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Look at the Top Ten Imperatives for Insurers in 2011

Featuring Karen Furtado, Strategy Meets Action

Posted on 05 Jan 11

To kick off the New Year and gain some insight into what insurers consider as their Top Ten Imperatives for 2011, I spoke with Karen Furtado, partner at Strategy Meets Action (SMA). SMA updated this year's imperatives based on what happened in 2010 in the industry and where the market is continuing to head in terms of insurer priorities.

SMA offers an array of advisory services that provides analyst and consulting services to both insurance companies and solution providers. Karen has more than 25 years of technical and business experience within the insurance industry, with expertise in the areas of application development, complex system implementations, vendor selection processes, project management, and business process outsourcing and technical outsourcing.

Annie George (AG): When we spoke in October we discussed how consumers are driving changes in the way our industry is distributing information and products. Some of these shifts - communicating in real time, the use of social media platforms, getting more apps to agents to facilitate workflow - drove some of what insurers were doing or needed to do. At that time, we thought it would be a good idea to do a follow-up article and get a view of what the landscape is looking like for 2011. What did you find when interviewing insurers and what they see as must-do for the upcoming year and beyond?

Karen Furtado (KF): "We found that the imperatives we looked at for 2010 are still holding true for this year, only with a more strategic view of the elements insurers need on their roadmap. Generally, we're seeing an increase in the usage of data analytics and metrics, some shifts in buying trends and IT spending, and a higher demand from agents to provide different ways in which to interact and collaborate with insurers.

"While there is no particular ranking for these ten imperatives, if you look at the center, the hub, you will see that it's all about data: Unleashing Analytics on the Data. Insurers are becoming much more sophisticated in their use of analytics. They are gaining a better understanding of just how important the base data really is, so that the quality of the internal data itself has been improving. They're looking at the use of external data to hone in on their marketing, for example. This involves understanding which markets to enter and those that will be profitable for them. They're using predictive modeling to understand their book of business, and sharing this information on dashboards with agents. Insurers are also using data to determine if there are fraudulent claims in the queue much earlier in the lifecycle."

The second major imperative involves Making Governance Work. As Karen explained, this is all about how priorities get set. A working governance model looks at the total requirements involved in meeting overall company objectives and then aligns the priorities so that business strategies and IT plans work cohesively. "There is a growing understanding that alignment is needed between the functional business capabilities that are needed to drive the strategy and the technical capabilities required to get there," said Karen. "They are not separate issues."

AG: The third imperative, Chart a Path for Market Growth, is an area in which we're very involved. We provide data to carriers, wholesalers, and Program Administrators to help them pinpoint emerging markets and growth niches and access the right distribution channels and methods to get products out. When speaking with our customers, those that are looking to create innovative products are using data to see what markets would make sense for them. What have you found?

KF: "Exactly. Understanding how you will find those growth markets, whether they're markets you're already in, or new markets you're trying to enter, as well as how you will market your products, is a top priority for insurers. How can your data be used to help and how will you bring in external data to hone in on where those market potentials lie? Insurers are looking at basic demographic information, such as which SIC codes are growth industries. They're looking to see which agents are already marketing a specific product in a specific area. For example, if an insurer is focusing on homeowners insurance, there may be areas within certain county codes that are seeing an increase in housing sales even though the country as a whole has seen a significant downturn. There are areas where there's an increase in construction, in building. Do insurers know where those areas are? Are they using an agency channel that truly understands those market changes and shifts and is prepared to go after them?

"Another example is in Workers Compensation, where premiums are based on the payroll of the customer. We know that some SIC code areas are more profitable than others in certain geographies. It takes an understanding of some external information - demographic, housing, employment growth data - to see where an opportunity for increased business in a certain sector might exist. Understanding the demographic mixes and applying pertinent external data is key to targeting prospects and agents who can service them. It's all about having access to high impact pockets of information and then doing something with them to target profitable, growth business. And, it's about understanding the distribution channel and what agencies need to be in an insurer's portfolio."

The fourth imperative, a Fast Path for New Product Development, involves how insurers get products to market much faster. "This means being really responsive to where the market is heading," said Karen. "There are new tools to help insurers generate products much faster and use the assets they have in creating those products," said Karen.

Drive Dynamic Distribution Channels is the fifth imperative as channels are changing dramatically. "We've observed an increasing demand from agencies as they pressure insurers, asking them to be more responsive to them. As a result, insurers are creating portals or front-ends for agency communication. New technologies are allowing insurers to improve responsiveness to the distribution needs of agents."

A more collaborative environment between agents and insurers is also being addressed with the sixth imperative on the list: Apply Smarts to Underwriting. "Insurers understand the need to create a collaborative relationship that is more efficient and effective while empowering insurance agents and underwriters with external information that facilitates the entire underwriting process," explained Karen. "There are some lines of business that don't require much collaboration, while others involve a great deal of communication and additional data. Leaving messages or emailing back and forth is inefficient for both the insurer and agents who deal with multiple carriers. Insurers are looking at a better way to understand how collaboration can take place and how in a collaborative environment both agent and underwriter can share information. Many insurers are bringing external data into the conversation and applying it in a systematic way to risks that require information from outside solutions such as Dun & Bradstreet, ChoicePoint, DMV departments, and others to help in underwriting the risk. With smart underwriting, the underwriter will have so much more information and will do his or her job more efficiently."

Link Customer Communication Holistically is the seventh top imperative. This involves coming up with a communication platform that will integrate the management of print, electronic, e-bill pay, as well as a number of other inbound and outbound communication methods that most insurers currently tend to manage in disparate ways. "We see companies starting to focus on how they manage content," said Karen. Insurers are realizing that they must take a holistic view in client communication both in print and in real-time and online services."

AG: Managing Claims has moved up in the queue in 2011? What are insurers looking to do in this area?

KF: "Insurers are assessing ways to expedite claims and at how they can bring external data and analytics in to improve the entire process. For example, some insurers are using the Notes features in an agency management system to provide agents with alerts and to let them know what's going on throughout the claims process. Being more transparent, and applying external information and analytics to catch fraudulent claims much earlier is a top priority among insurers."

Embrace Enterprise Risk Management is number nine on the list. As Karen explained, insurers are very mature in managing compliance risk, but have yet to apply that same level of technology to managing their business risks, both financial and operational. Karen went on to say, "They're beginning to take a different view of how to manage risks. This is not just happening in the claims department but throughout the company as more and more insurers establish and integrate an enterprise risk management role."

The last imperative on the "Top Ten" is one we read most about: Rethink Business and Technology Legacy. "Policy administration replacement solutions are still being consumed at a very high rate," explained Karen. "One area that has hit a high note is business process reengineering for greater efficiency and effectiveness and to contain costs, one of the top business drivers for insurers. As pressure to contain cost escalates, insurers will have fewer employees to do the same or more work and there will be fewer agents in the workforce. There are fewer people getting their CPCU designation and it follows that there will be fewer underwriters. There will be fewer claims adjuster positions and we're seeing that there are fewer individuals entering apprentice-type positions. Therefore, insurers are assessing how they can apply technology to make their processes more efficient. How do they do more with less? Insurers are reevaluating the way business is done. How can they grow, take in another 100 new business applications without adding more people? How do they streamline the intake process?"

Karen emphasizes that these imperatives resonate with most insurers. Many of them have these essentials as part of their roadmap for the future. "While some insurers think they're moving fast in these key areas, others realize they're not moving nearly fast enough. The question then becomes how to deal with these ten fundamentals. All ten don't have to be done at once, but insurers do need to be incorporating all of them in their three- to five-year plans. It's part of the reality today and it will be far into the future," said Karen.