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Whats

costing you dearly?


Time to replace badly automated insurance business processes with more flexible systems
October 2013

The insurance sector is often very conservative, perceived as slow moving, and operates with many long established business practices and processes. However, times move on, new business models emerge, and legacy processes become inefficient. Although IT has played an important role in supporting the industry over many years, it too needs to advance or will become inflexible. Insurance companies might be wasting thousands of sales hours per year from poor processes and badly implemented IT, which increases costs, stifles revenue growth and adds risk. However, IT advances need to go hand-in-hand with business process improvements to ensure that organisations gain the maximimum benefit of being more flexibile, agile and efficient.
Rob Bamforth Quocirca Ltd Tel : +44 7802 175796 Email: Rob.Bamforth@Quocirca.com Clive Longbottom Quocirca Ltd Tel: +44 118 9483360 Email: Clive.Longbottom@Quocirca.com

Copyright Quocirca 2013

Whats costing you dearly?


Whats costing you dearly?


Time to replace badly automated insurance business processes with more flexible systems
The insurance sector is often very conservative, perceived as slow moving, and operates with many long established business practices and processes. However, times move on, new business models emerge, and legacy processes become inefficient. Although IT has played an important role in supporting the industry over many years, it too needs to advance or will become inflexible. Insurance companies might be wasting thousands of sales hours per year from poor processes and badly implemented IT, which increases costs, stifles revenue growth and adds risk. However, IT advances need to go hand-in-hand with business process improvements to ensure that organisations gain the maximimum benefit of being more flexibile, agile and efficient.

Customer channels are changing


Well-codified business processes engender flexibility


While brokers are still seen as the most important channel partners, there are shifts in the importance of other channels in the mix. Smaller companies will go more face-to-face to include agents, and larger companies will continue to go further with online and call centres (or contact centres) for customer connection. Traditional styles or perceived lack of IT resource might be holding smaller companies back from a similar approach, but they may have more to gain in the long run if they can find partners who could help them streamline their routes to market. It might seem odd, but having business processes that are tight and well defined does not restrict flexibility but, rather, supports it. Lax or barely existent business processes lead to people not really knowing what to do, and when it comes to making investments in IT to support them, the end result is automated chaos as has often been seen in huge government sponsored projects. Simply bringing IT in to automate tasks does not streamline broader business processes. This does not mean that a single unified system is the only solution, but that IT investment needs to be aligned to and supported across the business processes it is meant to improve. This provides a more flexible end result, which is likely to be judged as reasonable value for the investment. The big data trend might be making headlines, but many in the insurance sector need to be ensuring they are simply getting all the data they really need. Is it big enough data today? For many the answer is probably no, as they are not capturing or extracting sufficient value from external data sources. More importantly, too many are not able to generate the sort of reporting information that many other industries would consider commonplace and desirable. Tailoring for the specific needs of different brokers and making simple changes to data being gathered during the sales process seem to be harder than it should. These are the things that can eat into precious time during the sales cycle and reduce efficiency. Making them easier to accomplish would not be a major challenge yet would reap good results. Many in the industry are looking to make their sales process more efficient and generate more business. In tough economic times, these are understandable and worthwhile goals for their IT systems to deliver.

IT needs better integration


Good data is critical

Simple changes could have a big impact


Conclusions
Many insurance companies are using long established, but sometimes out-dated, processes. Unfortunately, at some point, many will have applied IT solutions to areas of their operations in the expectation that this alone will make them more agile businesses. While it might improve or automate specific tasks, over time the lack of improvement in the overall business will become more apparent. The key is to move forward with both updated business processes and flexible IT systems that are aligned, with good communication and understanding between IT either internal departments or external suppliers and those driving the business.

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Whats costing you dearly?


Introduction
In the currently challenging economic climate and highly connected world, the goal of many is to be agile and adaptable. However, many industries are based on business processes that have been relied on for decades, so when organisations introduce technology, they tend to automate those long-standing processes, which hopefully generates some improvement. Over time, the impact diminishes and what is then required is a more fundamental change. All too often this ends up as no more than an incremental change, based on general advances in the technology, which might provide some short term improvement; but what is really required is a more far-reaching look at the possibilities presented by the introduction of more modern technology, coupled with an understanding of what the business needs in order to function more effectively. This is particularly true in conservative industries with a long pedigree and often a historic resistance to sudden change, such as the insurance sector or financial services. Given that the sector revolves around risk, this should not be a surprise, but taking a broader view of the potential value of technology to the business might be valuable. Today, the risk should not be viewed from the risk the change could introduce, but the risk the business will take of failing in its market should it not introduce suitable technological change. This report is aimed at those who work in this industry, and have to consider how to best match technology implementation decisions with the needs of business processes. The research has been derived from 137 telephone interviews of senior decision makers working in UK insurance businesses. The individuals are those either responsible for, or involved in, the cover holder status of their organisation. The companies range in size of turnover and numbers of employees, but are those where the business mostly addresses the commercial insurance sector.

Reaching customers
It might be a hyper-connected world with a pervasive internet and masses of mobile gadgets like smartphones and tablets, but reaching customers is still a challenge in any business. Different people have their own preferences for both personal as well as business communications, and the explosion of activities using social media over recent years has pushed this even further. Consumerisation of technology has meant that almost everyone now has access to more and simpler to use IT and communications tools than ever before. Many products have broken free of their previously geeky and only available in beige image, which has considerably widened their appeal and acceptance. However, there is certainly a marked disparity between the ways people prefer to communicate with businesses, especially across different age groups (Figure 1). Quocirca 2013 -3-

Whats costing you dearly?


The interesting thing is that face-to-face still has a pretty universal appeal, and while there are different fixed and mobile preferences, the phone also figures very highly. While the older generations use of some of the newer modes of communication might be absent, as expected, it is also noticeable that the younger generation is not really entirely disposing of legacy media all modes are in use, which highlights a challenge that organisations will need to be even more flexible in the ways they communicate in future. This is also noticeable in the massive shift in the retail sector towards online services, where the smarter retailers combine online, mobile and social experiences to then engage with their legacy physical presences or logistics processes. As well as new modes of communication, many organisations are broadening their external relationships and recognising the need to open up their IT both to customers and business partners (Figure 2). Several factors are driving this, but getting closer to customers and tying closer relationships in the supply chain figure highly. Both will accompany changes in business processes and IT has to be flexible to adapt and grow with these increasing needs. There is a significant likelihood that insurance companies will need to evolve in similar ways as they adapt to the changes in other markets as well as their own as to how to best reach current and new customers. This already appears to be recognised in many quarters (Figure 3 although it should be noted that this figure only pulls out data which highlights the differences between current use and future importance). While brokers are still the most heavily used and expected to be important channel in future (not shown, but both around 70%) and direct sales follow closely behind, there are other routes that are clearly undergoing some degree of re-assessment and change. For smaller companies there would appear to be a significant push towards the use of agents, with a more muted interest in online and in-person sales. Whereas larger companies are keener to push on further with online and call centres, but probably expecting to reduce their use of banks as a channel. The lower appetite of smaller companies to online might seem strange as it can be a great market leveller, but it does require significant investment to get right, and most smaller insurance companies will probably be lacking the in-house skills or assigned budget. This is a mis-perception regarding the scale of budget required but is something that, with the right external partner, could offer some significant and cost effective benefit.

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Whats costing you dearly?


Streamlining the business process


While IT investment can streamline and automate business processes, it is first important to understand how the functionality and applications available map onto the current and, critically, future needs of the tasks undertaken by the organisation (Figure 4). A change in strategy from the top to focus on a different business imperative raises the importance of particular business processes and may cause them to need to be re-engineered completely, rather than adapted. How well this is met by the IT function will depend on the flexibility of software currently in use and how well structured and architected the overall IT solution is. Of course, making IT fit to support current business processes is all very well, but it does also depend on how well codified those processes are in the first place. Most organisations are pretty lax and, although they have long established practices, they are generally known and understood by individuals in the organisation. This was no problem when employees stayed with the same organisation for much, or significant portions, of their working life and knowledge could be passed on, but this is rarely the case today. Many may ask why do we do things this way in this company? but few, if any, remaining employees will know the answer. Those in the insurance industry interviewed in the research were much more positive about their business processes than is often seen in other industries perhaps again this is due to the understanding of risk in this sector, and perhaps also the levels of legislation and compliance. What was also clear was the relationship between those who viewed their systems as flexible and the prevalence of well-codified processes (Figure 5). While it was apparent in further questioning that business processes played a significant part in overall flexibility, the software product or products themselves are seen as the most important (Figure 6). The potential glue for holding software and process together, either from software vendors themselves or the IT department, does not seem to figure as highly, which might imply a level of acceptance of an off-the-shelf approach, rather than tailoring something more precisely to the needs of the organisation. This might mean many organisations are missing out or, at the very least, not gaining as much value from IT as they might. Quocirca 2013 -5-

Whats costing you dearly?


Getting value from IT


All of the companies interviewed had more than one way to reach their customers and while brokers were very often the main channels, there would be other routes including direct sales, online, agents and call centres. Each channel has different requirements in the support it needs from IT systems, and although some will have from the outset adopted an integrated approach, it should be no surprise that many organisations will have deployed multiple different IT applications over the years. There is a variation in how these have been integrated over time to provide a more cohesive approach or indeed been replaced, especially for companies of differing sizes and IT capabilities (Figure 7). Smaller companies in particular are more likely to have to deal with disparate systems. While there might often be some merit and appeal in acquiring and using separate tools, each best honed to the task in hand, this ultimately makes things more complex especially in the use of IT applications. Users have to learn different ways of doing things for each application and, as they switch from one to another, errors can occur. Some organisations are sufficiently large so that different teams work in the different channels and therefore rarely switch application usage, but still the company surely needs to combine customer information at some point? Not only does the lack of integration cause complexity, it also ultimately reduces the organisations ability to react and adapt to change not good at a time when greater flexibility is being called for. Despite the relative prevalence of disparate applications and siloed processes, many of those interviewed felt they were getting good value from their IT (Figure 8). This is particularly worthwhile praise as those interviewed were primarily heading up the business function. However, the views diverged markedly when taking into account system flexibility. Given that more think that flexibility comes from applications and business processes rather than the IT department, this is more a positive message about software than perhaps those who sell, install, maintain or integrate it. Clearly, more needs to be done to ensure the business is extracting the full value from its IT investments.


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Whats costing you dearly?


Big data, little issues


In recent times, one of the IT industry buzz terms has been big data. Unfortunately, many commentators confused this with a lot of data, and lead people to believe that a bigger database on better hardware is the answer. However, big data covers much more as the sources and types of data an organisation now has to deal with are far broader and more numerous, compared to those even 10 years ago. The best way to understand how big data might be used is via the 5 Vs approach: - Volume The one that everyone tends to focus on. Of course, high volumes of data can cause issues, particularly where real time analytics are required, but many organisations are not collecting all the data they can simply because they do not have a current use for it. - Variety Data comes in many different types and formats. A database with rows and columns of data; an Office document much less structured with large blocks of text in it; the data returned from a web search will have even less structure; while binary data such as image, voice and video create their own problems. Ensuring that an organisation can deal with the different types of data is crucial. - Velocity The speed at which data is coming in and the speed in which it needs to be dealt with are also challenges. Large volumes of data over short periods of time require highly scalable systems, while business requirements for the analysis of data in ever shorter timescales means that old-style batch thinking is no longer applicable. - Veracity how good are the data inputs, and how does this impact the quality of the analytical outputs? In many situations, it is a case of garbage in, garbage out if the data feeds are not properly managed, then the cleanliness and veracity of the data will suffer, as will any decisions being made from the analysis. - Value Is the data stream worth bothering with? Does it contain anything of real value to the business or can it be disregarded or, even better, deleted from the organisations systems? By ensuring that these 5 Vs are kept in mind, the value of collecting different types of data can be assessed. So too can the potential value lost by not collecting information. One such area of interest for the insurance sector might be the information about customers. During the sales cycle, there will be a lot of well formatted information collected because of its known value to the current process. However the value of nuggets of insight in unstructured or unformatted data might only be revealed in the future and yet the systems used by almost half of the organisations interviewed does not capture this potentially valuable information or stores it in a way that makes it difficult to use (Figure 9). The value of any form of historical information is that it can be analysed after the event, but, increasingly, information can be automatically assessed live as it is being captured to improve the process. Quocirca 2013 -7-

Whats costing you dearly?


This might be something as simple as capturing a further element of detail from the customer that might prove useful further down the customer lifecycle, or the more complex ability to glean insight from a combination of customer events. For example the sort of thing that, in other industries, might be used to spot anomalous behaviour or fraudulent activity in real-time as it happens. The extension of interest in data to both current and historical significance seemed again to be an area that many insurance companies seem to be lacking, as can be seen by how far reporting capabilities extend (Figure 10). Over a quarter are unable to get live or current sales reporting and over half with no historical customer satisfaction reporting paints a very sparse information picture. Given the low cost and high availability of storage systems and increasingly smart search and business intelligence extraction tools, this would appear to be a missed opportunity for the industry to gain more insight. More could also be done in the area of capturing potentially useful data from external sources and integrating it with the information captured during standard business processes. This again is already a feature of many other industries. In retail, information from weather sources and traffic flows is captured to determine product mix, staffing and supply requirements. Geographic and mapping information is increasingly being used to determine where best to provide more resources, and social media feeds are being used to spot trends and potential opportunities not being detected through any existing official channel. However, many insurance companies do not integrate data from external sources, but most also do not regard it as a problem (Figure 11). While it might be pragmatic to be cautious and not blunder into areas where great investments can be made for very little actual return as some have found to their cost in social media the entire outside world of data should not be dismissed too casually.


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Targeting improvements
In addition to the changes highlighted earlier that might better align IT with business processes and capture more and relevant data, there are further improvements that many could make with a little more flexibility in their IT. Given how heavily used the broker channel is currently, and the importance it is given for the future, it is surprising how little tailoring of systems is in place, with only around half having capabilities to do some tailoring (Figure 12). It might be that many do not want to customise, or perhaps they are not aware of the possibilities, but most industries have found that this sort of adaptability works well for cementing relationships in any channel or ecosystem of partners. This might be more strategic adjustment or tailoring, but there are requirements of a much more tactical or day-to-day nature that are also being missed to an extent. For around one in eight of those interviewed, making changes to basic settings such as document wording and simple data such as limits and endorsements is described as difficult or very difficult (Figure 13). Even if this just describes a need for more training, it highlights the challenges faced by many using complex IT systems. If it is difficult to use, then more time is spent on mundane activities and not on those that might be bringing in more business (or making the customer experience more pleasant and rewarding). Where it is deemed very difficult, it is more likely that users will try and avoid it or find a work around which can then introduce errors or data entries that cannot be aligned with other data entered in the preferred way. Indeed, in many cases, attempts to avoid areas that are seen as very difficult can and do lead to accusations of mis-selling, where information provided by the agent has not been properly entered and stored during the selling process. The insurance sector is not immune to the challenges of needing to bring in more business or process existing opportunities faster, and organisations should be looking to technology that will better support them in their efforts in these areas. This is precisely what those interviewed wanted to see from improvements help them become more effective in managing and closing deals (Figure 14). Quocirca 2013 -9-

Whats costing you dearly?


There is a clear and strong interest in improving the efficiency of existing deal processing, significantly over and above other growth drivers such as making it easier to have more products or increasing sales volume. More efficient deal processing is not only about doing more business and more quickly, but also reducing costs and allowing people to get more done with their time this is a worthwhile tangible gain which justifies investment. Indeed, making deal processing more effective and efficient frees up time for people to focus more on the other areas, so allowing for increasing volumes of sales that can be closed more easily. With these steps in place, people will then be more open to the introduction of new products and the targeting of a wider group of prospects, in the knowledge that they will be able to deal with the extra workload caused through this.

Conclusions worth the time?


Better alignment between IT and business processes. A worthy goal, yet often so difficult to achieve. It is also often difficult to justify as, while most people individually have some gut feeling that streamlining processes and improving system flexibility will lead to more efficient and effective outcomes, it is difficult to predict the wider impact up front. Even within this research, we were asking people for their opinions. However, the respondents were those with significant business responsibility and, by analysing their combined thinking, we get some insight into how the industry overall might view its efficiency, what might be done to improve it and what the end value might be. Most expected only relatively small incremental improvements of between 5% to 20%, with efficiency of deal closing and the ability to close a greater percentage of deals being of greatest value. Greater efficiency saves time, or, looked at another way, demonstrates the time that currently might be being wasted through badly defined processes and poor IT implementations as well as any mis-match between the two. Those interviewed conservatively estimated a time saving of a few hours per week per sales person, but when the numbers are scaled up by the number of people working in sales, they become significant across the industry as a whole as well as for each company (Figure 15). When the potential savings were combined with the number of sales folk in each company, it averaged out at around between 1500 and 3000 working hours per company per year equivalent to between one and two people per company a significant saving. To achieve this the key thing for any organisation is not to smarten up business processes or invest in novel IT in isolation. Bring the business and IT people together, and find flexible solutions that will adapt to changes in the market and move with the business as it evolves.

References
1 Ofcom Communications Report July 2012 2 Quocirca Digital identities and the open business research March 2013

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About Mercato Solutions


Birmingham-based Mercato Solutions is a multi-million pound organisation helping a global client base transform business processes and is one of EMEAs fastest growing software businesses. This award-winning business prides itself on decades of innovation, offering a family of ready-to-deploy Knowledge- based platforms and applications as well as bespoke work. KnowledgeKube is a flexible platform that enables non-programmers to create and streamline business processes to increase productivity. An Insurance Edition is dedicated to the design, development and publishing of insurance products online, helping insurers, brokers and MGAs increase income by reducing time, cost and risk in the product- to-market process worldwide. www.knowledgekube.co.uk www.knowledgekube-insurance.co.uk KnowledgeBus is a business intelligence platform for procurers. The IT Edition is CIPS accredited and automates benchmarking of purchases against trade guide price and stock, giving IT buyers the knowledge they need to negotiate better deals with suppliers, so unlocking more from their IT procurement. www.knowledgebus-it.co.uk Mercato ranks as one of Britains World-beating manufacturers on the Governments Made by Britain list and the G-Cloud framework and has helped customer Probrand secure a Queens Award for Innovation. www.mercatosolutions.co.uk T: 44 (0) 121 605 2050 45-55 Camden Street Birmingham B1 3BP Follow: @Mercato_S @KnowledgeKube @KnowledgeBus

Whats costing you dearly?


About Quocirca
REPORT NOTE: This report has been written independently by Quocirca Ltd to provide an overview of the issues facing insurance organisations seeking to maximise the effectiveness of their IT systems and business processes. The report is based on primary research interviews of the UK insurance sector conducted in the summer of 2013 and also draws on Quocircas extensive knowledge of the technology and business arenas, and provides advice on the approach that organisations should take to create a more effective, efficient and flexible environment. Quocirca is a primary research and analysis company specialising in the business impact of information technology and communications (ITC). With world-wide, native language reach, Quocirca provides in-depth insights into the views of buyers and influencers in large, mid-sized and small organisations. Its analyst team is made up of real-world practitioners with first-hand experience of ITC delivery who continuously research and track the industry and its real usage in the markets. Through researching perceptions, Quocirca uncovers the real hurdles to technology adoption the personal and political aspects of an organisations environment and the pressures of the need for demonstrable business value in any implementation. This capability to uncover and report back on the end-user perceptions in the market enables Quocirca to provide advice on the realities of technology adoption, not the promises. Quocirca research is always pragmatic, business orientated and conducted in the context of the bigger picture. ITC has the ability to transform businesses and the processes that drive them, but often fails to do so. Quocircas mission is to help organisations improve their success rate in process enablement through better levels of understanding and the adoption of the correct technologies at the correct time.

Quocirca has a pro-active primary research programme, regularly surveying users, purchasers and resellers of ITC products and services on emerging, evolving and maturing technologies. Over time, Quocirca has built a picture of long term investment trends, providing invaluable information for the whole of the ITC community. Quocirca works with global and local providers of ITC products and services to help them deliver on the promise that ITC holds for business. Quocircas clients include Oracle, IBM, CA, O2, T-Mobile, HP, Xerox, Ricoh and Symantec, along with other large and medium sized vendors, service providers and more specialist firms. Details of Quocircas work and the services it offers can be found at http://www.quocirca.com Disclaimer: This report has been written independently by Quocirca Ltd. During the preparation of this report, Quocirca may have used a number of sources for the information and views provided. Although Quocirca has attempted wherever possible to validate the information received from each vendor, Quocirca cannot be held responsible for any errors in information received in this manner. Although Quocirca has taken what steps it can to ensure that the information provided in this report is true and reflects real market conditions, Quocirca cannot take any responsibility for the ultimate reliability of the details presented. Therefore, Quocirca expressly disclaims all warranties and claims as to the validity of the data presented here, including any and all consequential losses incurred by any organisation or individual taking any action based on such data and advice. All brand and product names are recognised and acknowledged as trademarks or service marks of their respective holders.

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