Although insurers have been dealing with fraud since the dawn of the industry, digital transformation has led to new fraud-fighting challenges — with authentication often at the top of the list. How do insurers confirm that people using electronic payment platforms or digital claims management tools are really who they say they are? 

Criminals’ increasingly easy access to consumers’ personal information, thanks to near-constant data breaches and widespread social media use, has led many organizations to move from relying exclusively on traditional knowledge-based authentication (such as user names and passwords for online channels, or challenge questions in the call center) to multifactor authentication that includes sending a one-time passcode (OTP) via SMS to the user’s mobile phone.

But security experts warn that the growing number of increasingly sophisticated attacks against consumer phones — via malware, man-in-the-middle schemes, phishing, SMS rerouting, SIM card swaps, call forwarding and other techniques — are reducing the reliability of OTPs as a means of protecting against fraud. 

Mobile fraud on the rise

A recent Forrester survey of 300 North American fraud prevention decision-makers indicates that phone-related fraud is pervasive, with virtually every respondent confirming that their organization had experienced some type of mobile fraud in the past year. SMS OTP hijacking was recognized as one of the most common types of mobile fraud, but many organizations also stated that they lack the tools to effectively detect these attacks, suggesting that the real scale of the problem is significantly underreported. 

OTP fraud gives criminals access to the customer accounts of insurers, which in addition to compromising a customer’s personal information (a particularly serious infraction in the case of health information) can lead to account takeovers and submission of fraudulent claims.

It’s a serious concern, but the insurance industry hasn’t adopted a convincing substitute. Common alternatives to mobile OTP authentication, including sending OTPs to email addresses or soliciting phone numbers from customers, degrade the customer experience and create additional fraud vulnerabilities, according to the Forrester survey.

Consumer email addresses are susceptible to poor password hygiene, and bad actors may simply provide their own alternative phone numbers when given the opportunity. Adopting more stringent authentication measures presents their own challenges, making it difficult for customers to file claims and receive support from an insurer when they need it most. The additional vetting required from agents and the frustration caused to customers hurts both the brand reputation and the bottom line.

That’s why most companies still rely on OTP authentication; more than 70% of survey respondents said that the technology is user-friendly and that customers perceive it to be secure. Any additional security measures must meet these criteria to avoid damaging the customer experience. 

The majority of survey participants are therefore looking for technologies that can work unobtrusively to flag potential fraudsters before an OTP is sent to a customer device. They rate the following capabilities as either mission-critical or important: identifying high-risk phone numbers, detecting if a scam is active before sending the OTP, and using a decision engine to determine the lowest-risk channel available (e.g., email, mobile app or SMS) and then sending the OTP to that channel.

See also: Cyber Risk and Insurance in 2022

Complementing OTP authentication 

It’s clear that OTPs aren’t going anywhere despite their increasing vulnerability. So, to keep themselves and customers protected, savvy insurers are embracing greater authentication intelligence. These methods work in tandem with OTPs to unobtrusively enhance the customer experience without compromising the safety of their accounts or information. 

For example, phone takeover risk solutions provide companies with real-time intelligence that helps enable them to determine whether sending an OTP to a given phone number presents a high risk. These solutions ask, for example, whether there have been recent changes to the phone’s SIM card, whether the phone number has been reassigned or whether calls are being forwarded. Identifying devices or interactions that are at high risk for fraud allows OTPs to be safely sent to recipients who are legitimate customers with legitimate phones — the vast majority of cases. The organization can then focus its fraud-fighting resources on a much smaller pool of high-risk interactions without creating increased friction for everyone.

Integrating inbound caller intelligence with the organization’s customer relationship management system can help enable pre-answer caller authentication, helping agents to spend less time interrogating low-risk callers (again, the vast majority) on their identity and more time helping them, thus improving the customer experience and boosting call center efficiency.

Intelligence services can be applied to provide an automated and optimized approach to managing constantly changing customer contact data. These services gather intelligence in the background from a variety of vetted, continuously updated third-party sources to confirm the authenticity of customer numbers. Intelligence that incorporates email and text gives the organization additional ways to initiate contact with a customer and additional data points for authentication – helping insurers to better connect with customers while mitigating compliance risks. 

Reducing risk without sacrificing the customer experience

Virtually every organization in every industry — insurance included — is looking for ways to block fraudsters while allowing legitimate interactions to proceed smoothly. For years, OTPs have been a useful means to help achieve this goal, and, although mobile fraud is rising, it is not time to abandon this user-friendly and widely adopted tool. Adding a layer of phone number and device intelligence can significantly help to reduce the risk of fraud, giving both the organization and its customers greater security while maintaining a positive authentication experience.

Having heard tech evangelists promise imminent disintermediation of some group or other for more than 25 years now. I've learned to be skeptical. 

There are still some 40,000 travel agents in the U.S., decades after Expedia and other travel sites were supposed to put them on permanent vacation. Some 80,000 bank branches still occupy street corners and strip malls around the country even though ATMs were supposed to have rendered them obsolete 40 years ago and even though wave after wave of online banks have made dire threats since the mid-1990s. Amazon was supposed to have swallowed all commerce by now, but, instead of putting all physical stores out of business, Amazon established a massive, nationwide presence by buying Whole Foods and has experimented with opening other types of stores.

With that history as backdrop, I never bought into the idea that insurtech would somehow put agents out of business. But that history also shows that roles have had to evolve. Travel agents tend to specialize in, say, putting the pieces together for fly-fishing vacations. Bank branch employees dispense advice, and not nearly so much cash. Whole Foods, in addition to being a store in its own right, now serves as a sort of warehouse for groceries that Amazon can deliver and as a drop-off point for those returning items they bought via Amazon.

So, even though agents aren't going away, their roles will evolve. The question is: How?

To explore that topic, I sat down (via Zoom, of course) with Mark Breading, who is a partner with Strategy Meets Action, a Resource Pro company, and who has been one of the smartest analysts I've come to know in my nine years involved with the insurance industry. He had published a piece with us at ITL titled, "From Agents First to Agents Last?" (which I've borrowed as the headline for this piece). The article made a lot of sense to me, so I asked Mark to elaborate.

While I encourage you to read the whole interview, I'll summarize briefly. He says agents will still have a key role in providing insurance, but it may no longer be at the front end of the buying process. People increasingly do a fair amount of research online before even approaching an agent. They also often are more educated about their insurance needs than in years past. They may even initiate an insurance purchase as part of the purchase of something else, such as a car or a home. 

Whatever the "digital on ramp" -- to use Mark's term -- that brings them to an agent, they likely arrive later in the process than in the past, and agents will have to adapt. 

They'll have to find new ways to get noticed, going beyond traditional networking in communities. Leads will be less and less likely to walk in the door. Instead, agents will have to position themselves to be found via whatever digital path a potential customer is following. 

Agents will also have to specialize more -- a la the travel agent who knows just which guide to pair you with on your trip to the Little Big Horn in Montana. Agents will also have to focus more on advice and less on processing transactions. 

Anyone who still thinks disintermediation is in the cards doesn't even have to look at history. Just look at how valuations for agencies have continued to strengthen in recent years, while they were supposed to be disappearing.

But that doesn't mean anybody can stand still. Customers are evolving, and agents have to adapt along with them.

Cheers,

Paul
 

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

From Agents First to Agents Last?

Even though agents are thriving, direct distribution will significantly increase, insurtech will play a big role in reshaping distribution and big tech companies will enter the space.

A Guide to Legacy Modernization

78% of digital transformation efforts fail to drive desired results due to poor planning. Here are some steps that will ensure success.

Policy Admin Systems Are Evolving

Modern solutions, including cloud-based options and lower-cost implementations, are redefining what constitutes a policy administration system.

Achieving Digital Balance in an Agency

Agencies are torn between the temptation to use too much technology and the tendency to stick too long with old, familiar processes.

Agencies Turn to Networks for Growth

Networks of agencies understand how important it is to provide expert guidance and resources throughout the digital journey.

3 Ways for Agencies to Improve Cybersecurity

By preparing agents to be the first line of defense against cybercrime, insurance agencies can change employees from risks to guardians.

 

It will surprise many in the industry to find that there are multiple large gaps in weather radar coverage around the U.S. By virtue of how radars work, when storms are viewed on mobile apps or television, the weather that is depicted is often many miles above the surface of the earth, not down at ground level where we live and work. Not having accurate weather data in these areas can have serious consequences. And this has been a big issue for insurance companies, as they serve customers in many regions with unpredictable weather conditions.

Well, we at Climavision are building a private network of high-resolution radars that aims to fill those gaps. The radars will cover the lowest levels of the atmosphere, and many will be in critically underserved areas. The company will combine this radar information with space-based GPS Radio Occultation (GPS-RO) data, which captures details of the upper atmosphere. This newly available data will be ingested into weather models to improve forecasting for carriers, reinsurance companies and even insurance linked securities (ILS). 

See also: Unusual Weather We're Having, Right?

For carriers, accurate weather forecasts are important in every market, but many regions lack highly precise forecasts, making it difficult for carriers to set adjuster protocols and effectively plan for weather events. Post-event analysis and future mitigation planning is equally difficult in those blind spots.

For reinsurers, understanding the potential for loss in each region is crucial. Knowing the type and frequency of weather impacts in each region is a necessity for planning insurance risks. This new information will not only provide insights on where storms are in the near term but will also help predict potential mid-term and longer-term threats. 

Fund managers will have a better understanding of potential loss due to weather, which should make trading of ILS positions more effective. This additional visibility should contribute to expert-level awareness and allow for more effective communication of the expected impact of weather events to all internal and external stakeholders. For ILS management, constantly calibrating exposure to downside risks is important to trading and projecting confidence in catastrophic events and secondary perils. The ability to accurately forecast hurricanes, blizzards and tornadoes days in advance will be enhanced. The new high-resolution, low-level weather surveillance from the radar network will also improve with real-time response to rapidly unfolding events.

Parametric-based contracts should see similar improvements. The Climavision network’s increased acuity will furnish improved peril validation, supporting efficiencies in this new underwriting approach that can help shape the risk transfer ecosystem. Initiators, reinsurance, and ILS can more confidently assume risk at an earlier stage, knowing validation and triggers can be settled with improved accuracy and within time constraints. 

This network is designed to reduce the frequency of false alarms, which have long been a serious problem. Carriers should experience better cost containment when planning the positioning and placement of field adjusters, especially valuable for carriers with limited staff. Reduced costs can be reflected in policy fees. 

Access to improved weather data and forecasts will benefit the insurance industry by removing uncertainty and better allowing for pricing risk; providing for improved planning; and allowing for more detailed forensic analysis post-event.

There has been no shortage of events from various sources this year observing the 50th anniversary of the Report of the National Commission on State Workmen’s Compensation Laws. It remains elevated among the many reports on state workers’ compensation systems that have been issued by the federal government and other public and private sources in the years subsequent to its publication. Perhaps this is in large part due to lack of clarity of what workers’ compensation is supposed to be in the 21st century and where it fits within an increasingly complex employment, healthcare and technology environment. 

It is simply not enough to call workers’ compensation a social benefit program of enduring duration. Workers’ compensation is a multibillion-dollar “industry” where those who provide innovation, services, and support have as much say on public policy (and operational) decisions as the so-called true stakeholders in the system.  But, particularly over the past decade, there has been little policy discussion about the way in which benefits are delivered. Instead, we are locked into the eternal conflict of how much, when and who gets to decide.  

Nearly 45 years after the report was delivered, the U.S. Department of Labor (DOL) issued its own report: Does the Workers’ Compensation System Fulfill its Obligations to Injured Workers? (2016).  As you might imagine from the title, the answer was “no”:

“The political focus on reducing costs for employers grew, and, by the early 1990s, benefits came under attack. Various new legislative changes were championed as ‘reforms.’ It was a race to the bottom: as each state compared its statute with those of neighboring states, found areas of greater generosity and moved to change those provisions of its law. The political conversation shifted, and the ability of workers and their allies to hold back this tide waned as union membership and strength declined.

"The resulting legislation has, in many states, diminished this already weak safety net for workers. Changes have focused on worker behavior and ‘fraud,’ rules governing eligibility that result in exclusion of claims from the programs, restrictions on provision of medical care and substantial limitations on benefits for injured workers. Although not every state has followed each trend, the trend lines are clear: The number of states that cut access to benefits significantly outnumbers those that have increased or maintained benefit availability in the period 2002 to 2014.” (p. 13)

This assessment was echoed in a number of publications during the same period. (See Rutgers University Law Review, Volume 69, Spring 2017, Issue 3. See also the American Public Health Association, The Critical Need to Reform Workers' Compensation.) The DOL report builds on a prior DOL report from the Occupational Safety and Health Administration (OSHA): Adding inequality to injury: The costs of failing to protect workers on the job (2015).

On July 11 of this year, the DOL hosted a panel discussion titled, “50 Years after the National Commission: Is the Workers’ Compensation System Serving Injured Workers?” The department said the event was an opportunity to highlight the question of whether the workers’ compensation system is actually providing economic security for injured workers and their families, especially for the most vulnerable workers.

In response to the question, Office of Workers’ Compensation Programs Director Chris Godfrey stated:

“In the 50 years after the National Commission, we’ve seen a period of initial expansion, then a race to the bottom in most state workers’ compensation systems, [ … ] Millions of working people injured in the workplace are at great risk of falling into poverty because of the failure of state workers’ compensation systems to provide them with adequate benefits.”

Things Have Changed

However, these assessments miss the mark. A more important examination would be to integrate these comments with the work being done by researchers and payers of other disability and healthcare systems.  It would also help if people would begin to appreciate how the workers’ compensation system responds based on type of injury and the size of the employer. 

We are indeed living in a tale of multiple systems. Making broad-based conclusions without regard to reducing barriers to allow employers to manage workers’ compensation liabilities as part of an integrated employee benefit program, including Employee Retirement Income Security Act of 1974 (ERISA) and voluntary benefit plans, sticks stakeholders in a 1970s paradigm from which they cannot emerge. In other words, how does workers’ compensation fit in a broader employer benefit structure? 

This is not a question that could have been answered in the early 20th century. It is a question that perhaps was worth raising in 1972, but the report predates ERISA.  

This is also not a question about “opt-out” plans. The point is coordinating plans, not replacing one with another. The DOL has, however, continued its invectives against these proposals, effectively helping to  isolate that alleged vehicle for the race to the bottom to a parking lot in Texas. As noted in their 2016 polemic:

“Some state legislatures continue to attempt to reduce workers’ compensation costs, and proposals for statutory amendments that restrict workers’ benefits or access have become increasingly bold. Notably, there have been legislative efforts to restrict benefits and increase employer control over benefits and claim processing, most dramatically exemplified by the opt-out legislation enacted, and recently struck down by the state supreme court, in Oklahoma and considered in Tennessee and South Carolina, among other states.”

Sometimes, however, employers and workers may actually benefit from disrupting the workers’ compensation status quo. Consider laws in Alabama and Colorado that have labor and management support to address the issues of cancer and heart disease among firefighters. In the case of Colorado, it comes with the tacit acknowledgement that the device of choice – presumptions – to force more claims into the workers’ compensation system was not worth the friction it created:

“Nine years of experience has shown that the rebuttable presumption established by House Bill 07-1008 has produced no demonstrable benefit to firefighters but has led to significantly greater costs to employers of firefighters.” Colorado Legislature, Senate Bill 214 (2017) 

The result of this legislation was the establishment of the Colorado Firefighter Heart and Cancer Benefits Trust.  As noted by the Internal Association of Firefighters (IAFF):

“The Trust was established with input from the CPFF (Colorado Professional Fire Fighters), the Colorado State Fire Chiefs and the Colorado State Division of Insurance and representatives from local state and special district fire agencies. Each entity, including the CPFF, has a representative on a board of directors managing the Trust, which is funded by contributions by state and local employers. However, fire fighters who choose to join the Trust are no longer part of the state workers’ compensation program.

"CPFF President Mike Frainier, who sits on the Trust’s board, says the Trust has been hugely successful and popular among Colorado fire fighters, providing essential benefits in a more efficient manner than with the state’s cumbersome workers’ compensation process.”

As noted by the Trust:

“In 2007, statutory changes in Colorado presumed cancer to be a workers’ compensation issue for firefighters. The intent was to ensure quality care for the state’s fire service professionals. But for firefighters affected by cancer, this often meant long legal battles and invasive medical inquiries to obtain benefits.”

Yes, it is an “alternative” program. No, it is not one of the vehicles participating in the “race to the bottom.” 

In California, so-called alternative dispute resolution (ADR) programs can allow labor and management to, “… negotiate any aspect of the delivery of medical benefits and the delivery of disability compensation to employees of the employer or group of employers that are eligible for group health benefits and nonoccupational disability benefits through their employer.” [Labor Code § 3201.7(b)(2)]

Should not the DOL and others encourage this type of behavior and not continue a decades-long diatribe that has as its essence trying to figure out how workers’ compensation can alleviate financial stress on Medicare, Social Security and healthcare plans under the Affordable Care Act?

See also: The Future Isn’t What It Used to Be

Return to Work

The report also predates, by almost two decades, the Americans With Disabilities Act (ADA) (1990) and was published over 30 years prior to the Americans with Disabilities Act Amendments Act of 2008 (ADAAA). These subsequent acts could reasonably call into question the report’s unqualified endorsement of second injury funds – or, as it is known in California, the Subsequent Injury Benefits Trust Fund (SIBTF). 

Then there are the various initiatives trying to place more people in the workforce. Per the DOL – the same DOL characterizing workers’ compensation reforms over the past few decades as being a “race to the bottom” – the most recent of this was when:

"The Workforce Innovation and Opportunity Act (WIOA) was signed into law on July 22, 2014. WIOA is designed to help job seekers access employment, education, training and support services to succeed in the labor market and to match employers with the skilled workers they need to compete in the global economy. Congress passed the Act with a wide bipartisan majority; it is the first legislative reform of the public workforce system since 1998.”

Why is it that state workers’ compensation systems too often fail to link the reemployment needs of injured workers to broader programs intended to give people the opportunity to reenter the workforce? This is not about accommodating disabled workers; it is about workers’ compensation systems taking so long to resolve cases that employers cannot always afford to retain workers – a problem particularly acute for small employers. 

Are we really saying, citing California as an example, that the $73 million spent on the Supplemental Job Displacement Benefit (SJDB) is money well spent? And in deference to the authors of the report, while vocational rehabilitation is very important in an effective workers’ compensation system, it is an obligation that needs to be recast, not reinstated. California’s experience culminating in Assembly Bill 227 (Vargas) in 2003 suggests that, when left to its own devices, rehabilitation becomes something less than an optimal part of the Grand Bargain, at least for employers and workers.  

There are billions of dollars of public and private capital devoted to lessening the economic burden of those who have suffered a disabling injury. Some of that capital is consigned to occupational injury or illness (workers’ compensation). Some of it is used for public programs such as Social Security Disability Income (SSDI). And more is also devoted to employer-sponsored and voluntary ERISA plans covering short- and long-term disability, supplemental health care, cancer payments and other programs where money is provided directly to individuals. Then there is health insurance. 

Each of these programs is administered differently, financed differently and regulated differently. In the case of workers’ compensation, this benefit program is unique because it imposes a non-transferable obligation on the employer at injury for lifetime benefits.

So, before talking about a “race to the bottom.” maybe we should create an environment where each of these benefit vehicles can at least run on the same course. 

ITL: 

You intrigued me with a recent blog post, under the headline, “From Agents First to Agents Last,” and I was hoping to explore that idea with you.

Mark Breading:

There's a revolution going on in P&C distribution across all segments, not just in personal lines but in commercial lines, as well. As part of that, the role of the agent is changing, right?

It’s just the natural evolution of our digital world. Customers are coming to insurance through these different digital on ramps that are on the internet and on their mobile devices. There are still situations where people are going to say, “Hey, I know my local agent down the street. They sponsor our kid’s baseball team.” But that’s less and less of the reality.

I’m very pro-agent. I think there’s absolutely a role for agents, even in commodity-type businesses in personal lines. But I don’t think we’re necessarily going to go to our agent first. People are savvier, right? They understand a little bit more about what their expectations are and what their needs are and may have done some of their own research. They're also on these other digital sites that offer insurance as an adjacent service.

So, the agent won’t be a transaction processor. The agent’s role will be to provide advice and counsel, and they probably have to up their game in terms of being risk experts and trusted advisers.

ITL:

If I'm an agent, how do I position myself for this transition, on the front end? If somebody isn’t going to see me because I sponsor a team and isn’t going to walk into my office, I'm going to have to somehow position myself to be found by people in a way that I haven't had to before, right?

Breading:

I think there are a couple of things. You have to raise your level of expertise and be more of an adviser. That’s especially true because of smart homes and telematics and connected vehicles and so on. Agents have to be aware of all those things and how they play into risk.

Agents also have to be more digital and more connected. One of the reasons there's such an M&A wave across the distribution world is that agents need more scale. It’s getting harder to compete as a mom-and-pop agency if you don’t have the kind of digital platform, the digital tools, the analytics to understand customers that everybody else has.

You also need partners to connect to these different digital on ramps. People don’t just do a Google search for insurance. They’re on TikTok or Amazon or some other place and getting advice. Agencies need to make those connections.

ITL:

If you were to draw up a blueprint for a prototypical agency five years from now, what would Agency 2027 look like?

Breading:

I would say the first thing is to diversify the book, if it's not already diversified. Anybody, for instance, who is predominantly writing personal auto or maybe auto and homeowners will find that the Teslas and others are getting into the game. So, you should diversify into a mix of commercial and personal lines.

Then you should build a digital enterprise. It’s hard to talk about being an enterprise for a 10- or 15-person shop, but the concept is there, right? You have to do business digitally and be able to connect to carrier partners or wholesalers or MGAs.

Agencies need to have the right APIs [application programming interfaces] and everything else to also plug into intermediary distribution platforms like the Bold Penguins. These companies are gaining traction and are especially interesting on the commercial side. They’re becoming important players.

If I’m the agency, I think it'd be confusing. How many of these platforms do I need to connect into? Who should I connect into to do my comparative rating and help me with data prefill and other things to make my life easier?

A very large broker or agency can hedge their bets and connect to a whole bunch of them. If I'm smaller, it's a tougher choice, right? You can't connect to everybody, and there are going to be winners and losers.

I call it “the mess in the middle.” Too many players are trying to connect distributors to carriers. If I just look at small commercial, there are over 20 of them that are visible and prominent. So, there’s going to be consolidation. There will be some failures.

It's a complicated and evolving picture, but we're really spending a lot of time focusing on that area.

ITL:

Thanks, Mark.

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Mark Breading Mark Breading is a partner at Strategy Meets Action, a Resource Pro company that helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today's highly competitive environment and gain clarity on solution options and vendor selection.

 

Change management is a term people have thrown around a lot over the last few years. As companies transform, or try to transform, they face new and often unexpected challenges that force them to rethink the way they've done almost everything to that point: hence, the need for change, and for change management.

As insurance carriers modernize their core platforms and other technical underpinnings, they would be remiss to ignore how industries like banking have approached change--what they've done right and wrong, and how they've miscalculated or overstepped.

There are certain things every successful (and unsuccessful) core transformation has in common, no matter the industry, and these things certainly apply to the insurance world.

Let's take a look at what core transformation for insurance looks like, starting with the most common mistakes to avoid.

Core transformation missteps

Core transformation mistakes almost always involve some lack of foresight. This usually manifests itself in underestimating the change to people, processes and technology.

• People: Issues can stem from communication breakdowns and poor personnel change management
• Processes: It's typically about lackluster adoption of new ways of working
• Technology: Companies often lack adequate understanding of how a given solution will affect, or is already affecting, the business

When you mix in the complex dependencies of insurance underwriting, policy administration, claims management and other core functions unique to the industry, the potential for failure is relatively high.

The three most critical mistakes associated with insurance core transformations are:

1. Failure to align: Specifically, companies fail to define a clear destination that includes benefits for every employee
2. Forced culture change: Culture can and must change--but you can't force it faster than employees can accept
3. Weak internal ownership: Companies that expect vendors to lead the deployment of the new system are at a high risk of failure

Each of these pitfalls naturally affects the others in a kind of domino effect. In the case of forced culture change, for example, new processes come up against opposition, which results in a reevaluation of the tech solution, which then results in reduced trust in the vendor or implementation team. Before you know it, you have a failed core transformation project that you need to rebuild from the ground up.

Ultimately, avoiding mistakes comes down to effective change management in the key areas of people, processes and technology.

Here's how to successfully transform your insurance core:

See also: Core Systems: Starting a Whole New Game?

Implement people practices that drive successful change

Organizations must understand that people drive any organizational change.

Proper alignment and expectation-setting tend to start strong but break down during the scoping and building process as challenges emerge. This tends to happen in companies viewing the project through a waterfall lens--i.e., with a neatly defined scope, budget and timeline upfront.

But the thing is: You can't plan for every event. If you're driving across the country, would you plan for your car to break down? No. But if it does, then you need to change your plans quickly and on the fly to address that issue and prevent it from derailing your trip entirely.

Anticipate and answer natural questions

The specifics of getting from point A to point B are important, but they must fall in line after proper internal alignment.

For example, key stakeholders should understand:

• "What's in it for me and my team?" Beyond digital transformation for its own sake, how will this project benefit claims, underwriting, distribution, etc. and help the team achieve their goals?
• "What are the project milestones?" Breaking the project down into broad, iterative phases will help you avoid the trap of rigid thinking. It will also illustrate how the timeline may be affected if one milestone is shifted or prolonged
• "What role am I playing?" Stakeholders will benefit from knowing what hard and soft skills are required of them, with an emphasis on the latter. When role change is imminent within an organization, visionary and compassionate leadership helps departments shift gears

With a shared, high-level understanding of the project destination and the anticipated milestones on the way, implementation teams have more power to contribute in meaningful ways.

Having a team that's adaptive is essential. Transformation needs to be top-down and bottoms-up. Everyone involved understands why we're going somewhere.

Form your implementation dream team

Successful implementation teams are truly cross-functional and include reps from all sides of the business that the transformation will touch. The best teams include future-forward decisionmakers from within each department. These people may not be your longest-tenured, but they're the ones who understand the most about the future that's needed, and they have a burning desire to change.

Successful implementation team members are collaborative and action-biased. The best teammates I've ever had were great communicators. I don't mean they were great orators--I mean they could listen. They could understand the challenges and make decisions based on that understanding.

Focus on roles, not titles

Members of your implementation dream team must have substantial knowledge of and experience in:

• Enterprise architecture, for evaluating the structure of existing and new solutions and ensuring it all fits together
• Change management, for managing people, processes and tech changes
• Program or project management, for roadblock removal and staying on target
• Business analysis, for ensuring the solution aligns with business goals
• Engineering leadership, for helping the business, architects and systems integrator/tech partners think critically and communicate around technical challenges effectively

One person may be able to fulfill several roles on the same team, but, more often, teams will have more than one person fulfilling each function. It is also beneficial if a team member has a good historical understanding of how the company got to the place it is now.  This can help in choosing how hard to push and which processes are culturally based vs system-focused.

Use reasonable processes that fit your organization's pace

Some companies expect to change their processes only after the new core policy platform is about to go live. This can result in a variety of undesirable outcomes:

• Fast, forced culture change
• Unnecessarily prolonged launch
• Development and oversight process mismatch

Process transformation needs to start at kick-off and happen at a reasonable pace for your company and the way it operates.

If your company wants to deliver in five weeks, is your culture going to allow that? If not, how do you get out in front of that culture early to accelerate change?

The same principle applies to your development team, including vendor-driven processes, if applicable. While some form of agile development is likely practiced within insurance businesses, it may not be at the level that agile tech requires. Plus, true agile has weaknesses of its own, and a complete shift may not be needed.

At the beginning of your project, run an agile session or training. Ask: What are the things that we can implement today? What are things that the company is going to push back on and why? Okay, let's put that in the change management plan and start greasing the wheels.

The outcome should be an empowered team that can make decisions and implement them.

Maintain ultimate ownership

Vendor selection is a lengthy and eye-opening process. After weeks of reviewing technical data sheets and eyeing high price tags, insurance companies are vulnerable to either granting or demanding too much project ownership from the technical experts. But tech is only part of the formula for a workable tech update.

Insurance companies hire vendors to provide best practices but are still the experts on their own company and culture. Insurers must guide their partners on that cultural aspect, including where they see the project coming up against opposition.

Keep in mind that vendors are always changing their products and processes in response to customer demands. There's anxiety that helps you learn and anxiety that makes you freeze. The anxiety that makes you freeze is the one that contributes to implementation failure.

Adopt technology that makes sense in the modern world

Finally, successful insurance core transformation comes down to adopting the right technologies. In a competitive tech ecosystem, it's easy to forget that the tech exists for you--for your customers, employees and business--not the other way around. Just as keeping the end in mind is critical when it comes to effective people management, it's true in vendor and tech selection, as well.

Keeping the end in mind looks like:

• Understanding today's software engineering best practices and the costs of supporting them
• Knowing how a given solution would connect with existing applications and potential future applications. Remember that you have already invested in other applications; new systems should help capitalize on those investments
• Refusing to select a vendor based on price and opting instead to select based on industry experience and product vision and quality

There's a saying: "Buy cheap, buy twice." This is all too common with software vendors. Choosing inexpensive vendors can lead to complexity and over-customization, which ultimately leads to scope creep and significant drainage of internal resources.

In contrast, vendors offering industry-proven products that are complete (workable without heavy customization) and flexible (light lift to integrate with existing systems) allow insurance companies to meet basic project goals quickly and iterate from there.

See also: Data-Driven Transformation

What insurance core transformation success really looks like

Carriers that emphasize the core in core transformation will succeed. View updating your outdated core systems not as a cost of doing business but an opportunity to stay true to your company's vision and values.

Every successful core transformation looks slightly different, but they all include:

• Alignment on the why, including a companywide understanding of the desired destination and what it means for the business
• Empowered, cross-functional implementation teams that drive the project with a top-down, bottom-up mentality (as opposed to the vendor driving)
• Process transformation that starts at kick-off and at a reasonable pace for your company
• A solid technical foundation that's comprehensive yet flexible

As part of its attempts to push the frontiers of technology, Meta recently unveiled a chatbot powered by artificial intelligence that draws on the vast stores of knowledge on the internet. The results, well... they haven't always been quite what Meta hoped.

The AI, known as BlenderBot3, described Meta founder and CEO Mark Zuckerberg as "creepy and manipulative." Asked about the company's massive plans for the Metaverse, the bot dismissed it as likely passe, adding, "Facebook still has a lot of money invested in it and will likely continue to do so for years to come." Of Zuckerberg, the bot said, "It is funny that he has all this money and still wears the same clothes!"

Count this as your occasional reminder that AI isn't magic. It is only as good as the information it draws from, and it very much needs adult supervision. 

A Microsoft attempt at a chatbot had already made clear back in 2016 that the internet is a cesspool of information for an AI to draw from. The bot denied the Holocaust, was wildly misogynistic... and was swiftly yanked. 

A Fortune newsletter says BlenderBot 3 headed in the same direction, before being reined in by its human handlers. "BlenderBot 3 quickly took to regurgitating anti-Semitic tropes and denying that former President Donald Trump lost the 2020 election," the newsletter says. "It also claimed in various conversations that it was Christian and a plumber."

If you're so inclined, you can play around with the chatbot here. (There may be restrictions outside the U.S.) I'll warn you that it doesn't seem to know much about insurance. When I asked it about some of the intriguing names in the industry, the bot told me that Hippo was founded by Mark Pincus -- who actually founded video game maker Zynga and had nothing to do with Hippo. The bot told me that Lemonade was founded by Benjamin Franklin in 1752. 

"As an American, I am very proud," the bot added. "That was the first American insurance company!"

When I asked about terms such as the protection gap or requested advice on whether to buy life insurance, the bot seemed defensive. It continually asked why I wanted to know, or who told me to ask that question. Finally, it shut me down.

"Well, personally, I don't get too involved in the insurance side of things," the bot wrote. "I am a real estate agent and tend to focus on that."

Meta argues that this version of the bot is far more advanced than prior versions and that the only way for it to keep progressing is to let it loose in the wild, so the bot can see what people say to it and learn better how to answer with appropriate, useful information. Meta says it is supplying guard rails to keep BlenderBot3 from being consistently offensive -- while realizing that some craziness is inevitable. And the company is surely right.

But I'm less concerned with how quickly Meta will be able to produce a general-purpose chatbot as a front end to the internet. (It'll be years, trust me.) I'm more concerned with the abundantly clear lesson that the bot can provide for those responsible for the many uses of AI in insurance:

AI is incredibly powerful and is getting more so by the week, but it isn't a panacea; it depends totally on the quality of information fed to it: and it requires continual supervision. We don't need to bow to our new robot overlords just yet. 

Cheers,

Paul

According to recently published data by HealthView Services (healthview retirement hcare costs), a healthy, 65-year-old couple can expect to spend $662,156 in retirement on healthcare, and the situation is growing worse at an alarming rate with 12% inflation in the cost of healthcare projected for the next two years. After that, inflation is expected to return to its already high level of around 5.9%.

When we look at the various cost drivers within the industry, we see that drug costs are increasing at the fastest rate – and the industry raises prices semi-annually. At the beginning of 2022, prices went up an average of 6.6% in just six months, according to a report in the Wall Street Journal. WsJ drug increases

Two mega entrepreneurs have entered this very lucrative space: Amazon and Mark Cuban. Will they disrupt things in a way that delivers more efficiency and value for Americans? 

To find out, let’s define the problems in the current system and assess whether Amazon's or Mark Cuban’s business models will solve them. 

The largest problems in the current model:

1 - Rebates

Rebates are dollars that are paid to different players in the supply chain to get a drug added to the list that members can access with their insurance – the formulary. in many prescriptions, rebates account for 20% to 30% of the price that we pay when accessing them through our health coverage. Rebates can be as high as 60%. Insulin is a prime example. Millions of Americans rely on prescriptions like Lilly’s Humalog to manage their diabetes. A box costs $550. $330 is the rebate, and that leaves $220 as the actual price without the rebate. Lilly manufactures their own “authorized generic” of Humalog, Insulin Lispro. The generic sells for $250 and does not have a rebate. So… they make more from the generic than the brand. 

To fix the high cost of prescription drugs in America, we will need to end rebates.

2 - Nonexistent Fair Cash Pricing

Pharmacies that take insurance (basically all pharmacies) are contractually prohibited from offering a cash price with a fair margin to consumers. These pharmacies are not allowed to offer a cash price that is cheaper than the “discounted” price that members get by using their insurance – even though many drugs would be dirt cheap if this were allowed. Take Montelukast (generic Singulair for asthma/allergies) as an example. The “cash price” that pharmacies can charge by their contracts is $400 for a 90-day supply. The “discounted/insurance price” is $25 for a 90-day supply, and the “fair cash price” is $34.50 for an entire year's supply. Put another way, price per pill of the manipulated cash price is $4.44 vs $0.095 fair cash price.

To fix the high cost of prescription drugs in America, we will need to enable fair cash pricing.

3 – High Pharmacy Markup on Generic Drug Costs

While the pharmacy benefit managers are piling onto the cost of brand and specialty drugs, some pharmacies (especially national chains) are having a similar impact on the cost of generic drugs. As an example, Atorvastatin (generic for Lipitor), when filled at a national pharmacy, can cost the health plan as much as $1/pill. In contrast, when the same drug is filled at the Costco or other discount pharmacy, the cost to the health plan is $0.06/pill. While these are both small numbers, they add up to very significant dollars throughout the system.

To fix the high cost of prescription drugs in America, we will need to gain transparency around generic drug pricing at the plan level.

See also: 11 Ways Amazon Could Transform Care

So, now let’s look at both Amazon Pharmacy and Mark Cuban Cost Plus Drugs (MCCPD) to see if they solve these problems.

Rebates:

When we look at each of these drug companies, we see that Amazon pharmacy does not disrupt the rebate model that inflates the cost of many drugs in our system. MCCPD is only dealing in around 278 generic drugs at this point, so rebates are not yet applicable.

Fair Cash Pricing:

In the case of fair cash pricing, MCCPD is a disruptor while Amazon Pharmacy is not. MCCPD does not take insurance, and this allows freedom in determining a fair cash price. In their business model, they sell their list of drugs (about 100 generic drugs for now) at cost plus 15% as well as a $5 transaction fee and $3 for shipping. 

High Pharmacy Markup on Generic Drug Costs:

As in the case of fair cash pricing, MCCPD is a disruptor in this area while Amazon is continuing the status quo. With MCCPD’s model of cost plus a 15% markup, they will deliver many drugs more competitively than traditional pharmacies.

After looking at both models, neither Amazon nor MCCPD has come up with a new idea, but Mark Cuban’s new company has the potential to bring much-needed disruption to the industry. While others have set up pharmacies that do not take insurance – and some have pricing that is even lower than MCCPD – none of them have had the resources or branding of Mark Cuban behind them… And, that could make all the difference.

Turn on the TV, and it’s impossible to avoid commercials for insurance products. Some captive and direct carriers flood the market with advertising to funnel leads to their agents and websites. Independent insurance agents, on the other hand, rely on relationships and great service to differentiate themselves from the competition. The pandemic has accelerated consumer preference for digital interactions, making it increasingly difficult for agents to build lasting, trusting relationships with policyholders.

Fortunately, a simple policy add-on that costs just a few dollars each year is a hidden tool in the agent’s toolbox: the roadside assistance policy rider. Roadside coverage can improve brand loyalty, unlock customer insights, strengthen existing sales channels, create referral and cross-selling opportunities and improve policyholder retention. It’s a powerful tool for building business and strengthening relationships with both customers and the insurance carriers.

Critical touchpoint builds brand loyalty

Auto accidents – thankfully – occur infrequently, meaning most interactions with policyholders take place only at signup or renewal. Consumers don’t get many chances to actually "use" their insurance to see what value it delivers to them. But each year, one in two drivers experience a roadside event (e.g., dead batteries, flat tires, lockouts, etc.), and overwhelmingly these consumers express feelings of frustration, worry or anger during the event. Being the hero for policyholders in their time of need increases the value they derive from the relationship with their agent. 

With today’s fickle consumer, it is important to identify opportunities to improve affinity. Customers who use their insurer’s roadside coverage say it improves their brand experience. In fact, these consumers have an auto policy renewal rate 11 points higher than consumers who handle a roadside event without their insurer's support, according to Agero's industry research. This reinforces the peace of mind that roadside coverage delivers.

See also: 3 Tips for Improving Customer Loyalty

Usage unlocks insights

Beyond brand loyalty, roadside assistance can provide timely insights, offering a deeper understanding of policyholders’ unique situations and needs. For example, with Americans driving more cars, more miles and owning them longer than ever before, they’re likely to experience more breakdowns. Agents can see what percentage of policyholders’ vehicle experienced an event and how that can change as those vehicles age. Similarly, understanding the number of miles a policyholder’s vehicle is typically towed can help with determining and adjusting coverage levels based on historical data. Helping policyholders mitigate these types of situational risks has significant value.  

Positive experience opens new sales channels

What’s more, a positive roadside experience unlocks countless opportunities to bolster an agent’s reputation and strengthen relationships with policyholders. For example, successfully resolving these events can be a boon to business, shedding light on customer success stories that can be used for referrals, social media testimonials and more. Those happy policyholders are more likely to purchase additional products and services, opening the door to new opportunities for cross-selling or up-selling.

Retention is the ultimate outcome

It’s important for independent agents to understand how the roadside assistance policy rider can benefit both the business and customers. Roadside programs are a key weapon that independent agents can rely on to not just provide a good customer experience during a policyholder’s time of need but to also improve customer retention. As mentioned, policyholders that used their insurance roadside policy to resolve an event had an 1,100-basis point increase in renewal rates compared with those that did not. 

Most drivers aren’t using roadside benefits from their insurer

Our research suggests that four out of five drivers have some form of roadside coverage. In fact, about three out of five have multiple policies, such as through their insurance and a motor club, auto manufacturer warranty, credit card, etc. Yet just a quarter of consumers with multiple coverage options choose to rely on their insurer. 

That’s unfortunate because roadside is an ideal time and place to build attachment and loyalty with policyholders. For two-thirds of drivers, they’re not even aware of their insurance coverage. Simple steps like reminding policyholders of their coverage – via mail, email or even text – and explaining that “roadside” doesn’t mean only those events that happen “on the side of the road” are shown to increase usage (a majority of events actually happen in consumers’ driveways).

Roadside assistance is about people, not cars. These events are a moment of truth for one-half of drivers each year, introducing opportunities to engage policyholders, strengthen relationships, deliver additional value and enhance their experience. The more agents encourage customers to use roadside assistance, the more likely they are to see success in customer affinity, up-selling/cross-selling, referrals and retention.

In today’s volatile environment, insurance companies have their challenges, particularly as they continue to go digital and seek to perform deeper analytics to identify areas for improvement. However, recent years have also unearthed compelling new opportunities for them, resulting in better experiences for customers and significantly greater competitive advantages. Before we look at how insurance providers can identify new opportunities, it"s best to start with the most common barriers to success. 

Insurance Industry Challenges

The insurance industry continues to undergo a profound digital disruption that is pushing the envelope toward more advanced analytics. According to a Deloitte survey, 95% of insurance companies expected an increase in advanced analytics. Technologies powered by robotics and artificial intelligence/machine learning (AI/ML) are enabling claim adjusters to automate key processes, such as the analysis of damaged photos, which is especially important when the areas needing repair are dangerous for an assessor to review. As AI/ML capabilities become more sophisticated, they will also be expected to play a larger role in complicated tasks like exception handling. 

At the same time that insurance companies are grappling with ways to support these new forms of analytics, they are also managing large-scale modernization activities from on-premises systems to cloud-based ones, in an effort to reduce costs while gaining agility and flexibility. Unfortunately, in addition to offering solutions, cloud modernization initiatives often present a few challenges of their own, such as downtime. They also face an inability to seamlessly integrate cloud and on-premises data and leverage the cloud systems for advanced analytics, because they each require real-time access to a wide variety of data sources, including not only text but also voice, streaming data, third-party data and various other structured, unstructured and telemetry-based sources.

In addition, insurance companies are often held back by compliance activities, which complicate and add time to modernization efforts. Regulations such as the Gramm–Leach–Bliley Act, HIPAA and the NAIC Insurance Data Security Model Law all add cycles to datacentric processes. Compliance is especially difficult when data is spread across myriad disparate systems, each with their own access protocols, as compliance reports can take several weeks to produce. More often than not, privacy regulations like the GDPR will put the brakes on new modernization activities, as organizations seek to restrict the number of copies of personally identifiable information (PII) and understand/limit who has access to it. 

See also: Data Security to Be Found in the Cloud

Helping Insurance Companies Create a Modern Data Infrastructure

But how can insurance companies gain data maturity, so they can modernize at will and respond to business and technology changes with agility? Better yet, how can they leverage advanced analytics, protect personally identifiable information (PII) and comply with the numerous regulations? The simple answer is, “with a logical data fabric.” 

Logical data fabric is a modern paradigm that was engineered in response to the disadvantages of traditional enterprise data warehousing, which are forced to rely on the physical replication of data. Until recently, data replication was the only approach, but it is time-consuming, expensive (as it requires new storage capabilities) and complex because it is often accomplished via scripts, which must be re-written, tested and deployed for any given change. 

Complicating matters is that traditional extract, transform and load (ETL) processes that support enterprise data warehousing cannot flexibly support advanced data requirements because they often result in multiple versions of the truth and cannot easily accommodate the needs of different groups. As a result, insurers find themselves with a data infrastructure that is intrinsically difficult to govern and doesn't facilitate compliance activities. 

Data fabric integrates data across platforms and users, making data available everywhere it’s needed. With in-built ability to read metadata, data fabric is able to learn what data is being used. Its real value exists in its ability to make recommendations for different and better data, reducing data management by up to 70%, according to Gartner. This may be because, rather than relying on physical replication, a logical data fabric uses data virtualization to provide access to enterprise data, in real time, while leaving the source data in its original location. This avoids costs related to storing, provisioning and synchronizing newly copied data. 

Unlike ETL processes, which are implemented as needed to support individual source/target data transfers, data virtualization is implemented as an enterprise-wide data-access layer between a company’s data sources on one hand, and data consumers such as people or applications. The data virtualization layer contains no copies of source data; instead, it holds the necessary intelligence to access data directly from the source, as needed. With this architecture, data virtualization enables stakeholders to implement global data governance protocols from a single point of control. In addition, it allows organizations to upgrade, remove or replace data sources without downtime, rescripting or retesting, all without any impact on their daily operations. 

Using data virtualization, the logical data fabric establishes an adaptive architecture, one that can easily change to support changes in the data infrastructure. This is in contrast to the highly rigid architectures built around ETL processes and enterprise data warehouses.

Adaptability aside, perhaps one of the most powerful benefits of logical data fabric comes down to cost. It provides companies with all the benefits of modernization, but, because logical data fabric works with a company’s existing infrastructure, including both on premises and cloud-based data warehouses, it does not require additional costs or disruptive hardware upgrades.    

Leveraging Data to Create Substantial Benefits

With a logical data fabric, insurance companies can flexibly modernize their data infrastructures and capitalize from advanced analytics, all while greatly simplifying compliance. Insurance companies can use data as a true asset and establish a single source of truth to support the value of data in all of its forms and move away from expensive, limited data-integration approaches. 

Using a logical data fabric, insurance companies can apply a modern, agile approach that also allows them to streamline their data governance efforts and gain unprecedented data maturity, to a point in which data is automatically used to drive all decisions, driving continuous experimentation, innovation and improvement.