Trans­for­ma­tion tac­tics

In­sur­ance car­ri­ers are re-eval­u­at­ing their busi­nesses and mak­ing in­ter­nal dis­rup­tion a pri­or­ity in or­der to keep up with rapidly chang­ing cus­tomer ex­pec­ta­tions and a wealth of newly avail­able dig­i­tal solutions.

Digital Insurance - - CONTENTS - By Anne Raw­land Gabriel

From in­no­va­tion labs to staffing new ex­ec­u­tive po­si­tions, in­sur­ance com­pa­nies are trav­el­ing sev­eral av­enues to en­cour­age new think­ing.

In­sur­ance is shed­ding its rep­u­ta­tion for stodgi­ness in the wake of mas­sive dig­i­tal dis­rup­tion across the value chain. While a grow­ing in­surtech co­hort is con­tribut­ing to the change, in­cum­bent in­sur­ers are be­gin­ning to as­sert them­selves as lead­ers and de­fine the di­rec­tion of the in­dus­try go­ing for­ward. “We're def­i­nitely see­ing an evolv­ing trend to­ward in­cum­bents play­ing an ac­tive role in trans­form­ing them­selves and the in­dus­try as a whole,” says Sa­man­tha Chow, se­nior an­a­lyst with Aite Group. “The ac­tions of ma­jor play­ers have grabbed the most head­lines, but we're see­ing many in­no­va­tion ef­forts at smaller car­ri­ers too.” In­sur­ers have be­gun to con­sol­i­date ef­forts un­der ex­ec­u­tive-level lead­er­ship, with mis­sion state­ments and bud­gets to match. Some have in­stalled newly minted “chief transformer” roles, who re­port di­rectly to the com­pany's CEOs and are tasked with mov­ing their busi­ness and, by ex­ten­sion, the in­dus­try to­ward a more nim­ble fu­ture. Car­ri­ers are also launch­ing a range of in­no­va­tion labs to ideate faster and eas­ier across the en­ter­prise. As Guardian's An­drew McMa­hon puts it, es­tab­lish­ing a for­mal trans­for­ma­tion role cre­ates a per­ma­nent agenda item among the top brass. “It en­sures ev­ery­body con­tin­ues to talk about our in­no­va­tion agenda and what we need to do as a 158-year-old com­pany to trans­form our­selves and our in­dus­try,” says McMa­hon, who was named EVP of strat­egy and cus­tomer de­vel­op­ment late last year and charged with de­vel­op­ing en­ter­prise strat­egy and bol­ster­ing the life in­surer's dig­i­tal cus­tomer ex­pe­ri­ence. In fact, in­dus­try ex­perts say the move to giv­ing trans­form­ers a seat at the C-suite ta­ble is fundamental to in­no­va­tion lead­er­ship suc­cess. “Sup­port from the very top of an or­ga­ni­za­tion is crit­i­cal,” em­pha­sizes Robert McIsaac, SVP of re­search and con­sult­ing for No­var­ica. “CEOs and pres­i­dents must cre­ate an en­vi­ron­ment where it is cul­tur­ally okay for things to be tried that are dif­fer­ent, new and unique. This in­cludes mak­ing it just as safe to fail, learn and move on – even if the in­vest­ment is sig­nif­i­cant – as it is to suc­ceed.” Despite these com­mon head­winds, Guardian and oth­ers are com­mit­ted to trans­for­ma­tion

lead­er­ship by also mak­ing Sil­i­con Val­ley prac­tices a pri­or­ity. McMa­hon's com­pany is fo­cused on be­com­ing more data-driven and is pre­par­ing to un­veil a number of trans­for­ma­tion-re­lated projects later this year. “We're work­ing to­ward cre­at­ing a culture where we'll have the hu­man cap­i­tal to al­lo­cate as quickly as we can al­lo­cate fi­nan­cial cap­i­tal,” McMa­hon says. “To start, we're training all 9,000 of our em­ploy­ees, spread across the country, in ag­ile method­ol­ogy. Then, we'll be­gin to ap­ply that to all ar­eas of our busi­ness.” “We're def­i­nitely look­ing at ways to com­bine his­tor­i­cal data with third-party sources for look­ing at lead­ing in­di­ca­tors, rather than only lag­ging in­di­ca­tors, to de­ter­mine po­ten­tial pol­icy holder be­hav­iors and pro­vide rel­e­vant cus­tomer ex­pe­ri­ences,” McMa­hon con­tin­ues. “In the end, we want to have a more sat­is­fied client.”

Squads fail fast at Argo

One key for in­cum­bents that as­pire to trans­for­ma­tion lead­er­ship is adopt­ing the fail-fast Sil­i­con Val­ley operating model in­surtechs have in­tro­duced to the in­dus­try. A pioneer in this is Argo Dig­i­tal, which was formed in Au­gust of 2016 with the hir­ing of Andy Breen for the new po­si­tion of SVP of dig­i­tal for Argo Group. Ex­ter­nally, Argo Dig­i­tal is pur­su­ing the in­creas­ingly com­mon strat­egy of sup­port­ing a ven­ture cap­i­tal unit for driv­ing in­no­va­tion while also sup­ply­ing po­ten­tial tech­nolo­gies the car­rier can use via part­ner­ship or out­right ac­qui­si­tion. In­ter­nally, how­ever, Argo Dig­i­tal takes a far more novel ap­proach. Small teams, called dig­i­tal prod­uct squads, tackle busi­ness prob­lems of all types by ap­ply­ing it­er­a­tive method­ol­ogy to quickly de­ter­mine which ideas could solve the prob­lem and which should be learned from, but aban­doned. “For in­stance, we dis­cov­ered many small busi­nesses cus­tomers are ac­tu­ally more time sen­si­tive than price sen­si­tive,” says Breen. “Cus­tomers ex­press frus­tra­tion with the his­tor­i­cal com­mer­cial in­sur­ance quot­ing av­er­age of more than two days as it de­lays projects, loans and other im­per­a­tives. Our charge was fig­ur­ing out how to re­duce quote times to two min­utes.” Func­tion­ally, Argo Dig­i­tal's squads are com­posed of about five peo­ple. “Teams be­yond that size re­quire over­lay­ing struc­ture, process and as­so­ci­ated re­port­ing,” Breen ex­plains. “This in­hibits cre­ativ­ity, in­ter­per­sonal re­la­tion­ships and — due to ac­tiv­i­ties like re­port­ing — out­put.” While com­po­si­tion varies de­pend­ing upon needs, each squad is formed at a pro­ject's out­set, rather than work­ing from pro­vided doc­u­ments, and is led by a prod­uct owner. Other ex­per­tise in­cludes busi­ness an­a­lysts, designers, data sci­en­tists and en­gi­neers. When squads com­plete their work, suc­cess­ful projects are tran­si­tioned to IT and team mem­bers move on. In prac­tice, about half of Argo Dig­i­tal's cur­rent projects in­cu­bated out of a pre­vi­ous one, where a new op­por­tu­nity was un­cov­ered. “In such cases, one or two in­di­vid­u­als from the orig­i­nal pro­ject will stay with the new one, with oth­ers added to fill out the needed skill sets,” Breen says. The ge­n­e­sis of Argo's squads oc­curred about five years ago, when CEO Mark Wat­son looked to im­ple­ment a plan to get a jump on the dig­i­tal rev­o­lu­tion. Wat­son tapped into Breen thanks to the ex­per­tise he demon­strated as an ad­junct pro­fes­sor at the NYU Stern School of Busi­ness, com­bined with his 20 years of past ex­pe­ri­ence bring­ing dig­i­tal prod­ucts to mar­ket for var­i­ous com­pa­nies — none of which were in­sur­ers. “Dur­ing my aca­demic work I cre­ated an `im­pact vs. com­plex­ity' frame­work that we've ex­panded at Argo for vet­ting new ideas,” Breen says. “Es­sen­tially, we as­sess the im­pacts on our cus­tomers and our busi­ness of an idea ver­sus the tech­ni­cal, op­er­a­tional and reg­u­la­tory com­plex­i­ties to ex­e­cute it.” In­ter­est­ingly, Argo dis­cov­ered the out­come of its vet­ting frame­work is non-bi­nary. “In­stead, it's def­i­nitely no, def­i­nitely yes and not now, mean­ing it's worth re-eval­u­at­ing quar­terly un­til it be­comes one of the other two,” says Breen. With the mar­ket com­pe­ti­tion for re­lated tal­ent high, Breen must go be­yond com­pen­sa­tion to en­tice can­di­dates. “We present our in­dus­try as one of the few that hasn't been dis­rupted and tell them `if you're interested in dis­rup­tion, you've a chance to do so at scale,'” he says. It's a par­tic­u­larly com­pelling ar­gu­ment for vet­er­ans of startup com­pa­nies, says Breen. “They're still pas­sion­ate about dis­rup­tion but have been burned by chas­ing the stock op­tions dream,” he ex­plains. “We of­fer con­crete com­pen­sa­tion and a work-life balance, while still work­ing on cool tech­nol­ogy, such as AI and ma­chine learn­ing, in a cool en­vi­ron­ment. That re­ally res­onates.”

AmFam's trans­for­ma­tion hub

An­other way of lever­ag­ing Sil­i­con Val­ley lessons is ev­i­dent in Amer­i­can Fam­ily In­sur­ance's new dig­i­tal trans­for­ma­tion of­fice (DTO), headed by the in­surer's first chief dig­i­tal trans­for­ma­tion of­fi­cer, Todd Fancher. With an ex­pected staff of as much as 90 once hir­ing is com­pleted, the DTO is bring­ing dis­ci­pline to defin­ing busi­ness prob­lems and then help­ing the as­so­ci­ated unit col­lab­o­rate with oth­ers, both in­ter­nally and ex­ter­nally, to de­ter­mine which tech­nolo­gies, part­ners and ecosys­tems are needed for the so­lu­tion. Part of that could be de­ter­min­ing that the so­lu­tion isn't vi­able for AmFam af­ter all. “We want to en­sure an in­di­vid­ual pro­ject isn't ad­dress­ing step four be­fore com­plet­ing steps one, two and three,” Fancher ex­plains. “The goal is build­ing an over­all in­fra­struc­ture where our tech­nolo­gies not only in­te­grate with each other, but also pro­vide us with a flex­i­ble, ro­bust and adapt­able en­vi­ron­ment that en­ables us to of­fer the ul­ti­mate cus­tomer ex­pe­ri­ence, re­gard­less of what comes next.” Func­tion­ally, the DTO is car­ry­ing out its man­date via the ac­tiv­i­ties of three teams: strat­egy, port­fo­lio man­age­ment and ig­nite. “Although we ex­pect the size of each teams to fluc­tu­ate over time, mir­ror­ing en­ter­prise needs, ev­ery busi­ness ini­tia­tive will flow through the three teams,” says Fancher. “Dur­ing the process, ini­tia­tives will also tap into ex­per­tise from other de­part­ments, in­clud­ing our in­no­va­tion team,

“We as­sess the im­pacts on our cus­tomers and our busi­ness of an idea ver­sus the tech­ni­cal, op­er­a­tional and reg­u­la­tory com­plex­i­ties to ex­e­cute it.” —Andy Breen, SVP of dig­i­tal for Argo Group

data sci­ence lab, AmFam Ven­tures, IT staff and var­i­ous other cen­ters of ex­cel­lence across the en­ter­prise.” At the start of an ini­tia­tive, the strat­egy team as­sists a busi­ness unit with lay­ing out a vi­sion and roadmap. This in­volves breaking down a chal­lenge, for­mu­lat­ing a busi­ness case and cre­at­ing a cross-func­tional team to work on it, which the DTO calls a “pod.” The skill set of strat­egy team mem­bers is akin to a busi­ness ar­chi­tect, says Fancher, with in­di­vid­u­als hav­ing spe­cial­ized ex­per­tise within each of AmFam busi­ness line. “At any given time, a strat­egy team mem­ber will un­der­stand a line's profit and loss plan for the year, what the op­er­a­tional strug­gles and cus­tomer pain points are, where the gaps are and what ini­tia­tives are cur­rently un­der­way or nec­es­sary to close those gaps,” he ex­plains. Pick­ing up from the strat­egy team, port­fo­lio man­age­ment de­ter­mines what re­sources are required to ad­dress each pod's re­quire­ments, such as col­lab­o­rat­ing with a data sci­en­tist, as well as de­vel­op­ing and mon­i­tor­ing key met­rics that drive re­sults. “Port­fo­lio man­age­ment team mem­bers have ex­pe­ri­ence in hu­man-cen­tric de­sign, lean start-up and pro­ject man­age­ment,” says Fancher. “They know how to break down a prob­lem into an it­er­a­tive ap­proach in or­der to cre­ate a min­i­mum vi­able prod­uct.” The net re­sult of the port­fo­lio man­age­ment phase is de­ter­min­ing whether a pod should stop, pivot or per­se­vere. “Ex­am­ples would be stop­ping a pod be­cause the so­lu­tion path is prov­ing in­suf­fi­cient, piv­ot­ing be­cause as­sump­tions about the cus­tomer pain point proved in­cor­rect or per­se­ver­ing be­cause cus­tomers have con­firmed that the MVP ad­dresses the pain point,” Fancher ex­plains. Ig­nite team mem­bers take per­se­ver­ing pods through lean cus­tomer value and lean start-up pro­cesses by ap­ply­ing their di­rect ex­pe­ri­ence lean method­olo­gies. “The ig­nite team works with the busi­ness to en­sure a pod only dig­i­tizes needed pro­cesses,” says Fancher. “Then, us­ing lean start-up, ig­nite helps the busi­ness max­i­mize out­comes while de-risk­ing po­ten­tial solutions.” For 30-year AmFam veteran Fancher, the DTO holds game-chang­ing po­ten­tial. “Among other projects, we're help­ing our busi­ness marry his­tor­i­cal and real-time data to cre­ate some­thing more pow­er­ful,” he says. “Over­all, the goal is es­tab­lish­ing new, data-driven ways of work­ing to become more proac­tive and val­ued in our cus­tomers' lives. With the pos­si­bil­i­ties that new tools and tech­nolo­gies of­fer us, it's an ex­cit­ing time.”

Ex­plor­ing new an­gles at MassMu­tual

When Sears Mer­ritt first took over as head of MassMu­tual's data sci­ence pro­gram in 2013, he spent the ma­jor­ity of his first year build­ing up the in­surer's data sci­ence pro­file, which was nonex­is­tent, he says. The com­pany went on to open its phys­i­cal lab in Au­gust 2014, and now sports 80 data sci­en­tists on staff — di­vided into se­nior, mid­dle and ju­nior level roles. In Septem­ber 2015, MassMu­tual also fin­ished con­struc­tion on a new 5,000-square-foot fa­cil­ity in Amherst, MA, where its data sci­ence team op­er­ates from to­day. Em­ployed tech­nol­o­gists' knowl­edge spans a va­ri­ety of dif­fer­ent ed­u­ca­tional back­grounds, Mer­ritt says, in­clud­ing com­puter sci­ence, statis­tics, eco­nomics and physics. In or­der to fill nec­es­sary tal­ent gaps early on, MassMu­tual part­nered with five lo­cal uni­ver­si­ties — Smith Col­lege, Mount Holyoke, UMassAmherst, Amherst Col­lege and Hamp­shire Col­lege — to cre­ate a data sci­ence de­vel­op­ment pro­gram. Each year, the com­pany takes five to seven ac­cepted ap­pli­cants fresh out of col­lege and splits their time up be­tween tak­ing data sci­ence courses and work­ing on com­pany projects. All classes and fac­ulty are paid for by the in­surer. “We wanted a way to grow talented ju­nior-level sci­ence in­di­vid­u­als into mid-level roles within two to three years, and se­nior roles in about 10,” says Mer­ritt. “Some ap­pli­cants even choose to go for­ward and get their Master's de­gree.” The re­gional in­sur­ance car­rier also has ad­di­tional part­ner­ships with Mount Holyoke Col­lege and Smith Col­lege for its MassMu­tual Women in Data Sci­ence pro­gram. The $2 mil­lion, four-year cur­ricu­lum be­gan at both schools in 2015. It's also pledged $500,000 to the Univer­sity of Ver­mont's Com­plex Sys­tems Cen­ter for a data sci­ence Ph.D. pro­gram. MassMu­tual's over­ar­ch­ing goal is to lever­age data sci­ence for cus­tomer ex­pe­ri­ence op­ti­miza­tion. Al­go­rithms built in house are crafted to match con­sumers up with prod­ucts and ser­vices they want, and how they want it de­liv­ered, ac­cord­ing to Mer­ritt. In re­gards to part­ner­ing with out­side in­surtechs, MassMu­tual's data sci­ence lab only gets in­volved if the com­pany's ven­ture-cap­i­tal arm, MassMu­tual Ven­tures, finds star­tups spe­cial­iz­ing in their do­main. “We help eval­u­ate them,” says Mer­ritt, adding that the com­pany has no pref­er­ence in where in­no­va­tion comes from. “If data ex­ists on an in­dus­tri­ous scale, and we don't have the time to col­lect and cu­rate the in­for­ma­tion a startup al­ready has, that's a part­ner­ship op­por­tu­nity. But some prob­lems are fixed best by in­cum­bents be­cause we have data they can't have.” The com­pany's in­vest­ment in data sci­ence is pay­ing off with a newly launched sub­sidiary, LifeS­core Labs, which offers FICO-like life-in­sur­ance un­der­writ­ing risk scores. The ini­tia­tive was de­rived from ma­jor suc­cesses on big­ger data sci­ence ini­tia­tives around risk model­ing, says Mer­ritt. Con­sumers can take re­sults gen­er­ated from up to 48 dif­fer­ent stan­dard un­der­writ­ing in­puts to any car­rier for a quote. “We've been work­ing on mor­tal­ity risk scores over the last few years, and have de­vel­oped al­go­rithms for them,” Mer­ritt says. “We re­al­ized that the in­dus­try and con­sumers could ben­e­fit from a plat­form like this, if it was trans­par­ent.”

“We've been work­ing on mor­tal­ity risk scores over the last few years, and have de­vel­oped al­go­rithms for them. We re­al­ized that the in­dus­try and con­sumers could broadly ben­e­fit from a plat­form like this, if it was trans­par­ent.” —Sears Mer­ritt, head of data sci­ence, MassMu­tual

A macro fo­cus at Lib­erty Mu­tual

The evo­lu­tion of in­no­va­tion labs can be best de­picted by in­sur­ers' grow­ing fo­cus on mak­ing con­sumers' daily lives eas­ier. In the last six months, Lib­erty Mu­tual's in­no­va­tion cen­ter, So­laria Labs, has lever­aged third-party data to de­ploy sev­eral new prod­ucts for con­sumers in re­sponse to de­vel­op­ments in the shar­ing econ­omy, smart home and au­tonomous ve­hi­cles. Es­tab­lished in 2015, So­laria Labs is treated as a part of a larger in­no­va­tion ecosys­tem that in­cludes the in­surer's core busi­ness and part­ner net­work, in­clud­ing star­tups and orig­i­nal-equip­ment man­u­fac­tur­ers. The lab has two lo­ca­tions: one min­utes from Lib­erty Mu­tual's Bos­ton head­quar­ters and the other in Sin­ga­pore, launched last sum­mer. Despite the dis­par­ity in mar­kets, the labs are iden­ti­cal in work­flow, Adam L'Ital­ien, VP of global con­sumer mar­kets in­no­va­tion at Lib­erty Mu­tual says. Each be­gins by en­sur­ing pitched of­fer­ings by prod­uct own­ers, operating as mini CEOs, have a con­sumer fo­cus. These own­ers are also re­spon­si­ble for test­ing their ideas in mar­ket and un­der­stand­ing what fea­tures need to be built on. Mean­while, So­laria's ap­plied sci­ence team is tasked with de­vel­op­ing al­go­rithms needed for the projects. Soft­ware de­vel­op­ers and designers then build out the func­tion­al­ity for apps and on­line solutions. To­tal Home Score, launched in Oc­to­ber, is one con­sumer-fo­cused prod­uct born out of So­laria Labs. The of­fer­ing uses a cus­tom­ized Shine API to get a clearer pic­ture of res­i­den­tial neigh­bor­hoods through 3-D maps, rat­ing road safety and noise lev­els around homes con­sumers may want to pur­chase. The plat­form's Road Score ser­vice also mea­sures the preva­lence of ag­gres­sive driv­ing in se­lected ar­eas, while the Quiet Score es­ti­mates the noise lev­els sur­round­ing a home due to traf­fic or pub­lic trans­porta­tion. The in­surer plans to use the same pub­licly avail­able data used for To­tal Home Score to ex­pand the use of So­laria Labs' API and de­ploy an auto of­fer­ing in the near fu­ture, ac­cord­ing to L'Ital­ien. The en­vi­sioned prod­uct would of­fer a “safe route” for driv­ers to fol­low, in ad­di­tion to the quick­est route or toll avoid­ing op­tions pro­vided by tra­di­tional GPS sys­tems. In Jan­uary, the in­no­va­tion lab also launched Dwell­be­ing, de­signed to help home­own­ers main­tain the in­fra­struc­ture of their property. The plat­form offers a cus­tom­ized web­site where users can man­age heat­ing, ven­ti­la­tion and air con­di­tion­ing sys­tems; plumb­ing; com­mon house ap­pli­ances; and home safety gad­gets. The tech­nol­ogy re­lies on self-re­ported in­for­ma­tion from cus­tomers to work, but au­to­mat­i­cally sends mo­bile no­ti­fi­ca­tions to home­own­ers when main­te­nance tasks are required. “In­stead of just fo­cus­ing on dis­rup­tive forces, and study­ing them, we wanted to proac­tively ex­tend pro­tec­tions be­yond in­sur­ance,” says L'Ital­ien, who leads So­laria Labs' ef­forts along with lab man­ager Chris Moss. “Now that we have all this knowl­edge and ex­per­tise, we are think­ing about how take ac­tion to pro­tect peo­ple in new ways, in­clud­ing their ex­pe­ri­ences.”

The road ahead

No mat­ter which spe­cific strate­gies in­cum­bents pur­sue, the trend to­ward trans­for­ma­tion lead­er­ship is ex­pected to ad­vance even as in­surtechs con­tinue to push the en­ve­lope. How­ever, it's also im­por­tant for in­cum­bents to re­al­ize that not all in­surtechs, no mat­ter how ground­break­ing their in­no­va­tions may seem, will sur­vive. “Fre­quently the in­surtechs fail to re­spect all of our in­dus­try's chal­lenges, par­tic­u­larly around reg­u­la­tions that are in place to pro­tect car­ri­ers and con­sumers,” Chow says. “Many in­surtechs will even­tu­ally hit the same brick walls that in­cum­bents face ev­ery day.” For in­cum­bents, this means tran­scend­ing the in­dus­try's pre­oc­cu­pa­tion with in­surtechs to also con­sider and ad­dress the im­pacts of com­ing gen­er­a­tional shifts. “It's com­mon for the ex­ist­ing dom­i­nant co­hort to as­sume the next gen­er­a­tion will grow up to be like them, but it's just not the case,” McIsaac says. “For ex­am­ple, the up­com­ing gen­er­a­tions are far less interested in au­to­mo­bile own­er­ship. This will likely cause a shift to­wards in­sur­ers con­tract­ing with au­tomak­ers, rather than con­sumers, with cov­er­age com­ing pack­aged within pay­ments made for leas­ing, or rent­ing, a ve­hi­cle.” But for life in­sur­ance, say the an­a­lysts, up­com­ing co­horts seem more ori­ented to prod­ucts that can ad­just or adapt to chang­ing life stages, cre­at­ing dra­mat­i­cally dif­fer­ent prod­uct needs and pro­cesses than sell­ing and ad­min­is­trat­ing fixed 50-year con­tracts. The bot­tom line is that trans­for­ma­tion lead­er­ship goes be­yond im­prov­ing ex­ist­ing busi­ness mod­els and pro­cesses. “For in­cum­bents across all busi­ness lines, it's crit­i­cal to move away from the out­dated con­cept of be­ing all things to all peo­ple and de­cide where you can be com­pet­i­tive,” says McIsaac. “This en­ables fo­cus­ing cap­i­tal and hu­man re­sources ef­fec­tively to truly be a leader in the trans­for­ma­tion to dig­i­tal.” —Danni San­tana con­trib­uted to this ar­ti­cle. DI

Amer­i­can Fam­ily's new dig­i­tal trans­for­ma­tion of­fice will have as many as 90 em­ploy­ees tack­ling dis­rup­tion when fully staffed.

Lib­erty Mu­tual's in­no­va­tion cen­ter, So­laria Labs, works on ini­tia­tives re­lated to the smart home and shar­ing-econ­omy macro trends.

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