time to market, advancing business intelligence and analytics capabilities, improving customer and distributor service, increasing operational efficiencies, and eliminating technical risk and debt. In order to reach these goals, insurers are investigating and considering the impact of several trends upon core systems: the increase of SaaS/cloud, advances in microservices, the rise of InsureTech, and shifts in implementation strategy.

As the majority of IT budgets are dedicated to PAS and the surrounding core components, insurers need to keep these trends in mind when considering PAS providers from the increasingly rich vendor market. While challenges still exist with conversion and with managing overall project risks, insurance carriers are realizing benefits in efficiency of operations, improved functional capabilities, and better data management, which are often cited as drivers for PAS replacements and expansions.

This report provides an overview of the available policy administration systems and suites for US property/casualty insurers. The report contains profiles of each of 42 vendor solutions, summarizing the vendor organization, technology used, differentiators, client base, lines of business supported, deployment options, implementation approaches, upgrades/enhancements, and key functionality.

Vendors included: 1insurer; Beyontec; BriteCore; CGI; CodeObjects; DAVID Corporation; Decision Research Corporation; Duck Creek Technologies; DXC; eBaoTech; Ebix; ECCA; Echo Ridge Partners; EIS Group; Finys; Focus on Innovation; Focus Technologies; Guidewire Software; Instec; Insurance Systems; Insuresoft; Insurity; JW Software; Majesco; MFX; Oceanwide; OneShield; Patriot Technology Solutions; PCIS; PCMS; Policy Administration Solutions; SAP SE; Sapiens; Solartis; Speedbuilder Systems; StoneRiver, a Sapiens Company; Sunlight Solutions; Tata Consultancy Services; and Tropics.

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Interest in new policy administration systems (PAS) implementations remains strong at life and annuity carriers. The primary business drivers are the ability to launch new products quickly and to effectively leverage digital channels and advanced analytics. Additionally, insurers are concerned about the long-term costs and sustainability of their legacy systems.

PAS replacements remain a top priority for life and annuity insurers. Core replacement is now seen as important to improving capabilities like customer experience, business intelligence and analytics, and product innovation. While these are difficult to quantify in the business case, they are capabilities that business leaders are increasingly requesting technology leaders to address. Carriers are increasingly looking to stand up new environments for new product or market opportunities, allowing the solutions to both complement legacy environments and provide for a phased evolution toward a modernized core ecosystem.

This report provides an overview of the available policy administration systems and suites for US life/annuity/health insurers. The report contains profiles of each of 25 vendor solutions, summarizing the vendor organization, technology used, differentiators, client base, lines of business supported, deployment options, implementation approaches, upgrades/enhancements, and key functionality.

Vendors included: Accenture, Andesa Services, Concentrix, DXC, EIS Group, EXL, FAST, FIS, Infosys McCamish, InsPro Technologies, InsurIQ, LIDP Consulting Services, Majesco, Management Data Inc., NTT DATA, OneShield, Oracle, QLAdmin Solutions, SAP SE, Sapiens, Tata Consultancy Services, Vitech Systems Group, and Wyde Corporation.

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Novarica helps more than 100 insurers make better decisions about technology projects and strategy through research, advisory services, and consulting.

We serve clients in life/annuity/retirement, property/casualty, workers’ compensation, and reinsurance. Our clients range from Fortune 100 insurers to small regionals and specialty companies. Although most of our clients prefer us to keep their names confidential, a partial client roster includes Amica, GenRe, Penn Mutual, ProSight, SECURA, SunLife, and XL Catlin.

Our senior team has direct experience as senior IT executives at firms including AIG, Arbella, AXA, Guardian, Liberty Mutual, MassMutual, Marsh, Progressive, Prudential, Voya, and others.

We publish frequent, independent, in-depth research on trends, best practices, and vendors. Our research projects are directed by our senior team and leverage the knowledge of more than 300 insurer CIO members of our Research Council. All reports are available to our clients without seat license restrictions.

Our Strategy-as-a-Service advisory services provide on-demand phone and email consultations on any topic in insurance or technology (as well as full access to our library). Our clients have told us it’s like having a team of experts down the hall—for a flat annual fee that is a small fraction of the cost of a single employee.

Our consulting services include vendor selection, benchmarking, project assurance, and IT strategy development. They are based on our deep knowledge bank, extensive relationships, personal experience, and proven methodologies. Our clients get rapid, actionable insights and guidance delivered directly by our senior team.

© 2018, Novarica, Inc. All rights reserved.

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