We are in the midst of a bionic revolution in all industries and especially insurance. Organizations are competing with a new mix of people and machines doing both cognitive and physical work, and those companies that become bionic fastest are winning because of superior customer experience and economics. This has led to a new Digital Darwinism — the evolution of businesses and business models that not only occurs across generations as it does in the natural world, but rapidly and many times within the lifetime of a single organization.

The speed of evolution creates imbalances — and in the insurance industry we see a sophisticated sales/distribution experience with an old-style issuance, service and claims experience. Until very recently, insurtech has been a story of front-end evolution. It is only now that enterprise investments in insurtech have matched the front-end.

How do you increase the clock-speed of your evolution? Our lens at Snapsheet is to collectively reimagine the operating model, operational capabilities and customer experience with five bionic design principles in mind. A design principle is a practical concept that helps executives imbue the organization with the right way to think about critical tradeoffs and solutions. For example, Steve Jobs hated styluses, so the iPhone created a user interface that did not need any type of stylus. This simple concept drove many actions in Apple.

Bionic Design Principle 1: Change the way you work, and change the way the work is managed: Reapportion cognition among people and machines.

The fundamental activity of the industrial revolution has been to take thinking and labor tasks “out” of people and put them “into” machines. It’s a one-way street optimized around one process, one answer, one method. In contrast, in the bionic age, everything has the potential to be smart. Processes can be agile; claims can be alive and know their own path and what data they need to complete their task. Claims can even be patient, knowing how long information requests should take and when it’s time to “ask again” for missing information. A claim can even route itself to the optimal process and resources using its understanding of its complexity, service level status, skills needed and available, licensing requirements or other attributes; for example, a claim can know if it’s a total loss auto claim and therefore has a shorter, faster process path.

This dynamic allocation of cognitive responsibilities is the most important design principle because its application allows for the entire claims ecosystem (or any ecosystem) to be better without having to be in full control of every step. For example, to implement our smart claim approach in auto, we do not require customers to choose the way they engaged with us or others. Rather, we allow the customer to choose and change the interaction mechanisms, and the claim learns how the specific customer or repair shop interacts and how long responses take. The claim acts accordingly. The process is not industrial and stringent, but bionic and adaptive.

When cognition is reapportioned, no time is lost, and actions are optimized against capacity—and as the system gets smarter it can evolve the process and support higher and higher level tasks. The design itself does not have to be all-knowing right out of the gate. It masters a specific challenge and evolves over time because it’s a living system, not a mechanistic one.

See also: Darwinian Shift to Digital Insurance 2.0  

Advanced weapons systems in fighter aircraft have shared thinking responsibilities with pilots for many years. Sometimes the pilot is flying the plane, and the weapons system is protecting the plane; other times, the plane is flying itself, and the pilot is focusing on the weapons systems. This dynamic allocation of cognition means that the most capable thinker—person or machine—will be in charge based on context and competence, not rigid process. Think of claims as thinking for themselves: Each claim also knows when to “ask for help” and push the activity to a human when the claim lacks enough data, structure and rules to proceed. This adaptability enables productive integration of the complex, digitally enabled ecosystems that all insurers face. Put another way, it’s not just machine learning, it’s a learning machine.

Bionic Design Principle 2: Change the way you engage with the customer and change the way you work with others: Remove friction from the ecosystem—not just the customer.

Customers no longer tolerate friction. They want service anywhere, anytime, any way — and expect to have instantaneous status about every step of the process. In claims, the old way was to send out a person to look at the vehicle or visit the home. But if you’re creative, you can change the flow. We began Snapsheet by inverting the process—enabling customers to use their smartphones to send in photos of their accident so they could poll repair shops to deliver virtual estimates, instead of having a person visit the scene of the accident—thus removing a friction point and saving time. But as we implemented this innovation, we saw that we needed to do more. Some customers were not confident in their ability to take the right photos or did not want to use an “app”—so we had to enable omnichannel capture, allowing the customer to begin the process in any way the customer found faster or easier.

We’ve been chasing friction removal for seven years, and we expect to continue chasing it. It’s easy to say that “it’s not just about the technology,” but turning that observation into less friction for the customer takes a willingness to learn, adjust, reintegrate and sometimes reinvent major functions across the ecosystem.

Our ability to field smart claims that are aware of their context enables us to see how to close the gap between the desire and realization that happens in many places in the claims ecosystem. By looking at the whole ecosystem, not just the individual task, you can see entire areas of opportunity open up.

For example, we found that making payments—more than 75% of them still transacted by paper check—was an area we could redesign. Now we have the ability to provide payment and treasury functions instantaneously for all parties involved as soon as a step in the process—such as repair—is verified as complete. We asked participants in the ecosystem, “Do you want to get paid fast or slow?” No surprise, most customers say, “Fast!”

Another significant delay often comes from processing a total loss situation, which is often slowed by the complexity of issues having to do with identifying the lien holder of the asset and the title procurement process in a specific geography. This complexity requires a carrier to change the way it engages with other suppliers. In this case, working with other industry partners, Snapsheet is enabling faster exchange of information across multiple parties, initiating insurance and salvage workflows simultaneously and integrating new capabilities to remove that friction. In doing so, it’s possible to remove days, and even weeks from the process. This accelerates the time to sell the vehicle for the insurer and time to settlement for the customer.

Bionic Design Principle 3: Change the way you change: Innovate, don’t renovate—don’t start from scratch.

The most critical part of digital evolution is to change how you change. The idea of continuous improvement has been with us for many years—at least since the 1950s when Edward Deming led the quality movement. Most insurance companies have done an analysis of what it takes to redo the entire technology stack—and it is often an absurd number with millions and millions of dollars at risk for an uncertain payoff.

Fortunately, there are many new tools to help enable integration of legacy and emerging systems. The suites of robotic process automation tools help to provide what we call value-driven integration. When companies use these products or other integration/automation tools, they can often integrate multiple legacy systems with a secure container that can interface with multiple systems and then present the results on any device—providing new results, without the need for complete system overhauls or upgrades. This creates productive modules—of process, task and technology—together, which enables improvement with zero down time while delivering continuous enhancements.

With new API architectures, one can partition the work and make it more object-oriented, which enables more flexible task and process flow design within the organization and outside to suppliers. Properly used, this creates a much more agile and adaptable learning environment.

This can take time out of customer service, sales or other interactions by collapsing many dozens of steps and multiple screens over hours, to one screen and minutes, while kicking out a clean stream of audited data for machine learning to drive future improvement. This capture of cognitive capital drives near-term labor productivity and superior customer experience while providing a data asset for further improvement. Especially in the middle and back office, there are often greater opportunities to drive customer experience and superior economics.

See also: A Self-Destructive Cycle in Insurance  

Again, in the bionic age, the right way to think of it is as smart, evolving, alive systems. The most important design decisions are about the application program interfaces (APIs) and the modularity of the system. For example, Jeff Bezos declared that Amazon would use common APIs back in the early 2000s, which meant that the company could add or subtract functionality without interfering with the existing process and code base of the organization. This means the company can handle complexity at a much lower unit cost because complexity is contained within the modules. This is not true of many of his competitors, and you only need to go into Macy’s and try to find your order history with the store, to show the lack of APIs in that organization.

The innovate-not-renovate point of view relies on modular thinking. This may seem incremental to some, but some of the most important innovations in human history have been integration technologies that enable established ecosystems to interact productively. The international currency markets are such an innovation; so is the internet, whose very name states its “inter-networking” mission. In the bionic world the biggest bang for the buck is usually in innovating and integrating existing ecosystems, not starting from scratch.

Bionic Design Principle 4: Change the speed and efficacy of every decision: Use AI to pick up the trash and explore the stars

Evolution is often a process of simple and complex improvement. The fourth design principle is to use AI both for the low and the high end.

On the low end, AI helps to automate faster because it can gather new information and structure it faster. There are many mundane tasks that AI can help to improve. Proper analysis of photographs is a great example, and we have developed more and more capability to make sure we have the right angle and proper picture needed to move the claim forward in the process. Even simple uses of AI such as this can add up to vast improvements in speed and productivity.

On the high end, we are developing complex models that can continue to automate and refine estimates for more and more severe accidents. This other use of AI is like a telescope for the mind—allowing new insights into vast data sets and complex problems that would not be possible without it. We analyze millions and millions of accident pictures that feed a super-smart estimating engine and leverage our estimator talent eight to one compared with non-assisted, experienced estimators. We are also finding interesting patterns in repair shops, types of accidents, customer behavior etc. If we did not have the massive and growing scale of transactions, we would not have seen and been able to share these insights.

Bionic Design Principle 5: Change your economics: Take advantage of bionic economics— speed, scale & capital

Perhaps the most powerful force of Digital Darwinism is the speed of change in core economics. This is why our final key design principle is to use the business system with the best total economics, driven by speed, scale and new forms of capital. There is no question that this new mix of people and machines can make decisions faster. We’ve found that our staff are as much as five times as productive, but they are not super humans; they are simply people supported by great cognitive technology and training. The more data and transactions that any learning machine can ingest, the better its speed and accuracy.

Google Translate is so good because it was fed with billions of books and all the proceedings of the E.U., which publishes in about three dozen languages. This vast wealth of data made it learn faster. So, too, with claims. This speed not only decreases labor, it also allows us to provide answers faster and get through the entire process in less time. In claims, like many things in life, time only makes things worse— with impatient claimants creating additional service demands and the organization incurring added costs such as rental and storage.

In terms of scale, larger networks of computer power usually have superior economics. The cloud not only enables organizations to make their costs more variable, (e.g., if you need more capacity, simply contract for more without the need to buy new hardware and software) but also provides the ability to take advantage of the economics that support that network—such as the formidable buying power of the cloud provider, power efficiency, customized operating systems and software that creates other efficiencies. There are many end points on the network—another scale effect. Why do people usually go to Google? Because its network of links is larger and better than the competition. Why go to the second-best network? Likewise, cloud providers of critical business functions can create a world-scale network that is larger and better than all but the largest individual competitors.

Lastly, the bionic competitors gather and grow three types of capital: behavioral, cognitive and network.

Behavioral capital is the ability to track, analyze and model the behavior of any customer, device or service provider in the ecosystem. United Rental has over 70% of its assets—going to 100%—linked so the company can see the location, behavior and maintenance status of all assets. This is behavioral capital.

Cognitive capital is the store of AI, algorithms and other automated knowledge that can be used, improved and reused again and again. The better the store of cognitive capital, the more organizations can leverage existing labor and assets.

Network capital is how well a company is tied into the relevant networks for customer and supplier access. For example, no consumer products company can afford to not have a strategy for Amazon and Alibaba because they have some of the most extensive network capital in the world for consumer products. In bionic competition, organizations need to strategically use cloud providers that can bring these new forms of capital to bear to create superior economics.

There you have it. Five design principles that you can add to your strategy to move beyond siloed activities and on the way to deep transformation— speeding up your evolutionary process to meet the needs of a new Digital Darwinism and updating your customer’s experience along the way.

If there is one thing that we have all learned with the spread of COVID-19, it is that there is virtually no industry that is immune to its impact. The global pandemic is disrupting the daily lives of individuals, the operations of businesses, the activities of governments and even the approach of cherished institutions like museums, universities and religious organizations. The P&C insurance industry, like many others, is reeling from the implications of the virus. Amid the rapid changes, it is important to assess the impact of COVID-19 on the insurtech movement. After all, insurtech has always been touted as the ultimate disruptor of the insurance industry. But, might COVID-19 prove to be a disruptor to insurtech?  

First, it is essential to recognize that the ultimate impact will depend largely on the duration of the virus. If the U.S. and the world at large gain control of the virus in the next six to eight weeks, then there will be short-term pain for all (including insurtech). But there is likely to be a sharp rebound – the V-shaped recovery that economists are talking about. If the spread accelerates and the fight goes on for months or years, then it becomes a whole different scenario. Let’s look at several dimensions of insurtech and how they may be affected in the short term and long term, with the understanding that the implications for insurtech insurers, distributors and tech companies may be very different.

• Full-Stack Insurers: Companies like Root, Lemonade and Next should be well-positioned to thrive when the virus subsides. As digital-native companies, they can capitalize as the world accelerates transformation to online, digital and mobile engagement. In the short term, there may be fewer claims on the auto insurance side, as the roadways are empty. The offsetting factor is that fewer people will be buying new cars, moving into new apartments or buying/building homes – at least in the short term.  
• Digital Distribution Players: Like the full-stack insurers, the digital agents, MGAs, comparison platforms and others in the distribution space stand to succeed as more people gain experience with moving their personal lives online. Of course, individuals and businesses can still call their agents or brokers or use their web capabilities, but, generally speaking, the insurtech digital distribution players have more advanced capabilities. Like the full-stack insurers, they will be affected by fewer “changes” requiring insurance – fewer car and home purchases, less likelihood that business will be expanding fleets, etc. Then again, maybe there will be more shopping around to try to cut expenses.
• Tech Companies: Insurtechs that offer new capabilities for underwriting, claims or internal operations may face a more mixed future. Those that offer digital capabilities to interact with agents, prospects, customers and claimants will likely be okay, especially if the economy is starting to recover within 10 to 12 weeks. Self-service, DIY, mobile and virtual capabilities will all be elevated in importance – not just for the period when people are sheltering in place and businesses are closed or at limited capacity – but for the long run. Any insurer that has not already focused on the importance of digital transformation via these types of capabilities is sure to pick up the pace when the storm passes. Fortunately, most insurtechs provide the types of capabilities that enable a digital transformation. On the downside, the ability for insurtechs to be in the market meeting with insurers, increasing their brand visibility and building their pipeline will be reduced. Of course, marketing and sales can be done digitally. But in the case of insurtech, the physical presence is important. In addition, conducting pilots and proofs of concept (POCs) may be more difficult as they often require individuals to be onsite with the insurer. Finally, some insurers may be reluctant to sign new contracts in the short term.

One factor affecting all of this is that the funding picture is fuzzy. Up through the end of 2019, there was great momentum for insurtech around the world, and funding levels were continuing to increase. Now, capital is already starting to tighten up. And the longer the COVID-19 virus continues, the more reluctant investors will be to fund new ventures.

See also: Will COVID-19 Be Digital Tipping Point?  

Considering all these factors, will insurtech be disrupted? Over the next couple of months, the answer is most certainly yes. And there will most certainly be failures as some insurtechs run out of cash over the next few months. Another implication is that M&A might accelerate. insurtechs that have been reluctant to sell may be willing to cash out at lower amounts and acquirers are already out seeking bargains.

If the pandemic accelerates and lasts for a long time, all bets are off. If business starts to return to normal by summer, then most insurtech will be very well-positioned for success as insurers look to accelerate their digital transformation and inject even more innovation into their business.

The list of states in which marijuana is legal, either for medical or recreational purposes, is expected to continue to grow in 2020. Legislative efforts are expected to continue in New York and New Jersey, despite falling short the previous year, and in other states there are ballot-initiative campaigns aimed at legalizing recreational marijuana. However, at the federal level, efforts to revisit the status of marijuana under the Controlled Substances Act (CSA) have not made significant progress.

Currently, under the CSA, the cultivation, sale, distribution and possession of marijuana are illegal, irrespective of whether such activities are permitted under state law. This disparity in the legal status of marijuana at the state and federal levels, which has created uncertainty for businesses in the “legal” cannabis market, was dubbed the “marijuana policy gap” in a 2017 report by the Congressional Research Service.

The “marijuana policy gap” has caused some industries to hesitate to participate in legal marijuana markets, including the insurance industry.  As a result, insurance options for marijuana-related businesses (MRBs) are limited to mostly smaller, specialized insurers and the excess and surplus lines market. Conversely, larger, admitted carriers have resisted entering the insurance market for MRBs. In addition, financial institutions that accept deposits or extend credit to MRBs, or provide other financial services, risk violating federal law, such as anti-money laundering regulations. As a result, MRBs have limited access to capital to fund their growing businesses.

In 2019, a pair of bills were introduced in Congress aimed at expanding the ability of MRBs to obtain insurance as well as financial services. The CLAIM Act, as it was called, was intended to provide safe harbor from liability under federal law to insurers that underwrite policies for MRBs in states where medical or recreational use of marijuana is permitted. A second bill, the SAFE Banking Act, was intended to provide banks with a similar “safe harbor” from being penalized by regulators for providing banking services to MRBs operating in states where marijuana is legal. 

Although the CLAIM Act stalled in both the House and Senate, the SAFE Banking Act was passed by the House on Sept. 25. Prior to its passage, the SAFE Banking Act (H.R. 1595), was amended to include the protections for insurers that were originally introduced in the CLAIM Act. Under Section 4(c) of the act, an insurer that engages in “the business of insurance” with a “legitimate” MRB may not be held liable under federal law or regulations solely for engaging in such business. 

The SAFE Banking Act passed in the House with bipartisan support, on a vote of 321 to 103. The act now awaits action by the Senate, although its prospects for passage are uncertain. Sen. Mike Crapo (R-Idaho) is the chair of the Committee on Banking, Housing and Urban Affairs, which is considering the SAFE Banking Act, and has voiced “significant concerns” regarding the bill. Among other things, Sen. Crapo pointed to problems not addressed by the SAFE Banking Act, including “lack of research on marijuana’s effects, and the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.” Sen. Crapo’s apparent opposition to the bill may sound its death knell in the Senate. However, rather than outright dismiss any prospect of passing the bill, Sen. Crapo has requested public input on how to address his concerns. In addition, he has suggested that he may introduce his own legislation on this issue. 

See also: More Options for Cannabis Insurance?  

In the meantime, industry groups continue to support the act. On Feb. 7, 2020, the Credit Union National Association (CUNA) issued a response to the concerns outlined by Sen. Crapo, arguing that the SAFE Banking Act can be modified to address his concerns “consistent with the narrow objectives the bill was designed to achieve.” CUNA did not release a specific proposal but argued that, aside from a proposal to add public health and safety requirements to the enforcement responsibilities of the financial institutions, the SAFE Banking Act is already consistent with Sen. Crapo’s position on cannabis. 

Though its passage is far from certain, the SAFE Banking Act would have a significant impact on the legal cannabis insurance market and potentially encourage more insurers to underwrite policies for MRBs. Those working in the cannabis industry, or servicing those who do, should continue to track this legislation as well as monitor for future proposals.

Online payments are convenient, secure and easy. These days, they can also help keep you, your employees and your customers stay healthy and ensure your insurance business stays productive during the coronavirus pandemic.  

Amid the virus health concerns, employees across the country are being encouraged to work from home, while most Americans are being advised to stay inside.

That spells trouble for those consumers who prefer to pay their insurance bills in person or by the mail, many of whom are older. And it presents a tricky situation for insurance agents and companies that have shifted their work remotely for the time being. 

Not only should your clients avoid going out to pay their bills, but, even if they do, your business may not have anyone there to accept payments. 

That could be especially problematic in the insurance industry, where timely payments are paramount to maintaining coverage, something many Americans are undoubtedly nervous about as the virus spreads.

Even paying by mail could be problematic, as it requires having stamps on hand or going to the post office – again, your clients should be focusing on social distancing, not worrying about making a payment in person—and your office may not have anyone there anyway to open the mail.

The Federal Reserve Bank of Boston found in a 2017 study that the average American paid 8.4 bills in person, by mail or by phone, compared with 6.5 bills paid online and 6.4 bills paid through automatic withdrawal. That means a significant amount of people still aren’t paying online -- presenting an opportunity for you to increase the number of online payers, a true benefit, especially during the pandemic.

If your insurance agency or company doesn’t accept online payments, it’s not hard to add that capability to your website quickly, with a plug-and-play system. It’s even easier to get your customers set up. Under the current circumstances, they’ll be especially thankful. 

See also: Coronavirus Boosts Cyber Risk  

Online payments also allow your customers to know exactly when the payment is received, while mailed payments depend on the timing of the delivery. Your customers will be able to manage their cash flow better.

As the coronavirus continues to spread, now is a better time than ever to shift your payment processing online. Many more of your customers are open to the change, because they're trying to avoid personal contact. They'll thank you for the opportunity.

Throughout the first quarter of 2020, the insurtech landscape has remained vibrant. There are record-setting venture capital investments, weekly announcements of new insurance/insurtech deals and lots of excitement.

Over the last few years, the volume of insurtech developments and offerings in claims has grown exponentially, and many are being implemented to help reduce adjustment cost and provide consumers with more choice, greater access and ease. Digital interactions, remote damage inspection and direct-to-debit payments are becoming widely adopted to move reach a touchless claim process.

However, given the tremendous progress over the last three years or more, some would suggest we should be moving much faster.

Insurers say it's simply too time-consuming to evaluate all the potential solutions. They also say that, while many of insurtech solutions are impressive, they only provide a single piece in a very large puzzle. Insurers also understand the significant work it takes to implement a solution: training, workflow and organizational changes just to get started. Insurers must be selective, which certainly elongates their decision-making cycles.

See also: Future of Claims: Automation, Empathy  

Insurtechs, meanwhile, are at the mercy of insurers’ decision-making cycles, while also facing investor pressure to grow. They have to remain patient -- remember how the Ring doorbell was initially perceived? -- but waiting is not a strategy.

Time for a new approach: Pairing

It is time for more pairings, or combining of forces. If two or more insurtech solutions combine to solve multiple challenges together, it is easier for insurers to commit.

Examples of individual components include: sensors to detect losses, chatbots to aid loss intake, image capture to estimate damages, AI fraud tools and e-payments instead of mailed checks. These can be very helpful but still force insurers to splice everything together and to manage a portfolio of providers, often resorting to manual workarounds.

The pairing trend has already begun

A better approach is to have, say insurtechs integrate with claim system providers, a la Guidewire and Duck Creek. Original equipment manufacturers (OEMs) and insurers are teaming up on telematics -- look at the partnerships Ford announced with Allstate, Liberty Mutual and Nationwide. Hover and FileTrac announced a partnership to combine 3D photo visualization with a claim management platform. 

See also: Claims: Beyond the ‘Moment of Truth’  

Depending on where your insurtech stands today, a good first step is to self-evaluate and gather feedback from claims leaders, innovation teams and others. Consider which features are immediately adjacent and may add value if combined with yours.

There are endless potential pairing combinations to consider that could shape the next phase of the insurtech landscape. Insurtech alliances are not a one-size-fits-all answer but are very much worth exploring in this grow-or-die environment.

At the Connected Claims USA conference (June 24-25, Chicago), insurance leaders and insurtech partners will gather to learn and form lasting partnerships that will change the game.

In a blink of an eye, the world – society and all of humanity – are being stressed at every level imaginable due to the rapid spread of COVID-19. No one could ever have imagined or planned what this could really be like … including our industry. But since the beginnings of insurance, we have had a history of weathering all storms, all types of disasters and even pandemics. And I am confident that we will weather this one, as well. Insurance is a financially strong, resilient industry. We serve as a safety net for society, mitigating risks for all types of disasters – man-made or natural. This is who we are and what we do. And this is our moment of truth.

In the midst of all of this upheaval, we have a unique opportunity to do what is right by being a strong, dependable force for good. Our world – our employees, customers, partners and everyone in our ecosystem and beyond – need our strength and resilience, right now, tomorrow and every day moving forward. 

On the other side of this pandemic wave, the core of who we are as an industry will remain the same, but every aspect of what and how could be altered by this experience. The rules of engagement are changing, even as I write this blog. And that is okay. Every disaster presents new clarity and new experiences that create opportunities. 

At SMA, we are confident that new ideas, new approaches and new ways to accelerate the connections with our employees, customers, partners and everyone in our ecosystem will happen by adjusting and advancing digital transformation strategies and plans. 

See also: The Best Tools for Disaster Preparation  

Just remember, we are all part of this amazing insurance industry, and we are all standing strong. We will continue to stay present in this moment of truth. And we will do our absolute best to help you, as well. Just stay safe and healthy. 

The amount of vim, vigor and rigor brought to decision-making will determine the extent to which the insurance industry will harness the insights provided from enhanced analytics, artificial intelligence, machine learning and cognitive computing. The topic of operational decision management (ODM) is not new, but its importance is peaking as the topic of decision intelligence grows.

There still seems to be a gap in understanding among insurance experts about the straightforward topic of decision-making. Whether it’s for a macro/strategic decision or repetitive business process decision-making, there’s a clear, proven approach.

A recent article, nCov-19, Mitigate the impact to your business (Part 1), written by Ryan Trollip, does a superb job of walking through the decision-making processes using the current COVID-19 situation as a case in point.

Key Points in the Article

Metrics — When looking to improve decision-making in an organization, we need to identify what metrics we are trying to improve and then select decisions that have the biggest impact on those metrics. With the virus outbreak, understanding and monitoring key metrics using dashboards like the wildly popular one that John Hopkins made available, have been key in monitoring trends and understanding the impacts of policy decisions. 

Subject Matter Experts and Decision Modeling — Leveraging knowledge effectively and not just data, is the key to delivering ROI quickly. Your expert's business knowledge can be extremely valuable if you have the disciplines in place to effectively elicit this knowledge and represent it in a way that can be leveraged by others. We call this discipline decision modeling. Whether you automate those decisions or not, or whether the decision leverages machine learning or simply conditional logic (rules), the first step is to leverage existing knowledge (not data, yet) to break down the decision to understand its dependencies, understand what types of decision-making and data will be required to drive the decision. Again, this is where subject matter experts play a critical role. 

See also: How Coronavirus Is Cutting Connections  

An example of this, from the referenced article, is from an epidemiologist on how to mitigate workplace risk, looking at the density of the workspace, how regularly the area is cleaned, ventilation type used, supplies available, high traffic area touch mitigation. etc:

On the other side of the equation, we want to balance risk aversion against impact to productivity. Each organization is different, but generally it’s not critical to have all employees in the office all the time. Even for companies that have no critical, in-office needs, it is clearly preferable, for productivity and culture, to have some roles in-office over others -- e.g., a design team that needs to white board and discuss ideas vs programmers executing on a design.

There are other factors. For instance, some employees are more self-motivated than others to work without in-office supervision, and there are varying levels of technical ability to work remotely. If we take this day by day, role by role, employee by employee, for many companies, it would not be critical to have each employee in-office every day. If we rank the criticality of these in-office days and chart them, employees ranked by criticality (y axis) against level of in-office criticality per employee per day (x axis), for many companies, it would look something like the chart above. The intersection on the chart (red lines) is a rough illustration of how risk will likely fall faster than the impact to the business when reducing the in-office employees for many businesses.

Advice

Besides providing some insights on COVID-19 risk management decisions, we hope this article illustrates the process of crafting decisions.

The use of insights produced through new technologies, data and systems will only be valuable when it affects the main line decision-making processes across the insurance industry and in particular in the underwriting, claims and policy/customer administration processes.

Developing decision intelligence and decision management competencies is like any other skill. They need to be taught/learned, practiced and matured. There’s no once-and-done. Sure, there’s great technology to assist, but the business of insurance needs to evolve its decision making.

See also: Coronavirus: What Should Insurers Do?  

Whether you are targeting macro decisions like the one illustrated in this piece, or day-to-day operational decisions – pick a straightforward place to start. Lead it with an excited line-of-business sponsor. Select a team of willing business process practitioners and engage in a decision-making workshop or design thinking workshop to uncover imaginative and informed ways to hone the decisions at hand.

Then you will be in a position to engage with operations and technical folks to examine how to institutionalize these new approaches.

Don’t forget to measure the results so that the outcomes are within expected tolerances and that all lessons learned are captured for the next advances in these newfound capabilities.

I hope that you, your families, your friends and your colleagues are staying safe and aren't going crazy in isolation. I live in Northern California and (gah!) am in the over-60 demographic, so I've been sheltering in place for days. The good news is that, without sports on in the background, I'm being wildly productive.

As I have searched for an analogue that would help me get my head around the global pandemic and its two-by-four to the face of the economy, it has occurred to me that I have a fairly good one. I was the bureau chief for the Wall Street Journal in Mexico City during the peso devaluation crisis that began in late 1994. So I watched, up close and personal, a crisis that threatened to not only take down the Mexican economy but also spread to the rest of Latin America and eventually to throw the U.S. into a recession. 

Now, I realize that what my colleagues and I covered was a financial crisis, not a medical one, and that my degrees are in journalism, not in medicine, public health or economics. But I still think some aspects of the peso crisis match what's been happening in the coronavirus crisis and may have something to say about what will happen over the next several weeks and months.

I certainly hope so, because the Mexican government fumbled its way through the first two phases of its crisis and still came out pretty well in the third. I think the U.S. (and many other countries) have likewise been slow in the first two phases of the coronavirus, but I still hope we can thread the needle and bring the crisis under control in the third phase before many thousands more people die or our economy is trashed, or both. 

So, I'll lay out what I see as the three phases to a crisis—the buildup, the inflection point and the aftermath—and explain how I think the current crisis maps to what I witnessed in Mexico in the mid-'90s. I'll then describe what I see as the best option for action now, based on considerable reading on the subject, and will provide several links for those who want to dig deeper. 

Yes, I'm being speculative, but I figure that it just wouldn't make sense to write about anything other than coronavirus at the moment, and my experience in Mexico is about the only thing I can lob into the discussion: a bit of heavily qualified hope.

The background on Mexico:

When I moved there in 1993, it was the darling of the developing world. Under the leadership of a group of young technocrats, the country was privatizing businesses that had been nationalized under previous, leftist governments. NAFTA was about to be ratified, which could turbocharge foreign investment and modernize the economy—but only if Mexico could maintain the stability of its currency. There had been so many devaluations that earlier in 1993 the country switched to nuevos pesos (new pesos)—I had loads of bills that said they were worth 100,000 pesos, but those were old pesos; you lopped off three zeroes to convert to new ones. Foreign companies liked what they saw in Mexico's leadership in 1993, but they were nervous. 

The buildup to the crisis began on New Year's Day of 1994, when some indigenous rebels took control of the capital in the state of Chiapas. The threat escalated in March when the man who had been designated to be Mexico's next president was assassinated. But the Mexican government took a "nothing to see here" approach and did little but talk even as the instability made foreign currency reserves dwindle. 

The inflection point came in December, when uncertainty about the newly inaugurated administration exacerbated the pressure on the peso. The government bungled this phase, too. It tried to "widen the band" in which it would let the peso trade, but foreign companies panicked, and hard currency fled the country. Soon, the currency had lost more than half its value. Spooked investors fled other Latin American countries, too. 

The aftermath worked out far better, partly because economies tend to be resilient, even when they're as fragile as Mexico's was, but largely because of a $50 billion bailout that President Clinton signed into law in April 1995. The decisive action steadied the ship and gave Mexico time to work things out on its own.

It's that aftermath that gives me hope that the economic package that is being negotiated in Congress (as I write this on Monday, the 23rd), combined with shelter in place orders and increasing production of medical equipment, will let the U.S. not only stop the virus in its tracks but let the U.S. economy survive the enormous hit it is now taking.

But the smartest people I've read on the subject say we have a narrow window in which to get the interventions right and need that steady hand that the U.S. bailout provided Mexico. They say we need to limit interactions quickly enough, severely enough and long enough that we can switch from our "horizontal" attack on the virus to a "vertical" approach before the economy melts down—in other words, going from a thinly spread, nationwide approach to deep dives into local flareups.

For now, we need the horizontal approach, covering everyone, because we simply don't know who has the virus. A key danger with the coronavirus is that many of those who are infected don't show symptoms, and we don't have enough tests available to do a blunt-force check of the population. But if we really all stayed away from each for two weeks, while practicing proper hygiene, we could drastically reduce the number of new cases, resetting the pandemic back to where it was perhaps two months ago.

At that point, we could switch to the vertical approach: watching closely to see where a case appears, then drilling down into it to see how the person got infected and who else had been exposed. Cellphone tracking data is turning out to be very useful in this regard because, once you know someone is infected, you can work backward to see where he was in prior days and get a sense of those with whom he has interacted while infectious (though there are obvious privacy issues). It's also helpful that the virus seems to infect people in clusters—families, those on cruise ships and others who interact with each other repeatedly, rather than just in passing. A vertical approach, based on detailed investigation into individuals and clusters and on extensive testing of all those possibly exposed, would let us shift to treating the coronavirus as a series of small fires rather than as a nationwide conflagration.

The vast majority of people could resume normal activities, and the economy would get rolling again.

But for my optimistic-ish scenario to have a chance, two things have to happen. First, we have to enforce the shelter in place for weeks—in theory, two weeks is enough, but there are enough folks mingling on beaches for Spring Break, etc. that I'm guessing three or four weeks will be needed. (Again, consult experts like Dr. Anthony Fauci et al. for actual data, not the journalist who is self-taught on science.) I worry we may not last three or four weeks because the president already is clearly itching to call an end to quarantines and reinvigorate the economy. Second, we have to produce tens of millions of tests and be able to use them quickly. That means not just having the tests but also having people who can administer them, personal protective equipment for them to wear and lab equipment that can determine results within 24 hours, if not faster. And we may have trouble just ramping up the availability of tests by the time we leave the horizontal phase—the CEO of Roche says that an adequate number of tests is "weeks, if not months, out."

There are loads of apocalyptic economists out there. Over the weekend, I saw big-name economists predicting a 15% to 30% contraction in U.S. GDP in the second quarter, with unemployment as high as 30%. And an economic collapse would trigger massive health problems even if the virus is then contained—more suicides, more homeless, few resources for the poor, etc.

I dearly hope the scariest numbers prove wrong, but I think we're on the knife's edge and need to get everything just right from here.

Stay safe.

Paul Carroll

Editor-in-Chief

P.S. (As promised, here are some links: a New York Times article that explains just how harsh the horizontal phase needs to be; a Twitter feed that shows the dramatic effects possible through social distancing; a column in the Times that lays out in detail the horizontal/vertical idea and is where I first saw it; a Tom Friedman column in the Times that builds on the horizontal/vertical notion; a McKinsey article that lays out several possible scenarios, including the one that I'm hoping occurs; and the most optimistic of them all, a Los Angeles Times piece about a Nobel laureate who sees hope in the pandemic numbers even as the grim death tolls keep climbing.)

P.P.S. I didn't want to clutter the main text but thought that those of you who've made it this far might permit me a personal note. That stretch I spent in Mexico was the most important journalism of my career. My little group made the right call during all three phases. We warned readers throughout 1994 that there could be a problem with foreign reserves, making the peso vulnerable. On the day of the "widening of the band," when others took the government at face value, we reported that the peso was going to get slaughtered—and it did, on the first day of trading. Then, when most others went into panic mode, we quickly switched to more optimistic stories because of signs of resilience that we saw.

The Mexico coverage was nominated twice for a Pulitzer Prize, and we were a finalist once. 

I even had a Deep Throat moment. Through considerable maneuvering, I convinced a senior official to sneak away from his bodyguard and meet me in secret at my home, even though he was in fear for his life. Trying to defend the government, he spent two hours explaining in detail how the devaluation had looked from the inside, including how it was botched. As we said a friendly goodbye at my front gate, knowing we were unlikely to ever see each other again, a car backfired somewhere in the neighborhood, sounding like a gunshot. He dashed to his car and drove off. 

Insurance has a fatal flaw. Few of us want to be reminded of how dangerous the world is. Cars crash, buildings burn, accidents happen. Usually to other people. So, unless we are highly sensitive to risk, unless we are unusually thoughtful about the future or unless regulation requires it, we don’t care much about insurance.

Recently, that all changed. The WHO declared COVID-19 a pandemic. Suddenly, we’d lost a big chunk of our savings, the rest of the world didn’t want to see us, most events planned for the coming months were canceled and the pandemic pushed everything else off the BBC evening news. Now we care about insurance.

For the last five years, the celebration of the emergence of innovation in insurance and the invention of insurtech has had to battle with a fundamental problem. How to change an established industry, reliant on legacy, which most people don’t really care too much about and which is, most of the time, good enough?

Successfully driving any change without a major shift in how we see the world is really hard. Often, we need a shock to the system. Our view of how our lives might change – for better or worse – radically alters if we directly experience disasters (personal, national or global). The emergence of new technology can also drive massive changes. Sometimes, very quickly. And not just recently. The Liverpool to Manchester Railway opened in 1830, and, within three months, over half the 26 horse-drawn stagecoaches on the route had gone out of business.

COVID-19 will bring many challenges, but it may be the reset button for insurance innovation. It's happened before.

Hurricane Andrew hit Florida in 1992, the most destructive hurricane ever to hit the state. The claims bankrupted 12 insurance companies. Soon after, the insurance rating agency A M Best required every insurer to prove that it had sufficient capital to withstand a “one-in-100-year” loss. No actuary had enough claims data to figure out what that meant. Andrew, and then the California Northridge Earthquake in 1994, gave birth to the specialized techniques of catastrophe modeling and led to the founding of RMS and AIR (now part of Verisk). The power of first-mover advantage, and the difficulty of building credible catastrophe risk models, is demonstrated by the fact that almost 30 years later both companies still dominant this space, with combined revenues of around $500 million.

Fast forward a decade or so. Despite 2019 being a record year in funding for insurance technology start-ups and scale-ups, with over $6 billion invested, it’s getting hard for some of the best-known business ideas to gain traction. Trov and Wrisk have announced recently they are shifting from being insurers (or, more accurately, MGAs) offering contents or device insurance, to becoming platforms. Their clients will now be other organizations with established insurance offerings or existing distribution and customers. Lesser-known companies have quietly packed up or are stuck in insurtech zombie land, never quite launching. Other well-known entrants such as Bought by Many and Lemonade appear to be doubling down on pet insurance. A perfectly acceptable strategy, but a future defined by our love of furry animals is not quite where were many people expected us to have got to by 2020.

See also: How Coronavirus Is Cutting Connections  

Innovation is really hard. We may have heard of the H1N1 variant known as Spanish flu from 1918, but, until we started to experience the impact of COVID-19 virus, few of us gave much thought to the possibility that a pandemic was something we would need to deal with in our own lives. I haven’t done a comprehensive search of Google, but I’m struggling to find any insurtech-like company that has been building solutions to model the risk of pandemics.

A quick editorial note here. I write “insurtech-like” because there is no universal agreement on what the word actually means these days. I’m using it here as a shorthand for any company launched within the last 10 years or so that is using new technology or data or analytics to help with distribution, pricing, risk management, claims and probably a lot more. Please don’t quote me on that definition, though -- the topic probably merits a full article in itself, and I prefer Andy Yeoman of Concirrus’s definition from when I interviewed him recently: “Every insurance company is insurtech, some just have bad tech.” But I digress.

RMS started building pandemic models in 2012 to help price “excess mortality,” a polite actuarial term to describe too many people dying at once. The idea was to help insurance companies manage their capital and get access to tools to help them buy reinsurance more effectively. The problem was that the rather simplistic capital models accepted by the regulators gave a lower risk price, and less capital requirement, than the sophisticated RMS models, which ultimately would have led to more costs for the insurers. There wasn’t much interest from the catastrophe bond market, either. There are a couple of parametric bonds in place just now, but few companies really worried enough about pandemics to justify the cost of buying protection.

Metabiota, founded in 2008, uses real-time data collection and analytics to model epidemics. A partnership was announced with Munich Re in 2016 to develop models and insurance solutions for property and casualty insurance designed to mitigate the economic losses caused by epidemics. Marsh has tapped into the Metabiota relationship with Munich Re to create PathogenRX. According to its website, this is index-based insurance that offers protection to US clients against losses resulting from a pandemic or epidemic affecting international travel, study-abroad and research programs. I’m not sure how successful this has been (watch this space) but anyone that has bought the cover is going to feel pretty smart just now. Techcrunch mentions that Metabiota is also working with African Risk Capacity (ARC), the agency using parametric insurance to provide cover for a number of African countries.

By the way, if you don't already know what an epidemic is, it's a sudden increase in the number of cases of a disease, more than what's typically expected for the population in that area. A pandemic is an epidemic that has spread to several countries. 

SparkBeyond, an artificial intelligence company formed in 2013 that I spoke to recently, has been commissioned by one major country to help it understand how to use analytics to minimize the pandemic spread. The company operates across many industries, so it's not really an insurtech (by whatever definition you use) but does hint at what could be on offer for those currently in the insurance world. (Check out the Instech London podcast to learn more.)

One system shock that may give the London market the jolt it needs is the potential for Lloyd’s to close for an extended period, forcing insurers and brokers to exchange risks electronically. The market shut for the first time recently for one day to test its resilience to a longer shut down, and at least one London company, Canopius, announced that it was asking all staff to work from home starting Monday, March 16. The recently launched PPL system for placing insurance contracts may not work as smoothly as it needs to, but it's unlikely that the Lloyd’s market could ever have contemplated working remotely without it. 

As we start to understand the far-reaching implications of this pandemic, and adjust our lives to cope with it, remember that with every crisis comes an opportunity. I was working the phones recently, speaking to some of the experts from modeling, medicine, insurance, supply chain and AI to help put some context around the news and record their insights for a pandemic podcast special. I explored what has been done around analytics and what could still be done to give some pointers to those of you looking for new business ideas or even just consulting work. I asked what the insurance implications would be, and I discovered how vulnerable the supply chains are. I found out that there are massive amounts of data available related to the pandemic, much of which is open source, and I reveal where to go to get the best insights.

See also: Innovation: Top Down/Bottom Up  

The podcast is number 72 on the Instech London series. It's 40 minutes long and a chance to hear what Robert Muir-Wood (RMS), Dr. Chris Martin (medical), Nick Wildgoose (supply chain), Sam Casey (Insurance Insider) and Alex Easaw (SparkBeyond) have to say. You can find it at any decent podcast channel (search "Instech London") or listen directly from here on the podcast section of the Instech London website (www.instech.london). Now with the added benefit of gaining Chartered Insurance Institute CPD credits while you listen.

Of one thing we can be sure, however the world looks in a few months, we are going to be thinking very differently about the threat of pandemics and what this means for insurance. Unfortunately, for many people and companies, insurance cover will be found to fall short of expectations in compensating losses, and when life returns to normal we might see a fundamental rethink of what insurance is all about. But maybe, at last, we can move beyond accepting that pet insurance is the best we can do when it comes to introducing innovation into insurance.