The rapid rise to fame of special purpose acquisition companies (SPACs) brings with it a host of uncertainty and risks along with the promise of fortune. In the U.S., 274 SPACs were launched in 2020, and so far in 2021 about $100 billion has been raised, according to the Wall Street Journal. Such is the growing appeal of SPACs that the Securities and Exchange Commission took the unusual step in March of warning that it is “never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.”

In addition to warning against basing investments solely on celebrity endorsements, the SEC recently issued further guidance on the booming SPAC market, and many believe that increased scrutiny will continue, with further regulation coming. From an insurance perspective, much of the focus has been on the risk exposures of executives and directors involved in the deals, resulting in an explosion of D&O insurance demand. Although many of the risk exposures remain the same as those in traditional M&A deals, lack of historical data has fueled uncertainty over future litigation possibilities. Perhaps the biggest difference in SPAC risk exposure is the speed with which deals must be completed. As with other areas of the mergers and acquisitions market, the use of representations and warranties (R&W) insurance can offer real benefits to both buyers and sellers to help manage these risks.

Managing the risks

The use of R&W insurance has become a standard feature and a valued tool to facilitate deals in the private equity (PE) space over the last several years, with myriad benefits for both sides of the transaction. Participants in SPAC transactions should also consider R&W insurance once a target has been identified and work is underway to complete the de-SPAC merger. 

The risks to be insured on a SPAC transaction are not radically different from a PE deal – for the buyers, the exposures are largely the same.  However, there is one significant difference in SPAC transactions that may drive risky behaviors: deals are being done against the clock. 

One of the key attributes of SPACs is that deals must be completed within a two-year time frame, which imposes considerable pressure on the founders to find the target and close the merger. In a typical PE deal, despite months – sometimes years – of due diligence and the seemingly good intentions of both parties, it’s not uncommon for M&A issues to arise under sales contracts—often after the ink has dried. The aggressive timeline of a SPAC transaction only heightens these risks. Some parties may be tempted to cut corners in the due diligence process and SPAC sponsors are well aware that discovering bad news might derail the deal. 

This time pressure can also mean that SPAC sponsors may make concessions during the negotiation of the purchase agreement, because they have an incentive to close the business combination and don’t have a fiduciary duty to the investors. In most cases, sponsors are able to sell their shares soon after the deal is done, so they are less interested than other investors in the target’s long-term performance. This last issue can, and in some cases has, been resolved by making sponsors hold shares in the SPAC longer so that their interests are more aligned with other investors.  The more interest the sponsor has post-deal, the deeper they may dig to understand the target, and the more invested they may be in the due diligence process.

How R&W can make it happen

In simple terms, R&W insurance hedges risk for both buyer and seller. When evaluating coverage options, working with a team of underwriters experienced in executing deals under tight time constraints can give SPAC acquirers certainty that they will have insurance in place when they sign a deal. 

Equally important is choosing an insurer  that has a deep bench of underwriters with depth and breadth of experience across sectors, as they will be able to highlight any soft spots in the diligence that need to be addressed to ensure meaningful coverage.

See also: Startups Must Look at Compensation Plans

There is also competitive pressure for targets. Having R&W insurance can be an advantage to the targets in an auction process, making them attractive to investors. Should there be any misrepresentations or breaches post-closing, the seller is liable for losses for the period of time set out in the agreement. To cover any legacy liabilities, a portion of the proceeds from the sale are typically held up in escrow, handcuffing sellers from using those funds. When a target has R&W insurance, it removes the requirement to have an escrow and the sellers can realize the entire proceeds of the deal on closing. For a purchase in the hundreds of millions of dollars, the ability to liberate a 10% escrow with an insurance policy is very attractive. 

While the risk profile for a SPAC target is not critically different from that of any other business requiring R&W insurance, the abbreviated timelines involved on SPAC deals and their shorter track record makes it harder to predict outcomes. Just as a celebrity relies on their reputation to secure endorsements, so too must an SPAC sponsor seeking investor and target company trust. R&W insurance serves as an important tool to facilitate these fast acquisitions, transferring risk to the insurance company and keeping reputations intact.

One of the most important business lessons we’re learning throughout this pandemic is that nearly every job carries risk. Medical workers and first responders put their lives on the line. Essential workers report to duty even with high infection rates. Even corporate employees working from home endure increased mental and emotional stress. The result of this tenuous working environment is millions of employees ready to jump ship, and employers at risk of disrupting operational flow, revenue and employee retention.

Remote employees are said to be working three more hours per day and increasing productivity levels. This is happening in addition to other home life responsibilities they are managing. Some employees are experiencing burnout and depression but trying to stick it out, while others are seeking to jump ship. A recent survey shows 52% of employees plan to job hunt this year, up from 35% in 2020. Other Management reveals 46% of employees now feel less connected to their current employer, and 42% say company culture has dwindled during the pandemic.

Ensuring employee safety, which in turn mitigates corporate risk, is quickly becoming a priority for businesses if they want to thrive throughout this turnover tsunami. The Centers for Disease Control and Prevention Foundation reported in 2015 that the average cost of influenza for businesses averaged $87 billion annually. Now add a potentially annual seasonal outbreak of COVID-19 to that number, and you are looking at a very real, very large and very expensive problem.

However, much of what we’re learning about pandemic risk mitigation can be applied indefinitely to ensure healthier, more cost-effective operations, and better overall employee experience and retention. Considering that 50% of respondents to the 2020 HR Sentiment Survey by Future Workplace ranked employee experience as their top initiative, this shows a direct link between emerging workplace technologies, the employee experience, and operational success. If organizations can better shape the employee experience by capitalizing on emerging tech, they will create a pipeline to attract and retain motivated talent, bolster culture, decrease budgetary spending and improve business operations. 

Here are some of the workplace technologies that can help organizations reduce risk during the turnover tsunami:

1. Safety Solutions: Investing in an end-to-end health and safety solution that accounts for virus protection now and provides tools to keep employees safe in the future demonstrates the value your organization places on employee wellness. It’s a way to rebuild connections with existing employees, retain your corporate culture and recruit new talent.

2. Pre-Employment Screenings: Hiring and onboarding quickly and safely during a turnover tsunami is critical to an organization’s success. Partnering with an internationally accredited screening firm ensures new hires are vetted completely before joining the staff. A screening firm will run checks on criminal records and social media use and verify references and credentials. Many businesses are adding COVID-19 testing to their pre-employment screening packages to help reduce health risks. 

See also: 3 Silver Linings From COVID-19

3. Drug Testing: Studies show substance abuse increases dramatically during a national crisis and remains elevated for months afterward. Since the pandemic began, more employers have started using oral fluid (saliva) drug testing. These tests are accurate and easy to use and can be taken from the comfort of an employees’ own home while under constant supervision. Oral fluid drug testing can be collected virtually, using remote video observation, ensuring the validity and integrity of the sample and protecting the safety of the donor and collector from any COVID-19 exposure.

4. Learning Management Systems: Part of a successful employee experience is providing opportunities for growth. An internal learning academy, like one you could build out with an LMS, meets employees where they are. Classes can address employee needs like wellness, upskilling and remote team management. The result is a strong workforce and a subtle way to rebuild your culture. 

5. Artificial Intelligence: AI is imperative in your recruiting process as it facilitates work and transforms behaviors using real data. Screening capabilities allow you to customize questions to attract the right talent. Automated tools can aggregate and score applicants. Chatbots can schedule interviews, answer questions and even deliver videos. 

Employees and job hunters alike are expecting and searching for employers who work to protect their workforce and improve workflow. Technologies to improve the employee experience and protect new hires are more than just incentives to boost confidence and safety. They help organizations position themselves to attract skilled talent and futureproof operational excellence.

From a downpour of tears to a deluge of debt, the loss of a loved one can drown a family in a sea of emotions and a storm of expenses. The loss can flood the last refuge of sanctity and shelter, leaving a house underwater and a family homeless; leaving a widow without a lifeline, a widower without a line—a path—to safety and children without the means to pursue any number of life opportunities. Given these dangers, given the specific danger of losing a house to foreclosure, life insurance has the power to protect spouses and families from further suffering. 

Life insurance with mortgage protection allows families to shelter at home—to stay in their homes—rather than sheltering in place. Rather than leaving families seeking temporary shelter, or evacuating to emergency shelters, life insurance with mortgage protection not only diverts the course of a storm but dissipates it altogether. But families must first buy this protection, which means insurers must explain why families—particularly young families—need life insurance with mortgage protection. 

The explanation is a matter of basic math, where loss of life equals loss of income. This loss expands as bills accumulate and interest accrues, turning survivors of the hardest loss into nomads in a permanent state of hardship, turning the worst hard time into hard times without end, turning all time into the horrors of the end time.

This scenario is no exaggeration, as too many live to survive while too few have the protection to live well. For families to avoid this scenario requires the insurance industry to speak to the urgency of the issue. 

Emphasizing this issue, repeating the emphasis on having life insurance with mortgage protection, is a duty the insurance industry must honor. Anything less is a disservice to those who need to know the truth, that this protection is indispensable to honoring the terms of a mortgage without mortgaging the strength or savings of the good.

The good include families in pain, whose sorrow insurers can assuage through policies—life insurance policies—that are palliatives of a financial sort. That these palliatives may be curatives, that these treatments may have restorative properties, that among these properties are the protection of property and a source of monthly income—these goods are just and righteous.

Insurers must, however, promote this message.

See also: Simplicity, Magic in Life Insurance Sales

If insurers think people think of themselves as prospects, and consumers treat themselves as contacts, if insurers think lack of contact corresponds to lack of interest, that consumers have no interest in life insurance with mortgage protection, insurers need to rethink everything.

The insurance industry has a chance to broadcast a digital PSA, a public service announcement for online media, about the benefits of life insurance with mortgage protection.

Every post that highlights this message, every email that encapsulates this message, every message about this message advances a cause for the good. 

Every advancement due to this message is an act of goodness.

In writing this message, insurers have the potential to underwrite more life insurance policies with mortgage protection.

Much has been written, and much has been done in the past decade regarding the customer experience in P&C. Progress has been made in understanding customer needs and journeys, implementing digital solutions for mobile and self-service capabilities and improving interactions with agents and policyholders. However, anyone involved in strategies and improving the CX in P&C is likely to admit that the industry is still in the earlier stages of the journey. It is clearly a marathon, not a short term, once-and-done project. But now, as a result of the pandemic and the momentous events of the last year, the race has changed.

A new SMA research report, Customer Experience in P&C: Transformation in the Pandemic Era, assesses the journey of P&C insurers. Companies covering the personal lines, small commercial and mid/large commercial market segments are profiled based on a survey of executives and SMA’s analysis of customer experience projects with insurers.

About one-quarter to one-third of insurers are in broader rollouts of customer experience strategies, with the personal lines segment being the most mature. There is a correlation between the status and maturity of CX officers and the level of overall segment maturity. There are two categories of CX-related projects that are vital to track: those that are strategy/organizational in nature and those that are oriented around technology capabilities. For example, flipping the lens from a customer service to a customer experience orientation and establishing a customer-centric culture are the top two project areas, signaling a recognition that these are foundational elements of a good CX strategy.

See also: Lessons on Reaching Customers Remotely

The project plans recognize the change that is underway. While it may be hyperbole to say the pandemic changed everything, the pandemic and all that it has entailed altered customer expectations and caused insurers to rethink and reprioritize plans. The short-term focus has been on enabling and improving self-service, digital payments and digital intake for both sales and service. Improvements will continue, but, in the meantime, P&C insurers have been taking stock of their customer experience journey – and this is where they are running a marathon. What once was movement at a steady pace has now taken on steadily increasing momentum. Virtually every insurer is accelerating digital transformation, and customer experience is an important element.

However, now that the expectations of agents and policyholders have risen, the finish line for the marathon has been pushed out. It is not as if there was ever a firm finish line where a company could claim it was “done” with customer experience. But the race is now taking some new turns, will require adaptability and may require a longer sustained effort to remain competitive.

While agreement has grown in recent years that climate change is real, that humans are a major contributor and that it presents a grave danger, the consensus still leaves a lot of wiggle room. How fast is the world warming? How much influence do we humans have? How stark are the coming dangers, and when will they hit us?

Many have rallied to the climate change cause based on a perceived moral imperative – we owe it to our kids and grandkids to leave the planet in the best shape possible – but the realist in me knows that the effort will go to the next level once the cause turns into a clear economic argument. The argument would project costs related to climate change, writ large – the growing damage from wildfires and hurricanes, the damage to crops from increased heat, the costs of people having to relocate from the coasts as sea levels rise, etc. (Yes, the models are imprecise, but they’ve been getting better for a long time and will continue to do so.) The argument would then project the costs both of slowing the warming of the planet in the long run and of mitigating the short-term risks from those storms, fires and more. Once it becomes clear that the price of likely damage exceeds the cost of mitigation, then climate change expands from being a cause to being a calculation.

That may be starting to happen.

A group of universities and climate research organizations published a report recently that said that climate change contributed $8 billion of the $75 billion of damage that Superstorm Sandy wreaked on the Northeast in 2012. Based on extensive simulations, the group concluded that climate change had raised the water level by four inches in the Atlantic Basin. That doesn’t sound like much, but, once Sandy churned up a monumental storm surge at what turned out to be an extra high tide, the water level was 14 feet above normal in New York City – and the researchers concluded that the extra water from climate change meant that 71,000 homes were flooded that would otherwise not have been.

One data point does not a trend make (and some will challenge that data point), but I’m encouraged by this effort and hope that the real experts on risk – insurance companies – will increasingly weigh in on how to quantify what the costs of climate change will be and on how we might reduce those risks, so we can move from cause to calculation.

Investors are certainly encouraging interest. The Wall Street Journal reports that investments globally in funds focused on the environment hit $2 trillion in the first quarter and appear to have passed the tipping point. The WSJ says that investors are adding $3 billion a day to those funds and that $5 billion of bonds and loans are being issued daily to finance green initiatives – which would mean $3 trillion more for such initiatives just this year.

Since I helped with a book called “Resource Revolution” back in 2013, I’ve argued that a key approach to heading off climate change is to turn the market loose on it: Find ways to make it profitable to head off disaster.

Maybe we’re finally headed in that direction, if we can start to put a number on the costs of climate change while holding out really big numbers in front of those trying to innovate solutions.

Here’s hoping.

Cheers,

Paul

P.S. Here are the six articles I'd like to highlight from the past week:

State of Mental Health in the Workplace

As work from home continued, employers became even more aware of the impact of mental health and well-being.

Does Cyber Insurance Add to Ransomware?

There is literally no industry better positioned to fight cybercrime than the insurance industry.

Could COVID Help Life Insurance?

While the pandemic may have put the world on pause, it has put the modernization of the life insurance industry on fast-forward.

Simplicity, Magic in Life Insurance Sales

Everything we’ve learned about e-commerce design can be applied to the life insurance consumer--no matter where or how a policy is purchased.

COVID-19’s Impact on Replacement Costs

To make sure there are no surprises, asset owners across sectors need to ensure that their valuations are up to date.

Top Risk Concerns for 2021

Financial institutions face emerging risks driven by cyber exposures, a growing burden of compliance and the turbulence of COVID-19.

Many insurers are still uncertain as to how the pandemic has shifted the fraud landscape and its impact on their businesses.

Although digital transformation and automation has been underway for the better part of a decade, insurers have been faced with unprecedented and changing demand requiring resilience under extremely testing circumstances. However, one thing is clear; the inability for insurance companies to automate claims processing and proactively identify and mitigate emerging fraud threats is no longer an acceptable business practice as consumers demand better service.

The first installment covered regression to the mean. This installment features the fallacy of using non-participants as a control for participants.  This “control” fallacy led the Food and Drug Administration to reject this methodology more than half a century ago. 

And, as we’ll see through examples below, correctly so.

The news of the fallacy and its rejection never reached the employee health services industry—or maybe it reached the industry altogether too well. Either way, vendors of wellness, diabetes, disease management and orthopedic programs routinely compare participants with non-participants, or measure just on participants alone.  Buyers don’t insist on controlling for participation bias, largely due to lack of understanding. Vendors not validated by the Validation Institute (VI) rarely offer to control for participation bias. Such a control would undercut their own performance claims, because participants always outperform nonparticipants. 

Indeed, one of the most dramatic savings figures was achieved simply by separating employees into participants and non-participants, without even giving "participants" a program to participate in.

Participation bias is even more invalidating in employee health services than in drug trials. The latter usually require only taking a pill and tracking results. The former require very active participation. Further, those who initially volunteer and then drop out are never counted as participants. Often, the dropout rate is never even reported. The result is what’s known in the industry as “last man standing” programs, because the only people whose outcomes are counted are the initial voluntary participants who stuck with the program the entire time. 

This study design is a recipe for massive invalidity. Not surprisingly, it has been proven four times that 100% of the alleged outcome of a program using this study design is attributable to the design, rather than to the intervention itself. 

This explains why VI-validated programs – programs that self-select to apply for VI validation because they actually accomplish something – make such modest claims, as compared with invalid vendors. It’s because modest claims are what they actually achieve…but modest valid claims trump massive invalid claims.

“Accidental” proofs of study design invalidity

The beauty of the first two proofs below is that they constitute what a litigator would call “declarations against interest,” meaning that the perpetrators’ own statements invalidate their own arguments. The wellness promoters who conducted these studies accidentally proved the opposite of what they intended to prove, without acknowledging it in the first case, or realizing it in the second.

 These two cases, discussed at length here, are summarized below:

1. Using the same employee subjects, a program measured outcomes both ways: through a high-quality randomization and also through participants-vs-non-participants; 
2. As mentioned, participants were separated from non-participants but not offered a program to participate in.

In the first case, a large group of employees without a diagnosis of/history of hospitalization for diabetes or heart disease was divided into:

1. Group A, to whom invitations to participate would be offered;
2. Group B, employees “matched” to the invited group using demographics and claims history, for whom nothing special was done.

See also: Are Your Healthcare Vendor’s Claims Valid?

The population was separated before any invitations were issued to Group A, making this a valid -- and extremely well-designed -- comparison. The “invited” Group A then included both participants (about 14% were willing to submit to the program, of which almost a quarter dropped out, leaving 11%) and non-participants.

The intervention was to use people’s DNA to tell them they were at risk for diabetes or heart disease, and then coach them. Because there were no hospitalizations or ER visits specific to those events beforehand as part of the study design, it would be arithmetically impossible to reduce the relevant hospitalization rate of 0. And yet "savings" of $1,464 per participant was claimed for the first year for the “last man standing” group of the 11% of Group A invitees who actually completed the program, vs. those Group A invitees who declined the invitation.

A cynic might say this massive savings figure was chosen because the program itself cost $500…and a program needs to show an ROI well north of 2-to-1 to be salable.

Using the valid randomized control methodology, the participants, dropouts and non-participants were then recombined into the full “invited” Group A…and compared with the control Group B. Though no cost comparisons were offered, there was essentially no difference-of-differences between these two groups in any relevant clinical indicators. While all changes in both groups were fairly trivial, the latter three trended in the “wrong” direction for the Group A vs. the Group B control.

Along with the fact that there were no relevant hospitalizations to reduce in the first place, the near-total absence of change in clinical indicators makes it impossible for any savings to be achieved, let alone $1,434 per participant, perhaps the highest first-year claimed savings in history. 

This excerpt courtesy of the Validation Institute. For the smashing (and needless to say, hilarious, this being the wellness industry) conclusion, click through here.

Financial institutions and their directors have to navigate a rapidly changing world, marked by new and emerging risks driven by cyber exposures based on the sector’s reliance on technology, a growing burden of compliance and the turbulence of Covid-19. At the same time, the behavior and culture of financial institutions is under growing scrutiny from a wide range of stakeholders in areas such as sustainability, employment practices, diversity and inclusion and executive pay. 

A new AGCS report highlights some of the most significant risk trends for banks, asset managers, private equity funds, insurers and other players in the financial services sector, as ranked in the Allianz Risk Barometer 2021, which surveyed over 900 industry respondents: Cyber incidents, pandemic outbreak and business interruption are the top three risks, followed by changes in legislation and regulation – driven by environment, society and governance (ESG) and climate change concerns, in particular. Macroeconomic developments, such as rising credit risk and low interest rates, ranked fifth.

The Allianz Risk Barometer findings are mirrored by an AGCS analysis of 7,654 insurance claims for the financial services segment over the past five years, worth approximately €870 million ($1.05 billion). Cyber incidents, including crime, rank as the top cause of loss by value, with other top loss drivers including negligence and shareholder derivative actions.

COVID-19 impact
Financial institutions are alive to the potential ramifications of government and central bank responses to the pandemic, such as low interest rates, rising government debt and the winding down of support and grants and loans to businesses. Large corrections or adjustments in markets – such as in equities, bonds or credit – could result in litigation from investors and shareholders, while an increase in insolvencies could also put some institutions’ own balance sheets under additional strain. 

Cyber – highly exposed despite high level of security spending

The COVID-19 environment is also providing fertile ground for criminals seeking to exploit the crisis as the pandemic led to a rapid and largely unplanned increase in working from home, electronic trading and digitalization. Despite significant cyber security spending, financial services companies are an attractive target and face a wide range of cyber threats, including business email compromise attacks, ransomware campaigns, ATM “jackpotting” – where criminals take control of cash machines through network servers – or supply chain attacks. The recent SolarWinds incident targeted banks and regulatory agencies, demonstrating the vulnerabilities of the sector to outages via their reliance on third-party service providers. Most financial institutions are now making use of software run on cloud services, which comes with a growing reliance on a relatively small number of providers. Institutions face sizable business interruption exposures, as well as third-party liabilities, when things go wrong. 

Compliance challenges around cyber, cryptocurrencies and climate change

Compliance is one of the biggest challenges for the financial services industry, with legislation and regulation around cyber, new technologies and climate change and ESG factors constantly evolving and increasing. There has been a seismic shift in the regulatory view of privacy and cyber security in recent years, with firms facing a growing bank of requirements. The consequences of data breaches are far-reaching, with more aggressive enforcement, higher fines and regulatory costs and growing third-party liability, followed by litigation. Regulators are increasingly focusing on business continuity, operational resilience and the management of third-party risk following a number of major outages at banks and payment processing companies. Companies need to operationalize their response to regulation and privacy rights, not just look at cyber security.

Applications of new technologies such as artificial intelligence (AI), biometrics and virtual currencies will likely raise new risks and liabilities, in large part from compliance and regulation, as well. With AI, there have already been regulatory investigations in the U.S. related to the use of unconscious bias in algorithms for credit scoring. There have also been a number of lawsuits related to the collection and use of biometric data. The growing acceptance of digital or cryptocurrencies as an asset class will ultimately present operational and regulatory risks for financial institutions with uncertainty around potential asset bubbles and concerns about money laundering, ransomware attacks, the prospect of third-party liabilities and even ESG issues as “mining,” or creating cryptocurrencies, uses large amounts of energy. Finally, the growth in stock market investment, guided by social media raises mis-selling concerns – already one of the top causes of insurance claims.

See also: Insurance and Financial Protection

ESG factors taking center stage 

Financial institutions and capital markets are seen as an important facilitator of the change needed to tackle climate change and encourage sustainability. Again, regulation is setting the pace. There have been over 170 ESG regulatory measures introduced globally since 2018, with Europe leading the way. The surge in regulation, in combination with inconsistent approaches across jurisdictions and a lack of data availability, represents significant operational and compliance challenges for financial service providers. 

At the same time, activist shareholders or stakeholders increasingly focus on ESG topics. Climate change litigation, in particular, is beginning to include financial institutions. Cases have previously tended to focus on the nature of investments, although there has been a growing use of litigation seeking to drive behavioral shifts and force disclosure debate. Besides climate change, broader social responsibilities are coming under scrutiny, with board remuneration and diversity being particular hot topics, and regulatory issues. 

Claims trends and the impact on the insurance market 

The fact that compliance risk is growing is concerning, as compliance issues are already one of the biggest drivers of claims. Cyber incidents already result in the most expensive claims, and insurers are seeing a rising number of technology-related losses, including claims made against directors following major privacy breaches. 

Other examples include sizable claims related to fraudulent payment instructions and “fake president” scams. Such payments can be in the millions of dollars. AGCS has also handled a number of liability claims arising from technical problems with exchanges and electronic processing systems where systems have gone down and clients have not been able to execute trades, and have made claims against policyholders for loss of opportunity. There have also been claims where a system failure has caused damages to a third party; one financial institution suffered a significant loss after a trading system crashed, causing processing failures for customers.

Recent loss activity, compounded by COVID-19 uncertainty, has contributed to a recasting of the insurance market for financial institutions, characterized by adjusted pricing and enhanced focus on risk selection by insurers, but also a growing interest for alternative risk transfer solutions, in addition to traditional insurance. Insurance is increasingly an important part of the capital stack of financial institutions and a growing number are partnering with insurers to manage risk and regulatory capital requirements or using captive insurers to compensate for changes in the insurance markets or to finance difficult-to-place risks. 

You can read the full report here: Financial Services Risk Trends: An Insurer’s Perspective

Apple is known for great design, but it sells consumer electronics -- not life insurance. Surely, there is more to user-experience design for complex industries such as insurance, right? The answer is yes. And no.

Yes, digital experiences in life insurance need to be different from the digital experience of buying a pair of shoes or some new AirPods. But not as different as one might think; in many ways, the mechanics are the same.

The main goal of digital commerce conversion is to get the user from point A to B, where B is some level of engagement. For a site devoted to selling shoes, the ultimate engagement is a transaction. We recognize this as e-commerce.

For a platform devoted to life insurance, there is more to the experience than the transaction (e.g. awareness, education, needs assessment, etc.), but the ultimate goal is still commerce -- the sale of life insurance policies. While most life insurance carriers do not consider themselves to be engaged in e-commerce, the online experience plays a critical role in getting the user from point A to point B and ultimately to the transaction, even if it takes place offline.

Simply stated, everything we’ve learned about e-commerce experience and conversion also applies to the life insurance consumer -- no matter where or how a policy is purchased.

Simplicity and Magic: Not Just for Consumer Products

Anyone who has purchased goods online with a single click -- Amazon’s "Buy Now" button comes to mind -- understands the power of "simplicity and magic." All the complexity involved in the transaction is hidden in exchange for billing, shipping and payment information. With one click, a product you want is en route to your doorstep, often within 24 hours.

When you think about buying life insurance, “simple” and “magic” are not words that come to mind. Life insurance policies are serious products, so the buying experience needs to be serious, too. Life insurance marketers often assume that consumers want to see lots of hundred-dollar words and legalese in the fine print (even though it will never get read). They believe every page should have busy images that scream financial security and leave consumers overwhelmed and feeling out of their league.

Of course, this is not the experience any marketer is trying to create, but it’s not uncommon.

Complexity makes it hard to figure out where to start, whereas simplicity makes it easy to figure out what the next step is.

Imagine an insurance adviser who needs to generate qualified leads. She creates a Facebook ad with a needs analysis calculator to help consumers self-educate. Every time a potential client clicks on that calculator, a lead is created, and basic information is automatically captured.

As the prospect moves through the process, pages and forms update dynamically so information is only entered once and the questionnaire automatically updates based on answers previously provided. This may not sound very magical, but don’t you appreciate it when you don’t have to answer the same questions over and over to get the information you are looking for?

See also: Designing a New Employee Experience

More serious magic happens as the lead continues to click though the process. More information is captured, the lead is self-qualifying, and the adviser can access everything in real time through a simple dashboard that lets her know exactly what the next step is for each prospect. Moreover, the carrier is gaining valuable consumer insights and behavioral data to drive future decision-making. And all the adviser did was put a lure in the water; she didn’t need to do anything else - all the complexity happens on the back end, behind the scenes away from the customer and the adviser.

Good News | Bad News

The good news for insurers is that decades of prior design and customer-engagement learnings and best practices are available to us despite our not being in the business of selling consumer electronics. When it comes to moving a user from point A to point B, the best practices are proven, so we don’t have to start from scratch.

The bad news is that most teams don’t have a stable of customer-experience experts to draw from as design decisions are made. In fact, many times decisions affecting the customer experience are made without any concept of design principles, and, over time, this can result in a very messy experience... a button added here and there, opening a window here and there and so on.

Not a pretty picture.

This problem also extends to consumers of enterprise software and platforms. In the age of Netflix and Amazon, software that comes with a thick user manual is doomed before it’s been deployed. Today’s business users have high expectations for modern software based on their own consumer experiences, so you may want to think twice before designing two-days worth of training on your next new system.

Above All Else, Trust

Delivering simplicity and magic is the holy grail of great design, but there is another, equally important design consideration that must remain front and center, especially when designing for more complex industries: building trust.

Trust is built through consistent experiences, so one of the fastest ways to lose trust is to offer a confusing flow with new experiences at every stage. We know this from our own experiences with some e-commerce sites:

You find a product you want to purchase, and you click the “buy” button, only to land on another page that doesn’t look anything like the site you started on. You decide that you want the product enough to overlook the change in experience, until you go to pay and end up on yet another page that doesn’t look anything like the page you were on before that.

Instead of a straightforward purchase of a product you want, you are now faced with the choice to proceed or not...because an inconsistent experience erased your trust in the process.

As the e-commerce example outlines, first impressions are important, but consistency builds trust -- and trust enables engagement/conversion. It’s much harder to get users to move from point A to point B if they don’t trust you. Moreover, if they don’t trust you, they are less likely to buy from you or recommend your products and services to others.

See also: Designing a Digital Insurance Ecosystem

Likewise, with B2B platforms and enterprise software, users are more productive when they know what to expect from an application and its UI. For example, office productivity tools such as Google Suites or Microsoft Office have many design elements that are consistent between tools. Once you understand how to do something in Google Docs, you can typically also do it in Google Sheets, for example. And when users master these tools, those skills are transferable from employer to employer.

This is also a great example of how consistency is often more important than differentiation. When building new user experiences, the urge to differentiate is strong, but consistency is critical. If you know how to search and play video on one streaming service, you can probably do it on a rival service. Imagine if you had to re-train every time you wanted to use a new service. And yet we typically expect enterprise users to do just this when we introduce new software.

Designing for trust is an integral part of my job: It’s top of mind as I make design decisions as a chief product officer developing technology solutions for life insurance. Sometimes, I find it useful to start with the understanding that my decision might be wrong, flawed in some way I haven’t figured out yet. It’s not that I don’t trust my design instincts. I do. But the process of proving that my decision was the right one often results in a better understanding of what we’re trying to accomplish.