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					11 Burning Questions for Insurers In 2012; Insurance companies enter the
new year facing many questions about regulation, technology trends and
more. Not all of the answers will emerge this year, but I&T provides clarity
on some of the most pressing unknowns.
Anthony O'Donnell; Nathan Golia; Kathy Burger

Insurers enter the new year at a crossroads in many ways. Technologies such as mobile that once were
considered “emerging” or “curiosities” now are bleeding from the marketing department into the enterprise
and have become table stakes in many cases. Further, legacy systems — no longer seen as mere
annoyances, but rather as inhibitors that prevent much-needed growth — are spurring major investments
in core systems replacement projects. And the environment in which all of this is taking place is itself in
flux as new regulation and vendor and insurer consolidation reshape the status quo.

These developments raise many critical questions for insurance companies. While we may not get
answers in 2012 to all of the questions facing the industry, we surely will see some clarity on many of
them. I&T offers insights into 11 unknowns that are likely to shape the insurance industry in the coming

1 Which Core System Replacement Strategy Will Emerge?

The insurance industry is in the throes of modernization, and carriers are weighing their core system
replacement options. “Carriers have swung from monolithic suites to best-of-breed systems, and now to
best-of-breed suites,” observes Chad Hersh, a partner in New York-based research and advisory firm
Novarica. “Best-of-breed suites have emerged as a significant preference, as the majority of best-of-
breed vendors have expanded their offerings to include billing and claims.”

Carriers appreciate the reduced integration effort associated with best-of-breed suites, Hersh notes. But,
“If history is any guide, we can expect another shift down the road,” he cautions.

Insurers also face other technology sourcing questions, insists Celent insurance SVP Craig Weber, who
says that for all but the smallest insurers, a hybrid approach combining elements of “buy” and “build” will
emerge. “The buy piece will come from package vendors, which bring focused expertise, and also from
platform vendors,” Weber says. “The build piece will reflect carrier needs to leverage systems they have
in place and also the need to provide a differentiated user experience.”

2 What's Next for Mobile App Development?

It's unlikely that there are any insurance companies that still don't see the pressing business need for
mobile consumer portals that allow at least some policy servicing functionality. Forward-thinking insurers
now are focusing on new opportunities to leverage mobile technology within the enterprise.

“Mobile apps don't replace everything we do on the PC, but we are going to be targeting things where it
makes sense,” says Kirsten Pedersen, VP of operations at life insurer Penn Mutual. “There are going to
be places where it is appropriate to do the mobile app, such as making it possible for producers to get
information on pending cases.”
Customer-facing mobile strategies are evolving. Some insurers have found that because insurance
transactions don't happen as often as transactions in other sectors, such as banking and retail, there's no
guarantee that consumers will hold an insurance portal on their phones for the few times they'll use it.
This has led several carriers to ramp up the service capabilities on their mobile-optimized websites and to
look for other ways to engage customers via mobile apps.

AXA Equitable, for example, recently released an iPad app devoted strictly to its Athena Indexed
Universal Life product. “We thought it would be a good way to bring to life the content so that people
could see not only why they're going through the process, but also get a really good understanding of why
you need our product,” says AXA SVP of strategy and development Connie O'Brien. “It's an elegant,
guided experience, whether you're with your adviser or alone.”

3 Is ‘Bring Your Own Device’ The New Standard?

The major reason insurance companies are looking at enterprise-centric mobile development is due to
the expectation of many of their employees that they will be able to use their preferred devices, whether
smartphone or tablet, at work. While this may sound like a security headache, it is a fact to which
insurance CIOs and CISOs will need to adapt, says Robert E. Nolan consultant Gerald Shields.

“You need to embrace it, figure out how they work in the environment, get device management software
on there and develop policies,” he says. “You are getting these digital natives coming into your workforce
who are going to demand and figure out ways to do it on their personal devices, whether you like it or

Shields compares the current wave of tablets entering the workplace to the early adoption of the PC.
Initially, IT leaders didn't think PCs were “work reliable,” he says, and some ignored them. Now, though,
insurers are bucking their reputation for being slow on the technology uptake and are proactively looking
for ways to allow workers to use their preferred devices.

“I'm seeing a huge uptake of tablets, particularly the iPad, that's displacing expensive laptops and desktop
services,” says John Hancock CIO Allan Hackney. “Users are comfortable with it, and now we're on the
cusp of beginning to pull laptops out of the environment.”

4 How Will Social Media Be Used Beyond Marketing?

Several industry consultants and analysts have pointed out that social media often contains public,
unstructured data that insurers can use. While privacy and resource issues have prevented many carriers
from looking too closely at the information, the industry enters 2012 with several software vendors
offering products to help analyze unstructured social media data — perhaps signaling an uptake in this
kind of use.

“The industry will move slowly on it, but I think there's a lot of hype and education and awareness,” says
Strategy Meets Action founder Deb Smallwood. “It's amazing how many software companies are out
there working on this.”

Recent SMA research indicates that 24 percent of insurance companies are evaluating using social data
in claims and 26 percent are evaluating it for underwriting. Celent (Boston) has been examining the
phenomenon as well, and Celent insurance analyst Craig Beattie says it's important for insurers to tread
carefully at first. “There's a risk here that if underwriters start using social to penalize people, they'll lock
down all the data in social networking sites,” he says.

Beattie recommends a reward-based approach to using social to establish a risk profile — at least in the
short term. “There's a generation of people coming up now who share everything with their friends,” he
notes. “The interesting challenge will be what service offering or what incentive will insurers have to offer
to let them see what they're doing.”

5 Will Usage-Based Insurance Finally Take Hold?

Social media isn't the only way insurers have tried to get a more holistic view of their policyholders. For a
decade or so, auto carriers (led most notably by Progressive) have tried to get telematics-powered,
usage-based insurance to catch on. This year, while Progressive rolled out its Snapshot program in all 50
states, other major carriers — including Allstate and State Farm — launched their own versions of usage-
based offerings, indicating that the industry sees this market poised for growth.

Robin Harbage, director for Towers Watson, says the time is right for usage-based insurance to gain
traction. “It's just a question of enough choices out there for consumers that it starts to become
ubiquitous,” he says. “There are 18 states that have four or more usage-based insurance products

The most popular way for telematics data to be collected is still the insurer-provided proprietary device
that plugs into a car's onboard computer. While there have been some rumblings that alternate means of
collection might be employed — either by using OEM services such as GM's OnStar or the always-on,
location-aware smartphone — those solutions are still a while off at best, Harbage says. “The reason it's
developing with the proprietary device is largely because of the need for control of the data. If you're
going with OnStar, you can only use what data they're willing to provide you in the way they're willing to
provide it,” he explains.

“Smartphone technology is clearly something people are interested in leveraging in order to do this,”
Harbage continues. “But it's just not always clear at this point how the vehicle is associated with the

6 How Will 2011's Catastrophes Change Insurers' Strategies?

By the time the calendar flips to 2012, it's likely 2011 will be recognized officially as a banner year for
insurance losses. The ISO, PCI and I.I.I. reported last month that insured losses in the first half of 2011
nearly tripled from 2010 — and that didn't even count Hurricane Irene or the rash of mid-fall snowstorms
and tornadoes.

With cash flow already uncertain due to soft market conditions and investment performance, it's likely that
insurers will apply advanced analytics to be sure they are as prepared as possible for a multiyear cycle,
according to SMA's Smallwood. “We have climate changes and catastrophes as one of the external
drivers affecting insurers,” she says. “It's a great opportunity to leverage external data and analytics to
use in your underwriting. It's also important to use the predictive analytics on the back end — it's hard to
prepare for tornadoes, but you can take steps to mobilize your CAT teams to get out there quickly.”

The changing face of weather threats could mean that certain regions won't fly under the radar anymore
when insurers measure their potential to be affected by events generally perceived as uncommon.
“Vermont is probably not priced to handle hurricanes,” Smallwood notes. “But now, when insurers go to
rate homeowners insurance, insurers are going to rate and price by peril and really segment. It requires
sophistication in rating engines.”

7 What Does ‘Big Data’ Demand From IT?

A buzzword that emerged toward the end of the year, “big data” might seem like an obvious way to
describe the wealth of information on policyholders that is available to insurers. But what it really
represents is a change in how data is handled within the enterprise, says Oracle VP of global strategy
and alliances Chuck Johnston.

“Actuaries, statisticians and marketers have been trained by traditional IT departments and vendors to
work with tranched data, estimates and indicators to do reserving, forecasting, market segmentation and
buyer trending,” Johnston explains. “Cheaper, faster hardware and more advanced data query and
management tools are making it possible to actually work with much larger data sets that eliminate the
need for estimation and aggregation.”

Strategies that embrace the “bigness” of data will allow insurers to do much of the predictive modeling
demanded by some of these other areas, Johnston adds. “The great opportunity is the ability to mine data
sets that were never considered accessible, such as all of the e-mail communications between a carrier
and its customers, for common patterns around service conversations versus policy activity to create
predictive models for lapse behavior or fraud analysis,” he says. “By working with more raw data,
unexpected patterns are less likely to be hidden when doing customer or market analysis.”

8 Will Healthcare Reform Survive the Year?

Based on the current political environment, the prognosis for the survival of the Patient Protection and
Affordable Care Act — at least in its current form — beyond 2012 is bleak. The Supreme Court's
November 2011 announcement that it would rule in 2012 on challenges to the act's individual mandate
provision certainly put the future of President Barack Obama's signature legislation into doubt.

The eventual outcome of the 2012 national elections — whether Obama wins reelection and whether the
Senate retains a Democratic majority — also will determine whether healthcare reform survives, lingers
on life support or dies. Further, the failure of the congressional “supercommittee” to agree on deficit
reduction steps will result in required cuts in Medicaid and Medicare, which also will shape insurers' and
providers' strategies (although not until after the 2012 elections).

Regardless, both healthcare providers and payers appear to be gearing up to do business in some kind of
changed regulatory landscape. According to a recent report from PwC's Health Research Institute,
organizations positioning themselves for the new environment will focus on (and invest in) a number of
key issues, including adapting to a new performance- and value-based payment structure, cutting
administrative costs to keep premiums down, health informatics and related data issues (collection,
quality and integration, and privacy and security), social media, and competing with exchanges.

9 How Will IT and Marketing Roles Merge?

As customer experience becomes the watchword for all the ways in which insurers interact with
policyholders, prospects and distributors, it's getting harder to tell where marketing leaves off and
technology begins (or vice versa). Today's leading-edge approaches to customer communications —
whether via social media, mobile, video/telepresence or even state-of-the-art contact centers — are only
window dressing without a robust architecture and fast, secure networks to support them. Furthermore,
without access to analytics-based insights about customer, channel and producer behaviors, needs and
performance, it's almost impossible to deploy the new tools effectively.

For insurers to really make this work, there will need to be, if not a merging of IT and marketing roles,
certainly a more collaborative and trusting relationship between the two areas. A recent Forrester/Forbes
survey of 300 CIOs and chief marketing officers (CMOs) found that, “CIOs typically rated their willingness
and ability to work with marketing higher than marketers rated the relationship,” noted David Cooperstein,
VP and practice leader at Forrester Research, in an article in Forbes about the research. Similarly,
whether it came to staff expertise, speed to market or deployment of customer-facing technologies, CIOs
gave their IT organizations higher ratings than the CMOs did. Clearly there is much room for
10 How Will the Insurance Technology Landscape Change After This Year's M&As?

Through 2011 the insurance technology market saw some significant mergers and acquisitions, including
Mphasis' (Bangalore) acquisition of Wyde (Eagan, Minn.); Accenture's (New York) acquisition of Duck
Creek (Bolivar, Mo.); and the merger of Sapiens (Rehovot, Israel), FIS (Cardiff, Wales) and IDIT (Beit
Dagan, Israel).

This energetic activity is a welcome development for the industry, in the view of Celent senior analyst
Donald Light, who is based in Palo Alto, Calif. “The 2011 M&A and ownership transfer activity should be
good for buyers of insurance technology — in general the new owners will have a sharper focus on, and
deeper understanding of, what makes for a good insurance solution,” Light opines. “It will also be good for
the vendor side of the market, since better competitors create the best type of incentive for all vendors to
get better.”

Novarica principal Matthew Josefowicz predicts that more independent software vendors will be acquired
by services firms, in the manner of Wyde/Mphasis and Duck Creek/Accenture. “This is driven in part
because most insurers have shifted to a ‘buy’ rather than ‘build’ mentality. Another reason is that the
componentized suite is becoming the dominant model for software vendors,” Josefowicz asserts. “This is
likely to drive consolidation of vendors that provide only a single point solution.”

11 Will Insurers Remember Agents In Their Push to Improve The Customer Experience?

The I&T editorial team covered many aspects of customer experience in this issue. But one important
area we didn't note was the role of agents in providing that experience to consumers. Forrester senior
analyst Ellen Carney says agents can be blamed for a poor experience caused by the insurance carrier
— which doesn't help anyone.

“When the agent is standing there and trying to give you quotes, if the portal is slow to load or slow to
return a price, that's frustrating,” she says. “Allstate agents are trying to unionize — that's an interesting
statement about the carrier they're writing business for. Agents say they go with what's easier for them.”

John Cusano, managing director of Accenture's U.S. client service group, says insurers should work to
enable their agents to participate in some of the technology-powered customer experience initiatives that
they're taking on at the corporate level. “The agent could become the remote voice or knowledge behind
these electronic channels, maybe to the point when you click on the videoconferencing button you speak
to an agent,” he suggests. “More and more of the customer experience is online, and more consumers
are used to, want to and like to engage that way. For the first time some of the really large agent-centric
distribution organizations are thinking it's time to enable the agent that way.”

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