AM Best to Add “Innovation Scores” to Carrier Rating Models

In a very intriguing announcement, the “gold standard” of insurance company credit rating organizations, AM Best, has decided that how a carrier does or does not invest in areas of technological innovation will impact their long term financial viability and thus potentially their rating.

“AM Best defines innovation as a multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services or business models can be created organically or adopted from external sources.” www.ambest.com

While I think this is a fantastic move, other agent peers not so much. My favorite quote of the article is:

“The Council of Insurance Agents and Brokers took a more dubious view of the innovation scoring proposal, in a blog post titled “AM Best Aims to Quantify the Unquantifiable: Innovation.”

What companies spend on innovation as a percentage of surplus/premiums is a pretty black and white measurement and I would think the ability to make innovation actionable and meaningful can also be quantified. Why would agents not want the carriers to be more advanced?

I have a quote of my own to reference on that front…

“If you want something new, you have to stop doing something old.”

 -Peter F. Drucker

The insurance industry is arguably the most behind on innovation than any other financial sector – let’s hope this change helps to jump-start a movement of investment in the improvement of the client and agent experience through technological innovation!

  • By Elaine Goodman and from our friends at workcompcentral.com

Rating agency AM Best has proposed a new scoring system for assessing carriers’ innovation efforts, an idea that is sparking mixed reactions from the insurance industry.

Mike Fitzgerald

Mike Fitzgerald
(Celent photo)

AM Best announced its draft proposal, “Scoring and Assessing Innovation,” in March. A public comment period ran through mid-May. The agency continues to meet with different groups to discuss the proposal, including a presentation this week at the Farm Bureau Insurance Managers Conference in Jackson Hole, Wyoming.

AM Best said it has been capturing innovation indirectly through the “various building blocks” of its rating process. But now, a more direct focus on innovation may be needed.

“Innovation always has been important for the success of an insurance company, but with the increased pace of change in society, climate and technology, it is becoming increasingly critical to the long-term success of all insurers,” AM Best said in announcing the initiative.

Under the proposal, all companies rated by AM Best would be scored and their innovation assessment would be published. In addition, AM Best would “explicitly consider” whether a company’s innovation efforts are impacting its financial strength.

A proposed scoring system would rate companies on their innovation “inputs” — factors such as whether the company has an innovation strategy, and management’s attitudes toward innovation. AM Best would also assess measurable results, or “outputs,” a company is seeing from innovation.

Although some failure is expected when a company is trying new things, AM Best said the lack of productive results may indicate that innovation has become a financial drain on a company.

AM Best noted that not all innovation involves fancy technology such as blockchain or the “Internet of Things.” Innovation can come from outside sources and doesn’t have to be developed within the company, AM Best said.

Mike Fitzgerald, a senior analyst with information technology consulting firm Celent, called the AM Best proposal a positive step that will help ensure that the insurance industry moves forward.

“It’s a fantastic idea,” Fitzgerald said. “I think they’re right on target.”

One of the first results of the innovation assessment will be that insurance executives are more involved in innovation initiatives at their companies, he predicted.

“Senior leaders at all insurance companies are going to have to be a lot more engaged and conversant than they have been in the past,” Fitzgerald said.

One part of the AM Best proposal that could use more fleshing out, Fitzgerald said, is the definition of innovation.

In its proposal, AM Best defined innovation as “a multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time, and enable the organization to remain relevant and successful.”

Although Fitzgerald said innovation is likely to involve technology, he said there could be some cases where it doesn’t.

The Council of Insurance Agents and Brokers took a more dubious view of the innovation scoring proposal, in a blog post titled “AM Best Aims to Quantify the Unquantifiable: Innovation.”

“Market incentives already exist to push companies to innovate — will establishing an innovation rating system encourage companies to invest in new technologies for the right reasons?” CIAB said.

In addition, CIAB said, the scoring could push companies toward investing in risky companies to show their interest in innovation.

“Investing in immature or unnecessary startups presents an opportunity cost that in turn may harm a company’s overall rating if those investments do not result in any created value,” CIAB said.

Paul Carroll, editor-in-chief of the Insurance Thought Leadership website, called the AM Best announcement great news for the insurance industry.

“With this new focus on innovation, AM Best has done the insurance industry a big favor by not only sounding a warning but also offering the industry focus, structure and direction to avoid the danger of inaction,” Carroll wrote in a blog post.

The assessment will force insurance companies to move beyond merely “checking the boxes” when it comes to innovation, Carroll said. He cited as an example companies that go on innovation tours and then claim to be on top of the latest technology.

Shortly after the AM Best announcement, the strategic consulting arm of Insurance Thought Leadership, ITL Advisory, announced it was offering insurance companies a new innovation assessment service. ITL Advisory said its assessment can help insurers determine whether their innovation programs align with best practices and are likely to produce a return on investment, as well as whether the company is prepared for the AM Best review.

“The release of (the AM Best) draft criteria and procedures will create some urgency among insurers to understand the innovation process, and start or accelerate efforts to implement innovation programs,” Wayne Allen, chief executive officer of Insurance Thought Leadership, said in a statement.

Professional Employer Organizations (“PEOs”) Grew 25% in 2014

Our friends at the National Association of Professional Employer Organizations (“NAPEO”) continue to bring further factual evidence about the PEO industry.  In this instance, NAPEO has proudly displayed further empirical evidence out of this month’s INC magazine.

Great job Kerry Carruthers!

Click here to visit the featured NAPEO article in the March edition of Inc magazine.

Some of the statistics Laurie and NAPEO report that further illustrate what the PEO model does for American Business and their loyal employee base.

A couple very interesting facts :

  • Twice as many American worker’s that use a PEO are part of some type of retirement plan (i.e. 401K) for employers that have 10 employees or more.
  • American businesses that use PEO’s have a 24-33% lower turnover rate.
  • Businesses that use PEO’s have a 50% lower failure rate.
  • Businesses that use PEO’s grow at a 7-9% faster rate.

I can almost hear from Florida the grumbling from the financial district —- says who?

Much of this data was compiled by renowned economist Laurie Bassi.  Laurie is a PHD in Economics from Princeton who specializes in Human Resources and the optimization of the business ecosystems between a business, their employees and the clients which each serves.

I love the vision of her firm:

McBassi’s Vision

A world in which companies are forces for good – worthy of their employees’ best efforts, customers’ continued business, and investors’ ongoing support

“Amen.” – “How About Them Apples!”

Well deserved factual NEWS for a historically misunderstood and oft-maligned industry!

These data points continue to affirm that the PEO model is by far the best platform to deploy “Fortune 2000” bundled HR, regulatory compliance and insurance offerings.

Ask the experts!  Ask a PEO…

–  Paul Hughes

 

“Deee-Fense”… Baseball’s Big Shift

http://online.wsj.com/news/articles/SB10001424052702304679404579459233064277204

Great article on how analytics in baseball is making a big difference. Stats made meaningful through action and measured by performance…

Coming off a blessed opening day in the Fens where PJ and I saw the third flag raised in both of our lifetimes, baseball has been on my mind. Having been exposed to the “inner circle” of MLB ownership through working with the Yankee organization on their insurance platform, baseball is one of the last institutions you would expect to break from tradition and use data and analytics to make decisions that were normally made with “the gut”.

The article speaks to the defensive shifting that has become all the rage in baseball. Used over time for hitters such as Ted Williams and more recently Barry Bonds, shifting the defense based on a player’s tendencies to hit the ball has become all the rage. The Red Sox 199 times in 2012 and 478 in 2013. These defensive movements accounted for 15 additional outs over the course of the season. How consequential were these towards their 8’th world series win last year? Was it that 15’th out that got them a key win in September?

“It’s baseball. You have to play the percentages”

The “moneyball” trend towards data and fact and away from “instinct and intuition” to “not get out” at all costs is the future. Insurance is the biggest laggard in using analytics and time of information to make “shifts” in underwriting and pricing business. The scouts of insurance are the underwriters who don’t always want to follow the GM’s plan (Actuaries). Technology is and will change this by making the ability to follow actuarial science easy. In our world, not getting out is reduced to red, yellow green v latin mathematical formulas.

Will this be the time where technology and understanding how it can be applied to institutions as traditional as baseball (or insurance underwriting)? I’m betting on it!

“War is ninety percent information.”
Napoleon Bonaparte

Large insurers responding to a recent survey were unanimously invested in predictive modeling, but challenges persist.

Will big data show the way? We bet the house on it!

According to survey respondents, predictive analytics is enabling insurers to drive profitability (85 percent), reduce risk (55 percent), grow revenue (52 percent), and improve operational efficiency (39 percent).

INN Breaking News, November 4, 2013

Justin Stephanie
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The top challenges among insurers investing in and employing predictive analytics are a lack of sufficient data and limited numbers of skilled modelers, according to a survey released by Earnix, a provider of pricing and customer analytics software for banks and insurers, and ISO, a source of information about property/casualty insurance risk, titled “2013 Insurance Predictive Modeling Survey.”

Data quality is an issue especially among large insurers (more than $1 billion in gross written premium), with 57 percent pointing to it as their most significant challenge. Among smaller insurers (less than $1 billion in gross written premium), data quality (30 percent) was second to a lack of observations/skills (42 percent).

These challenges are becoming more and more prevalent within the industry, with as many as 82 percent of respondents currently using predictive modeling in one or more lines of business, including personal auto (49 percent), homeowners (37 percent), commercial auto (32 percent) and commercial property (30 percent). The most common use of is for pricing, where 71 percent of respondents use predictive modeling either always or frequently.

But there appears to be a caveat among analytics’ widespread use. While the use of predictive analytics is pervasive throughout the insurance industry, larger insurers are more likely to make use of predictive modeling than smaller ones. In fact, all the respondents from insurers that write more than $1 billion in personal insurance use predictive modeling, compared with 69 percent of the smaller insurers that took part in the survey (writing less than $1 billion in personal insurance).

The report goes on to say that “the role of big data in modeling initiatives is predominantly a big company affair at this point.” Among insurers with more than $1 billion in gross written premium (GWP), 51 percent either currently use big data or are evaluating or implementing big data initiatives, compared with 30 percent of the insurers with less than $1 billion GWP.

Regardless of size, though, insurers acknowledge a variety of positive results. According to survey respondents, predictive analytics is enabling insurers to drive profitability (85 percent), reduce risk (55 percent), grow revenue (52 percent), and improve operational efficiency (39 percent).

In terms of expanding on successes found through data and analytics, using additional data attributes was the most promising avenue seen by survey respondents to increase the power and quality of models built today.

The survey also revealed that data projects universally require patience, with insurers spending considerable time on data preparation and deployment before and after actual modeling work. More than half of survey respondents (54 percent) spend more than three months on data extraction and preparation, and more than two-thirds of the respondents (69 percent) take more than three months to deploy new models.

Survey responses were collected online from 269 insurance professionals representing companies that sell personal and commercial coverage in Canada and the United States.

For a blog from Joe McKendrick discussing the rapid pace of advancing analytics technology and its importance to insurers, click here.

For more information on related topics, visit the following channels:

Data Management
Risk Management

Big data puts stress on insurers’ aging IT infrastructures: Study

While many risk-bearers tout the ability to use their own data for the purpose of making better decisions in the areas of underwriting, pricing and fraud prevention, few truly have enough credible data to do such, nevermind the ability to paroperly measure its impact.  The ability to do such will quickly morph an industry shaped by 100’s of years of tradition in ways noone could ever imagine.  One will never be able to replace the “art of underwriting”, the science of it will take quantum leaps due to the ability to organize and analyze data like never before.  Be assured that the race is on with those that have enough data to prove such – one way or another…”

Click Here for the Full Article

Business Insider August 30, 2012