Looking further ahead, insurers will have to contend
with the vicissitudes of climate, commerce and car culture.
1. Risk Management/
The year 2011 will undoubtedly be remembered, at least within the insurance industry,
as the year of natural disasters. Unforeseen, weather-related catastrophes battered
bottom lines in tandem with coastlines, and insurers saw first-hand the importance of
cat modeling, predictive analytics and climate risk management.
Before this year, that importance may not have been so obvious. But in April, Aon
Benfield was already calling for re-evaluations of cat modeling structures with the potential of 2005-like natural disaster numbers and compliance questions looming. As
those issues persisted, so have the calls for readiness within the industry.
In September, Ceres performed a survey evaluating insurers on the increasing
threat to halting results. While a consensus was found among insurers that climate risk
management is important, only 11 of 88 insurers reported having anything of the sort
in place. The industry’s sluggish ability to acknowledge this risk with more than words
may have contributed to a costly 2011, and will certainly continue to haunt the industry
until more of an effort is put forth.
As we edge closer to 2012, we have seen initiatives put in place in an effort to be better
prepared. Most recently, Swiss Re announced a partnership with USAID to assist their efforts with the Global Climate Change Initiative, which aims to increase resilience to extreme
climate events and accelerate the global transition to a sustainable, low-carbon economy.
But that may just be the beginning, as 2011 showed us time and again how crucial updated, proficient risk management and cat modeling systems can be. —Justin Stephani
For commercial and personal lines auto insurers, one potentially disruptive technology in the coming year is telematics, which fuses telecommunications hardware (GPS,
wireless) with traditional information-gathering and analytics technologies.
Several forward-thinking auto insurers have already begun to leverage the technologies, the most obvious manifestation being the usage-based or pay-as-you-drive
policies, such as Progressive’s “Snapshot,” State Farm’s “In-Drive” and Allstate “Drive
While the value proposition of telematics for underwriting is readily apparent, perhaps no insurance business process is more overdue for a disruptive technology than
the claims process, where telematics could prove vital to claims investigation practices
and adjuster assignment.
Speaking at Telematics Update’s Insurance Telematics 2011 Conference in Chicago
last September, Jim Noble, line of business director - Motor Fleet, Zurich Services Corp.,
foresees telematics engendering an even more profound shift for insurers. As technol-
ogies such as vehicle-to-vehicle communications mature, Noble sees the possibility
for insurers to move up the value chain by actively helping insureds prevent accidents
instead of just compensating for accidents after the fact. Looking forward, the pos-
sibility of a “crash-free” culture is possible, Noble says. However, one of the primary
obstacles to establishing this culture is indeed cultural, as society at large seems to
tolerate crashes as an unfortunate side effect of mobility. “Globally, there are 1.3 million
deaths annually due to car crashes, that’s 30,000 per day,” he said. “Why should we
accept deaths in car crashes? Why not zero? An accepted risk is a great obstacle.”
Still other obstacles exist on the road to widespread use as a bevy of technical and busi-
ness concerns remain to be addressed. One potential sticking point is consumer pushback
concerning privacy and the sense their actions are being constantly monitored.
Another issue revolves around the lack of communication standards. Will the wireless component of telematics use 2G, 3G or 4G technologies? Another weighty question is who will “own” telematics. In addition to insurers, auto manufacturers and telecommunications firms are essential to the equation. With some 230 million vehicles
on the road in the U.S. alone, there is bound to be a variety of solutions employed until
some standards emerge, if they do at all. —Bill Kenealy
3. Vendor Uncertainty
With a series of headline-grabbing transactions in the second-half of 2011, the vendor
marketplace appears be undergoing a rapid transformation. The good news for insurers
is that the business logic for these deals seems to revolve around large, technology-rich, platform vendors looking to refine their existing offerings to insurers by acquiring
vendors of best-of-breed, insurance-specific solutions.
One prominent example of this was Accenture’s recent acquisition of policy ad-
ministration software provider Duck Creek. Accenture said it made the deal to enable
it to offer the P&C insurance market a broader spectrum of capabilities from product
configuration and policy management, to underwriting, billing, rating and claims man-
agement, and give it a bigger footprint among mid-market insurers. This abrupt tim-
ing and rapid deliverance of the deal—it was announced in July and closed in the span
of a month-and-a-half—prompted Matt Josefowicz, partner and managing director at
Novarica, to comment to Insurance Networking News that, “combined with Thomas H.
Lee’s recent purchase of Sword Insurance, this seems to herald a period of increased
activity in this marketplace.”
Indeed, later in July, Sapiens International said was merging with two IT specialists
in the insurance industry: FIS Software and IDIT I.D.I. Technologies. In August, Sircon, a
wholly owned subsidiary of acquisition-happy Vertafore, announced an agreement to
acquire the assets of insurance and securities software and services provider Kaplan
Compliance Solutions (KCS).
Taken in total, these deals represent a broad effort by vendors to offer insurers a
more comprehensive product portfolio. Yet even in the most promising of deals, imagined synergies often fail to materialize. Moreover, as innovative best-of-breed vendors
are acquired, whether these deals will ultimately help insurers by offering them the
benefits of scale and integration, or hurt them by sowing uncertainty and restricting
their choices, remains an open question. Only the future will tell. —Justin Stephani