The Top 10 Imperatives for Insurers and the role of Decision Management in addressing them

The top 10 imperatives for Insurers and the role of Decision Management in addressing them
James Taylor, Decision Management Solutions
Deb SmallwoodSMA Strategy Meets Action

©2010 Decision Management Solutions
2
Your presenters
James Taylor
CEO, Decision Management Solutions
Decision Management Solutions works with clients to improve their business by applying analytics and analytictechnology to automate and improve decisions
James spent the last 8 years developing the concept of Decision Management
20 years experience in all aspects of software including time in FICO, PeopleSoft R&D, Ernst & Young
Deb Smallwood
Founder, Strategy Meets Action
SMA is a strategic advisory firm offering a unique blend of advisory, research and consulting services to both insurance companies and solution providers.
Deb is well known as a strategic influencer and advisor
Leadership roles at TowerGroup, ICW, KPMG and Liberty Mutual Commercial Lines

The top 10 imperatives
The role of analytics and a modern IT architecture
Introducing Decision Management
Addressing the 10 imperatives with Decision Management
Next Steps for Insurers
Q&A

SMA Top 10 Imperatives
the “must haves” for charting your course
imperative actions for linking strategy to capabilities to technology
Source: 2010 SMA Research © 2010 Smallwood Maike & Associates, Inc. USA. May not be reproduced by any means without express permission. All rights reserved.

SMA Top 10 Imperatives
The list of the top 10 imperatives stems from SMA’s latest research including over 100 hours of interviews with leading executives across the entire insurance ecosystem. Consistently, executives cited these top 10 initiatives as they position for market recovery and prepare to handle the external forces changing insurance and a world in which technology is woven into the fabric of everyday life.
Authors
Deb Smallwood, Founder
dsmallwood@strategymeetsaction.com
Mark Breading, Partner
mbreading@strategymeetsaction.com
Karen Furtado, Partner
kfurtado@strategymeetsaction.com
Mary Ann Garwood, Partner
mgarwood@strategymeetsaction.com
www.strategymeetsaction.com/our-research
Use of Our Reports
The entire content of this Top 10 Imperatives research report is subject to copyright protection, with all rights reserved. Reproduction
or distribution of the report, whole or in part, without permission is not allowed.
The material and observations contained in this publication have been developed from sources believed to be reliable. SMA shall
have no liability for omissions or errors and no obligation to revise or update any data or conclusions should new information become available or future events occur. The opinions expressed in this report are subject to change without notice.

Key Business Drivers
Profitable Growth (sustainable)
It would be nice if one could identify the one or two or even three simple things that are sure to drive success for insurers. Unfortunately, our world is complex with challenging economic conditions, unpredictable regulatory environments, and increasingly dynamic customer demands and interfaces. Insurers have more than a few things to consider in laying out their business and IT road maps. There are not just 3 key processes to address or 2 new technologies to install. There is no one-size-fits-all magic top priority. Instead, there are a series of imperatives that every insurer must be addressing right now if they want to stay competitive – actions for linking technology to the business capabilities that will be required for creating value in the coming years.
Customer Service (agile)
BUSINESS
DRIVERS
Business Optimization (scalable)

SMA Top 10 Imperatives for Insurers
Make GOVERNANCE Work
Chart a Course to
PROFITABLE MARKETS
Fast Path
NEW PRODUCT
DEVELOPMENT
Benefit from
BUSINESS
OPTIMIZATION
Put the
DATA
to Work
Rethink
LEGACY
Drive Dynamic
DISTRIBUTION
Channels
Capitalize on
Intelligence to
manage LOSSES
Apply Smarts to
UNDERWRITING
Claims
Analysis
Risk
Analysis
Link CUSTOMER
COMMUNICATION
Holistically
Profitability
Analysis
Make GOVERNANCE Work

SMA Top 10 Imperatives for Insurers
CHART A COURSE TO PROFITABLE MARKETS… plot a position for growth with market intelligence
PUT THE DATA TO WORK … make vision a reality with shared, common, quality data
RETHINK LEGACY… use a modern application architecture – choose a best-of-breed, best-of-enterprise, or hybrid set of solutions
FAST PATH NEW PRODUCT DEVELOPMENT … remove the technology obstacles
DRIVE DYNAMIC DISTRIBUTION CHANNELS … navigate and manage expanding channels
APPLY SMARTS TO UNDERWRITING… balance science and art
CAPITALIZE ON INTELLIGENCE TO MANAGE LOSSES … sound the alarm early and give great customer service at the same time
HOLISTICALLY LINK CUSTOMER COMMUNICATION... integrate voice, data, and paper interactions with channels and processes across the enterprise
BENEFIT FROM BUSINESS OPTIMIZATION … stay ahead – improve speed-to-market, reduce costs, enhance service, and position for growth
MAKE GOVERNANCE WORK … link business and IT to ensure the right investments – right projects, right time, right technology

CHART A COURSE TO PROFITABLE MARKETS … plot a position for growth with market intelligence
TARGET
PRICE
MANAGE
SELL
A winning path to profitable growth involves more than just marketing. Increasing profit potential requires employing data, tools, engines, and process automation across multiple capability areas – ensuring that the right market opportunities are chosen, the right risks are selected, the right pricing is determined, and the right management and service is delivered. Growth and profit start with the alignment of product, customer, and channel.
EXTERNAL AND INTERNAL DATA
ANALYTICAL TOOLS
PRECISION ENGINES AND AUTOMATION
Portfolio analysis and management
Market intelligence
Business modeling
Profit engineering
Precision pricing
Personalized product configuration
Real-time quotation for all lines
Customized & personalized sales approach
Real time negotiation via agent portals
Straight through processing
Predictive risk intelligence
Severity and frequency management
Fraud detection, case mgmt
Personal service

PUT THE DATA TO WORK …make vision a reality with shared, common, quality data
It is no secret that data makes the world go ‘round. It is viewed by some as an insurance company’s most valuable corporate asset. The key is to put the data to work for competitive advantage. First the data must be clean. Second it must be available. And third it must be usable and meaningful. This means that the data must be integrated and shared giving users the intelligence needed to take the right actions and make the right decisions – acumen applied anytime and anywhere. Data is the foundation for out-performing the competition, enhancing client satisfaction, and increasing value.
Campaign
Management
Customer
Retention
Segmentation
Management
Customer
Management
Product
Management
Product Pricing
& Underwriting
Advanced BI and Analytic Tools
Common
Quality
Data
Risk
Management
Risk
Analysis
Profitability
Analysis
Claims
Analysis

RETHINK LEGACY… use a modern application architecture – choose a best-of-breed, best-of-enterprise, or hybrid set of solutions
In spite of years of replacement intentions and efforts, legacy systems live on! Now is the time to capitalize on advanced technologies and new solution offerings that make it easier to apply intelligence and smart data. A new breed of enterprise solution based on modern architecture and a data game plan is worth consideration as a total solution or a foundation for best-of-breed plug-and-play components or a hybrid approach.

FAST PATH NEW PRODUCT DEVELOPMENT … remove the technology obstacles
Staying competitive means delivering insurance products that are designed to meet specific customer needs. The ability to rapidly develop and revise products and manage the product lifecycle is a distinct market advantage. For many insurers, achieving a faster path means that technology obstacles must be removed in a variety of areas including research, prototyping, and deployment. The fact is that all parts of the business need to support the product set using common data. Leverage comes from a central, shared repository of rates, rules, and forms to drive real agility and speed-to-market.
Product
Customer

DRIVE DYNAMIC DISTRIBUTION CHANNELS… navigate
and manage expanding channels

APPLY SMARTS TO UNDERWRITING … balance science and art
As precision insight becomes not only an advantage but also a weapon, the strategic application of technology becomes increasingly important. The fundamental is the integration of data, tools, and engines to give people and automated processes the business intelligence needed to take the right actions, at the right time, and make the right decisions - acumen applied anytime, anyplace, and anywhere.
Underwriting/Enrollment/New Business Flow
Quote, Proposal
& Bind
Risk/Loss
Assessment
Submission/
Order Entry
Application
Data, Tools, and Engines
Data Validation
Base
Rating
Pricing
balancing
Art
Science
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CAPITALIZE ON INTELLIGENCE TO MANAGE LOSSES … sound the alarm early and give great customer service at the same time
Insurers, using knowledge as the foundation for appropriate action, are making giant strides in delivering top quality service while containing costs across all dimensions of the typically fragmented and siloed claims processing area. Integrating and managing the complete claims cycle reduces expenses. With personalized views, adjustable processes, and sharable services, new levels of customer satisfaction are realized. The use of external data, analytics and intelligence enables severity management, improved cycle time, and better claims recovery.
Recovery
Claims Management Processing
1
Investigate/Evaluate/
Case Work
2
Verification/ Assignment
Notification
3
Customer Experience
Sharable-Repeatable
Services
Adjustable-Automated
Processes
Data, Analytics, Intelligence
5
4
Negotiation/ Settlement

HOLISTICALLY LINK CUSTOMER COMMUNICATION … integrate voice, data, and paper interactions with channels and processes across the enterprise
Customer Communications Management (CCM) plays a critical role in increasing sales and improving retention in the insurance industry. A comprehensive, holistic CCM vision is essential in today’s highly dynamic environment. Customers are making new demands, demographics are shifting, and the devices and channels used by policyholders, agents, and 3rd party partners are expanding. Information flows need to be seamless - capable of incorporating all forms of interaction, integrating both voice and data, and accommodating traditional and ever-changing new channels.
Interaction occurs through
a variety of
Communication Options
Interaction results in the creation of a variety of
Information
Types
The blurring of channels, devices and information calls for a different approach to understanding customer communication management
Communication and information flows through and enables a defined set of
Insurance Processes

BENEFIT FROM BUSINESS OPTIMIZATION … stay ahead – improve speed-to-market, reduce costs, enhance service, and position for growth
The mindset in the insurance industry has long been geared to sequential processes which are often driven by technology rather than a current business strategy. Shift to a business view. Rethink how capabilities align to expected outcomes. Drive operations from the viewpoint of the customer to create a more dynamic and responsive business model. Look at each individual activity to determine if it can be eliminated, automated, or delegated. Then apply the right level of technology to drive both top and bottom-line growth. The result – improved speed, reduced cost, and much better service.
The Customer
Vision
Strategy,
Goals & Outcomes
Required Business
Capabilities
SMA’s Business Capability Model
Underwriting/
New Business
Policy Servicing
Distribution
Management/
Sales
Billing
and
Collections
Claims/
Payout
Reinsurance
Asset /
Investment
Management
Enterprise
Services
Marketing
and Product
Development
Market
& Product
Develop

MAKE GOVERNANCE WORK … link business and IT to ensure the right investments - right projects, right time, right technology

Introducing Decision Management

Decision Management
An approach or business discipline for automating and improving decision-making
It improves day to day business results by
Supporting
Automating and
Improving operational decisions
It builds on existing enterprise applications to
put data to work
manage uncertainty
increase transparency
give the business control

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What is a decision?
Data is gathered, considered
A choice or selection is made
That results in a commitment to action

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“Most discussions of decision making assume that only senior executives make decisions or that only senior executives’ decisions matter.
This is a dangerous mistake.”
Peter Drucker

Different kinds of decisions matter
Type
Strategy
Tactics
Operations
Economic impact
Low
High
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Delivering Decision Management
3 stages to better operational decisions
Create a “closed loop” between operations and analytics to measure results and drive improvement
Design and build independent decision processes to replace decision points embedded in operational systems
Identify the decisions (usually about customers) that are most important to your operational success

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5 core principles of decisioning
Identify, separate and manage decisions
Use business rules to define decisions
Analytics to make decisions smarter
No answer is static
Decision-making is a process

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Business rules drive decisions
Decision
Policy
Regulations
History
Experience
Legacy Applications

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Different kinds of analytics
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DataMining
PredictiveAnalytics
BusinessIntelligence
Knowledge - Description
Action - Prescription

The role of Decision Management in addressing the 10 imperatives
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The top 10 imperatives
Chart a course to profitable markets
Put the data to work
Rethink legacy
Fast path new product development
Drive dynamic distribution channels
Apply smarts to underwriting
Capitalize on intelligence to manage losses
Holistically link customer communication
Benefit from business optimization
Make governance work

30
Why manage decisions independently?
Faster, easier, independent changes
Coordination of decisions across channels
Simpler more customer-centric processes
Higher employee productivity
Apply analytic insights everywhere
Fast path new product development
Drive dynamic distribution channels
Holistically link customer communication
Benefit from business optimization
Put data to work
Capitalize on intelligence to manage losses
Apply smarts to underwriting

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Avoid the insight-t0-action gap
2. Put the data to work

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Modernizing with decision services
Database
User Interface
Browser
Process
Decision
BPM
Data
3. Rethink legacy

Multi-channel decision making
ExternalData
Business Analytics
HistoricalData
Ask a question about a customer
Decision Service
BusinessRules
Give an answer about a customer
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5. Drive dynamic distribution channels
8. Holistically link customer communication

Decision management and underwriting
6. Apply smarts to underwriting

Decision Management and claims
Claims Innovation
12,000-13,000 claims/month
Recession – lower expenses, 25% fewer staff
Claims adjudication with rules, analytics
Results
1100% increase in fast track rate
Loss adjustment expense from 14% to 11%
33% higher subrogation returns
Subrogation recovery up by $10m/year
7. Capitalize on intelligence to manage losses

Operational decisions at the center
10. Make governance work

Next steps for Insurers
37

SMA Top 10 Imperatives – Next Steps
There will never be a better time to take a breath, evaluate, and chart the course. Step one is to lay out an IT roadmap. At a minimum it must outline the priorities for the business and then align IT investments to fuel the capabilities for your strategy. Two enablers form the core of the top 10 imperatives: a data game plan and a modern architecture – the foundation for flexibility and responsiveness . Plan, prioritize, and press onward.
GROWTH
OPTIMIZATION
CUSTOMER SERVICE
Start NOW
IT
Roadmap
Priorities
Execution
Investments
Accountability
Map 3-5 years
Start simple
Profitable Growth
Optimization
Customer Service
Start NOW
Start NOW
Create game plan
Define approach
Add BI & Analytic tools
Select best-of-breed,
Best-of-enterprise, or
Hybrid approach
Modern
Architecture
Enterprise-wide
Application, Data, and Infrastructure
Data
Clean data
Governance
Data Standards

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Action Plan

3/9/2010
40
Don’t start by focusing on the data
Better decision
Analytic insight
Derived information
Available data

3/9/2010
41
Start by focusing on the value
Better decision
Analytic insight
Analytic insight
Derived information
Derived information
Available data
Available data

Questions?

We can help
Decision Management Solutions can help you
Focus on the right decisions
Implement a technology blueprint
Build decisioning systems
james@decisionmanagementsolutios.com
SMA Strategy Meets Action can help you
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The Top 10 Imperatives for Insurers and the role of Decision Management in addressing them

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