In just about any role you may fill in your business, there are a consistent handful of skills necessary to succeed. Chances are, you have a natural gift for some of them. Likely, this gift is what attracts you to any particular role in the first place. However, many of the skills you need must be developed, nurtured and maintained much more intentionally.

How do you get to “mastery?”

There are many theories as to how you master any particular skill. You’ve likely heard of Malcolm Gladwell’s 10,000-hour rule. I’m a huge fan of Gladwell, but I struggle buying into this rule in a literal sense. If there are 2,000 work hours in a year, simple math tells us it takes five years of full-time work to master a skill. Multiply that by the number of skills required for a role, and it sounds overwhelming to me. But who am I to question?

Maybe the issue here is understanding the definition of what it means to “master” a skill. Does mastery mean you are world-class? Should skills be categorized in some way to help determine the effort necessary for mastery? For example, it’s probably a much different path to mastering the violin at a world-class level than it is to merely stand out from your peers with your presentation skills.

This subject’s details and intricacies are WAY beyond my pay grade, but there is a path to acquiring new skills I completely buy into. As you think about any particular skill, we can all be placed into one of four categories:

1. unconsciously incompetent
2. consciously incompetent
3. consciously competent
4. unconsciously competent

We all must

1. identify the skills necessary for our success;
2. be honest about which category/stage of competence we fall into;
3. focus on what it will take to move us to the next stage; and
4. spend intentional and consistent time on the effort.

Take inventory

Stop for a moment and list the three skills most important in your role. Yes, I know it takes more than three, but let’s leverage Pareto’s Principle and focus on the most important.

If you are a producer, some skills to consider would be listening, presenting, questioning, learning (technical knowledge and business acumen), writing, storytelling and handling objections.

If you are a leader, skills you may choose to focus on include communication, creativity, vision and purpose, motivation, planning, problem-solving, organization, time management, delegation, empathy and strategic thinking.

If you are a marketer, the skills that help you excel at what you do may include knowledge of your target audience, storytelling, creativity, writing, analytics and communication.

Okay, now that you have identified your critical skills, let’s figure out in which stage your current skill levels fall.

Unconscious incompetence

At this stage, we don’t know what we don’t know. Not only do we lack the ability to perform the skill, but we also may not even be aware of (or simply be in denial of) the skill’s importance.

Talk about a blind spot in your performance! How dangerous is it to be oblivious to being incompetent at something for which you have no appreciation or awareness of its importance?!

You may not even be able to evaluate yourself for skills in this stage effectively. Because you don’t know what you don’t know, there may be skills you need you aren’t aware of or don’t see as important.

Find someone who does what you do who seems to be at the top of their game and run your identified list of skills past them to see what they feel you may be missing. Better yet, run your list past several people to get a well-rounded list.

See also: How to Outperform on Innovation

One critical step you can’t look past in this stage is to remain open-minded and buy into the importance of skills you were previously unaware of or considered less than important. The most significant factor in how quickly you progress from this stage is creating the motivation to learn the new skill.

Conscious incompetence

This may be the most frustrating stage. In this stage, you are painfully aware of the skills you need and the intricacies of each, but you also know you kind of suck at them. To push through this stage, be prepared for significant frustration; you will make A LOT of mistakes.

The key in this area is to properly define success. Success won’t yet be defined in successfully performing the skill (that is what moves you to the next stage); it will merely be in getting in the practice necessary to start overcoming your incompetence.

Define success each week based on the time spent improving each skill. Maybe even define success based on the number of mistakes made – I’m serious.

Conscious competence

This is the stage where the hard work starts to pay off in measurable results. You now know how to do something and do it well. However, despite the tangible and positive results, it still takes a concerted amount of concentration to produce those results.

The key to moving through this stage is to break your skill down into a defined process and repeat it over and over and over again.

Unconscious competence

Now, you are reaching the promised land, my friend. You get here due to your commitment to the skill and the repetitive, sometimes mind-numbingly monotonous execution of the process.

By the time you get to this stage, you have had so much intentional practice that the skill becomes “second nature” and can be performed easily, almost without thinking about it. When you get to this stage, others will look at you with envy and assume you are just “naturally gifted.”

You can choose to let them believe that. Or you may choose to share the lessons you’ve learned and help set them on a similar path you have followed. 😏

Resolve to improve

We should never wait for a date on the calendar to start our path to improvement. However, we conveniently have one quickly approaching.

I do question whether it takes 10,000 hours. Maybe it does to truly master certain skills at a world-class level. However, I don’t know that world-class status is necessary for most of us.

It’s a bit like the two campers who come across a bear. While one camper stops to put on his running shoes, the other asks, “You don’t think you can outrun a bear, do you?” To which the other replied, “I don’t have to. I simply have to outrun you.”

See also: Advice to Early-Stage Startups on Pricing

Don’t become overwhelmed by the idea of becoming world-class. Just focus on performing your critical skills at a higher level than a majority of your competition and keep improving on those skills over time. This will give you all the dominance you need.

You can find this article originally published here.

External attacks on companies result in the most expensive cyber insurance losses, but employee mistakes and technical problems are the most frequent generator of claims by number, according to a new report from Allianz Global Corporate & Specialty, Managing The Impact Of Increasing Interconnectivity – Trends In Cyber Risk. The study analyzes 1,736 cyber-related insurance claims valued at $770 million involving AGCS and other insurers from 2015 to 2020.

The number of cyber insurance claims AGCS has been notified of has steadily risen over the last few years, up from 77 in 2016, when cyber was a relatively new line of insurance, to 809 in 2019. In 2020, AGCS has already seen 770 claims in the first three quarters. This steady increase in claims has been driven, in part, by the growth of the global cyber insurance market, which is currently estimated to be $7 billion, according to Munich Re. 

AGCS started offering cyber insurance in 2013 and, in 2019, generated more than EUR 100 million in gross written premium in this segment. There has been a 70%-plus increase in the average cost of cybercrime to an organization over five years to $13 million and a 60%-plus increase in the average number of security breaches.

Losses resulting from external incidents, such as distributed denial of service (DDoS) attacks or phishing and malware/ransomware campaigns, account for the majority of the value of claims analyzed (85%), according to the report, followed by malicious internal actions (9%) – which are infrequent but can be costly. Accidental internal incidents, such as employee errors while undertaking daily responsibilities, IT or platform outages, systems and software migration problems or loss of data, account for over half of cyber claims analyzed by number (54%), but, often, the financial impact of these is limited compared with cybercrime. However, losses can quickly escalate in the case of more serious incidents.

The cyber risk environment is not expected to become any easier in the future. Businesses and insurers are facing a number of challenges, such as the prospect of more expensive business interruptions, the rising frequency of ransomware incidents, more costly consequences of larger data breaches given more robust regulation and litigation, and the impact from the playing out of political differences in cyber space through state-sponsored attacks. 

The huge rise in remote working due to the coronavirus pandemic is also an issue. Displaced workforces create opportunities for cyber criminals to gain access to networks and sensitive information. Malware and ransomware incidents are already reported to have increased by more than a third since the start of 2020, while coronavirus-themed online scams and phishing campaigns about the pandemic continue. At the same time, the potential impact from human error or technical failure incidents may also be heightened. 

While exposures are rising, the COVID-19 outbreak cannot yet be said to be a direct cause of cyber-related claims. AGCS has seen the first few cyber claims that can be indirectly attributed to the COVID-19 landscape, including ransomware attacks that can be linked to the shift to more remote working. However, it’s too early to confirm a broader trend.

See also: The Missing Tool for Cyber Resilience

Ransomware threats surge

Already high in frequency, ransomware incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands. There were nearly half a million ransomware incidents reported globally last year, costing organizations at least $6.3 billion in ransom demands alone. Total costs associated with dealing with these incidents are estimated to be well in excess of $100 billion.

Business interruption and digital supply chain vulnerability growing

Business interruption (BI) following a cyber incident has become a major concern for business. Analysis of cyber claims by AGCS shows that BI is the main cost driver in the majority of cases. Whether ransomware, human error or a technical fault, the loss of critical systems or data can bring an organization to its knees in today’s digitalized economy. 

Dependency on digital supply chains – both for the delivery of services and the supply of goods brings numerous benefits. Shared technology-based platforms enable data to be exchanged between parties, automate administrative tasks and transport products on demand. However, such platforms can potentially create a chain reaction ensuring a BI cascades through a whole sector. If a platform is unavailable due to a technical glitch or cyber event, it could bring large BI losses for multiple companies that all rely and share the same system.

Data breaches and state-sponsored attacks

The cost of dealing with a large data breach is rising as IT systems and cyber events become more complex, and with the growth in cloud and third-party services. Data privacy regulation, which has recently been tightened in many countries, is also a key factor driving cost, as are growing third-party liability and the prospect of class action litigation. So-called mega data breaches (involving more than one million records) are more frequent and expensive, now costing $50 million on average, up 20% over 2019.

In addition, the impact of the increasing involvement of nation states in cyber-attacks is a growing concern. Major events like elections and COVID-19 present significant opportunities. During 2020, Google said it has had to block over 11,000 government-sponsored potential cyber-attacks per quarter. Recent years have seen critical infrastructure, such as ports and terminals and oil and gas installations hit by cyber-attacks and ransomware campaigns.

Prepare, practice and prevent

Preparation and training of employees can significantly reduce the consequences of a cyber event, especially in phishing and business email compromise schemes, which can often involve human error. It can also help mitigate ransomware attacks, although maintaining secure backups can limit damage. Cross-sector exchange and cooperation among companies is also key when it comes to defying highly commercially organized cybercrime, developing joint security standards and improving cyber resilience. 

See also: Essential Steps for Cyber Insurance

The COVID-19 landscape brings new challenges. With home-working widespread, security around access and authentication points is critical, but organizations should also ensure there is sufficient network capacity as this can have a significant impact on lost income if there is an outage. 

For more key takeaways from the report, please visit this page.

Who Is Liable When a Driverless Car Crashes? Paul Carroll, Editor-in-Chief of ITL Now that truly autonomous vehicles are starting to appear on roads, the insurance industry will be called on to perform its usual role as an enabler of innovation: Insurers will quantify the risks and likely cover much of it. But how should insurers think about the liability for AVs? Will legislatures specify who is responsible for which problems? Will regulators? Will the courts? What principles will guide the decision makers? Where will liability fall? Using history as a guide, it’s possible to make reasonable guesses at some of the answers... continue reading > The Future of Blockchain Series Episode 1: Usage in Personal Lines Blockchain has incredible potential to impact traditional business functions and inspire new innovative opportunities Learn More SIX THINGS OnStar: Next Step for OEM Partnerships by Harry Huberty Insurers hope to create a new way to collect driving data that’s easier for the driver than installing a device or downloading an app. Read More COVID-19 Is No Black Swan by Hélène Galy There were clear warnings about COVID from credible institutions. The real issue is how we are going to deal with "grey rhinos." Read More ESG: Doing Well by Doing Good by Stephen Applebaum Insurance is at the forefront of the environmental, social and governance movement, which may usher in a Second Age of Enlightenment. Read More P&C Claims: 4 Themes for the Future by Mark Breading The extraordinary events of 2020 have accelerated four themes: automating operations; AI for insight; augmenting experts; and new ecosystems. Read More Advice to Early-Stage Startups on Pricing by Ebony Hargro and Jeff Goldberg Your pricing is a marketing tool that announces how you want potential clients to think of your offering. Read More How AI Transforms Risk Engineering by Jack Liu “AI could contribute to the global economy by 2030, more than the current output of China and India combined.” Read More GET INVOLVED Write for Us Our authors are what set Insurance Thought Leadership apart. Get Started Partner with Us We’d love to talk to you about how we can improve your marketing ROI. Learn More SUBSCRIBE TO SIX THINGS

In the past years, we’ve seen a steadily growing interest in distributed ledgers and smart contracts. The financial industry has already been largely disrupted by these innovations. Although insurance has relied on conventional methods for decades, let’s explore the potential of smart contracts in the insurance industry, their limitations and the legal implications. 

In very simple terms, a smart contract is a software program that automatically enforces the agreement terms when certain, predefined conditions are met. In other words, a smart contract acts as a virtual intermediary that executes transactions between two parties. 

Ultimately, the insurance industry’s main challenge is a lack of trust and transparency between actors. According to Accenture, only 29% of customers trust insurers. This lack of trust is mutual. Fraudsters commonly make false claims in the hopes of receiving payouts, forcing insurers to put extra resources into the validation of every claim. With smart contracts in place, the trust problem can be at least partially eliminated while lowering administrative costs. 

The Potential of Smart Contracts

Traditionally, the insurance industry relies on a trusted intermediary to execute the transaction. The involvement of a third party makes the process slower and more expensive. It’s not uncommon even for uncontested claims require months to be processed. 

With a smart contract, no human interference is required. First, this helps mitigate the risk of manipulation by the mediator and increases transparency. Given that smart contracts are stored on a blockchain, both parties can see logged transactions. Second, it dramatically speeds up claim processing. Third, it lowers administrative costs for the insurer. As a consequence, companies can lower premiums, increasing market share. Fourth, neither insurer nor customer can "lose" agreement information, as policies are securely stored on the blockchain. 

The Limitations of Smart Contracts 

Smart contracts do have limitations. Currently, smart contracts can provide value only for the most primitive types of insurance cases. In very simple terms, smart contracts can operate only based on a conditional pattern of "if X, then Y." 

Smart contracts become viable only when their conditions can be wholly transcribed into programming code. Unfortunately, this is a rather rare scenario, as a significant portion of today’s contracts are filled with nuances. 

For example, industry-specific concepts like "good faith" or "reasonableness" can’t potentially be expressed by the simple rules that smart contracts are currently based on. It would take an innumerable amount of code and resources to describe all possible contingencies and complex scenarios. 

Moreover, as insurance is a very conservative industry, many would hesitate to trust technology instead of a conventional third party. With smart contracts, we are not really eliminating the intermediary; we are just getting rid of the human factor and substituting computer code. While the code embedded in a smart contract has very little risk of being hacked, the code itself can be flawed. This is why smart contract security audit has now become a commonly outsourced service. 

See also: Where Blockchain Shines Right Now

Legal Implications 

With growing attention to blockchain and smart contracts, the first adopters of the technology have faced certain legal barriers. In 2019, the European Insurance and Occupational Pensions Authority set up Insurtech Task Force, which analyzes smart contracts in the legal context. 

The formulation of a solid legal framework will most likely take at least a few years. Currently, the widespread adoption of smart contracts is either risky or impossible, depending on the jurisdiction. For example, some experts argue that, under current U.S. contract law, smart contracts are perfectly enforceable. However, such conclusions are largely based on the exploitation of ambiguities regarding the use of electronic signatures. 

Smart contracts will most likely introduce new challenges in the legal landscape. The main value of a smart contract can be attributed to automated performance that can’t be altered. In insurance, this automation can complicate things. For example, if a party claims that there was no enforceable contract or that terms were not fulfilled, under the traditional approach the party could simply withhold payment, while the other party would open a dispute. With a smart contract in place, the funds would still be transferred, forcing one party to file a lawsuit to alter the transfer. Moreover, understanding smart contracts will require significant new skills for legal professionals. 

However, such roadblocks should be considered short-term. The potential for smart contracts in insurance is undeniably significant. Given the current limitations of the technology, we will most likely see smart contracts used first for simpler insurance processes like underwriting and payouts. For smart contracts to scale, we will not only need dramatic technological improvements but also significant changes in the legal landscape.

"Vintage" is typically used to describe items that are at least 20 years old. There is no doubt that vintage clothes and cars have their charms. But vintage tech? Not quite so charming.

Twenty years ago, we'd just lived through a couple of years worth of Y2K hype. The iPhone didn't exist. The cloud? Still in the sky.... Client-server architecture was the state of the art 20-plus years ago, and laptops were just starting to replace desktop computers. Since then, we've seen a surge by smartphones, Google, Bluetooth and 5G to name but a few. We've also moved to more distributed computing environments, virtualization, software-as-a-service and mobile-first platforms.

Many legacy platform providers have repeatedly overhauled their platforms to keep pace with changes in technology and to integrate various acquisitions along the way. But legacy platforms that have evolved over longer periods can be bloated and far less efficient and cost-effective than more modern technologies.

Most of the companies that provide software platforms that currently power the industry were born in the 20th century, and the most recent Gartner Magic Quadrants (MQs) for core insurance platforms in life and P&C provides some interesting numbers:

• The average age of the top 11 companies listed in the MQ for life insurance policy administration systems in North America is 34.5 years old -- and none of these companies were founded in the 2000s.
• The average age of the top 10 companies listed in the MQ for P&C core platforms, North America, is 26.8 years old, with just three companies founded in the first decade of the 2000s.

This is not to say that these companies or technologies aren't the right platforms for insurance carriers, but, when it comes to evaluating new technologies for digital transformation, there is a strong case to be made for focusing on digital-native solutions.

With that in mind, here are some considerations to help guide your search:

#1 -- Business Model

Understanding how a potential insurtech partner sells its software can be instructive. Is it sold as an annual subscription or an enterprise license? Modern technology solutions are typically cloud- and subscription-based. Advantages include lower total cost of ownership, scalability/flexibility and security. Plus, software is automatically updated, including new features and fixes.

Consulting services required for deployment are another important factor to take into account. Is there a separate services engagement? How does the new technology integrate with existing platforms, e.g. is it API-driven or hard-wired? Is the new solution partner-friendly or intent on "going it alone"? What is the average timeline for projects of similar scope?

See also: 2021’s Key Technology Trends

Enterprise licenses, on-premises deployment, armies of consultants on-site for months, patch Tuesday...these are relics that predate today's modern technology. Moreover, legacy technologies can be monolithic and inflexible, so integrating partner technologies is difficult, time-consuming and expensive.

#2 -- Delivery

Flexibility is the name of the game, and there are a few things to consider, especially as we navigate the global coronavirus pandemic. The ability to remotely integrate and deploy new technologies is critical until a vaccine is widely available and adopted, and most insurance carriers aren't in a position to wait and see. Likewise, the ability to get to market quickly with new features is extremely important. Competitive pressures are coming from multiple fronts, and the insurance carriers that make it easiest for consumers to buy are the ones that will win.

You should also be on the lookout for flexible deployment options to ensure you are only deploying -- and paying for -- what you plan to use. It is not uncommon for legacy software packages to include lots of features you don't need along with the ones you do.

The best-case scenario is to find an insurtech partner that has the solutions you know you need today with the option of adding functionality as your needs evolve. This includes the ability to add existing platform features and to seamlessly integrate partner technologies as needed to build out the best solution for your business.

#3 -- User- and Data-Centricity

Netflix doesn't come with a three-inch-thick training manual or hours of "how-to" videos, and neither should your insurtech solution. Onboarding new users should take no more than a few hours; anything that takes longer, or that requires a specialized trainer, should be a big red flag.

Simply delivering a digital equivalent of analog processes doesn't take full advantage of the digital channel. Building a user-centric experience starts by re-imagining how users engage and collecting data that can be used to continuously improve the user experience.

Although data is the lifeblood of the insurance industry, actually putting existing data to work has been very difficult. Legacy platforms were not built to be data-centric, and pulling data from these systems is typically very difficult. But data needs to be at the center of any digital transformation initiative.

Netflix knows what people are watching and uses this data to develop more and stronger content for these audiences. Similarly, the insurance industry can use data to inform market and product development.

Other Red Flags

Another technology red flag that you should consider is offshore development. Insurance and other financial services businesses have specific security, privacy, regulatory and compliance needs based on geography. Partners that are developing solutions for your geography -- in your geographic region -- not only understand the requirements but are also bound by them.

Lastly, you should be able to get a solid demo that speaks to your company's specific needs in a timely manner. Vendors that need a lot of time to build a demo for you are likely working with inflexible technology. Just think: If they are having a hard time moving quickly with their own software, how are you going to? Modern technology solutions tend to be modular, so it's easier and faster to build demos -- and, ultimately, to deploy solutions.

Conclusion

In 2016, Klaus Schwab, founder and executive chairman of the World Economic Forum, introduced the idea that we're entering the Fourth Industrial Revolution. The pace of change and the sheer scope of disruption are having a profound impact across industries:

"The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century.... There are three reasons why today's transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope and systems impact."

See also: Technology Cannot Replace Brokers

Legacy technologies and approaches to modernization have a very short shelf-life these days. Extending dated solutions or replacing them is a business-critical decision that will affect your ability to innovate and compete today and into the future. A digital-native, data-centric foundation is critical to modernizing and future-proofing insurance operations.

Enjoy a glass of vintage wine from time to time, but don't be fooled by vintage technology -- it simply cannot have the transformative impact that the insurance industry needs to modernize and compete in the digital age.

Now that truly autonomous vehicles (AVs) are starting to appear on roads, the insurance industry will be called on to perform its usual role as an enabler of innovation: Insurers will quantify the risks and likely cover much of it.

But how should insurers think about the liability for AVs? Will legislatures specify who is responsible for which problems? Will regulators? Will the courts? What principles will guide the decision makers? Where will liability fall?

Using history as a guide, it's possible to make reasonable guesses at some of the answers.

An interesting analysis in Fortune argues that the courts will set the rules, applying long-standing principles to try to sort through the issues in the new environment.

The process will thus be messy, and some of the arguments made in court will initially be idiosyncratic. The article notes that, in the 1930s and 1940s, people who were hit by hired taxis sometimes sued the passengers rather than the driver or the driver's employer. That approach never got traction in the courts and seems silly today, but you can be sure that some similarly odd-sounding theories will be tried in AV cases before being discarded.

The article argues that clear principles will gradually emerge. One is obvious: that the manufacturer will be responsible for a clear error, the software equivalent of having a tire fall off a car. But the two other standards were more subtle:

--A court will ask whether the AV performed better than a competent, average driver. That question may not apply just to the circumstances of the accident and the specific system or component that may have been involved in causing a collision but may also be a general question about the performance of the AV versus a human driver. The U.S. National Highway Traffic Safety Administration made that sort of general assessment of safety when it cleared Tesla's Autopilot system of responsibility for a fatal crash in 2016. The temptation, of course, will be to compare an AV with a perfect driver -- aren't computers supposed to be free of error? Instead, the NHTSA is taking the position that anything that raises the average competence is a societal good. And a comparison to an average driver would be good news for the manufacturers of AVs and for those that insure them.

--The court will also ask whether an AV performed better than an AV did previously in a similar situation. A key promise of AVs is that they are always learning, and not just from an individual car's experience but from what has happened to every car in the fleet. So, courts will hold manufacturers responsible for not making the same mistake twice.

The potential revenue for insurers from AVs is enormous. A recent report from Accenture and the Stevens Institute of Technology estimates that, even as AVs slash premium for personal auto coverage, product liability will be one of three new revenue streams that will generate $81 billion in premium between now and 2025. (The other two opportunities are in the new cyber risks that come along with AVs and in the potential liabilities associated with the infrastructure that will support AVs.)

The law will take shape slowly. It always does. There will be surprises along the way. There always are. But the size of the product liability opportunity, plus the beginnings of answers on legal principles, suggests that insurers should start working now to be prepared as the opportunity unfolds.

Stay safe.

Paul

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

OnStar: Next Step for OEM Partnerships

Insurers hope to create a new way to collect driving data that’s easier for the driver than installing a device or downloading an app.

COVID-19 Is No Black Swan

There were clear warnings about COVID from credible institutions. The real issue is how we are going to deal with "grey rhinos."

ESG: Doing Well by Doing Good

Insurance is at the forefront of the environmental, social and governance movement, which may usher in a Second Age of Enlightenment.

P&C Claims: 4 Themes for the Future

The extraordinary events of 2020 have accelerated four themes: automating operations; AI for insight; augmenting experts; and new ecosystems.

Advice to Early-Stage Startups on Pricing

Your pricing is a marketing tool that announces how you want potential clients to think of your offering.

How AI Transforms Risk Engineering

“AI could contribute to the global economy by 2030, more than the current output of China and India combined.”

One of the most stressful topics for insurtech startup vendors is pricing. How should they price their offering? What if they set the price too high and it drives potential customers away? Worse yet, what if they set the price too low and they’re leaving money on the table? Should the startup use transactional pricing or tiered pricing or percent of premium pricing? There are indeed some best practices when it comes to pricing software offerings for insurers, but for startups the most important rule is this: The only thing that matters is getting a paying client to validate the business model. In that context, price is almost irrelevant.

The Goal Is Client Maximization, Not Revenue Maximization

The goal of your startup pricing should be to get new paying clients on board, not to maximize revenue. A single paying client will help you prove the system, deliver real value metrics and, let's hope, provide a referenceable client that establishes viability for future potential clients. If you underprice your offering (whatever “underprice” means) to get clients on board, those early low-paying clients will drive higher-paying clients later. Even if initial low-paying clients remain low-paying clients forever, they deserve the break. That first client took a chance on your startup and almost always ends up driving the future road map. 

It’s true that, internally, a pricing model might be built around and validate the actual costs per client. It is indeed a good thing when you can tie your price back to real-world expenses. But, importantly, your model doesn’t matter to the client. You should understand what each client will cost you and how those costs will change based on their usage of the system. In the long term, once you have established a base of clients, your pricing model should make sure those clients are profitable. Your clients, however, don’t care about any of that. They are going to pay based on what the offering is worth to them, not based on what it costs you to build and provide it. 

And that’s irrelevant anyway. In the immediate future, startups should choose a simple pricing model that helps bring in new clients over a complex pricing model that guarantees profitability in all circumstances. 

See also: A Glimpse of the Future of Insurtech

Pricing Models Are a Marketing Tool

Your pricing model is a marketing tool. Enterprise pricing is not like consumer pricing, where minor variations have mass impact. Instead, pricing is individually negotiated with each client, and the final price in a contract may look completely different than the initial proposal. What that means is your pricing is merely a first attempt to position an offering in the insurer’s mind, helping the insurance contextualize what your offer is more so than its cost.

How do you want your potential client to think of you? 

• As a service? Use SaaS pricing with monthly/quarterly payment plans.
• As a per-transaction value? Offer a per-transaction cost.
• As a tool? Have an up-front license fee and then future annual maintenance fees.
• As something that grows with organizational usage? Offer pricing based on seats, like Salesforce.
• As a business partner? Consider (carefully) a percent of premium model. 

The Goal Is Usage Maximization, Not Revenue Maximization

In general, your pricing model should encourage clients to use your service as much as possible. Don’t artificially limit API access or usage to charge more money, unless those things actually cost you more money. Your goal is to get clients to embed your offering into their day-to-day operations as much as possible so that they can’t stop using your service, not to maximize every possible dollar. If insurers are encouraged to use the system less, they become less reliant on it, meaning they are more likely to shop around for other systems later. Pricing should also be built around encouraging (if not requiring) regular upgrades and should include upgrade support costs, if possible. 

Too much choice in a pricing model can be overwhelming to insurer prospects if they can’t quickly figure out which product to buy or if they have to make too many projections about future costs. The relationship between pricing and product should be carefully considered. Startups with products that allow customizability and multi-tenancy can offer more flexible pricing models. SaaS core system pricing should encourage increased usage and proper behavior rather than discourage it.

Your Customer Is Your Partner: Insurance Industry Best Practices

Be aware of what and how your target clients pay for other systems and services. For example, insurers over $100 million direct written premium (DWP) don’t like paying for things as a percent of premium. You can base your internal pricing model on client DWP, but abstract that away for insurer prospects by putting it into “tiers” or some other mechanism in your external pricing messaging. If your client grows its book of business over the course of the year, that’s fine. You can renegotiate the price based on the new tier at time of renewal. 

You can and should treat your potential clients like partners. You can ask them what they think is a reasonable price. Yes, insurer procurement groups are known for lengthy negotiation processes with established vendors. But insurers have a different goal when approaching early-stage startups with only one or two customers. In those cases, their concern isn’t just price but viability. No insurer wants to invest time into learning and integrating a startup’s offering into its process only to have that startup shut its doors. Insurers recognize that licensing an early-stage startup’s offering is a form of investment and partnership. Rather than paying the lowest possible price, they want to pay the price that will be mutually beneficial and help the startup succeed. They won’t pay more than a product or service is worth to them, but they will be honest with you as to what that number is.

See also: Insurtechs’ Role in Transformation

No matter how you set up your pricing, you will renegotiate it with each client. Startup pricing isn’t mass-market consumer pricing with hundreds of thousands of sales each year; it’s enterprise software pricing for a handful of deals a year. Your pricing is a marketing tool that announces how you want your potential clients to think of your offering, and it is a starting point for further conversations. The goal is to get multiple paying clients (or possibly just one single paying client) as a way to prove that insurers value your business.

Property and casualty claims is already one of the most dynamic, exciting and important areas of the insurance business. Whether we are considering personal or commercial lines, or the auto, property or casualty/medical areas, there is a lot going on. In the next decade, claims will transform more than any other area of insurance.

The extraordinary events of 2020 have placed new demands on claims that have accelerated the area's digital transformation. Four major themes have emerged: 1) Automating operations, 2) AI for insight, 3) Augmenting human experts and 4) Associating with new ecosystems.

Automating Operations

Efficiencies in claims have been an imperative for decades – managing loss adjustment expense (LAE) to reasonable levels will remain important in any era. But now, technologies like robotic process automation and natural language processing for document intake enable us to get to new levels. Expanding digital connections into new networks also automates workflows. 

AI for Insight

The claims environment receives a lot of data from a lot of sources, making it a prime candidate for leveraging various AI technologies to gain more insight. Recent research from SMA reveals the areas in which claims executives believe AI technologies will provide the most value. Three areas demonstrate AI’s potential in claims:

• Reporting the claim – Half of personal lines and 39% of commercial lines respondents said that AI will transform reporting. Examples would be the use of chatbots or AI-guided interviews for data collection.
• Triage/assignment – There appears to be great potential here, especially for commercial lines, where claims can be more complex. Intelligent triage facilitates the shift to more no-touch claims and getting the right resources involved as soon as possible.
• Damage assessment – About half of the respondents see much potential here. Even though the tech is still immature, there are already solutions and pilots in the marketplace that use computer vision and machine learning to detect damage, identify replacement parts and develop an estimate.

Every other area of the claims process will benefit from AI technologies. There are important use cases for reserving, litigation, recovery and CAT response. But fraud detection is still the number one area of potential for AI, with many implementations already in use.  

Augmenting Human Experts

There will always be a spectrum of claims handling that ranges from no-touch to high-touch. Automating operations and using AI for new insights has led many to leap to the conclusion that adjusters won’t be as valued or needed in the future. But two trends are changing the dynamics of the workforce and the claims environment.

The first is workforce change driven by natural demographics. With retirements and fewer young people coming into the claims environment, the result is a natural decline in the number of claim adjusters and professionals. The second is the effect of the automation and AI, which will result in a higher percentage of no-touch or low-touch claims. Together, these two factors will serve to elevate the role of the adjuster to focus on more complex claims. With AI tools to augment decision-making, there will emerge a different type of experienced, specialized claims adjuster that uses the technology of the future, and there will be new support roles for data/AI experts.

See also: P&C Distribution: What’s Old Is New

Associating With New Ecosystems

Property and casualty claims departments have always had complicated ecosystems – they must work with many parties for damage estimation, restoration, settlement, litigation and recovery. But now there are new players. Many offer technology-based solutions: digital payments, connected devices for rapid response to accidents/incidents, coordination of repair and restoration efforts and tapping into specialized expertise.

At its core, claims will have the same value in the future as it does today, and the mission won't change – that is the responsibility to meet customers at their greatest time of need.

Even with all the automation and artificial intelligence, the personal connection will not lose its importance. Empathy will still be essential. And efficiently and effectively managing the process for the benefit of the carrier’s bottom line will remain vital. 

But technologies are now available to transform the roles of professionals and the products and services related to claims. The combination of operations automation, insights from AI, human expertise augmentation and advanced ecosystems will result in winning scenarios for insurers, claims professionals and claimants.

Many commentators have labeled COVID-19 a black swan event. Nassim Taleb popularized the expression, defining such an event as impossible to predict, having a major effect and seeming obvious in hindsight.

Yet, there were clear warnings from credible institutions. Three examples stand out, showing the crisis should not have been a complete surprise.

Epidemiologists had warned in the 2019 Global Preparedness Monitoring Board report that the chances of a global pandemic were growing and that the world was unprepared for a fast-moving, virulent respiratory pathogen pandemic.

The latest U.K. National Risk register identified pandemic influenza as a top high-impact, high-likelihood event.

Then, last October, the U.S.-based Center for Health Security organized an eerily prophetic pandemic simulation involving a coronavirus similar to COVID-19.

Can we still call COVID-19 a black swan when all those warnings were missed?

If COVID-19 is no black swan

The grey rhino, a term coined by Michele Wucker, is a cross between black swans and elephants in the room. Contrary to the low-probability black swan, the grey rhino is a high-impact, high-probability event usually ignored for various reasons. Climate change is a typical example, which until recently was discounted by investors, policy makers, corporations and wider society.

The grey rhino theory has many attractions. Rather than focusing on hindsight, it asks whether we will do something about an obvious problem. The theory embraces the fact that many things that go wrong in business, policy and our personal lives are avoidable, if only we had paid enough attention. It recognizes that the issue is generally not a case of if but when. 

Your black swan may be someone else’s white swan

Having diverse, multi-disciplinary boards can ensure a less blinkered review of risks, especially if the organizational culture values the input of the Tenth Man (or Devil’s Advocate).

Groupthink allows statements such as “impossible to predict,” so a risk register review by external advisers is a good idea, bringing fresh perspectives. War-gaming and red-teaming are also useful techniques successfully imported from battlefield to boardroom.

The past informs our predictions of the future

An extensive historical review, going back to 1000 AD, underpins the taxonomy of threats behind the work of the Cambridge Centre for Risk Studies and its established Lloyd’s City Risk Index. Obviously, new threats (such as drones) need to be factored in.

Modeling allows us to go beyond the historical record. For climate change, general circulation models, in particular, are used to model the whole of the atmosphere and ocean system and are key in understanding how global warming is affecting the scale, intensity and frequency of extreme events like floods or tropical cyclones. Scenario planning is another useful technique to communicate the results of complex models to the public and decision makers.

See also: Risks Facing the Tokyo Olympics

The real black swans -- the “unknown unknowns”

The best strategy to plan for these may be to maintain a constant state of preparedness, irrespective of the specific nature of the threat.

Increasing our threat-agnostic resilience could be a good investment, allowing citizens, corporations and governments to prepare for a national crisis without knowing exactly what the contingencies will be.

Recognizing that crises should be expected rather than the exception, robust business continuity plans are a sure way of improving resilience – designed properly, tested and updated regularly, they could prove versatile and may be your best insurance against the next black swan.

Learn to better spot grey rhinos

Grey rhinos are more common than black swans. Focusing on spotting them would promote a proactive rather than a fatalist approach to risk. A holistic approach to risk management and resilience is a good way of turning grey rhino risks into opportunities, and corporations can ask their chief risk officers to coordinate a cross-departmental approach. It should be cause for concern that most governments still do not have a national chief risk officer, alongside their chief medical officer and chief scientific officer.

GM announced this week that it will start selling policies directly to drivers through its new OnStar Insurance program. The company will start with its employees in Arizona and plans to expand to the general public by the end of 2021. This move has gotten some attention in mainstream sources like the Wall Street Journal.

The policies are underwritten by American Family Insurance affiliates and issued on its paper. In that sense, this partnership is an extension of the insurer/auto manufacturer data-sharing partnerships that have proliferated in recent years. Insurers have inked these deals to create a new way to collect driving data that’s easier for the driver than installing a device or downloading an app.

These deals have typically involved the original equipment manufacturers (OEMs) sharing driving data with the insurer, which can use it to score drivers and offer discounts. In GM’s case, it’s also been a marketing partner—you can head to OnStar.com and enter your state to find insurers that might offer you a discount if you’re a good driver.

What’s different about OnStar Insurance is that the OEM offers the policy under its own (subsidiary) brand, directly to the driver. It’s the logical extension of the relationship for both partners. For GM, it’s another way to monetize its data stream, which OEMs generally have trouble doing. AmFam gets additional marketing muscle and a new direct sales channel. This development was more of a “when” than an “if.”

Telematics is here to stay, but bullish mid-2010s projections for telematics adoption and growth haven’t materialized. OEM/insurer partnerships already had the potential to open up market space and reduce the barrier to entry; OEMs offering insurance directly to drivers may expand and accelerate this.

See also: The Evolution of Telematics Programs

How these policies are sold will be a significant factor. Most drivers opt into or out of OEM data sharing when they buy their vehicles; if these policies follow the same pattern, it will be on individual dealers to push the insurance offerings. On the other hand, it’s easy to imagine OnStar alerting a driver who’d agreed to share data but hadn’t bought OnStar Insurance that the drive could save X amount by switching.

User experience will also be a major determinant. GM currently plans to use OnStar to coach its drivers. That’s potentially a major plus, but only if the coaching is done well and the user experience (UX) is slick. Consumers have high expectations around digital experiences, and half-efforts won’t go over well.

Finally, one potential drawback: It looks like a major draw to OnStar Insurance will be price, which further cements the connection between telematics and discounts. Reward- and engagement-based telematics programs have been successful overseas, but they haven’t taken hold stateside. Anecdotally, insurers have told me that U.S. consumers expect upfront discounts as an incentive for enrollment in telematics-based insurance. Offerings like OnStar Insurance could further entrench the idea that telematics is all about exchanging data for money.

I recently published a report on telematics that covers these and other issues. Feel free to reach out to me with any questions!