Why travel somewhere when you can just pop on a virtual reality headset and be immersed in that world instead? That is the promise of the so-called “metaverse.”

Some companies may be overselling the technology and the role the metaverse promises to play in people’s day-to-day lives, but, even still, it is a good bet that at least some of our lives in the
future will be lived in that virtual space.

Some early adapters are already embracing it, and some businesses are hedging their bets by spending millions of real-world dollars to put in claims on what might eventually turn out to be valuable virtual real estate.

With those initial moves into the virtual world, the list of potentially insurable risks in the metaverse can be long. Hackers could take control of a user’s account, or lock a business owner out of their virtual storefront.

Businesses that can’t conduct transactions may come looking for protection from business interruption insurance policies, or potentially more.

Anyone keeping the private information of another person could have some exposure if that data gets breached.

And anything valuable is at risk of being stolen by someone trying to make a quick buck at their expense.

So, the short answer is that with money comes risk, and with risk comes insurance. While there aren’t any real metaverse insurance policies to refer to today, this might be the time to start exploring how the metaverse might find its way into insurance policies in the near future.

Business insurance in a virtual world

The first reality businesses are going to have to confront when they begin prospecting for metaverse-based property is that there isn’t just one metaverse. Many companies are looking to make their space the default virtual space. That means businesses need to buy into many metaverse platforms, some of which will inevitably go the ways of Friendster or Myspace.

Most business insurance policies don’t say a word about the virtual space, but a good argument could be made that “all risk” or “comprehensive” policies may need to start thinking about underwriting and claims coming from the meta space.

The first policy most companies buy is a business owner’s policy, or a BoP. These don’t tend to protect property the businesses’ property, though, and instead protect against liability.

So, if a company ends up inadvertently spreading a virus that takes down the cyber town, a BoP may be where they turn for coverage.

A BoP might also help if the company’s software caused physical damage to a user – say a company developed a game for the metaverse that started causing users to have seizures or migraines, or to trip over a coffee table, or fall out of a chair. The liability portion of the BoP may step in here. Policyholders probably would be hard-pressed to get their insurers to cover “mental only” losses, though, so, if someone says the software causes stress or anxiety, a successful claim may be harder to prove.

Business property insurance does promise to keep the owner’s stuff safe, but now the conversation quickly needs to turn on what is the definition of “property.”

From an insurer’s point of view, property damage tends to be considered to be physical damage to tangible things. Many policies exclude “electronic data” as tangible property, so some specific language or riders may need to be developed if a business owner wants to be protected from a hacker vandalizing a virtual storefront.

Typical polices do tend to include some language about cybercrimes, especially data breaches and ransomware attacks, but it is unclear if that is enough to protect the millions being spent in the virtual worlds.

See also: Beware the Metaverse

Personal risk

Individual users also need to be thinking about their insurance needs once they slip into the virtual world.

Much like with the business owner’s policy, the question of who would be on the hook if an individual’s private property is damaged in the metaverse would come down to what that person’s homeowner’s insurance policy says. Many homeowner’s policies specifically exclude digital assets, and others require specific riders to get coverage.

So, what would happen if a hacker gained access to an avatar and drained its inventory of all the NFTs the user so lovingly collected? Theft is usually covered by homeowner’s policies, but whether that protection follows the policyholder into the metaverse is unclear.

One place where homeowner’s policies would likely shine is in defamation. Because homeowner’s – and business owner’s polices, too, for that matter – don’t tend to specify where the defamation or advertising injury has to happen to be covered. So, if someone gets sued because they flamed another person in the metaverse and their comments crossed the line into libel, their real-world policies should still stand in to protect them.

Conclusion

Deciding who needs coverage in the metaverse in many ways comes down to who is at risk and who holds the liability.

Is it the businesses operating on the metaverse platform at risk, or does the platform itself hold the liability? Or is the whole metaverse going to be “user beware”?

What do the terms of service say? And are they enforceable in a court of law in every jurisdiction?

Borders also need to be thought of. In insurance terms, that is the coverage territory, which U.S.-based policies tend to specify as the U.S., Puerto Rico and Canada, but how would these policies handle a server housed in Seychelles, or Belize or China?

Many of these details are going to have to be hammered out by underwriters, legislators, in corporate board rooms, in courtrooms or in some combination.

Emerging technologies bring out the prognosticator in everyone. And one of the most certain things is that most people will get it wrong in the early days, but, if there is value, it will find a way to bubble to the top.

And if it is valuable, it is worth insuring.

The original version of this article ran at insurancequotes.com. 

I’ve spent my entire career trying to develop and improve catastrophe and weather-related models and analytics. So, from a personal perspective, if there’s one thought among many others that I would like to get across, it’s a sense of the opportunity to enhance decisions linked to climate risk mitigation and resilience if we use our ever-improving scientific understanding and modeling capabilities wisely.

And I think there’s one thing that holds an important key to unlock that opportunity – openness. When I talk about openness, I don’t mean a willingness from governments and others to set out and stick to commitments to reduce emissions – although that would be rather helpful, of course. I’m referring to two things, actually.

More open-access data

The first being more open-access data. Open-access and curated data can support and encourage improved climate-based risk assessment and decision-making. The public and private sectors should be working together to increase the world’s resilience to current and future climate risk.

It’s essential that those in the climate analytics community come together, wherever they are, to promote the win-win opportunity that comes from the development of publicly accessible, open and curated core data and risk models. The goal should be a global, consistent source of “real” assets data, such as locations of industrial plants and energy transmission facilities, or natural resources, which can be used for both public good and to enable organizations such as WTW to augment the data for commercial applications using proprietary data and intellectual property.

Examples of good work already being done in this area, which should pave the way for more of the same, include the Spatial Finance Initiative’s global asset GeoAsset Data Project, the Insurance Development Forum’s Global Risk Modeling Alliance and the Nasdaq-designed and now publicly curated Open Exposure Database.

As a further indicator of the benefits that this public/private approach can offer, WTW has been working in partnership with the National University of Singapore, flood modelers JBA and open-source public data of real assets to improve understanding of future flood risks in South East Asia.

See also: Time to Move Climate Risk Center-Stage

Common standards for common understanding

My second take on the need for openness, which is linked to the need for better and open models and data, relates to model and data standards and metrics. Right now, there are lots of companies and organizations producing climate hazard models. And as climate science is so fast-moving, they are all making lots of different choices and assumptions for those models. If a multinational business is trying to work out an international climate transition strategy, it almost certainly won’t be comparing the same things from region to region. But the last thing we want in attempting to unify action across the globe to reduce emissions is a VHS versus Betamax situation.

What’s needed is agreement on an open-standards framework for the capture of key climate-conditioned modeling parameters. These should support consistent representation and use of forward-looking models developed by independent modeling organizations to give confidence in the comparison and integration of models across various hazards and regions.

Similar things have been achieved before, but they need someone to take the lead. Nasdaq’s experts did it in relation to the catastrophe model exposure data, OED, which is now used as a common format for a wide range of models from different vendors. And that’s why we’re teaming up with Nasdaq and other organizations to propose a reference framework of standards for climate conditions catastrophe models. 

We’re all in this together

Openness is a subset of collaboration. And if I hear one word used more than any other to describe what’s needed to combat climate change, it’s collaboration.

Let’s make sure that it’s applied in practice to open source data assets and standards that can give us all better and more consistent knowledge about the impact of different future climate transition scenarios.

I'll be quick this week. I'm in Pittsburgh visiting my 92-year-old mother, who finally gave up tennis a few years ago but still takes no prisoners in her duplicate bridge games, and we have puzzles to do. 

But I wanted to pass along a meaty interview that McKinsey did recently with prominent venture capitalist Marc Andreessen. He offers a timely warning for insurers that might be tempted to see the tumbling of tech stocks, including those of insurtechs, as an excuse to slow innovation efforts.

Andreessen says: "The minute tech stocks get hit, a lot of big companies basically say, 'Oh, thank God, we don’t have to take this stuff as seriously.' This happened in a huge way after 2000. One of the reasons why Amazon took off is because all of the traditional retailers, after 2000, said, 'Oh, thank God, we don’t have to worry about this e-commerce thing anymore.' And they just left the field. Borders famously outsourced their online business to Amazon, which, in retrospect, was maybe not the best idea."

His advice: Double down while your competition is relaxing. 

In the interview with McKinsey, Andreessen also makes an intriguing argument for turning the normal innovation process upside-down. Rather than hiring technologists to assist with innovation, he argues, companies should put the technologists in charge of an opportunity and let them run with it.

He makes a more extreme form of that argument that no big insurance company will buy: that the best technologist should run the entire company. He cites Tesla as a success story in an industry where GM, Ford and others are run by traditional managers.

But I think companies should at least experiment with the more limited form of Andreessen's argument. I've written before that technology resources need to move out of the IT department and into the various business operations that they serve, and it makes sense to then see how much technology can drive strategy in those operations. Corporations have increasingly been deploying digital strategies for 25 years now, and it only makes sense that departments, operating sort as fractals of the parent, would be able to see how far they can push the envelope now that IT resources have matured to the point that they don't have to be so centralized. 

Andreessen also lays out three areas that he describes as the ABCs of innovation opportunities. I'm fully on board with the A, artificial intelligence, and the B, biotech -- we've published at length on all the opportunities being created by AI, and genomics is actually improving much faster even than Moore's law would suggest. Those gains will have massive impacts on healthcare and life expectancy and, thus, on insurers. I'm only partly on board with the C, crypto, because, while I see blockchain solving lots of real-world problems, I've never quite figured out what cryptocurrency is supposed to do for me. Yes, fees are still much too high on money that flows through the international financial system, but I don't see how crypto is going to solve that problem, especially when crypto mining already consumes more electricity than all of Argentina. 

Andreessen argues grandly that crypto and Web3 are "building out the other half of the internet" and notes the huge amount of engineering talent that is flowing into the field, but I'm with the McKinsey editor who responds: "A lot of really, really smart people were moving into web technologies around 1998 and 1999. And a lot of those technologies wound up going nowhere."

You can decide for yourself who's right; you've heard my side, and he goes on at length about his.

If nothing else, Andreessen is an original thinker, going back to his days developing the first commercial internet browser in the mid-1990s, extending through his famous essay a decade ago about how software is eating the world and continuing with his efforts to position his VC firm, Andreessen Horowitz, as the marketing engine for their portfolio, moving beyond the traditional role as just financial backer. (I identified Andreessen as clearly brilliant early on, when an interview with him in perhaps 1996 included a sidebar with his five favorite books of all time and listed my look at IBM's travails, "Big Blues," as one of them. I came quite close to convincing the executive team to let me do a fly-on-the-wall book on Netscape, the company built around Andreessen's browser, before the CEO decided he didn't have the time.)

And I'll acknowledge that our relative net worths, rounded to the nearest hundred million, are: Andreessen, $1.6 billion; me, $0.

Cheers,

Paul

P.S. Fun fact: Despite his massive net worth, Andreessen didn't amass the biggest fortune in his family. And the person would bested him did so in the most traditional of ways: through real estate development. That person was his father-in-law, John Arrillaga, who went to Stanford in the 1950s and saw the potential for all the farmland in the area. He bought as much as he could as fast as he could and became one of the biggest landlords in Silicon Valley. He had a fortune listed at $2.5 billion when he died early this year, even after having given away hundreds of millions of dollars, notably to his alma mater. 

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ITL FOCUS is a monthly initiative featuring topics related to innovation in risk management and insurance. This month, we're focusing on Talent Gap FROM THE EDITOR  When my younger daughter was a freshman at Yale, I was encouraged that her intro to economics class included a fairly long section on the economics of insurance -- essentially, an exercise in determining how much people valued the peace of mind they get from having a policy in place. Insurance certainly never came up in any of the economics classes I took way back when, and I took the material as a good sign: A top-tier college was making insurance intriguing for smart, young students.   Alas, I couldn't interest my daughter in the insurance industry. And there seems to be a lot of that indifference going around, based on the persistent concerns in the industry about the talent gap.    Jenn Knight, co-founder and chief technology officer at AgentSync, offers some intriguing thoughts on a way forward in this month's interview.    While I've heard lots of people describe insurance's noble purpose as a draw for talent, Jenn framed the issue as well as I've seen anyone do:   "If your house catches on fire, the first call is to the fire department, and the next call is to your insurance agent. Like the fire department, insurance is an emergency service that helps you get on with your life."   Jenn also explains at length what technology can do to at least remove the annoyances that keep talent from choosing insurance or that may make the industry lose them shortly after they sign on. In particular, she describes how technology can help agencies onboard agents faster and remove much of the load of minutiae that they now have to learn.   It's too late for my daughter. She went to law school and is now practicing in DC. But it's not too late for an awful lot of other talented kids. Let's go get them.   Cheers, Paul    Jenn Knight, co-founder and chief technology officer of AgentSync, lays out an approach that seems like it should be obvious but that somehow isn't. Her approach to attracting and retaining talent? Stop driving it away.  She explains how companies can use technology to onboard talent faster and more efficiently and remove much of the drudgery from their work that can make them seek greener pastures in other industries.  "In the insurance space, agents are going to be attracted to things that help them go out and have those personal relationships and really drive their business forward. How do we as an industry laser focus on improvement of administration work? Talented people demand that they are supported and enabled with effective and usable technology, and are not being dragged through all kinds of hoops."  -Jenn Knight Read the Full Interview READ MORE There Is No 'I' in 'TEAM' But there is an 'i' in 'WIN.' Let’s talk talent. Let’s talk football. Read More Acting on Diversity, Equity and Inclusion Employers who recognize the importance of these issues will capture talent and inspire the workforce. Those who ignore it are at risk. Read More What Are Insurers’ Top Talent Objectives? While talent challenges are nothing new to insurers, new research shows they are prioritizing talent strategies more than ever in the post-pandemic era. Read More Guide: Making Producer Management a Growth Opportunity Sponsored by AgentSync  Download the Guide to Making Insurance Producer Management a Growth Opportunity. It’s free and will give you tips to eliminate complexity, expense, and risk by modernizing processes and systems, delighting your people and partners, while powering your insurance company’s growth goals.  Read More The Future of Work As employees start to return to work after two years of mostly working remotely, smart employers are rethinking just about all aspects of how work is done to get the best of both the home and office worlds. Read More Outsourcing to the Sixth Century A story about monks and nuns doing electronic piecework suggests just how far the gig economy can stretch, if we think about the issues creatively enough.  Read More FEATURED THOUGHT LEADERS Tom Bobrowski Betsy Myatt Bryan Falchuk Ron Rock Mark Breading This Month Sponsored by: AgentSync  AgentSync powers rapid growth for insurance carriers, agencies, and MGAs by offering modern tools for producer management. With its customer-centric design, seamless APIs, and automation, AgentSync's products reduce friction, increase efficiency, and maintain compliance, ultimately helping to improve the broker onboarding, contracting, licensing, and compliance processes.  Founded in 2018 by Niranjan "Niji" Sabharwal and Jenn Knight, and headquartered in Denver, CO, AgentSync has been recognized as one of Denver’s Best Places to Work, as a Forbes Magazine Cloud 100 Rising Star, an Insurtech Insights Future 50 winner, and is ranked 88 in Forbes – America’s 500 Best Startup Employers 2022. View all ITL FOCUS topics

ITL:

In general terms, how would you frame the talent gap that the industry faces?

Jenn Knight:

We really need to be thinking about how we as an industry start to bring people in, in their early 20s, late 20s, early 30s. The way that a digital native operates is different than how I've operated through my life and how generations before us have operated. And figuring out how to be an attractive employer to a group of people that do not look like those currently working for you is a pretty significant challenge. How can you be compelling for them?

ITL:

As a relative latecomer to insurance, it amazes me to see all the people who say they just fell into insurance. I mean, it's a great industry offering great careers. How do you get people to see that?

Knight:

There’s a macro question here. How do you do that for any industry? Right? How is it that we've just decided that tech is cool? Where did that start?

Insurance is a really complicated, fascinating space that supports all of us as consumers in the hardest moments of our lives. If your house catches on fire, the first call is to the fire department, and the next call is to your insurance agent. Like the fire department, insurance is an emergency service that helps you get on with your life. If you frame the industry that way – which nobody did to me until I worked in insurance – it can become something you love and want to do for 10, 20, 30 years.

ITL:

Beyond the framing issue, what are some other challenges to filling the talent gap?

Knight:

There is a technology gap that has to be addressed. People are turned off if they feel they can’t drive enough impact because it's too difficult to go through the onboarding process or to engage with a certain set of carriers, or compliance with regulation is causing most of your day to be administrative.

Before I worked in insurance. I worked primarily in the back office of scaling tech companies and supported sales. The whole job is getting information you need from sales, supporting them with the information they need and getting out of their way so they can be on the phones.

In the insurance space, agents are going to be attracted to things that help them go out and have those personal relationships and really drive their business forward. How do we as an industry laser focus on improvement of administration work? Talented people demand that they are supported and enabled with effective and usable technology, and are not being dragged through all kinds of hoops.

ITL:

People who’ve written for us say that, in the old days, you got onboarded by sitting next to somebody who was 20 years older than you. You said to the person, over and over again, Okay, how do I do this? But talented people today aren’t willing to sit there for two years and learn. You also can’t wait two years for people to become productive. As you speed the onboarding process, are there problems you’re finding easier to solve than others?

Knight:

Everything in the insurance space is somewhat hard to solve. One thing we focused on early is “productizing” institutional knowledge. It's a continuing process because there are so many layers of complexity. But we started with some core aspects, such as, What are the rules you have to follow to get someone licensed? Well, those rules are different by state, by line and by license class, but the issue is something we can tackle.

We thought: Can we build a product that someone who's been doing a job for 20 years can use successfully and appreciate because it speeds them up? Can we take someone who’s new and let them quickly figure out if their five agents are compliant?

There are complex scenarios where you need to sit down and talk with someone or do some deep reading, but even that work can be supported with technology. We've started with situations, such as licenses for adjusters, that are more consistent and are working our way up to more complicated forms of knowledge transfer.

The change can actually be a bit disconcerting for people. They’re used to having to know all this stuff, down to the LOA code numbers, and we’re saying, but you don't have to do that.

ITL:

For a long time, lots of people thinking about innovation in insurance said the solution was to disintermediate the agents. Just get rid of them. Now, people seem to be realizing that the agents aren’t going anywhere.

Knight:

Yeah, we're big believers in the power of the agents. Insurance is super personal. Some of it is more mechanical – I don't get as worried maybe about my car insurance. But agents are here to stay, and that’s a great thing. The question is: How do we make sure they’re doing strategic relationship-building work and not operational, tactical, administrative work?

If you're not actively thinking about yourself as competing for the best talent, then you're probably doing it wrong. You can no longer just be this name and assume people are going to come to you.

It’s getting easier for your competitors to poach your people, too, because LinkedIn makes everyone and their talents so visible now. But the reaction shouldn’t just be fear. If you’re creating an environment where people want to be and you're celebrating their successes, and you're comfortable with them being out there as advocates for your company, they can help you attract that next wave of talent.

More openness, more celebration of people is better for everyone overall, and will help people maybe be more attracted to insurance as an opportunity.

ITL:

In Silicon Valley, there’s a maxim known as Joy’s law, after Bill Joy, one of the founders of Sun Microsystems. It says: “No matter who you are, most of the smart people work for somebody else.” You can fight Joy’s law or learn to live with it.

One last question: While lots of companies are focused on improving the customer experience – as they should be – it seems that the work-from-home experience during the pandemic has created a break point in how people think about the work environment and that smart companies can redesign the employee experience, too, in ways that can address the talent gap. Do you agree?

Knight:

I couldn’t agree more. At the end of the day, the person who is going to make or break your experience with insurance is the person you’re talking to. So, you need to focus on having engaged, happy, supported agents who are getting opportunities to learn more and be better partners who create better experiences for your consumers.

Agent experience empowers customer experience.

ITL:

Thanks so much for taking the time.

About Jenn Knight 

Jenn is the co-founder and CTO of AgentSync. With skill sets that encompass both left- and right-brained thinking, Jenn enjoys tackling the biggest challenges she can find.

Her passion for solving the unsolvable has put her at the forefront of solving the producer license compliance challenges of the insurance industry. After building the basic architecture of what would become AgentSync Manage in her free time on nights and weekends, Jenn's side project grew into a software enterprise that is poised to change the way the insurance industry tackles license compliance and reporting.

Jenn's background leading software development and architecture teams spans many well-known companies, among them Bluewolf, LinkedIn, Dropbox, and Stripe. She focuses on transforming business applications landscapes from disjointed single-point solutions to highly integrated, optimized, and best-in-class platforms. In those roles she learned the importance of building community while tackling difficult business challenges, as trust and humor are essential to navigating the ups and downs of delivery. She is grateful to those who helped her appreciate the journey is just as important as the outcome and works to pay that forward with her team.

Jenn earned a Bachelor of Arts degree in international relations with a minor in French and graduated magna cum laude from Boston University. She learned to code at her first job after college, and rediscovered her knack for logic and problem solving.

Growing up in Petaluma, California, Jenn spent her childhood biking through fields and tinkering with projects. With access to a computer at an early age, Jenn enjoyed deleting files to take apart the operating system before then going and rebuilding it.

As a leading woman in tech, one aspiration Jenn has for AgentSync is to challenge the industry to be better by example when it comes to hiring and maintaining a culture of diversity and inclusion.

When Jenn isn't solving big problems with intuitive solutions, she spends her time with her husband and co-founder, Niji, and their daughter, Inga.

With the stock prices of marquee insurtechs such as Lemonade, Hippo and Root down as much as 95% from their peaks, doubt has been growing for some time about the future of the insurtech movement. Concerns have accelerated as Policygenius laid off 25% of its staff, and as venture capitalists talk about how inflation and the threat of recession are putting pressure on startups across all industries. There is even talk of -- perish the thought -- down rounds (in which startups will have to raise money at lower valuations than they previously held).

So, what does the future hold for insurtechs?

I wrote at the end of January that I thought the future was still bright, especially for insurtechs that serve as what Silicon Valley calls "arms suppliers." Even though so much of the valuations of dot-com companies turned out to be air during the internet bubble of the late 1990s, companies that supplied the "arms" -- servers such as those from Sun and IBM -- still thrived. The same should be true for insurtechs, I reason: There will always be a market for technology that makes insurers smarter and more efficient.

Rob Moffat, a partner at Balderton Capital in London, now weighs in with a smart piece I wanted to share on the outlook for "full stack" insurers such as Lemonade. The headline: "Reports of insurtech's death are greatly exaggerated...."

He goes into some detail on the reasons for the plunges in stock price -- high loss ratios, poor unit economics and slowing growth, as the companies try to deal with those loss ratios and unit economics. (For more detail, check out the smart analysis Matteo Carbone has been publishing with us for years.)

Rob is nonetheless optimistic because:

"There are a number of private insurtech businesses reaching real scale: Zego, ManyPets, Next Insurance, Ethos Life, Alan, Atbay, Coalition, etc. Having seen some of their numbers, I can say that their loss ratios are good, their unit economics are sensible and they are growing strongly. They are achieving this through great execution, and some combination of the following:

• Addressing new markets that didn’t exist before, such as cybersecurity
• Using telematics and novel data to meaningfully reduce losses and fraud
• Targeting underserved segments such as SMEs and the self-employed
• Operating in ‘easier’ lines of business where there is less competition and loss ratios aren’t as tight as in home and motor, such as pet insurance."

He says others can prosper, too, based on the key lessons that we've learned about insurtech, which include:

• "Underwriting is crucial. As an insurtech, you start with the disadvantage of not having a base of loyal good customers. Where are you using tech to give you a real edge over incumbents? But also do you have enough actuarial talent and data to complement this?
• Telematics (real time data) works. Whether in motor or health insurance, telematics data has repeatedly demonstrated the ability to reduce loss ratios. As data collection becomes cheaper and universal, expect telematics to become widespread across many insurance lines....
• Your unit economics have to work. This starts with a good loss ratio, and requires you to have happy clients who stay with you. It also requires you to have a good customer acquisition cost, which in insurance is never easy.
• Automation will bring down expense ratios dramatically, but only at scale.
• Brokers are very hard to dislodge. Many startups have tried to bypass brokers without success. Some of the large private insurtechs above have ended up building a successful broker channel.....
• Disrupting a large sector takes time. Disruptors start off being worse than incumbents in all respects other than one really crucial one. Look at the early days of SaaS or Fintech for examples."

In terms of the Gartner Hype Cycle, insurtech is in the Trough of Disillusionment, having passed the Peak of Inflated Expectations, but we've all seen what happens next in these technology-driven cycles: Real progress happens for those who stay the course. 

Cheers,

Paul 

Telematics enables insurance to be done in a smarter way. Telematics data can be made available as a core component of the analytical rating engine, personalizing pricing. The same data can be used to make personalized appeals to customers as a retention tool, when it’s the right time to do so.

Insurance carriers will better understand their customer profiles and risks, improving sales and profitability, thus making the use of telematics data a concrete opportunity in all geographies.

The U.S. market has focused on using telematics data to enable continuous underwriting that personalizes pricing. We believe this approach will help usage-based insurance (UBI) move to the next level of adoption, convincing motor insurers that driving data is more than just longer something to experiment with because some of the competitors have it. Today, it’s truly an element that cannot be disregarded.

Some insurers worldwide have already successfully introduced a wide range of telematics-based applications. However, motor insurance telematics is still at the beginning of the development curve. Based on IoT Insurance Observatory research, there are fewer than 10 insurers globally with a portfolio bigger than one million telematics-based policies.

In Europe, usage of telematics data has not yet scaled to full potential, and still is rarely used to assess driver risks for modeling. UBI is either a small niche or telematics usage is limited to risk selection and claims management, where it has scaled. The two most advanced markets have been Italy and the U.K., with recent developments in Germany.

In the U.K., UBI is still considered a product for young drivers. In the Italian market, telematics was already present in 22% of the personal motor policies at the end of 2021. Italian personal auto insurance is still globally in a leading position regarding telematics portfolio size, value proposition toward its customers and demand for such services. Many insurers have mastered the use of telematics for self-selection of risks, for claim management and for delivering services to policyholders.

European markets can leverage the recent development in the U.S. market, where the transition to the less expensive, mobile phone-based approach has driven penetration and made the business cases more sustainable. 

The opportunity for telematics will only grow. Consumers love to interact with their smartphones, and digital tools and large tech companies are addressing consumers' needs based on the collected data with highly targeted offers, which consumers seem to like. Carriers' experience will mature, and the cost of technology will keep dropping, making it even more accessible. Data sources will increase, too, letting carriers create a powerful mix of elements and better assess driver risks.

We believe that telematics is becoming necessary for dealing with the future of insurance and that there is a concrete opportunity to use it to operationalize any motor book of business!

In last week's Six Things, when I wasn't simply luxuriating in the notion that I had just given a talk in a palace ballroom on an island in Prague, I laid out my basic theory of what happens when an industry goes digital: It gets stripped down to its essential parts, which can then be rearranged in any number of ways that need not have anything to do with the way things had always been done.

The example I used was photography, whose analog form involved a dedicated camera, film, chemicals, special paper and maybe little yellow boxes from a Kodak one-hour lab, but whose digital form just consists of an image and a way to share it. I noted that, while the digital form of photography sucked almost all the value out of Kodak, it allowed images to be incorporated in new ways in Facebook/Meta, TikTok, Pinterest, YouTube, texting and a host of other apps whose value far exceed what Kodak's used to be. 

I then said that insurance, stripped down to its essentials, consists just of a customer, a yes/no mechanism that determines whether a payment is to be made, and capital -- and that, as the industry becomes increasingly digital, those three elements may take on very different forms, whether through embedded insurance, parametric insurance, direct access to capital markets or any number of other possibilities.

But enough with the back story. That was last week. This week's question is: How can you organize your thoughts about the possibilities that will open up to you as the industry keeps digitizing while avoiding being Kodak-ed?

The answer is a tool called a future history.

The concept stems from a book that Chunka Mui and I wrote, Billion Dollar Lessons, on what can be learned from corporate failures. Jim Collins had done books on the lessons to be learned from major success stories, about how to be like those guys, but we reasoned that there was lot to be learned, too, about how NOT to be like THOSE guys. After we had 20 researchers spend two years looking at 2,500 corporate failures, we concluded that 47% of them stemmed from strategies that could have been identified as brain-dead ahead of time -- no, one of the world's biggest cement companies was not, in fact, actually a home products company that should start making and selling lawn mowers. 

Our solution was what we called a devil's advocate -- someone whose job it is just to gather and surface all the potential problems with a strategy. We have found through our research and consulting that executive teams include people who are aware of all the vulnerabilities, but big issues can get swept under the rug as executive teams try to make the CEO's vision work and shy away from challenging him or her. Such challenges can be career-limiting moves. 

Once you have identified the key vulnerabilities, though, how do you best present them? That's where the future history comes in. 

We reasoned that people respond well to stories. They're how we talk to each other. Stories are memorable in ways that individual facts are not. They connect the dots, too. X led to Y, which led to Z.... B didn't happen, so C and D couldn't, either....

So, we suggested that people pick a date well into the future, perhaps five years, and write a story that assumed that their strategy had failed. You set a dateline of, say, June 14, 2027, write a lede about something dramatic -- senior staffs often suggest starting off with the CEO being fired, though CEOs are often less enthusiastic about that idea, for some reason -- and then produce a "history" of the strategy's failure. Customers didn't do what you expected. Competitors were surprisingly aggressive. A key technology didn't work. You didn't, in fact, know anything about making lawn mowers or have the distribution network to sell them (this being the sort of observation that would have saved that major cement company from filing for bankruptcy and being acquired).

With that future history in hand, you see the pitfalls more clearly and can either realize that you have no way to get around them or can navigate your way past the perils.

You should do a more optimistic -- and more fun -- version of a future history, too. You take out a clean sheet of paper and imagine the perfect form of your business five or 10 years out, Then you write a "history" from the future date that describes how you got there from here. That sort of future history lets you start making plans now that are required if you want to hit that future home run -- if I want to be here in year 10, then I need to be here in year 5 and here in year 3, so I'd better invest a few small sums this year to start exploring the space. You can also see when you're getting off track, if some key development in technology or in the market doesn't come to pass as planned. 

I'd suggest using both optimistic and pessimistic future histories from time to time to help make sense of a digital world of insurance in which the core elements -- the customer, the yes/no mechanism and the capital -- are freed from their current forms. What if you could use digital channels to reach any customer, anywhere, any time? But what if competitors, perhaps ones you've never seen before, could reach yours? What if that yes/no mechanism could largely exist without human intervention, greatly increasing your efficiency and letting you serve new customers? But what if that mechanism no longer needs to be in-house and renders your claims operation moribund? Etc.

If you're interested in seeing examples of future histories, you can check out the website for a book Chunka and I wrote recently with a longtime colleague, Tim Andrews. I won't make you buy the book, called "A Brief History of a Perfect Future: Inventing the World We Can Proudly Leave Our Kids by 2050" -- though you're welcome to; it's really good, Instead, you can just click here, enter your name and email and get three free chapters of the book, which include examples of both positive and negative future histories.

Please let me know if you have any questions. I've seen these future histories help major organizations sort through strategic complexity and save them tens of millions -- and perhaps, in one case, even billions -- of dollars. I hope the tool will help you prosper, too.

Cheers,

Paul

There is a shifting paradigm in the insurance industry, with traditional discussions of react, repair and replace changing to predict, prevent and protect. Part of this transition has been supported by the Internet of Things (IoT). Technology has paved the way for people and devices to interact and instantly exchange data. By 2025, it is estimated that people will own more than 50 billion networked devices, double the amount in 2015, all of which make up IoT. While IoT technology is rooted in our society, the insurance industry is embracing the use of this technology by policyholders to mitigate and attempt to prevent losses. 

One specific area that is advancing quickly within IoT is water damage and leak protection. Businesses are subject to water damage from a multitude of sources. Plumbing system failures, HVAC malfunctions and severe weather events are just some of the many types of incidents that can ultimately lead to water damage. No matter what the source, these events are increasingly expensive and disruptive. A large water damage incident can interrupt normal business operations for days, weeks and even months and can be as damaging and destructive as a fire. Water-sensitive components, sensors and electronics are finding their way into everything, from the production floor to the office and everywhere in between. As a result, insurance carriers are relying on technology - specifically IoT sensors - to help businesses shift from reaction to prevention.  

IoT Impact 

The deployment of IoT technology and the impact it can have on reducing potential loss is significant. For example, a multi-story hotel deployed water leak sensors in their HVAC rooftop unit. The coils within the condenser burst, resulting in a discharge of water down a utility chase to the basement where the main electrical equipment was located. When water was detected in the HVAC system, alerts and notifications were sent following the communication notification protocol established, and maintenance personnel were able to resolve the issue before it caused significant damage. If the IoT sensors were not deployed and prompt action not taken, the hotel likely would have temporarily closed, suffering a major loss and disruption. It is important for companies to keep a rule of thumb in mind - for every six water sensors installed in the commercial business portfolio, one large water damage loss has the potential to be avoided.       

Accidents affect a business owner in a variety of ways, but the first thing that often comes to mind after a water damage incident following clean-up and restoration is the monetary impact. In insurance, both the business owner and the carrier may be affected, subject to the terms and conditions of the policy. In addition to losses that may be covered by insurance, when such an accident takes place the policyholder will likely experience unfavorable developments that are not covered. Some of these impacts may not be quantifiable, but they are all costly to policyholders. Fortunately, IoT can provide another level of protection that has a direct correlation with loss cost aversion.   

IoT technology can also help create a peace of mind for business owners by keeping their businesses operational and thus avoiding a disruption. This growing technology market provides prompt alerts and insights that allow adverse conditions to be addressed quickly, which can reduce losses and minimize business interruption. IoT can result in superior risk management, reduced cost and enhanced bottom line performance for companies that leverage the technology.  

See also:Insurance and the Internet of Things

Looking Ahead

Technology and proper planning are key components in a successful loss mitigation strategy. Tapping into IoT provides real-time data as an alternative to relying only on historical post-loss information. In the future, IoT sensors are expected to use live data to feed, train and test predictive models to forecast losses before they happen. Leveraging this technology can minimize the impact and maximize the effectiveness of loss-prevention programs. Risk control professionals can assist with understanding possible damage sources and provide support when building an effective incident response plan.  

Disclaimer

The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the date of the article. Accordingly, this article should not be viewed as a substitute for the guidance and recommendations of a retained professional. Any references to non-CNA websites are provided solely for convenience, and CNA disclaims any responsibility with respect to such websites. To the extent this article contains any examples, please note that they are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. In addition, any examples are not intended to establish any standards of care, to serve as legal advice appropriate for any particular factual situations, or to provide an acknowledgement that any given factual situation is covered under any CNA insurance policy. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All CNA products and services may not be available in all states and may be subject to change without notice. 

“CNA" is a registered trademark of CNA Financial Corporation. Certain CNA Financial Corporation subsidiaries use the "CNA" trademark in connection with insurance underwriting and claims activities. Copyright © 2022 CNA. All rights reserved.

Traditionally, individual life and annuity insurers and voluntary benefit/group insurers were not much alike. Their products were different. Their processes and systems were not alike. Their distribution was different. Their experiences were different. Even those carriers that played in both segments typically conducted their businesses as separate units of the company. It wasn’t hard to see why. Risks were calculated based on individuals, or they were calculated based on the employee group. 

However, one thing was the same … the ultimate customer – the individual or employee.

While there are still many differences in play, there are increasing similarities that create opportunities with a new set of choices and a new set of rules. Sometimes, the answer to these choices is no longer either/or but is both. If voluntary benefit/group insurers are open to this shift in mindset, they will open themselves up to growing market opportunities — and a host of possibilities to create deeper, longer, profitable customer relationships. But it is going to take a lot of “both” thinking to achieve a successful perspective.

At a roundtable organized by Capgemini and Majesco, distinguished leaders from the industry discussed how expectations at the workplace are changing for Gen Z and Millennial workers, especially regarding voluntary benefits at the workplace. Capgemini and Majesco released many of their comments and findings in a special report, Growth Opportunities in the Voluntary Benefits and Group Benefits Market. Today, we’ll take a brief look at some of those conversations for insights on how this might affect group and voluntary business strategies.

Defining the customer

At the core of group and voluntary benefits is one question that affects all others.

Who is the customer — the employer or the employee?

In group and voluntary benefits, the employer has long been considered the customer. But we are undergoing a shift that has created an entirely new employment dynamic, where companies treat their own employees like customers — making sure that the experience looks inviting from the outside and doing their best to keep the employees happy once they’ve joined the organization. With employers needing to meet employee expectations, group/voluntary benefit insurers are now needing to look one layer deeper in the experience.

How can the industry improve the employee experience through the group and voluntary benefits? Of course, they can’t begin to improve the employee experience if they can’t prove to employers that their own experience will improve, as well. Time-strapped HR teams don’t want to spend any extra time in the enrollment and administration of group and benefits products, but they do want to provide an expanding array of products and benefit plan options that meet a growing diverse employee continency. That means that the answer is both. If insurers can expand their definition of customer, they will begin to look at their products from both vantage points.

Enrollment as the first, but not only, area of opportunity.

In our round-table discussions, two words appeared as important and connected: relationship and relevance. It can be difficult for insurers to establish both a relationship and relevance while selling through an employer as part of their benefit plan options. The key is to find or create windows of opportunity.

The first window is typically the annual benefits enrollment period — the short period when an employee selects their benefits for the coming year. The industry is quite efficient at open enrollment. But it only happens once a year, and so much else happens throughout the year that creates new insurance needs. The birth of a child, college, starting a business, marriage, purchase of a home, traded in cars, a new pet or retirement are moments where the employee’s risk needs change and that are often missed.

Instead, could we capture more employee-related data internally and externally to guide them in selecting insurance benefits? Even more importantly, can we change the enrollment process assumptions from once a year to any time throughout the year? And why not offer personal or individual coverages as an option within the benefit plan for needs like pet, auto, home, life insurance, long-term care and more that are increasingly desired?

A workforce in the midst of upheaval and shift

In 2021, the Millennial generation overtook Gen X and Boomers as the dominant 30- to 60-year-old insurance buyer segment in the U.S. Millennials will be joined by members of the Gen Z generation in 2025.

Which employee population best represents the need for an expanded range of benefits and an increased portability in benefits — Gen X and Boomers or Gen Z and Millennials?

Millennials and Gen Z are not bound to a single organization for their career, instead opting to move around and have different experiences, including starting their own business or gig work. Their potential need for coverage now and after they leave their jobs is great. They will be especially interested in benefits that they can take with them.

Gen X and Boomers, on the other hand, are also moving toward retirement and a different kind of financial independence that may include working part time or carrying their benefits with them in ways that are unlike COBRA coverage – because Medicare does not cover all their risks.

The pandemic has created a spike in the number of people who left their jobs from both demographic groups. Many have found they can work from anywhere, creating a new competitive workplace landscape. Termed the Great Resignation, this economic trend, seen across all businesses from small to large and from retail and education to technology workplaces, has put employers on notice to retain existing and attract new talent. 

Insurers that can offer a wider array of group/voluntary benefits with different benefit plan options that meet the broad and different generational needs to meet their unique risk needs can capture a significant market opportunity not seen in decades. Given the nature of the younger generation to change employment and the older generation wanting to retain some coverage, voluntary benefits insurers are staring at a fantastic opportunity.

Products that can be underwritten individually or can be ported to individual insurance so the employee can retain them will offer insurers an opportunity to retain customers and deepen the relationship with other products over time — a far more cost-effective customer acquisition. They gain the short-term advantage of bulk business and the long-term benefits of a broadening relationship that doesn’t have to end with employment.

For insurers, though, it is a clear signal that both groups are candidates for selling through the employee channel, growing a deeper relationship and providing the portability that employees may find appealing as they weigh their future options.

See also: 3 Ways to Develop a Growth Mindset

A new set of rules for a new type of life

As insurers grapple with the possibility of selling to employee groups, they should also consider that generational needs aren’t the same. In fact, possible interests and products are all over the map. The wider the net, the broader the portfolio of offerings and the greater the importance of the experience.

To retain and grow their customer base and revenue, insurers must rethink their scope to a broader lifestyle experience across health, wealth and wellness that includes insurance products, lifestyle needs and value-added services. Providing a broader portfolio of offerings as part of an overall plan benefit package begins to address the broad range of needs across multiple generational groups that will drive employee enrollment, satisfaction and value. To make the process easier, insurers must leverage employee data – both collected as part of the employment process and voluntarily supplied by employees – to personalize and prioritize the products and services that fit with employees’ life stages and personal needs and interests.

For example, there are solutions that provide online portals and apps to help employees with enrollment and benefits questions throughout the year. Using AI, you can capture engagement data to further guide employees and identify future needs. This different level of engagement creates opportunities for consideration. Can group/voluntary benefits insurers find ways to “listen” to structured and unstructured data for signs of new risk needs or product and services trends?

One of our roundtable participants discussed how we use our listening to create new models of business.

“If you [look] at employee life events, does that offer an opportunity to engage that employee differently? They had a child. Maybe they need additional insurance. Maybe they took a loan out of their 401K to be able to put a down payment on a house. Now there's a lot of opportunity to engage to sell new products at that point in time, off-cycle to the annual benefits process. These could be individual products that can create a better overall value proposition and loyalty to the employer and insurer because they're helping them at that time, when their life is changing.”

Embracing innovation as the tool of rapid advancement and growth       

Group and voluntary benefits insurers need to look at broad-stroke changes in engagement, but they may need to also consider a wide array of factors concerning innovation and improvement. Data, for example, will be the key to successfully negotiating group, voluntary benefit and individual underwriting, claims, product development and communication. To rapidly add these capabilities, insurers should be prepared to adopt a next-gen platform approach. Next-gen platforms are providing insurers with out-of-the-box, third-party data integrations and social media sentiment analysis using machine learning and artificial intelligence.

Should we innovate to expand our group channels or innovate to improve individual experiences or innovate by embedding our insurance into someone else’s experience?

It is in the area of innovation that we find so many questions that can be answered, “all of the above.” One level of innovation gives rise to another because innovations have become more dependent upon each other than ever before. Channel growth makes a great case for this. It’s the innovation of ecosystems that enable insurers to think outside of their markets.

One roundtable participant commented that, “I think smart insurance companies are beginning to think about everything as a channel. If I’m an insurer and I want to embed insurance into somebody else’s value chain or experience, I should have the ability to do that.”

By building a partner ecosystem of collaboration, insurers can play to their strengths while the customer gets to enjoy a well-rounded product. For example, a life insurer can partner with a fitness tracker company to offer insurance to their customers, thereby allowing the insurer to target that market without having to set up a separate fitness watch business. But to do so requires next-generation technology using application programming interfaces (APIs) to bring together solutions transcending industry or company boundaries.

Next-gen platforms are the foundations for future group and voluntary product innovation. They must support the customer across their lifecycle – whether for group, voluntary benefits or individual insurance, recognizing the need to move between these as they change employers, gig on or off and have new product needs based on where they are. Optimally, these systems will support group and voluntary benefits with individual policy servicing on a single platform, recognizing that customer retention, regardless of where they originate, is critical to insurers’ growth strategies.

Finding the win-win in the quest for a transformational mindset

Last, there is the question of motivation. Is there any evidence we can point to that will solidify the need for group and benefits insurers to act now, while the employee and technology shift is creating opportunity? The answer might be found in the answer to one more question.

Who wants a wider choice of benefits options that can be provided through insurance innovation — employees or employers?

According to the MetLife U.S. Employee Benefit Trends study, 60% of employees are interested in their employer providing a wider mix of non-medical benefits that they can choose to purchase on their own. According to the same report, 66% of employers are expanding the range of employee-paid benefits or have plans to. This is great news for group and voluntary benefits insurers. The answer is both. Employees want us to expand our mix of benefits. Employers want us to expand our mix of benefits. We want to improve our market reach and deepen our relationships with increasingly-mobile insureds.

The time to win in the group and voluntary market is right now.

For an in-depth look at the Majesco and Capgemini roundtable comments and findings, be sure to download Growth Opportunities in the Voluntary Benefits and Group Benefits Market. This article was written by Denise Garth and Seth Rachlin. To continue this conversation, connect with Seth on LinkedIn and Denise on LinkedIn or Twitter