Why Systems Are So Hard to Build

My guest this week is Bill Jenkins (youtube, mp3). Bill is a technology specialist in the insurance industry. I like to joke that the customer satisfaction rate for insurer systems is 0. But does that need to be the case? I’ve finally had the chance to ask these questions of an out and out expert. Bill has headed up internal technology projects at insurers, he’s run the technology at brokers. He’s been a consultant. A Board member. An industry standards advocate. If there is a puzzle in insurance technology, Bill has probably thought about it and here he is today to help us all better understand why we struggle with technology in insurance.

First, the classic question. Why so many systems? This one always puzzled me. It’s not just about acquisitions. It’s because it’s actually easier that way! Such a satisfying answer (for me) since it aligns with the idea of hidden and underappreciated costs as being the main reason why some problems persist in the world.

BJ: some carriers have multiple and duplicate systems so I worked for a large/ medium sized carrier and we had a eight billing systems.

DW: why, acquisitions?

BJ: Partly Acquisitions partly because it’s one system than address one problem with the other system did so they decided that they needed that this additional functionality that the old system didn’t provide. We just want another one. We had three Bop systems. I was listening to a talk that the chief technical officer at the Hartford was giving and he said every year that goes through the examination and review to determine if they should replace all their legacy systems they had over 330 system. I said to replace all these are they that they projected out would be in 50 years or so and the cost would been astronomical. So all they did was just add systems.

Bill on how project management can achieve great things:

BJ: we also use the project management discipline that we called black hat white hat. Black hat was a hired gun. A project manager who comes in and his or her and only charge was to make sure that the specifications for the system were done and was going to be followed for the requirements of the system and that the time frame that was said would be adhered to. The white hat was an internal project manager who basically made sure the right people were on a project to do the work and also did all the reporting to the Senior Management and navigated the political Waters.

BJ: We built the entire system in 9 months.

DW: Wow, so these things can be done.

BJ: let me tell you the antithesis. Next time around we went with an internal project manager, kept the same skunkworks: 22 months…

DW: So what’s the difference?

BJ: Project Management

DW: So what makes a good project manager?

BJ: well first of all the problem with an internal project manager, and I argue this all the time even when I sit on boards and people are having project problems, a project manager for internal may know all the project management disciplines but they pretty much don’t have the personal characteristics to do the work. You have to be a pitbull.

DW: Put the black hat on

BJ: Put the black hat on.. and you go native too quickly so therefore your scope creep becomes scope leap and you’re fitting more and more into the project and doomed to failure.

And we cover so much more, including how legacy systems are defined by what data they capture and how the information technology industry is perhaps 150 years behind other infrastructure industries. We have a long way to go but things can (will!) be dramatically better!

By the way Bill recommends a book In Search of Excellence, which will hit my reading list soon.

Thanks to Bill for his time. And thanks for listening!

Are you an actuary? Someone you know? Check out the Not Unprofessional Project, content dedicated to Continuing Education Credits for Actuaries, especially Professionalism credits. CE On Your Commute!

Subscribe to the Not Unreasonable Podcast in iTunes, stitcher, or by rss feed. Sign up for the mailing list at notunreasonable.com/signup. See older show notes at notunreasonable.com/podcast.

Product Development from Kenya with Barbara Chabbaga

Hi Everyone,

I lived in Hong Kong for a semester in college. The thing that struck me most about that experience actually how familiar life was there. Succeeding in life takes the same qualities everywhere: honesty, hard work, relationships, fun. For whatever reason, learning these lessons in really foreign environments lends another layer of meaning. Or maybe just makes them more memorable.

That universality shines through in today’s interview with Barbara Chabbaga (youtube, mp3), who lives and works in the insurance business in Kenya. How about this for a lesson we can use anywhere in the world: Get the @#$@ out of the building:

How we do it now at AB consultants we call it a bottom up approach. We would never sit in a boardroom and say this is a really good idea.. the kind of product we’d design. I look back at my previous life of working in the corporate world is very tempting you know to sit in a marketing meeting or a product design meeting and say I really really think that if we did this kind of products would work.

What we do now.. we’d probably commission a study, so if it’s with farmers not bring them to our office, go to the field, go to the tier states or go to the informal settlements here in Nairobi. And to be very honest, David, I actually did that for the first time after I left CIC.

But of course not is all the same in Kenya:

…it was a shooting attack, right, shooting, grenades and just shooting anybody in their sight it didn’t matter whether you’re a child. They shot a children’s convention, a cooking class for children, and they shot the children it was horrible and so I was stuck in this little filing room and I was very lucky because it was very hidden. And there were about 30 of us and we hid there for about 8 hours.

…It went on and on and on and you hear the grenade. And you hear the grenade is rolling on the floor because when you roll a pen on top of a table it makes a similar sound and I never knew that until after that ordeal. And a pen rolling on a table, it terrifies me.  And I sat there in this dark room and I think I’ll probably die today and that we knew that for sure they’re going to find us, that’s what we thought, you know, they’ll find us. and I prayed.. please spare my life and I’ll live my life to its fullest.

After I made a couple decisions and one of them was I was going to leave my job at CIC.

There is so much more to the conversation, including the changes she made to her life after surviving that attack, where the Swahili word for insurance comes from, how many actuaries there are in Kenya (guess!) and how the most successful banker in Kenya made his fortune.

Subscribe to the Not Unreasonable Podcast in iTunes, stitcher, or by rss feed. Sign up for the mailing list at notunreasonable.com/signup. See older show notes at notunreasonable.com/podcast.

Insurance is Not Sold with John Shettle

Recently I’ve gotten to know today’s guest, John Shettle (youtube,mp3), and all along I’ve been trying to figure out how to just hook up the cables and suck as much information out of him as I could. But how do you ask someone: hey can I just pepper you with the most challenging questions I can think of in insurance for an hour or so.. you know, for fun?

I’ll tell you how.. you start a podcast and pretend “it’s all for the audience”.

John Shettle is awesome. He’s currently an operating partner at Stonepoint Capital and grew up at a family-run MGA, running brokerage and underwriting divisions before taking that company public. The breadth and depth of John’s experience is extraordinary. As another highly successful insurance executive put it to me recently, you can never have enough time with John. I’m honored to have the chance to bottle a bit of him up for us all.

Here is the story of him firing a cherished employee for selling insurance on price:

JS: when I was running an Insurance Brokerage, it had a very very what I thought of was a low retention rate and it was an area that certainly needed to improve on… and so when I reorganized the sales function one of the things that I really emphasized was we’re not going to sell on price and when the client comes in and asks for, ah, says you shopping and he wants to get a quote we don’t respond by getting him the quote we begin to go into a process of Engagement and I also said that to the Salesforce that: “we’re all kind of salary plus commission based, if I catch any one of you just selling price and getting quotes you’re going to be instantly fired.”

And to that extent one day a young gentleman named Eric who I love to death like a son I would keep my office right in the in the area of the office where we had all of our sales reps and I would put myself in the loop when I have time to take sales calls and I overheard him on the phone: “sure mr smith, let me go and get you three or four quotes and I’ll call you back in about an hour” and it broke my heart and I fired him on spot in front of the whole sales organization.

David Wright: No kidding. What should he have said?…

John then gives one of the most lucid lectures I’ve ever heard on how to sell. He’s a master. It’s phenomenal.

But that’s not all! John also explains quite clearly how insurers get it wrong, too:

all the myriad examples of when companies got it wrong… it really comes down always to the combination of 3 things.

One is the underwriter didn’t understand the risk.

Secondly, the underwriter mispriced the risk.. sometimes that happens on purpose.

And third is what I would call sloppy underwriting so when you know you should get certain information and you don’t get it. Where the broker says yeah I know but look it’s the same as last year nobody else is asking for a renewal app why are you asking for it, right, if you want all this stuff I’m just going to go take it somewhere else. What I’ve found is that underwriting disasters happen when two of those three things happen.

And of course there is so much more, including that description of how to sell, a deep dive into the difference between specialty and standard lines and John’s first sales experience (because it’s always good to hear how even the legends start out as doe-eyed newbies like the rest of us).

JS: I remember being scared to death

DW: yeah

JS: 25 years old.. to a retail customer a policy for $110 and it was like a nothing policy and I just remember

DW: were you kind of surprised that he bought it?

JS: yeah and I remember walking on air the rest of the day. And just the adrenaline rush of selling something and having it accepted by somebody you never met was actually pretty cool

Subscribe to the Not Unreasonable Podcast in iTunesstitcher, or by rss feed. Sign up for the mailing list at notunreasonable.com/signup. See older show notes at notunreasonable.com/podcast.

Our Spirit Guide

My guest today is Rick Lindsey (mp3, youtube), who has attracted some attention in the insurance market because his company, Prime Insurance Company, is willing to take on the toughest risks in the toughest lines of business, particularly commercial automobile insurance which is going through a wrenching dislocation right now. Very, very few insurers are making money there. Prime is making a fortune.

Why? How? Then I heard that Rick is from Utah, pilots is own helicopter all over the country and I instantly knew I needed to get to know this remarkable contrarian. I was not disappointed. Rick has built an amazing organization with an amazing culture.

Rick Lindsey: Every other business you’re not asking someone else to tell you what the product is worth… what we do is use common sense. First thing I ask you let’s see what you have.. show me the claims.

Every year we ask them: how did we do on your claims. Because that’s all I care about. I want my insured to tell me you guys were great. You talked to us about the claims, you kept us informed about them and we agreed with the result. With what you did.

What I hear from everybody else is..

what happened on your loss run?

I don’t know.

Well did you know they paid it?

No, I didn’t even know they paid it.. first thing I know it’s on my loss run.

Well why’d they pay it?

I don’t know. I wish they wouldn’t have. they shouldn’t have paid it.

As a company we need to have a relationship with our insured… they feel scared and uncomfortable and their insurance company doesn’t communicate with them. You should be contacting them the minute you have a claim.

I am not going to punish you for reporting claims. I will cancel you for not reporting a claim because then I can’t do my job.

And of course we learn that Rick isn’t just interested in distressed business. That’s just the easiest entry point for his to build a relationship with a client:

If I charge somebody who can’t get insurance anywhere else an extreme price and think I’m going to keep getting that if they perform for me? I’m an idiot.

Perhaps the most fundamental human quality is trust and the thing that great underwriters are great at is figuring out who is worthy of that trust and nurturing it. Rick Lindsey is to me the embodiment of the humanity in insurance. His insurance isn’t about technology and data transfer and machine learning. Rick understands a few really big ideas better than the rest of us and has the force of personality to show us the way. I’m calling him our spirit guide. Listen to hear why…

Subscribe to the Not Unreasonable Podcast in iTunesstitcher, or by rss feed. Sign up for the mailing list at notunreasonable.com/signup. See older show notes at notunreasonable.com/podcast.

Gabe Glynn on Iowa, Manufacturing and Sending People Home from Work

Today’s guest is Gabe Glynn (youtubemp3), co-founder and CEO of MakuSafe and host of the Advanced Manufacturing Podcast. Gabe’s company is a technology startup designing wearable sensors to dramatically improve workplace safety in manufacturing. Here is Gabe on the mission of MakuSafe:

Gabe Glynn: one of the heartbreaking statistics we came across was more than a thousand people a day die in work accidents on this planet so that means since I started this company more than half a million people have not gone home to their families at the end of the day and we believe that with data like this we’re going to be able to send more people home from work and that’s our driving factor.

Gabe is an excellent example of someone with a product that is awesome for insurance but really has very little to do with insurance itself.

David Wright: I like to think about Innovation and insurance as there actually is no such a thing as Innovation in insurance, there is only Innovation in risk management. People in the insurance industry I think get distracted little bit by what they do every day which is insurance and they forget that the social value of what we’re doing is is insulating people from risk and the only way to really affect insurance is to affect the risk

Gabe Glynn: yeah to your point when we started this journey it wasn’t about insurance for us it was about how do we how do we make sure that the environment these people are working in is it is a safe and productive as it can possibly be.

We cover a lot of ground in our conversation, including the culture of manufacturing, why unemployment is so low in Iowa and, of course, how to spot shoplifter.

Here is Gabe’s podcast homepage and MakuSafe’s homepage. Big thanks to Gabe for his time and use of his podcast equipment for our recording! Thanks for listening.

Subscribe to the Not Unreasonable Podcast in iTunesstitcher, or by rss feed. Sign up for the mailing list at notunreasonable.com/signup. See older show notes at notunreasonable.com/podcast.

Bryan Caplan on the Case Against Education

This show’s guest is Bryan Caplan (youtubemp3), Professor of Economics at George Mason University whose latest book is *The Case Against Education: Why the Education System is a Waste of Time and Money*. In this book Bryan makes the point that if we judged education based on how much, as adults, we use what we learned in school, we’d have to admit it’s a shocking waste of time and resources:

David Wright: I remember the first time it occurred to me. I was in third grade gazing out the window and I figured this whole racket was basically just free babysitting for my parents, ah, was I right?

Bryan Caplan: For young kids it’s definitely that, but there’s definitely a lot more going on. Schools definitely teach skills, most obviously literacy and numeracy. But then a big thing that’s going on is that you’re jumping through hoops trying to impress future employers.

Now employers don’t know what you’re actually doing in third grade but since the whole system is so cumulative and sequential.. basically in third grade you’re getting ready for forth grade and fourth grade for fifth grade and so on. And then Junior High and middle school you’re getting ready for high school and high school then is preparing you for college. So very often what you’re learning you’re going to use in a subsequent class. It is used for gatekeeping. But then it’s finally, when you get a job, that’s when the stuff you learn you can safely forget.

Instead, education is about signalling qualities you need to succeed in the workplace. That means more education doesn’t really benefit society!

Bryan Caplan: So the problem is this: when you go and get a better degree this selfishly raises your earnings because you look better but it does not enrich society in the same way. If everyone were to go and get a college degree this would not mean that everyone is good in the same way. This would mean you now need additional degrees in order to convince employers of your awesomeness and we can see very clear empirical evidence of this that over time there’s been massive credential inflation this means if for one and the same job you now need a lot more education to be considered worthy of employment.But if the whole society gets more credentials this doesn’t make the whole society better instead this means that employers will say what’s so great about a high school diploma, almost everyone’s got one now so now you’ve got to get more… as a result there’s this rat race…

So what kind of a world does Bryan want? One with a lot less education spending:

Bryan Caplan: I call it educational austerity. If very wide access to education has caused fruitless credential inflation then reducing access will cause fruitful credential deflation and basically go back to a world where you can get a good job out of high school right so this is the main thing that I push. I talked about a lot of different ways you can cut spending there’s so many different possibilities. I’ve got a blog post on 47 ways to cut spending right so I’m agnostic but there’s just not much research on what’s the optimal way to cut education spending. It’s just not a big topic as you might guess.

And of course we talk about actuaries…

David Wright: Why don’t more people go into vocational jobs?… By training I’m an actuary and that is in some ways I vocational job because I (only) have a bachelor’s degree but it’s it seems to me quite an interesting sector because there’s no other there’s no other profession I think that would be a comparable to actuary where you don’t have to get a graduate degree and so that school system doesn’t hold the keys to the Actuarial profession.

… so I think vocations are great and I think that they’re underrated go by our society why do you think that might be?

Bryan Caplan: Basically there is a pile of government money in favor of the status quo and the status quo is a modest modification of the system from Oxford and Cambridge, right, so basically modern colleges have the fingerprints of early [inaudible] was basically there to train the elite for Law and Medicine and the Ministry…

and one of the main things that education signals is sheer conformity.

I have to admit I remain uncomfortable with the length to which Bryan follows the logic but this book is much more convincing than you’d expect.

We much more than the above, including Bryan’s very interesting idea of the Ideological Turing Test, that just because education is signalling doesn’t mean it doesn’t work and the impact of educational signalling on the civil rights movement!

At The Coal Face of Insurance Analytics

Ladies and Gentlemen, welcome to the coal face of insurance analytics.

Today’s guest is Jim Weiss, the director of analytic solutions for ISO. ISO houses perhaps the richest insurance data repository on the planet and among Jim’s responsibilities is building models that don’t use it! I joke.. Actually, Jim is exploring new frontiers of modeling for insurance purposes. This episode works very well in conjunction with the Cathy O’Neil episode which of course I recommend you listen to right away!

Right out of the gates Jim discusses his view on whether big data in insurance is overrated or underrated:

Jim Weiss: I think if you were gonna write a history of big data in insurance ending today, I would probably have to say that maybe big data in insurance is a little bit overrated. If you look at our industry in recent years, I think it’s kind of a graveyward of big data and analytics type projects that went overbudget overdeadline. I think there were a lot of factors contributing to that, but they can largely be characterized as maybe we’re not doing these projects very well but moreover we’re not picking these projects very well.

Jim on proxies:

Jim Weiss: I feel it’s very difficult to identify something to predict risk behavior that isn’t a proxy unless you’re doing individual risk rating. Unless you’re using something like prior claims to predict future claims, what variable isn’t proxy-ing for something? [From there we talk about my own history as a teenage driver (not great)!]

Jim on how good we are at what we do:

Jim Weiss: Myself and a colleague did a study of some rate level reviews that had been conducted in our industry over the past several years to see how many of them reversed themselves over one or two years.

David Wright: change signs.

Jim Weiss: Not even change signs, substantially reverse themselves. So you have a plus five rate percent rate indication. You notify your agents, you put it in your systems, you sent out hte policy holder notices. you tell the regulators you do eerything you ahve to do. you spenda ll that money, time and effort. then one or two years later. boom, negative five. Completely reversed…

Luckily in the study we did, the majority of the time at the time the rate level indications didn’t reverse themselves within one or two years. It did happen a little bit more often than perhaps I would think.

DW: why do you think that would have happened.

JW: because, Yogi Berra has an expression that making predictions is hard, especially about he future. Ther are so manythings you don’t know at the time you make the analysis.

Finally, in my favorite part of a conversation full of big insightful moments, we discuss whether and how to use complex modeling (and what on earth is modeling for?!):

Jim Weiss: I think, to some degree, applying the smell test to the types of variables you’re looking at, ‘is there some basis in reality’, can be a healthy thing, but I don’t htink it should be preclusive of exploring more complex approaches where prudent. But I’m not sure pricing is necessarily the prudent place for it. It may be but there are a lot of use cases for big data and analytics and sophisticated techniques in our industry which far transcend pricing.

and later..

Jim Weiss: the mix of complicated problem and complicated solution is a particularly problematic one… if you don’t really understand why exactly the approach you’re taking does solve that problem then how do you know it’s not a coincidence.

David Wright: I’m wondering what the objective is of modeling. So one characterization of the objective of modeling is to get an answer you can use. So I get a rate, or I get a loss estimate. I wonder if the real objective is to develop an understanding of the problem. Which is a human consumable… So the output isn’t the answer the output is the story.

This conversation was jam packed with fantastic stuff and the time we spent together flew by. Thanks to Jim for his time and the opportunity to learn! Subscribe in iTunes, stitcher, or by rss feed.

 

Turning Reinsurers Around With Joe Taranto

Joe Taranto is one of the most successful reinsurance executives in the last 40 years. He has turned around and taken public two reinsurers who even today are very prominent and successful companies: Transatlantic Reinsurance Company and Everest Re, the latter of which he spent 20 years leading as CEO and 10xing the firm over that period.
Joe started his career at AIG, a firm that has produced some of the most important leaders in the insurance business, Joe among them. We learn what is was like working there, Joe’s turnaround experienes, his strategy and philosophy of management and leadership.

Listen to whole thing!
If you enjoyed the show please subscribe in your favorite app, rate it on itunes and you can also sign up for periodic, short updates on content I produce, including these shows at webtrough.com/signup.

Robin Hanson Will Blow Your Mind

thinking-chimp_card

The latest guest on the Not Unreasonable Podcast is Robin Hanson (read his blog!)

Robin is one of the most original thinkers of our time. I’ll borrow a description from Bryan Caplan, who I think described him best:

When the typical economist tells me about his latest research, my standard reaction is “Eh, maybe.” Then I forget about it. When Robin Hanson tells me about his latest research, my standard reaction is “No way! Impossible!” Then I think about it for years.

Some time ago, Robin thought he had uncovered some ways to make the world a better place. He expected people to either agree or disagree. Instead he got indifference. How could that be? Does nobody care?

This led Robin to becoming an economist and, eventually, an answer: we aren’t motivated the way we say we are or think we should be. We do care, we just care more about other stuff. Stuff we don’t talk about. Those hidden motives are the subject of Robin’s new book (authored with Kevin Simler), The Elephant in the Brain.

From our conversation, some favorite excepts of mine:

Robin Hanson: Human behavior is consistently well adapted to its ancient environment. We are intelligent and clever about why we’re doing things. But then we have these conscious thoughts. We think we have a plan and follow that plan. But we mostly make conscious rationalizations for things we do. Most of the elephant in the brain is at this conscious level. The level of the reasons we tell ourselves we are doing this. And those reasons are just wrong compared to the reasons we actually have.

We are actually good at following the actual reasons we have, but the disconnect is when we try to explain it.

From earlier:

Robin Hanson: Once farming became possible, it was only possible because of human cultural plasticity. If we had just kept the same sort of norms and behaviors we had as foragers we would still be acting a lot like animals.

With our cultural plasticity we could create new norms. There was a new set of behavior that was the right behavior and a new set of things that were the wrong sort of norm violating behavior. It took a while but the farming world was able to come up with a whole new set of norms and values and enforce those and that allowed us to live and work in a very different world. Intead of wandering around we stayed in one place. Instead of egalitarianly sharing we had property and inequality. Instead of intermittent violence and mostly peace we had war and a lot of it. And we had so many things that were different than what foragers did.

And later:

Robin Hanson: Lately wealth has been dramatically increasing per person and that’s the other big trend over the last few centuries and that’s been causing most of the cultural trends you see. So humans are primed to act differently when they’re rich than when they’re poor. That’s an explantion for why we have increased leisure, art, travel, decreased violence, increased democracy, decreased fertility, decreased religion.

David Wright: Is it the case that foragers, then, are in some ways wealthy?

Robin Hanson: Anthropologists called them the original affluent society. They’re affluent in some ways but not others. They don’t have a lot of material wealth but they have a lot of friendship, play, dance, music. They’re living in a world where when they do something that feels right it roughly works.

…We’re being rich like that in our leisure time but at work we’re hyper farmers.

Do listen to the whole thing!

In Love with Chaos with Michel de Lecq Marguerie

thinking-chimp_card

This episode features Michel de Lecq Marguerie. Michel, a most English sounding fellow with a most french sounding name, is one of the most creative deal makers I’ve ever met.

On paper his creativity shouldn’t surprise us: Michel is an accomplished musician, having won a scholarship to the Royal Academy of Music as a teenager. He was an unfocused student, however: “the rest of my education was pretty miserable.. I just wasn’t really engaged with it… I think I had a certain arrogance about music that I was involved in and assumed I was simply going to pursue a career in music like my father and like his father before him.”

Eventually realizing it wasn’t for him, Michel became singularly focused on supporting himself and managed to hustle his way into a job at Lloyd’s. Michel points out that hustle isn’t something that comes naturally to musicians and artists, and in music even he is a different guy: “On the music side funnily enough I would say I’m more on the passive side and actually I enjoy that”.

Michel in business was anything but passive, moving from London to Toronto to join the fledgling broker Beach & Associates. He found the feeling of an empty desk and the need to create something from nothing exhilarating. Eventually I asked “do you like pressure?” and this kicked off my favorite part of the conversation (around minute 52):

I do actually, I do. I think I like a bit of chaos as well… Since I left Beach, I think I’ve created more Chaos for myself. Which I.. I think I love it.

Michel’s love of high pressure situations made him a natural entrepreneur and he credits that path to unlocking his own super power (my words) of creative deal making.

In the interview we also cover what it means to be creative in reinsurance, how Michel’s interview while racing around London in a porche went and what it felt like picking up the pieces (literally) of his office after the IRA bombing of Bishopsgate.

Let none of these adventures mislead you. Michel is one of the most effective reinsurance brokers alive. Credit that to his unique perspective on problems and pressure extreme enough to forge incredible skill.

If you’d like to receive emails when I post a new episode subscribe here. Please rate the show in iTunes! Music by http://www.bensound.com.