A number of market changes including recent UK pension reforms, nimble new competitors and market consolidation have combined to create choppy waters for insurance providers. New UK pension rules have triggered a collapse in sales of annuities while Google Compare – which entered the UK market two years ago to provide auto insurance, mortgage quotes and credit card offers – is only looking set to get stronger with rumours of US expansion. M&A such as that between Aviva and Friends Life further serve to put pressure on smaller players. Providers need to react to these tectonic industry ripples by differentiation through new and innovative services. These should offer customers a personal service on the local level and technology that enables them access to services 24/7. Those who don’t, risk losing ground to nimbler competitors.
What’s more is they need to offer these quickly. The provider battleground will be fought on agility and those who are slow to take up the innovation gauntlet will likely find themselves falling behind.
In Europe, Google Compare already provides auto insurance, mortgage quotes and credit card offers. While the technology behemoth has not yet gobbled up its competition – as it has done in other fields – it has the ability to invest and innovate quickly. This should leave insurance providers ill at ease. Its US expansion only serves as proof of its early success in the UK marketplace.
To further complicate matters, the new UK pension laws mean that pension savers no longer have to buy an annuity (an income for the rest of their life) when they retire, meaning a loss of revenue for insurers such as Aviva who sell pension pots to companies that provide pension schemes for their employees. In fact, new annuity sales at Aviva fell 16% in the last quarter of 2014 as bulk annuity sales failed to outweigh a drop in individual annuity sales. At the same time, Friends Life reported a 15% drop in annuity sales.
Consequently, these two insurance giants merged in March following reported forecast-beating annual profits ahead of the takeover. Such an M&A makes has served to galvanise Aviva as it sizes up to Google, yet not all insurers have the luxury of such an option.
Disruptive innovation that brings new, fresh, tailored, hyper personalised and localised services will help companies differentiate their offering. These personalised services could include pricing models based on specific locations and differentiated pricing based on unique requirements (for example, insurance for a vintage car). But this approach requires a new mind set, resources and the right technologies based on complex algorithms to create new offers and online quoting. And they need to ensure that these offers reach customers on multiple mobile channels to extend reach.
Businesses need to invest in the right technology, processes and procedures, and develop the right marketing strategy to do this quickly.
While many insurers have a high degree of technology adoption and have systematically developed digital channels for customer service, many decision making and service offering processes still remain manual. They simply do not have technology systems and software in place able to cope with implementing new business rules that accompany offering a new and complex service. Many will have to do this manually and it’s a tough task.
There could be any number of customer factors and variants that define a rule including age, different pension schemes, offers, benefits, and even health data. Unfortunately these hundreds of variants are often buried deep in hundreds of lines of code and when they need to be changed they often have to be updated manually by software developers. Not only is this a time intensive task, it often means a slow delivery to market for new services and an inability to act with agility. In fact, many businesses have an IT backlog of change requests that may take months or years to deliver.
And, policy definitions are often difficult to manage – they can be ambiguous and incomplete. If a programmer implements logic as specified, there could be bugs in the system due to errors in the specifications.
Julie Gross, Assistant VP of Business Systems Implementation at insurance provider Unum found that the company’s business rules were locked up in codes which lead to a lack of agility. The urgent changes needed were taking 12-plus weeks to implement and most of the logic still had to be maintained by skilled developers.
By using Progress’s BRMS, Corticon, Unum found that they could use business systems architects and analysts to automate and change business rules, to ease the software developer workload. In doing so, the speed at which they could change business rules rapidly increased. For instance, one rule change had been estimated at 40 hours of development effort using the old approach. With the BRMS in place, the whole change was completed and in production in one day.
Automation works by separating the business rules from code, enabling business and IT users to make changes through an easy to use drag and drop interface, freeing up resource to focus on innovation. Eliminating the translation of rules into code reduces the time it takes to develop and refine business applications. This is especially true for complex rules subject to ever-changing policy and regulations.
By integrating a BRMS with a cloud-based rapid application development tool, insurers can also build custom web and mobile applications quickly and easily add business rules.
Ultimately, being more agile and innovative all adds up to offering the customer more of what they want; namely good customer service and variety in offerings. By using business rules engines insurance companies can process applications in a matter of days, or even hours, giving customers a smooth and easy experience. When used in conjunction with a highly personalised offering, insurers are left with a highly powerful and tempting service for customers that will help them eke out a competitive edge in a highly volatile and shifting market.
By Mark Armstrong, VP EMEA at Progress Software