Novarica Blog

Purpose-Built vs. All-Purpose Technology


Jeff Goldberg

In the latest Internet of Things news for the insurance industry, Argo will be deploying Kinetic wearable devices to help commercial policyholders prevent and monitor employee back injuries while on the job. One of the promises of wearables and IoT is helping commercial enterprises reduce risk, but one of the problems is that these enterprises often look at the costs of such technology with a shorter-term benefit view. This is a great example of how insurers end up stepping in with the big-picture risk view and help to subsidize or push this risk-mitigating tech into the marketplace.

Yet another interesting thing about this technology is how it reflects a pattern Novarica repeatedly sees in the emerging technology space: Purpose-built solutions with a specific (but narrow) focus are easier to utilize in practice than general solutions that look to leverage an emerging technology for all purposes. Especially when a technology is new, general approaches leave insurers with the responsibility to figure out custom implementations that make sense and have value. But when a vendor steps in with a technology application that solves one key problem, everyone can immediately align on getting it into the real world. Essentially “purpose-built” devices are ready to go into the marketplace, while “all-purpose” devices are a platform that requires further implementation.

In the wearables space, we’ve seen several iterations of insurers looking for ways to leverage all-purpose devices. This includes Google Glass, most smartwatches, and other startups building devices to manage/monitor the entire scope of a work environment. Insurers attempting to utilize these solutions have typically backed off the projects due to costs, or the devices themselves struggled to find market momentum. On the other hand, IoT and wearables built with extremely narrow focus, like Kinetic for monitoring back injuries, or devices for gauging stream pressure, have done better with insurers because of the obvious cost/value equation and, just as importantly, the immediate use case requiring no additional implementation or planning.

A similar story exists with AI technology. There are a number of all-purpose AI solutions out there, the most notable being IBM’s Watson. So far, unfortunately, multiple insurer pilots with these AI platform technologies have been dropped, because training and building an insurance-specific function on top of the platform has proved costly, time-consuming, and requires strategic direction from both the insurer and vendor. However, purpose-built AI tools, like machine vision processing for assessing accident photos or aerial photography, or deep learning pre-built to scan news sites for company risk information, are getting picked up by insurers who might not even realize they are using artificial intelligence behind the black box. These solutions are more limited in ability and scope, but limits help with initial adoption.

This is not to say that the all-purpose platforms won’t eventually mature to the point that they supersede purpose-built applications. This has certainly been the case before. Many companies built or purchased purpose-built hand-held devices for activities like scanning and entering data, even though mobile phones were out there. But eventually mobile phones matured into the smartphones of today, and now most companies choose to build on top of the all-purpose smartphone platform rather than creating a secondary device. Certainly, IBM has the goal that Watson will one day be the AI platform of choice and that insurers (and other industries) will be able to turn it on and point it towards any problem. Likewise, more general-use IoT devices, such as a future iteration of Google Glass or a more mature smartwatch that can be leveraged for more enterprise functions, may end up competing with Kinetic.

However, until technologies mature and until the use cases are clear, purpose-built beats all-purpose.

Learn more about IoT in the insurance industry at Novarica’s upcoming webinar, Operationalizing Innovation, with Matthew Josefowicz, CEO and President of Novarica, and Matteo Carbone, Founder and Director of Connected Insurance Observatory:

The Insurance Broker Space is Ripe for Emerging Tech Disruption


Chuck Gomez

Earlier this week, I participated in the Council of Insurance Agents and Brokers’ annual legislative conference in Washington D.C., presenting on the recent trends in InsureTech to the CIO Working Group.

Insurance CIOs are actively interested in a variety of technologies and tools that can be classified as “emerging” tech. I covered the results of Novarica’s latest research on emerging technology, based on a study with over 100 CIOs, as well as where insurance CIOs have deployed or plan to pilot emerging technologies in 2018. While the deployment of many technologies is still rare, all are poised for rapid growth.

I also presented on various InsureTechs that are targeting the insurance broker space in various areas: sales support, client service and workflows, rate benchmarking, solutions to automating new business and renewal business applications, and more. During the meeting, the broker tech leaders were given an assignment to discuss where and how the insurance broker world could be disrupted by technology, and what impact that would have on brokers and their clients. The participants were all engaged and they presented some great ideas and solutions.

This week Novarica published my executive brief on the retail broker and specialty/large commercial market segments and their related technology trends and challenges. The brief covers topics including automating new business and renewal business, cybersecurity, predictive analytics, and InsureTech. Read more here:

The InsureTech spillover from carriers to brokers is real. The insurance broker space is ripe for new and emerging technologies in 2018 to address underserved areas and business problems.

Auto Aware


Rob McIsaac

Today, across many industries, there’s a growing awareness of the potential impact of automation on routine business operations. The general concept is attractive; the use of technology to automate activities can create benefits of higher quality work that is both more predictable and less costly than corresponding human-based “manual” activities. Of course, this isn’t necessarily a binary selection process; we see ample evidence that the best combination is both automation AND human capital, as opposed to one or the other. We recently published insurance-specific insight that touches on this very issue.

This article on BMW is outside of financial services, but sometimes things happening in adjacent spaces are easier to see and they carry the power to suggest significant analogies. As the article points out, BMW is making large and ongoing investments in automobile manufacturing facilities, including their American plant in South Carolina. This is another example, by the way, of the increasingly heavy reliance on IT-based capabilities at auto manufacturing companies. A surprisingly high percentage of BMW’s future-state employees are expected to be software engineers, which was touched on in this article discussing R&D capabilities. So, not surprisingly, people on the production line are being augmented with, and in some cases replaced by, robotics. A tour of this plant offers an amazing view of “industrialized choreography.”

But that’s only part of the story. All that automation requires a different type of human-based support: keeping the automation working properly. The skills required to run the plant are changing from welders and painters to the people who can keep the machines running to do those same jobs, which results in a need for different training and an introduction of the concept of continuous learning. At some level, the potential use of AI and RPA as two discreet capabilities will require insurer organizations to address changing skill needs and the impact on their labor forces.

It will also force confronting a fundamental truth: Investing in advanced technology will produce benefits OUTSIDE of the IT organization. Trying to run IT on an unchanging expense ratio from year to year risks putting a carrier in an increasingly uncompetitive position, and it will be a hard transition for many business and finance leaders to recognize. But they will need to do so, just as manufacturers like BMW have.

There’s another fascinating aspect to this story, reflected in the development of the talent needed for the future. To accomplish this, the car manufacturer has set up its own apprentice training program with the promise that those who achieve results above a pre-defined target will have a position with the company. Rather than relying on others to develop critical skills, the company is taking this on internally to specifically develop the talent for their own needs.

At some level, this sounds a little bit like “Back to the Future” for human resources and IT alike. Many insurance carriers developed their own talent more than 25 years ago as they targeted developing talent that would be very specific to their needs. While this has largely slipped away from the insurance world, what is old could become new again. We see carriers once again develop internal academies with the promise to develop the specific talent they think they will need. Some programs, such as one reflecting a partnership between BC/BS of South Carolina, The University of SC, and IBM, are focused on very specific needs (e.g., development of COBOL resources).

The idea of influencing curricula to be very specific to company needs is being picked up by IT services companies as well. Recently, Infosys announced a large investment in their Technology and Innovation hub in Research Triangle Park, NC. Part of the focus here is tapping into the state’s community college system to tailor programs to their needs and to utilize an underappreciated educational resource. As our own research related to innovation has pointed out, leading companies are recognizing the need to tap into talent earlier in their development to improve their own outcomes.

2018 offers significant further proof that the future is already here. How companies react to this new reality may well demonstrate how well-prepared they are for it.

Data Breach Portal Launch in Massachusetts


Mitch Wein

Per the 2007 Massachusetts Data Breach Notification Law, the Massachusetts Attorney General needs to be notified by mail by any company storing MA residents’ personal data if this data is compromised or breached in any way. Massachusetts has now extended this by adding a data breach reporting portal. The MA law is much less extensive than the NY State Cybersecurity law.

The new MA portal highlights the need for insurance carriers to keep up with regulatory changes not just from state insurance regulators, but also general state data and financial service regulations that apply to any type of firm. The reporting requirements are different from state to state, as are the penalties for not complying. NY recently extended their regulations to credit reporting agencies because of the Equifax breach. MA had an enforcement action toward Equifax in late 2017 under their data breach notification law.

We are seeing an increased focus on data: How data is categorized, stored, governed, secured, and reported drives a firm’s ability to avoid data breaches. Insurers need a CISO who owns the security practice and programs. Additionally, carriers will need someone who owns data at an enterprise level (possibly a Chief Data Officer) to ensure effective data governance. The CDO and CISO should be working together to avoid data breaches, detect when breaches do happen, remediate the situation effectively, and report breaches in a timely way that complies with each state’s regulations. In MA, the new portal will help with timely reporting of breaches.

As we have mentioned in the past, security risk, including the risk of data breaches, puts the firm’s reputation and the careers of C-level executives at risk, all the way up to the CEO. Insurance carriers can no longer avoid dealing with security and data challenges.

Emerging Tech Offers Automation and Security for Broker/Carrier CIOs


Chuck Gomez

Insurance brokers and specialty/large commercial carriers have long lagged behind other segments when it comes to automating communication. This is the result of the inherent complexity of the market, as well as an ingrained preference for email due to the cultural belief that it is more personal. Further complicating automation efforts are looming cybersecurity issues that are in constant flux with respect to regulatory and market changes.

Through Novarica research consisting of in-depth conversations with over a dozen broker and carrier executives, it is clear that many carrier CIOs are looking towards the adoption of new technologies, both custom and vendor, to support digital strategies and operations. However, broker CIOs tend to be more hesitant and conservative in investing in advanced technology. This hesitancy is likely a result of the unique challenges during the underwriting process for specialty and large commercial risks.

Despite the unique challenges, new technologies may be faster and more accurate, and they enable a personalized exchange of insured and risk information. Both insurer and broker CIOs should be monitoring and adopting emerging technology in order to simultaneously navigate mounting security issues and prepare for the transformative effects of predictive analytics and artificial intelligence that have already been seen across the industry.

With the increasing number of emerging technology options available to leverage in 2018, broker and carrier CIOs should consider how this technology can be used to standardize data models and business processes, gain back-end efficiencies, and support digital initiatives. By doing so, successful CIOs will set themselves up for success in 2018 and beyond.

More on this can be found at:

Simple, Meaningful KPIs Crucial to Communicate IT Value


Eric Weisburg

Insurance IT leaders benefit from the use of simple, meaningful metrics to communicate the value of technology investments to business peers. Without a clearly articulated and commonly accepted set of business value metrics for IT, it can be a challenge for carrier IT leaders to create compelling business cases for new investment or receive credit for the value created by their successful projects and initiatives.

It is important to note that value metrics may not be completely under the control of IT. Unlike engineering or performance metrics, value metrics depend on business units’ use of technology to achieve a result. This value is measured in results achieved, not capabilities delivered, so insurer CIOs should operate accordingly.

Insurer CIOs should focus on the speed, efficiency, and effectiveness of key business processes, according to an analysis of over 100 case studies on impactful IT published by Novarica over the past five years. The result of this analysis is a proposed framework of 21 KPIs, including the six most commonly used business KPIs: average time from submission to quote; average time to market for new product; average time to market for product modification, average time to handle a claim; and underwriting straight-through processing percentage.

Five of these six most common KPIs address accelerating cycle times. It is clear that insurers are feeling the need for speed in the face of changing customer and distributor expectations, as well as a highly competitive market.

Insurer IT leaders should consider simplicity and meaningfulness when designing their IT value metrics to share with executives in other business units. Using these six business KPIs may be a good place to start to help CIOs and IT leaders communicate effectively.

More on this can be found at:

Now Bring Us That Horizon: Quantum Computing and Fundamental Technology Change


Mitch Wein

Today’s information technology systems remain limited by the barriers imposed by classic binary computing. The rise of quantum computing will bring about a change in technology that will impact the fundamentals underlying data usage and protection, risk modeling, and the very nature of how insurance core systems operate. Recent breakthroughs in the technology bring quantum computing’s operationalization closer, with an expected substantial impact on the insurance industry between 2023 and 2030.

The successful implementation of quantum computing could cause large-scale disruption across industries, given its fundamental upheaval of data handling. In the insurance business, there are multiple opportunities for the application of quantum technology: artificial intelligence, data security, data transfer, core systems, and risk modeling.

Insurance carriers should expect adoption of quantum methods, independent of consumer adoption rates, in a similar manner to other innovative technologies. This means adoption begins with the largest carriers and with property/casualty carriers before life/annuities carriers. Insurers should consider embracing emerging technologies like cloud, big data, and AI to be ahead of the curve, as well as the likelihood of outsourcing quantum computing capabilities to combat expense challenges.

Though quantum computing is not yet an immediate issue, carriers should begin incorporating the technology into their five-year outlook plans and understanding how quantum computing will affect the way they do business.

More on this can be found at:

Amazon Enters Insurance… for Itself

Matthew Josefowicz

There’s been plenty of speculation lately about whether Amazon would enter the insurance market. Would they be a distributor, bringing their legendary customer-obsession to creating an optimized buying experience? Would they disrupt the pharma benefits business with their supply-chain brilliance?

Well, it turns out what they have in mind first is disrupting the health insurance market by creating a tech-based, non-profit insurer for their own employees, along with Berkshire Hathaway and JP Morgan.

Let that sink in for a minute. Arguably the world’s most important entrepreneur, insurance investor, and banker are so frustrated with the health insurance business that they’re creating a non-profit alternative.

As we’ve been saying for the past few years, distributors are not the only intermediaries at risk. Any business that stands between risk-bearing customers and pools of capital are vulnerable to disintermediation if they don’t do their job well enough to justify their costs.

Insurers are already living in the future. By our count, this is year three. It’s only going to get more interesting from here.

Top Priorities for Reinsurers Include Business Intelligence and Modeling


Jeff Goldberg

Reinsurers are facing pressures from a prolonged soft market followed by an erratic business cycle, losses from man-made and natural catastrophes, and open-ended liabilities like asbestos and terrorism. These pressures are compounded by the lagging technology solutions in the space; reinsurers are looking for stable, robust systems that can support their current business.

Focus is being put on technology strategies to attract insurer clients and improve profitable decision-making through core systems replacements and investments in business intelligence and modeling, as most reinsurers view data analysis as core to their business. It is crucial to move from Excel-based analysis to more sophisticated technology, like AI and machine learning.

Alternative capital is providing stability for reinsurers, despite expectations that investors would flee at the first significant cat activity. The reinsurance market may also offer the perfect use case for blockchain. The potential impact of blockchain is being monitored in the space, and several insurers and reinsurers have developed prototypes for complex, multi-party reinsurance treaties or conducted pilots for reinsurance and cat bond swaps.

Reinsurance CIOs and business executives should consider the following top technology priorities: business intelligence and analytics to find new opportunities for creating competitive advantage; BPM/workflow enhancements to centralize from spreadsheets and improve user experience; and auditing, compliance, and control considerations to meet regulatory standards and assure compliance with new risk-based capital requirements.

More on this can be found at: