For years now, Siri, Alexa and Google Home have been portrayed as just the beginning of a pathway to virtual assistants that will give each of us a J.A.R.V.I.S., the voice-activated software used by Iron Man to handle, well, just about everything. 

But the wave of layoffs happening at Amazon's Echo unit tells a different story.

That story will govern for the foreseeable future, and insurers should heed it as they consider how to incorporate natural language processing technologies into their operations. While many futurists have claimed that voice is such a natural means of communication that it will soon take over all customer/corporate interactions, Amazon's experience proves otherwise. 

Here's the core of the issue for Amazon and for any insurer implementing natural language processing technologies: I love my Echo and use it all the time, but I've never bought anything with it and am unlikely to ever do so. 

I set a lot of timers, ask every day or two about the temperature outdoors and maintain a running list for grocery shopping. Other than that, I seem to ask for people's ages -- if I want to see how long I'm going to have to watch my Tottenham Hotspurs suffer at the hands (feet?) of Liverpool forward Mo Salah, I might call out for his age, for instance.

But that's about it. Amazon has tried to entice me to do all kinds of things, including buying items on my shopping list via Amazon Prime. That should be the easiest extension for Alexa, but I've never even been tempted, because of the fundamental limitations of a voice interface. 

The limitations for Alexa, and all such voice interfaces, boil down to two insurmountable ones: trust and complexity.

Quite simply, I don't trust my Echo to act on my behalf. I expect Alexa to act on behalf of Amazon, its creator and manager. So, I wouldn't just tell Alexa to order cat food, even if it knew the brand I wanted. I assume Amazon would steer me toward a product or size or flavor that maximized its profit. 

And the trust problem becomes greater as the complexity of the purchase does. Who would ever say, "Alexa, get me a plane ticket to Chicago next Thursday, and a rental car, too"? Certainly, no one would ever buy an insurance policy via a voice interface, or even renew a policy, I imagine. 

The complexity problem figures in here, too. If I'm flying to Chicago, I can call up a host of options via Expedia on my computer screen and quickly sort through them based on a combination of convenience, price and favored airline, but that selection would take forever via voice -- "Remind me, Alexa, what the price was for that United flight at 6:45 a.m." Yes, software agents will eventually become sophisticated enough that they'll have a good handle on my preferences, but we're a long way from the day when a voice interface can let you sort through complexity nearly as efficiently as a visual one.

Voice interfaces can still do great things. Who gets lost these days, when you can say to your phone, "Hey, Siri, get me driving directions to XYZ"? In insurance, voice interfaces can remove a lot of drudgery and expense by having automated systems answer simple queries from customers, such as about when a payment is due or when a policy renews. Natural language processing used in chatbots and conversational AI allows for even more complex interactions via text, such as initiating a claim. 

But the trust and complexity issues will limit voice interfaces for the foreseeable future. 

You can't say Amazon didn't try. The Echo began in 2014 as an idea from then-CEO Jeff Bezos and got all the attention that the pet project of a billionaire founder can receive. The New York Times reported that the Echo had sustained $5 billion of losses by 2018, and spending only accelerated from there. Business Insider reports that the division that includes Echo will lose $10 billion just this year.

You can see where the money went, too. The technology is as slick as can be. 

The business case just isn't there yet, and it won't be any time soon.

Cheers,

Paul  

Where we stand dictates our view, right?

For 15 years, my view was the inside of large corporations, first as a consultant and later as an executive. But after five years as an entrepreneur, my line of sight back at the cliffs of corporate life reveals some new contours. Now, I can pick out some of the barriers to innovation in large companies that I unfortunately (and gleefully) participated in in the past.

“Big company thinking” is usually pejorative, but that’s really not fair. Institutions persist because they work, however imperfectly, unfairly and inefficiently at times. Big companies drive a huge portion of the economy. And they have a lot going for them that startups don’t – cash on the balance sheet, both depth and breadth of expertise, established distribution, stable go-to-market processes, cash on the balance sheet (you get my point). I sure do miss the infrastructure and support of a corporate job some days.

And it's not that big companies can't be innovative - we can all think of life-changing products built by the Fortune 100. It's just that scale bogs down agility almost without anyone noticing. These three patterns are especially pervasive: Spinning Plates Syndrome, the Department of No and Zombie Resurrection.

Spinning Plates Syndrome

One of the most terrifying moments as a new startup founder was staring at a blank document on my screen and realizing that absolutely nothing about Surround was going to exist unless my cofounder Jay or I (and later our team) willed it into being. Without repeated acts of creation, a startup literally does not exist.

The relative safety of corporate life all too easily conceals that foundational truth. The only things that will ever exist, other than the natural world, are things some human somewhere willed into being by doing productive work.

You remember back to high school physics? Work requires both force and movement. If it’s just force, it’s not work, it’s just…force. Same in the office. If you’re lots of force, but nothing is moving, that’s just effort, not work. And in large organizations, there’s a tendency to measure and reward effort, not progress. Keeping the plates spinning is super visible, and sure looks cool, but at the end of the day you put the plates down and you’re exactly where you started.

What does progress require? The courage to do something that’s possibly wrong, and an organization that doesn't punish mistakes. It takes courage to figure out how to do something that’s not been done before and show the results to others. Courage is a fragile bird, and the hand slapping in many corporate environments prevents that courage from taking flight.

What’s just effort without progress? Steering committee meetings. Projects that are so big that the overhead to deliver is a significant portion of the time spent. Status meetings. Detailed meeting minutes. Some of this is necessary, but spinning the plates is a distraction from the real work. No steering committee has ever had an engine.

What to do if you’re stuck in this loop? Look carefully at what you and the managers in your organization look for as proof of work. Is it fancy PowerPoint decks? Or is it a signed contract, a draft landing page, a delivered feature?

You get what you ask for.

See also: When You Have Too Many Good Innovation Ideas

The Department of No

Startups are relatively permission-free – everyone builds, everyone contributes and the projects are small enough that it’s usually easy enough to figure out what you’re supposed to be doing next. Asking a manager or coworker whether you’re permitted to make a change might well get you laughed out of a lot startups. Nobody has time for that.

However, corporate jobs often mean living in a permission-bound world. There’s serious downside to being caught doing something without permission (aka no plausible deniability) and relatively little upside.

The direct result is the Department of No.

Who often gets rewarded? The people who save the corporation from infamy and failure by bravely crushing everyone else’s ideas? Or the people who sometimes break things, carefully and in limited ways? The former is the Department of No. If you have a Department of No, you probably don’t have much innovation.

Big companies can do it well, though.

I worked at Progressive Insurance early in my career. Glenn Renwick was the CEO back then, and every month there was an all hands get together in the cafeteria in the Cleveland headquarters. They’d have a cake for all of that month’s birthdays (you know, the good kind, the sheet cakes with the swirly frosting and sprinkles). Glenn would speak for bit, and he’d share Progressive’s wins for the month.

Then he’d do something interesting. He’d list the failures, as well. Pilots that didn’t work, product launches that failed, advertising campaigns that fell flat. Sounds horrible, right?

Well, no.

He was calling out the good failures. The ones where someone had taken the initiative to come up with an idea, made a data-backed case for trying it, implemented it well, measured it, then shut it down and reported it. Glenn called out the names of the people involved, explained we were able learn from their work and led a round of applause.

Pretty darn powerful statement that failure is a learning opportunity for an organization, no?

Does your organization do cake-and-fails? You should.

Resurrecting Zombies

Technical debt is one thing you get to start a company without. I can’t even begin to describe how freeing that is. (In fact: nah nah nah nah nah. Ok, enough gloating). There’s more than technical debt in large organizations, though – there’s also historical debt.

You know the person in your department who knows everything that ever happened? Like that deal in 1973 that led your company to acquire Below Sea Level Homeowners Insurance Inc.? And the fee you’ve charged those homeowners for the doodad you send them every year? The 12 remaining customers who are expecting their doodads? And the person in your department who knows this and continually explains That It Is Crucial To Send The Doodads Because We Have Always Done It?

Well, the history of where a company has been is important. It's like Chesterton’s fence – if you come upon a fence, and it doesn’t make any sense where it is…pause for a moment. Someone put a lot of effort into putting it there for some reason. Best to understand why before you choose to tear it down, no? That being said, there are plenty of fences that should go. They create a clear path for innovation. But tearing down those fences takes courage, too, because those decisions may to be unpopular with both long-tenured staff and some customers. That doesn't make them the wrong decisions.

You cannot grow toward the future without letting go of at least some of the past. Startups have no past; big corporations do, and therefore need to decide what to hold on to, and what to let go.

Don't resurrect zombies, Kill off the zombies.

See also: Innovation: Top Down/Bottom Up

A Final Thought

People everywhere are full of ideas. It’s why we stood up on two legs and built grand civilizations. Willing innovation into being doesn’t usually require more ideas… it requires systematically clearing a path for those ideas to take flight. That means rewarding actual work, reducing the impact of naysayers and saying no to work your organization has outgrown. That’s saying yes to innovation.

Mergers and acquisitions give organizations the potential to increase capabilities, diversify offerings and expand market share, but they also present considerable risks. While companies typically review financial, strategic, legal and operational details before completing an M&A transaction, another important concern is often overlooked: cybersecurity.

When organizations do not complete a detailed cyber evaluation of target companies before a merger or acquisition, it can create an unnecessary risk – one that can result in significant financial and legal challenges. A data breach could not only threaten a company’s business assets and functions but also lower its profits, market value and brand reputation, potentially resulting in significant (and costly) litigation and regulatory enforcement actions.

Why is cybersecurity due diligence important?

Conducting cybersecurity due diligence before a merger or acquisition helps companies accurately assess risk before taking on liability as well as identify any issues that might warrant restructuring the purchase agreement. 

Before integrating its network with a target company’s network, an organization should identify the IT assets, systems, software, websites and applications, whether proprietary or third-party, and know how that company’s data or personal information (PI) is stored or processed. These post-acquisition processes are fundamental to building a comprehensive strategy to incorporate or update an acquired business’s information technology post-closing. 

Additionally, for businesses that collect, store or process non-U.S. workforce, customer or consumer data, it is important to understand if that data is generated by, stored in or exported to personnel or servers located in other countries or U.S. jurisdictions. This data may be subject to multiple jurisdictions’ laws, and other regulations might govern whether and how data can be transferred across borders post-merger. 

Given the continuous evolution of cyber threats and data protection laws, due diligence investigations should also look beyond a target’s cybersecurity and compliance programs and focus on the target’s overall culture of information security and data privacy. Although a target company may not be currently violating any data protection laws, it is important to understand and assess whether it has the institutional framework in place to recognize new regulatory requirements and adjust its policies and procedures accordingly. In turn, buyers should determine whether the target has an internal, information governance structure and, if so, whether that structure is capable of effecting meaningful change throughout the organization in response to new cyber and privacy rules and regulations. Organizations with internal information governance structures are often able to easily adapt to changes in the law and to mitigate the monetary and reputational costs related to legal noncompliance.

See also: Cyber Risk and Insurance in 2022

Important cybersecurity due diligence: key questions and considerations

From networks and systems to cyber evaluation to data incidents, there are many considerations that should be part of an acquiring company’s due diligence. The following areas may prove helpful in examining these complex issues:

Networks and systems 

Documentation or information should be provided about the target company’s network and system architecture and data flows, including the use of cloud providers and third-party applications to allow for assessment of a target company’s attack surface and vulnerabilities. This allows for the acquiring company to understand what type of data the target company’s systems store and identify what type of sensitive information (e.g. Social Security and driver’s license numbers, credit/debit card information, health details and usernames/passwords) that can be connected to a specific person the target company’s systems store.

Once it has been determined that the target company stores this type of data, the acquiring company should be assessing the security controls in place that are currently protecting this information (e.g. multi-factor authentication or access controls).

Lastly, the acquiring company should assess and be aware of any on-premise server or cloud storage that holds sensitive personal information. If these servers are owned and operated by third-party service providers, it is important to understand how that vendor manages the target company’s data confidentiality and infosec. Also, it is important to know the use of legacy applications or providers for critical functions that are subject to long-term contracts or those that would be difficult to port to an alternative platform.

Cybersecurity and Technical Controls

The acquiring company should inquire how often the target company conducted privacy impact assessments, vulnerability scans, penetration tests or SOC audits to assess the types of risk the target company face based on industry sector, geographic reach and the nature of the product or services that it manufactures, develops, or provides. This type of inquiry provides the acquiring company a comprehensive understanding of the target company’s security controls leading up to acquisition.  

Furthermore, this type of assessment allows insight into the target company’s data loss prevention program, anti-virus and anti-malware solutions, end-point detection monitoring, multi-factor authentication, geo-fencing, encryption of data, patch management, vendor management and evaluation of the target company’s business continuity or incident response plan, if available.  

It also is important to understand the kinds of educational and training programs the target company has in place to educate its workforce about the importance of cybersecurity and improve its resistance to cyber incidents.

See also: "Micromorts": A New Way to Talk About Risks

Data incidents, complaints and governance

Corporate governance and data incidents are just as important as assessing the target company’s security controls. To round out the acquiring company’s due diligence, it should inquire about prior incidents of unauthorized access to or misuse, modification, exfiltration or disruption of the target company’s information system or proprietary technology systems, including any data stored on those systems and whether those matters were remediated. Also, through the acquiring company’s due diligence process it’s important to understand the target company’s data governance by inquiring about how the target company’s president, CEO, board and other senior leadership view its responsibility within the context of data protection and the frequency with which they initiated cybersecurity training among the workforce.

Although these considerations can be time-consuming, it is important that businesses complete their cybersecurity due diligence before any merger exists. Cyberattacks continue to increase in frequency and severity, and a data breach can be devastating to any organization.

Nature is declining globally at rates unprecedented in human history — and the rate of species’ extinction is accelerating, with grave impacts on people and communities around the world. 

The WWF’s 2022 Living Planet Report finds that wildlife populations have seen a devastating 69% drop on average since the 1970s. Furthermore, nature decline is making it harder to slow the rate of global warming and to limit climate change, as roughly half of today’s human-emitted emissions is absorbed by lands and oceans (and if these assets are degraded, this absorption function also declines). 

Fortunately, as both public and private sector entities are increasingly working to achieve net-zero emissions, the voluntary carbon market is rapidly expanding and is fueling investments into nature conservation and restoration initiatives. Various efforts are underway globally for natural capital accounting, which will help quantify how natural assets contribute to the economy and demonstrate nature’s value to society. 

Nature investments undoubtedly need to be scaled to help tackle the biodiversity and climate crisis. The UNEP State of Finance for Nature in the G20 report calls for G20 countries to increase annual spending on nature-based solutions from the current $120 billion a year to $285 billion by 2050 to address the inter-related nature, climate and land degradation crises. However, doing so in a manner that limits investment risk is important, and, if voluntary carbon markets are used as a conduit to facilitate some of this investment, then carbon project developers, communities, buyers, sellers, lenders, investors and various intermediaries need to manage risks including natural disasters, pest infestations, environmental pollution and political and regulatory changes.

Innovation in insurance solutions can help mitigate some of these risks and help improve the integrity of carbon offset transactions. For example, offering a carbon offset and reduction expense endorsement in property and casualty insurance policies could help address the increased cost of disposing of and replacing damaged property in a way that reduces carbon emissions and the continuing costs of carbon reduction efforts.

By bolstering confidence in the integrity of carbon offset transactions, the insurance industry can ultimately enable greater capital flows to areas where investment is most critical, such as underserved emerging markets. Aon recently announced a collaboration with Revalue Nature, which designs and develops projects that protect and regenerate forests, mangroves and other natural assets, to help de-risk projects, facilitate investment and accelerate the deployment of these solutions.

See also: A Better Way to Consider Flood Risk

Working with clients and industry partners is critical to build understanding of the insurance need, develop capacity to support risk transfer and help shape better decisions that address climate risks. Improved measurement, reporting and verification (MRV) and data can help encourage the development of new products, such as performance guarantees for carbon-credit-generating projects, and further facilitate and accelerate mainstream investment into conservation and restoration initiatives.

In addition to nature-based solutions for climate mitigation, technological and hybrid solutions are projected to gain momentum in the coming decades. Technology and hybrid solutions rely on equipment to capture carbon dioxide and use technology to speed natural processes for carbon dioxide removal. Insurance industry insights, focused on understanding technology risk and acumen in creative risk transfer solutions can help make some of these clean technology projects more “bankable” and accelerate the net-zero transition. For example, Aon’s Intellectual Property (IP) Solutions and technology performance guarantees can unlock investment into newer decarbonization technologies.

The dynamic nature of net-zero transition and voluntary carbon marketplaces gives rise to the need for trusted risk advisers to help navigate increasingly complex transactions, and insurance can help manage some key risks over time. For example, property insurance can help protect against physical damages/losses from natural disasters for assets that are meant to generate carbon offsets. With an ever-changing political landscape, insurance can also help protect clients against invalidation, seizure and other political and regulatory risks. 

It will take a “whole of society” approach to reach net zero, and the insurance industry is in a key position to help organizations around the world address and de-risk the actions that will contribute to reaching this ambition.

All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy. Insurance products and services offered by Aon Risk Insurance Services West, Inc., Aon Risk Services Central, Inc., Aon Risk Services Northeast, Inc., Aon Risk Services Southwest, Inc., and Aon Risk Services, Inc. of Florida and their licensed affiliates.

Insurtech is in a confusing state at the moment. Public valuations for many of the big names are way down, and funding has cooled off. But some of the companies formed in the first wave of insurtech are thriving and are pointing the way for a new wave of insurtech that seems to be taking shape now. So, Paul Carroll, editor-in-chief at Insurance Thought Leadership, sat down recently with Ron Rock, senior director, insurance/insurtech, JobsOhio, and Andrew Daniels, founder and managing director, InsurTech Ohio, to talk about what comes next. An edited version of that conversation follows:

ITL:

To start us off, what did you see as the big ahas coming out of InsureTech Connect this fall and a more recent insurtech event that you held in Ohio?

ANDREW DANIELS:

We're seeing "neo-carriers" come through, and they're more mature than insurtechs have been in the past. A company like Branch [an innovative personal lines insurer based in Columbus, Ohio] is doing strategic partnerships and buying vendor technologies themselves. That's kind of flipped the insurtech world on its head. That used to be what incumbent carriers did, but some of these companies now have just completed their Series A, and they're already off trying to buy technology to go faster.

We're also seeing lots of new companies we haven't heard about, but they've already established their businesses in another vertical, like the financial space, before moving into insurance.

RON ROCK:

I won't speak for BoldPenguin [a six-year-old insurer also based in Columbus], but I get the sense that they're also being aggressive about finding ways to amplify their offerings. Certainly, a theme for insurtechs is partnerships, and they’re looking at each other, not just at incumbent carriers.

Embedded insurance is another trend. That's not exactly a secret, but I'm seeing more microinsurance. You buy my product, and the insurance is right there for you to buy.

ITL:

Any particular examples you'd like to point to?

DANIELS:

I'd consider battleface [whose U.S. headquarters are in Columbus] microinsurance. It was kind of the first a long time ago when travel insurance was launched. Now, they're digitizing a lot of underwriting processes so they can embed that product into other things that are being offered digitally.

The warranty space is another good example of microinsurance that can be embedded.

ROCK:

There's also progress being made in making sure that the uninsured or underinsured are becoming insured, so we're protecting lower-income families.

In the life insurance space, Atidot [an Israeli company] is one I like. They do artificial intelligence data analytics to streamline the underwriting process. They can help companies with orphaned accounts or just make sure agents have a better avenue for selling.

ITL:

You're on a roll. What are some other intriguing companies I should be watching?

ROCK:

Beam [also based in Columbus] is another interesting company. They've been so successful that they recently changed their name from Beam Dental to Beam Benefits, because they're starting to do a lot more things than just dental. They've been growing like crazy.

Coterie Insurance [based in Cincinnati] is a finalist to be named the innovative insurtech of the year. They offer small business insurance through a very streamlined process.

Champ Titles [based in Cleveland] uses blockchain to streamline the title clearing process for vehicles. The time it takes to clear and salvage a title for vehicles is insane.

DANIELS:

Foxen [based in Columbus] offers damage liability for renter's insurance, which they call Tenant Legal Liability Waiver, and is also doing some really cool things to make sure renters get credit on their credit scores for making their payments on a monthly basis. At the moment, there isn't a nationally recognized way to track those payments by renters.

ROCK:

We recently did an event on connected insurance, and, talking in more general terms, there were some very cool ideas coming out of there. Instead of just saying, Hey, thanks for giving me the money for a policy that will indemnify you for your losses, you say, What can we do up-front to make sure that you don't even incur those losses? We've all heard of the valves that can detect a leak and shut off the water before it does major damage to a house. There are lots of ideas along those lines.

ITL:

Having lived in Silicon Valley for years and having covered it for the Wall Street Journal, I've seen the power of critical mass, and for a bunch of reasons—notably, insurance company headquarters, venture capital firms and universities—you seem to have fostered an impressive community in Ohio.

ROCK:

I think we have a leg up on just about everybody. Less than five years ago, when we put on an insurtech event, it was Andrew, me and maybe 20 other people. We just had maybe 200 show up for that same event. There's a lot more buzz and a very engaged insurtech community of carrier innovators and startups.

And our director of insurance in Ohio has been involved in a lot of our events with InsurTech Ohio. It's important to have a very friendly regulatory environment and make sure the Department of Insurance is very transparent on what it takes to launch a product or do business in a state.

Yes, we've seen things cool off in terms of investment, but I'd bet investment has cooled off more globally than it has for Ohio. We're still having record years for VC or private equity.

Gen Zers are the latest generation of insurance policyholders, and they’re changing the customer engagement game. But agents have a knowledge gap problem: Over 40% of Gen Zers don’t feel well-informed about insurance.

Without the right insurance knowledge, customers will likely make poor coverage choices – and might even avoid purchasing a policy they need. To close the knowledge gap, agents need ways to educate customers about insurance specifics.

One helpful solution: a mobile app that gamifies the learning process.

Digital games activate our brains’ reward pathways, which boosts our motivation to make in-app progress. Over time, customers will better understand insurance and make more confident, knowledge-based coverage decisions.

With a clear strategy, agents can help customers learn about insurance and make each lesson stick. Here, I’ll explain how.

Choose an Insurance-Optimized Learning App

General financial literacy apps are great for helping to educate people on many valuable topics, but for insurance agents, having an app that's customized for insurance education is the best way to go.  

The right app will enable customers to zero in on homeowners or auto insurance basics separately from, say, investing or savings tips. The app should also provide agents with a number of powerful tools to fuel lead generation and customer insights.

Which features matter most? Choose an app that includes:

• An agency-specific sign-up code. This builds credibility and positions the agency as an insurance education advocate.
• Comprehensive data collection. Sign-ups should prompt customers to include their phone number, email address and birthday for a fully personalized experience.
• Customizable learning modules. Customers should be able to choose what they learn about, from coverage types to underwriting and claims processes.
• Analytics tools. These help agents understand which modules customers are engaging with most, enabling more relevant consultations and cross-selling conversations.

Together, these features create a strong foundation for a successful gamified learning experience. The benefit: Customers gain knowledge, while the educational tool builds agency trust and powers long-term insights.

Offer Virtual and Real-World Rewards

With gamified learning apps, rewards typically come in the form of digital currency, which users can spend on in-app bonuses and customizations. But virtual rewards can only do so much – especially when gamifying dry insurance topics. Customers may log on a few times to earn virtual coins and bonuses. The best rewards, though, have a real-world impact.

To maximize app usage, look for an app that pairs in-app and real-world rewards. For instance, a customer might earn 500 coins after finishing a homeowners insurance module. Then, they can choose how to use their reward: spend it on a fun avatar outfit or save up for a $15 Amazon gift card.

As more customers use the learning app, agents can learn which rewards work best and tweak their offerings as needed.

See also: Let the Games Begin! Customers Love Them

Engage Customers at Every Opportunity

Even with a powerful reward system, it can be tough to encourage long-term app usage. But with insurance education, consistency is key. Customers need constant learning and reinforcement to enable informed coverage decisions.

Look for digital and physical ways to encourage learning. In many cases, you can likely take advantage of certain app features (e.g., push notifications and virtual currency) to supplement your efforts.

Not sure where to start? Consider:

• Encouraging customers to keep push notifications on. The app can nudge customers to log in consistently by sending a push notification at a certain time each day.
• Sending seasonally relevant reminders. For example, remind customers to complete a flood insurance module ahead of hurricane season.
• Mentioning the app via email or text. Weave app mentions into newsletters or text communications.
• Checking in during consultations. Ask customers about their app progress and experience.
• Offering rewards on special occasions. Consider giving customers virtual currency for logging in on their birthday or policy anniversary.

With frequent reminders, customers can maintain their learning momentum and strengthen their insurance knowledge. Ultimately, they’ll make better coverage choices and can avoid the pain of experiencing uncovered or under-covered losses.

Future-Proof Your Agency With Gamified Learning Tools

Gen Z is the most fully online generation yet. To reach its members, agents will need to provide an insurance experience that factors in Gen Z’s digital-first needs.

Gamified learning apps can be a key part of any agent’s Gen Z engagement strategy. With mobile education tools, agents can position themselves as agile industry professionals that are ready for the next generation of policyholders.

At the end of September, the Office of the Inspector General (OIG) for the Department of Health and Human Services (DHHS) released an initial report on the U.S. Food and Drug Administration's (FDA) accelerated medicine approval program, which allows for earlier approval of drugs that treat serious conditions. The gist of the findings in the FDA's continuing evaluation is that the Medicare and Medicaid programs spent $18 billion over three years on drugs for which no benefit had been confirmed. Once drugs were approved, manufacturers failed to complete the clinical trials necessary to establish their medications' efficacies. Apparently, there were no negative consequences for the drug makers, so the process became systemically diluted.

This is the tip of an iceberg. For context, consider that in 2021, U.S. drug spending totaled $577 billion. This figure includes all drugs purchased through commercial coverage and through federally funded programs like Medicare and Medicaid. Contrast that with the $6 billion per year wasted on unproven drugs in the OIG report, which is just a bit more than 1% of total U.S. drug spending, a literal drop in the bucket.

More to the point, prescribing drugs that deliver unproven results is not only nothing new, but rampant. In 2015, Kim and Prasad reported in JAMA Internal Medicine that, between 2008 and 2012, two-thirds of cancer drugs approved by the FDA "have unknown effects on overall survival or fail to show gains in survival." Really consider that for a moment; the consequences are staggering.

Worse, the complexities involved with the many variables that affect drug efficacy have resulted in wide-ranging prescribing patterns across all of medicine. This problem is perhaps most evident in the often strikingly poor "control" rates among chronic disease patients. With their downstream impacts, these conditions consume 85% or more of all healthcare expenditures. For instance, the CDC estimates that only about one in four (24%) of adult U.S. hypertension (HTN) patients' conditions are under control. For Heart Failure with Reduced Ejection Fraction (HFrEF), the CHAMP HF-Registry found that only 1.1% of patients were under control. The number of prescribing permutations for HTN exceeds 300 million. For HFrEF, it exceeds 850 million. In many cases, it is simply beyond reasonable comprehension, with so many competing priorities, to understand healthcare choices, to juggle and assess the number of variables at play to accurately identify the correct drugs and dosages for a given patient and condition.

The drug excesses - both in unit pricing and in utilization - that have become so common in U.S .healthcare have facilitated a crop of new medication management companies dedicated to enabling more value-driven perspectives. One company has developed an AI tool, the MedsEngine, that guides precise physician prescribing for major chronic diseases, based on a patient's individual characteristics. In pilots, chronic condition control rates have soared.

Companies like Vivio Health and Ascella Health track whether prescribed drugs, dosages, administration sites and other options are the best clinical and value-based choices. Others - like Illuminate Health - leverage pharmacists to more effectively manage patients on complex drug regimens, as pharmacists are more often embedded into care teams participating in a more integrated, team-based approach.

See also: Should Big Pharma Be Scared?

Another promising area of recent focus is the identification of gene-to-drug interactions, representing an entirely new information source that can profoundly refine prescribing accuracy. Blue Genes Lab provides pharmacogenetic profiling, as do many other labs, that can be accessed by patients and clinicians. They have additionally developed a mobile app that, based on the patient's genetic profile, delivers push notifications of problematic drug choices, lists drugs that are genetically compatible and screens for potential drug-drug interactions. The intention is to permit physicians to maximize effectiveness and employ precision medicine best practices. Drugs are avoided that cannot benefit a particular patient or result in costly adverse drug reactions.

These are major advances with the potential to improve health outcomes dramatically, while eliminating a hugely wasteful percentage of current drug spending. Many value-focused companies will warranty their results, which is understandable in a target-rich environment like medication management. They're signaling that there are meaningful solutions to the overtreatment and unnecessary drug costs that plague the drug industry and healthcare generally.  Further, this progress illustrates the power of embracing innovative techniques, rather than archaic and opaque methods associated with prescription medication and reimbursement.

In sum, the OIG's findings are hardly surprising, and they're a tiny symptom of a massively complex problem. As value-based capabilities and arrangements get more market traction, drug prescribing will be increasingly based on a more holistic view of a person and on the likelihood that a particular drug and dose can solve a specific condition(s). To get there, though, the agencies that oversee and regulate U.S. healthcare, and the firms that orchestrate and deliver the components of care, must be capable of rationalizing the current system's excesses. Most importantly, employers and other healthcare purchasers must, through their health plans, empower these new risk management vendors to hold the pharmaceutical and pharmacy benefit management industries to account or, alternatively, be fearless in navigating these decisions independently to seize direct contracting opportunities.

The modern world moves fast. Consumers expect convenience and the ability to get what they need from the smartphone in their pocket. Businesses and their investors are always looking for efficient ways to meet consumers’ expectations of instant fulfillment.  

In today’s insurance world, the apex of consumer convenience is straight-through processing. Now, consumers can input all essential information on an online form and submit everything needed for a quote online. Carriers then use a custom-built algorithm to evaluate the information and provide a quote in minutes, and in some cases—instantly! 

Unfortunately, when the form has inaccurate information, there can be significant delays caused by something as simple as a mistyped address. Automated processes are interrupted, and the correct address must be manually sought. The more automated operations are suspended, the longer it takes for the customer’s requests to be fulfilled, and the longer it takes to start seeing ROI for your efforts. 

Having an accurate address autocomplete option can help streamline your straight-through processing and minimize the need for manual intervention. Insurance companies that implement an address autocomplete utility can see improvements with better webform submission rates, improved accuracy on those submissions and a decrease in fraudulent claims. 

Increasing Webform Submission Rates

Webform address fields are an often-overlooked friction point for users that may lead to incomplete or abandoned forms. The longer prospects take to fill out their address on a web form, the higher the chance they’ll give up. The mix of numbers and upper- and lowercase letters in an address slows the typing and increases the likelihood of mistakes, especially on a mobile device. Using an autocomplete utility can greatly reduce the number of characters a user has to manually enter by suggesting verified addresses as they type. The utility can even be set up to give top priority to address suggestions that are close to the user’s geographic location and can even limit result to a state, city or ZIP code. In just a few keystrokes, your prospects and customers can select their address.

See also: Using Payments to Improve the CX

Improving Accuracy

Allowing users to submit their address information without standardization leaves room for mistakes, entering bad data into your database and creating delays in producing quotes. As much as people think they are excellent typists, we all make mistakes. It’s easy to push the letter "V" instead of "B" or add an extra digit to a house number without realizing it. 

Another challenge is when a potential customer inputs an address with a minor difference from the one in your system. While a person could tell that “210 jefferson center floor 2” is the same as “210 Jefferson Center, Floor 2,” an automated system may be unable to. Simple mistakes like incorrect street names or numbers can trigger a manual exception process and delay a policy’s creation. And once that data is part of your database, it takes manual intervention to correct or remove it.

Address autocompletion prevents these types of errors from being made. 

Rooftop geocoding and address verification can help with accuracy for creating insurance quotes, as well. Address verification standardizes and validates the address, while rooftop geocoding pinpoints the exact location of the structure for accurate quote creation. Carriers can then use that data to determine how close the structure is to a fault line, coast line wildfire zone or tropical storm area. When combined with the right risk analytics tools, geocoding and address verification can help you create a robust straight-through processing system. 

Avoiding Fraud

A 2021 survey from Finder.com found that 35.8 million American adults admitted to lying to their insurer. Nearly a third of those who admitted lying said they used an inaccurate address to obtain better rates. Address autocomplete can help prevent fraud because, instead of depending solely on user input, address autocomplete provides a precise, verified address for the insurer. 

Conclusion

Adding an address autocomplete utility to your straight-through processing arsenal helps save time and decreases the chance of errors. Automation reduces the workload of insurers, both in the present and down the road. Straight-through processing with an address autocomplete utility makes the quote process convenient enough to please consumers, accurate and efficient enough to please insurers and fast enough to fit into the lifestyle we have all come to expect.  

As of Nov. 14, the control of Congress was too close to call. There was not an official winner in several races, and some projected losers are contesting the results. The U.S. Senate will remain under Democratic control, even though the Georgia race will be determined by a runoff election on Dec. 6. Control of the House remains undecided, though trending toward the Republican party.

Regardless of this outcome, with Joe Biden remaining president, we expect Capitol Hill will remain gridlocked. Given that this was a mid-term election, most of the key elections occurred at the state level, with many of the national issues being fought locally. For insurers, this will result in multi-state efforts to understand and respond to regulatory challenges.

Uncertainty around election outcomes and control extended to the state level. Eighteen states remained in Democratic control, while Republicans retained control of 23 states. Eight states remained divided, with one party controlling the governorship and the other party controlling both houses of the state legislature.

The Post-Mid-Term Market Overview

If Republicans do gain control of the U.S. House of Representatives, investors will likely celebrate the end of one-party rule, as many of the most anti-growth measures being contemplated in Congress will fall by the wayside. Regardless, we believe 2023 could be a difficult year for markets, especially in the first half.

There are four major policy drivers of growth—monetary, fiscal, trade and regulatory.

• Monetary policy - The Federal Reserve’s Federal Open Market Committee (FOMC) is not likely to change course based on the election outcome. We expect the Fed to drive the economy into recession, one we hope will be mild and short, to bring inflation down into its target range.
• Fiscal policy - As spending bills must start in the House, per the U.S. Constitution, House party control is important. If Republicans gain control, as seems likely, it is unlikely that any new spending and, consequently, more inflation-spurring demand-side stimulus will be forthcoming. New taxes are less likely, as well. The lame-duck session will probably deal with funding the government (avoiding a shutdown threat, we hope) and the National Defense Authorization Act, as both will have some bipartisan support. If Democrats keep control, we would expect higher spending, such as a re-invigorated Build Back Better bill, and higher taxes.
• Trade policy - Trade and foreign relations are largely purviews of the Executive Branch, so we expect little impact from the mid-term results. Further, there is not that much difference between the parties when it comes to dealing with China and Russia, the two biggest concerns right now.
• Regulatory policy - We can expect continuing aggressive regulatory initiatives from the current administration. However, as Congress holds the purse strings, whichever party gains House control will determine how easily the Biden team can achieve the appropriations to fund them.

So, we expect earnings and equity markets to struggle, especially in the first couple of quarters of next year, until the FOMC ends the tightening cycle. We believe the U.S. dollar will ease a bit but continue to be strong against economies still under stress, especially in the U.K. and continental Europe. In this environment, high-grade USD bonds in the short to middle part of the yield curve should provide the best opportunity for income and stability. If we have a recession and it is short and mild, we will look for an earnings recovery in consumer sectors in the second half of next year, with opportunities in USD equities and longer-dated bonds.

Environmental, Social and Governance Progress or Pushback?

Regardless of what happens in Congress, with the election further locking in single-party control at a state level, insurers will continue to face a patchwork of ESG disclosure and investment regulations. Our opinion is that this is likely to lead to higher compliance costs for insurers as the differences in ESG disclosure among the states increase. We also think the ability to reallocate investments will be hampered as some states continue to prohibit divesting from fossil fuels. From a public relations perspective, these differences among the states may make it more difficult to provide a clear and consistent message about ESG from insurers to their stakeholders.

Evidence of the gap between state views on ESG has been on display during 2022, and the mid-term elections have widened that gap. Red and red-leaning states have begun to push back against efforts to increase ESG disclosure and investment. Blue and blue-leaning states are likely to increase their oversight of ESG corporate initiatives.

Insurers are stuck between a rock and a hard place. On the one hand, stakeholder pressure to divest from fossil fuel investments and withdraw underwriting support for fossil fuel products is strong and growing, particularly in Europe, where a string of insurers and reinsurers have adopted such measures in recent years. On the other hand, a number of Republican-controlled U.S. states – notably Louisiana, Florida and Texas – have pushed back on actions that they perceive as a violation of fiduciary duty and as damaging to local fossil fuel interests.

The state pushback against ESG has taken two forms: 1) No ESG investment and 2) Boycott. The states with “No ESG” laws do not allow state funds to be used for ESG or social investment. The boycott states bar local authorities from doing business with banks and investment management companies that have adopted ESG policies and divested from fossil fuel-based energy companies.

See also: Climate Change and Product Liability

Little Progress in Tort Reform

Tort reform typically has bipartisan support, and this mid-term election saw little progress. No state had tort-law reform on the ballot, but Arkansas, California and Missouri were considering initiatives.

Although ballot initiatives were absent, Republican success in achieving or tightening control of state legislatures and governorships creates a more favorable business environment for future tort reform. Our eyes will remain on Florida, as it convenes a special legislative session in December to address the challenges facing its home insurance market. Florida is by far the most expensive state in the nation for home insurance, with premiums in 2022 running at nearly three times the U.S. average, so pressure for reform will continue to be strong.

Industry Pushback on the PRO Act

When it comes to insurance distribution and advice, many state and federal regulators have focused on suitability. However, proposed changes to U.S. labor laws have been a growing concern among advisers and their firms. The Protecting the Right to Organize (PRO) Act, if passed, would affect U.S. labor law. The House passed the PRO Act in early 2021, and unions and other Democratic groups were pushing for the Senate to pass the PRO Act in 2022. The PRO Act has stalled in the Senate, as it would need at least 60 votes to avoid a filibuster, and obtaining those votes may continue to prove difficult given the continuation of the Senate’s near balance of Republican and Democrats.

The PRO Act offers broad reform, and multiple insurance and financial advisory trade groups have pushed back against the act because it would reclassify many independent agents and advisers as employees. To determine the independent contractor status of an employee, the PRO Act would use the “ABC” factor test employed in similar legislation in California, though the California rule included a carveout for financial advisers.

Medicaid Expansion Slowly Continues

Healthcare continues to be a focus within every election cycle. While the topic of the Affordable Care Act (ACA) was muted compared with prior election cycles, in some states Medicaid expansion was a hot topic. Based on mid-term results, that expansion slowly continues.

For insurers, an increase in Medicaid-eligible individuals provides the industry with an increase in membership and premium growth. Only 12 states have yet to adopt and implement the Medicaid expansion program per the ACA; of those 12, 10 had a gubernatorial election, and one had a ballot initiative focused on Medicaid expansion.

Ballot initiatives have been popular and effective in expanding Medicaid. However, in the 12 remaining states, only Florida, South Dakota and Wyoming allow voter-driven ballot initiatives. The remaining nine states would require voters to elect a governor and local state representatives who would support an initiative.

Voters in South Dakota passed a ballot initiative to amend the state’s constitution to expand Medicaid eligibility. Governor Kristi Noem (R), who won reelection, has stated that, while she does not support Medicaid expansion, she will implement the amendment if it is passed.

See also: Healthcare Inflation's Impact on Auto Insurers

Private Equity Annuity Insurers Remain Focused on the States

One subject where control of the Senate is particularly important is the involvement of private equity firms in the annuity industry. In March 2022, Sen. Sherrod Brown (D-OH), chair of the Senate Banking Committee, called on the NAIC and Federal Insurance Office to study private equity annuity insurers’ impact on the retirement security of individuals. He was especially interested in the impact on retirees who transferred their defined benefit pensions to such insurers. That request was followed by Banking Committee hearings in September in which Sen. Elizabeth Warren (D-MA) echoed Sen. Brown’s concerns.

We think, with the Senate remaining close, there is a low likelihood of federal regulation affecting the ability of private-equity-backed annuity insurers to continue engaging in pension risk transfers.

Data Protection and AI Regulation, the Question Is When, Not If

As technology firms expand their scope, the potential for hidden biases in the algorithms driving those systems is a concern among some regulators.

While there were no initiatives addressing data protection or AI on state ballots, control of governorships and state legislatures will determine the course of regulation. Both political parties have expressed interest in increasing data protection and privacy regulations.

According to the National Conference of State Legislatures, in 2022 at least 35 states and the District of Columbia enacted or considered consumer privacy bills. Insurers would like the freedom to use personal data for underwriting and pricing. Sensor-based technologies are rapidly developing uses in property insurance underwriting. Data-privacy legislation differs across jurisdictions but focuses on creating and regulating boundaries around the collection, use and disclosure of personal information by businesses.

Social media and genetic information are of interest to life and health insurers to help improve underwriting. All sectors are leveraging AI and machine learning to increase efficiency.

At the federal level, the bipartisan American Data Privacy and Protection Act (ADPPA) would create a comprehensive federal consumer privacy framework and generally preempt state laws. At this point, we believe it is unlikely that the bill will be considered in the full House or Senate before the conclusion of the 117th Congress on Jan. 3, but ADPPA could become a priority issue for the new Congress.

The NAIC’s work on developing new model laws on the use of AI is likely to continue, despite the election outcomes.

See also: The Risks of AI and Machine Learning

State Insurance Commissioners

Insurance is regulated at the state level, and a change in a state’s insurance commissioner can affect the regulatory priorities of those states’ insurance departments. In the 2022 mid-term elections, the states in which insurance commissioners were on the ballot -- California, Georgia, Kansas and Oklahoma -- all kept their incumbents in office.

California: Commissioner Ricardo Lara (D) won reelection.

Georgia: John King (R), the incumbent appointed by Gov. Brian Kemp (R) to replace the former commissioner who resigned, won election to a full term.

Kansas: Incumbent Commissioner Vicki Schmidt (R) won re-election. Schmidt has been a national leader at the NAIC across health and property/casualty work.

Oklahoma: Commissioner Glen Mulready (R) ran unopposed for his second term.

In addition, in several states, the governor appoints the insurance commissioner. A change in the state’s executive branch could bring about a change in the office of the insurance commissioner, but we will need to wait and see which of those elections will result in a change of commissioner.

It Ain’t Over ‘Til It’s Over

While this election has been bitterly fought and the outcome of many key races remains unknown, neither side can declare total victory in Washington. As a result, at the federal level, the likely election outcome is gridlock. This will lead to further rule by agency and executive regulations. However, the U.S. Supreme Court’s ruling in West Virginia v. Environmental Protection Agency may have opened an avenue for lawsuits blocking some agency and executive regulations. At the federal level, then, the 2016 presidential election remains dominant, as it enabled the GOP to obtain a 6-3 majority on the Supreme Court.

Where Republicans strengthened their control at the state level, we would not be surprised to see several outcomes favorable for insurers. There is likely to be less regulation, a more friendly tort environment and higher barriers to ESG or DEI (diversity, equity and inclusion) investment and reporting requirements. Health insurers may be relative losers due to more restrictions on Medicaid.

On the flip side, where Democrats enjoyed success at the state level, we think the outcome will be slightly negative for life-annuity insurers due to more regulation around underwriting. We also see a negative for property-casualty companies, leading to a less friendly tort and business environment with added pressure to divest from fossil fuels. Health insurers appear to have emerged as the relative winners, with no major adverse changes, at least for the near term.

One of Yogi Berra’s most famous quotes was, “It ain’t over ‘til it’s over.” With the U.S. elections, it’s never over. With that in mind, in 2023, as executives manage their way through higher inflation, possible recession and increased economic uncertainty, it can be tempting to put the 2022 midterms in the rear-view mirror. We think that management teams, however, should remain engaged at all political levels to shape a more favorable regulatory landscape. After all, the next election is less than 725 days away!

While it's tempting to see the world in blacks and whites, my experience with innovation is that it typically happens in grays, at least for years. Even when a company has a breakthrough idea and captures the imagination of investors -- Amazon with e-commerce, Tesla with electric cars, AirBnB with room and home rentals -- it takes time for reality to fill in behind the stock market valuations. 

Distribution in insurance has, I think, been living in a world of grays for some time now. It's been clear that technology can do a lot to improve interactions with customers and sharply increase the efficiency of agents and brokers, but there's been no aha moment. 

In fact, what many thought was a clear vision of the future -- that agents and brokers would be disintermediated as carriers set up direct relationships with customers -- has turned out to be false. If you look at valuations of agencies and brokerages, they've actually expanded their role and power in recent years. 

Instead of disintermediation, I think the future will be a hybrid of agents and brokers and technology. For now, the human element will dominate. Over time, the role of technology will increase, steadily taking on more and more of the mundane work and freeing (while also pushing) agents and brokers to focus more on providing high-value counsel.

To see how that future plays out, you could do a lot worse than follow the progress of VIU by HUB, which provides a digital platform for customers to see multiple quotes on auto, home and life insurance and to have an agent contribute as needed. VIU pretty much fits my vision of what the future will look like, which is why I was delighted to get the chance to conduct this month's interview with Bryan Davis, the EVP in charge of VIU.

Insurance distribution could still have what I think of as a Hemingway innovation moment. A character in his "The Sun Also Rises" said he went bankrupt two ways, "gradually, then suddenly." But I think innovation in distribution will stay in the "gradually" stage for the foreseeable future, with important innovation certainly happening, just on a curve with a steady upward slope, rather than one with a "suddenly" disruption in the graph.

Cheers,

Paul 

P.S. Here are the six articles I'd like to highlight this month for agents and brokers:

AUTOMAKERS BUILD NEW INSURANCE FUTURE

As data and technology pervade the car manufacturing industry, automakers have made fresh inroads into insurance.

THE DEATH OF 'THE ROBINSONS'?

"The Robinsons." who bundle home and car insurance, represent the crown jewel in customer lifetime value. But the segment is very much at risk.

3 WAYS DE&I CAN BOOST AGENCIES

Data has shown that, compared with individual decision makers, diverse teams make better decisions 87% of the time.

HOW RISK MANAGERS, BROKERS MUST COLLABORATE

Solutions can address brokers’ administrative risks from within, in a way that focuses on the customer/risk manager experience and leads to vastly improved alignment.

CYBER TRENDS THAT WILL CHANGE 2023

Here are six cybersecurity and incident response trends and priorities that can help organizations in 2023.

10 TIPS FOR LEADING TEAMS

What does it take to be a successful leader? How can you lead change effectively? Here are 10 tips that can help you lead change in the insurance industry.