Will No One Restrain the AIG Lynching Mob?

Apparently, the most pressing economic issue of the last few days is that AIG is paying out bonuses.  We’re told by the news media that the public is highly outraged.  Politicians are competing with each other to see who can be the most offended by it.  The president has ordered the Secretary of the Treasury to pursue every legal avenue to stop payment and Congress says it can enact a tax to confiscate 100% of those bonuses from the recipients.  Whoa!  We need leaders to restrain mobs, not egg them on.

Do I think AIG is justified in paying out bonuses?  I don’t know whether they are or not because I don’t know the particulars.  If a bonus is a contractual commitment and especially if it is owed to an employee who worked in a division of AIG completely unrelated to the need for government aid, then I don’t see how you can automatically rule it out.  When you start saying it’s okay for government to abrograte contracts between private citizens, you’re giving the politicians an awful lot of power. 

The purpose of a bonus is to make part of a person’s compensation contingent on what they do.  If the person fulfills his or her part, is it fair to unilaterally, without discussion, to deprive them of what they earned?  If I analyzed the specifics of each bonus payment I might be against them all, but how can I be against all of them if I have not analyzed the specifics of any of them?

I have a number of concerns about the AIG bailout – all of them more important than whether or not bonuses get paid.  The biggest one regards credit default swaps (CDS).  Since this was an unregulated market and parties entered into these contracts fully aware of the risk of default without government guarantee, then why are these parties being bailed out?  Nonetheless, I don’t pretend to have enough facts or intelligence to unravel the AIG bailout, much less how to get the economy growing again.  I have to trust that brighter minds with full-time dedication will do that.  But how can they if a mob mentality urges them to major on minors?  And they then succumb to that temptation?

Let’s put it this way, if AIG were allowed to recover all the bonuses paid since the bailout, and if it never paid out another bonus as long as it existed, how much better off would we be as a country?

Right now the country is very frustrated with our ecomomic plight, and rightfully so.  But if our leaders allow that frustration to be focused on peripheral issues and don’t help channel energy in the right direction, we’ll stay mired in the problems and postpone our turnaround.

Customer Sat Is Not Easily Measured

Most of the insurance technology industry sells business-to-business (B2B), not business-to-consumer (B2C).  Since the customer is a business and not an individual, customer satisfaction is a plural not a single measurement.  More specifically, there is seldom one person at the customer who represents the totality of what the customer thinks of the product or service being provided.

This comes to mind because I was reading Donald Light’s recent post on the Celent Insurance Blog in which he laments a vendor not knowing the mind of any customer given as a reference.  He cites the example of one reference he called who gave such a negative opinion that Donald was left to wonder:

How could the vendor not know, in general, what the reference is thinking–and knowing that, just give another reference? 

It’s a reasonable question.  But this leads me to think of the underlying and even more important issue than references – customer satisfaction.  It’s hard to measure in B2B situations because there are many opinions that matter.  There’s the opinion of the customer’s project manager charged with getting the product or service installed and operational.  There’s the opinion of the users who actually operate the system or service to be installed.  Then there’s the opinion of those who use the reports and other outputs of the system or service (and they are sometimes different than the users).  And, of course, there is the executive whose budgetary approval paid for everything – that opinion matters, too, eh?

It is no easy task to monitor and measure all these opinions.  Yet, they are all important.  Although it’s a more difficult challenge, I think insurance technology vendors should make sure they study customer satisfaction from all customer perspectives that matter.  Only then, can you be sure you know what you need to know.  Building a product or service and not building along with it an effective system for hearing the voice of the customer at every level is missing the best opportunity for further value creation.  This is because customer satisfaction monitoring not only tells you how you have done (in the past), it also tells you how you can do (in the future).  And that can lead to even more customers.

If you manage customer sat effectively, then managing references is simple:  you just say that people can call any of your customers and ask what they think (not just some select list of references that you’ve pre-approved because you know they’ll say good things).  Sure it’s  a gutsy move, but it’s far more persuasive than any other form of customer reference.

Beauty Contests For Vendors Abound

You may have seen on www.InnovationInInsurance.com notice about the Celent/Insurance Networking News VIP (Vanguards in Insurance Practices) Awards Program.  If not, you can participate in the survey at this link.  Just prior to that, there was the Insurer’s Choice survey (now closed) conducted by Financial Insights/TechDecisions (link here).  I guess this could remind you of Chicago-style voting (i.e. ”Vote early, and vote often”). 

Some people may take issue with multiple beauty contests like this, but I think it’s good for the industry.  Anything that gets vendors recognized and gives visibility to their offerings is a good thing.  Of course, it makes for an interesting situation when both awards are to be presented at the ACORD/LOMA conference in May (Imagine the Miss America and Miss USA pageants being held at the same time in the same building). 

Kudos to the research firms and the trade periodicals investing in these surveys.  Vendors will spruce up for entry and everyone in the industry will have greater visibility to these vendors who are bringing the software, data, services, and outsoucing that are so important to the advancement of the insurance industry.

And may the best man win!  (In the spirit of gender equality, I decided to mix the metaphors.)

Outsourcing That Innovates…versus Outsourcing That Perpetuates

The stock market roller coaster and 24/7 discussion of recession have everyone thinking about remedies.  Phil Fersht, analyst with AMR Research, who writes The Outsourcing Blog, prescribes The change imperative: it’s back-to-basics time.  If we’re going to get back to basics when it comes to outsourcing (and I think that’s good advice), then it’s worthwhile asking what the basics are.

For one thing, a basic of outsourcing is that a company relinquishes a task which it believes another party can execute better and more economically.  The improved quality and economics usually have to do with scale and focus.  That is, an outsourcer who specializes in certain transactions can do so many more of them than the customer that they can achieve economies of scale (the marginal cost of each transaction keeps decreasing) and economies of scope (by focusing on these transactions, the outsourcer learns so much more about them and is able to apply that knowledge to continually increase productivity).  Thus, companies have over the years outsourced their cafeterias, security forces, payroll, and so on.  (When I heard that some firms were outsourcing their internal audit, I figured the sky was the limit.) 

Another way of stating this rationale for outsourcing is knowledge, or intellectual capital.  That is, success of outsourcing assumes that the outsourcer will amass and deploy more knowledge or intellectual capital on the task at hand. 

This is basic alright.  Problem is, we’ve wandered away from this…or in some cases never truly approached it.  The blame can be shared by the customers as well as the outsourcers.  The customers are to blame (and in this they’ve been goaded by the advisors they hire to negotiate outsourcing contracts for them) for insisting on service-level agreements which essentially lock the outsourcer into executing business processes exactly the same way the customer did.  That may give you economies of scale, but not economies of scope which would allow you to alter the process to achieve a better result.  And it only gives you economies of scale if the outsourcer’s other customers execute their processes the same way.

Outsourcers are to blame when they don’t focus on specific business processes where they can build up meaningful intellectual capital.  Outsourcing, after all, isn’t a competency.  The competency is in knowing how to execute a specific set of business processes.  This is why I love to see insurance outsourcers steep their employees in industry education programs such as CLU and CPCU.  The insurance industry doesn’t need information technology (IT) experts, it needs IT professionals as dedicated to understanding insurance (or some discrete part of it) as they are to understanding IT. 

If customers demand business processes be executed the way they’ve always been executed and if vendors don’t go out of their way to become domain experts in their customers’ businesses, then outsourcing will only perpetuate the status quo.  But when customers unleash their vendors to apply domain expertise, economies of scale and scope can be realized, and genuine innovation can take place. 

The purpose of www.InnovationInInsurance.com is to facilitate greater innovation in the insurance industry.  After all, that is the purpose to which IT should be applied.  And that will lead to outsourcing that doesn’t merely perpetuate, but rather outsourcing that innovates.

Web 2.0 and Insurance Are Meant For Each Other

No, I’m not suggesting people will want to sit in front of their PC’s with a latte forsaking their Facebook and MySpace friends for scintillating exchanges about the nuances of insurance coverages. Web 2.0 technologies are about much more than comparing notes on your favorite ice cream with friends. Fundamentally, Web 2.0 is about interactivity.

Insurance is itself a social networking business: individuals coming together to share their risks. One of the limitations of insurance has been the information flow. Insurers seek information from applicants in order to determine acceptability. After that, it’s mainly the insurer issuing mounds of information to the insured – mainly pages of policy terms which are practically incomprehensible – and the policyholder barely able to get a word in edgewise.

The advent of the web didn’t alter this one-way dynamic – it reinforced it. Now torrents of information spewed forth from insurer web sites. Consumers were drowning in information they simply lacked the capacity to process.

Web 2.0 allows a balancing of the communication flow. It gives insurers, agents, and policyholders the means to interact – to communicate in productive ways. For insurers to simply throw up a few social networking tools on their web site would be gimmicky and unhelpful. But to deploy Web 2.0 thinking and methods offers great promise for improving the utility of insurance in society.

Ori Fishler, Director of Internet Commerce at Edgewater Technology, will be offering his version at the upcoming ISOTech conference. Whether you’re going to that conference or not, take a look at his introduction to the subject, Insurance and Web 2.0.

There is no question that Web 2.0 tools belong in the insurance industry toolbox; it only remains to be seen the myriad ways in which those tools are going to be used.

Investors Want More Technology Investment in Insurance Industry

Writing for Insurance Networking News on October 1, 2008, John Del Santo of Accenture described a completed survey of a sizable portion of the world’s insurance equity analysts in an article entitled “Promise of IT Innovation.”  This survey was commissioned by Accenture and conducted by Institutional Investor Market Research.  While these analysts normally eschew technology for more pure insurance analysis, this study marked a departure.  In fact, here are some highlights of the article, as pointed out to me by Eddie Jones, Senior Vice President of Fiserv Insurance:

- “Aging technology” is one of the greatest challenges facing the insurance industry

- Technology investment is “critical” to insurance industry performance over the next three years

- Insurers without a compelling technology story will be challenged

- IT performance is “poor and in need of significant performance”

- Disparate and outdated technology is a barrier to performance

- Operational efficiency improvements (“transformation initiatives”) are better investments than M&A or business line expansion

- The engagement of top management is essential

The article is well written and full of detail insights into where technology investments need to be made, for those who want to know more.  It’s one more exhibit in the overwhelming case that the insurance industry is ripe for extraordinary growth by deployment of technology and services to support its fundamental functions.

For more articles on innovation in the insurance industry, and in general, see the “Innovation” page on www.InnovationInInsurance.com.

Your Customer’s Success

In her blog for the Insurance Information Institute, Claire Wilkinson recently posts that ”Auto/Homeowners Satisfaction Levels Differ.”  She refers to the J.D. Power and Associates 2008 Homeowners Insurance Study, which reveals customer satisfaction scores for each of those two lines of business.  J.D. Powers breaks down policyholder satisfaction into five major areas:

- Policy offerings

- Price

- Billing and payment

- Interaction

- Claims

Customer satisfaction is, of course, only one aspect of your customer’s success – but a worthwhile one to study.  If you are an insurance technology vendor, which of these five areas can your product or service improve?  Where do your customers and prospects rank in the J.D. Powers study?  If your customers or prospects write other lines of business, who studies customer satisfaction for them and what are the key areas being measured?

If you’re an insurance technology vendor (whether software, outsourcing, or other technology-enabled service) it’s good to know the level of satisfaction your customers have with you.  It’s equally important, however, for you to know the level of satisfaction among your customers’ customers.  That knowledge can enable you to innovate and make your customers more successful.