Insurance, being one of the most conservative, centralized and walled industries, is awakening from its slumber and probing new technologies. Its shy yet solid interest in innovations, particularly in blockchain, is powered by customers’ increased distrust in centralized financial services, which has led to high rates of underinsurance. 

Driven by both curiosity and fear, insurance companies seek to hire blockchain developers to help them out. Curiosity comes from blockchain promising to save time and lower transactional costs. At the same time, insurers fear this innovation as it can open up new approaches for cyber-attacks. 

Let’s explore how insurance companies can adopt blockchain technologies safely and cease to lag behind other financial service sectors.  

What is blockchain in insurance?

First things first, let’s define what blockchain is in the context of insurance.

The blockchain technology is based on the distributed ledger principle that eliminates the need for intermediaries. Copies of the shared ledger are stored across multiple users’ locations, providing any endorsed insurance company, agent, broker or underwriter with access to the same source of data updated in real time. All the transactions registered on a blockchain are verified and encrypted, while all the changes to the records are published as additions to the original data. 

The practical application can look like this: With the help of blockchain, medical records can be encrypted and shared between hospitals and insurers (even across borders), thus cutting duplicated and erroneous records, lengthy claim processing, claim denials and excessive checkups.    

How blockchain is implemented in insurance

According to the Accenture Technology Vision 2019 survey, more than 80% of insurance companies claimed they adopted or were planning to adopt the blockchain technology. It’s true: Many blockchain insurance projects are lingering at the proof of concept stage. However, to accelerate adoption, some companies choose to collaborate and form alliances, such as the Blockchain Insurance Industry Initiative (B3i) or the Institutes' RiskStream Collaborative. 

See also: Blockchain: Seizing the Opportunities 

These trailblazing alliances develop blockchain-based platforms to make the following blockchain use cases possible. 

Fraud and abuse prevention

Fraud costs the insurance industry monstrous amounts of money, mostly because it’s impossible to detect fraudulent activities with regular methods based on the use of publicly available data and private data sources. As a result, the accumulated data is usually fragmented due to legal constraints accompanying personally identifiable information. 

Unfortunately, these gaps in visibility are being compromised by fraudsters. For example, multiple claims can be filed for a single case of care.

When data is stored on a blockchain-based ledger, it’s secured with cryptographic signatures and granular permission settings. It means that all the parties can share data and verify its authenticity without revealing sensitive information. A shared decentralized ledger facilitates historic data consolidation and helps companies spot suspicious patterns, such as:

• Multiple processing of the same claim    
• An insurance policy’s ownership manipulation
• Insurance sold by unlicensed brokers

To attain even higher security, insurance companies can provide customers with encrypted digital ID cards that can’t be faked. 

Boosted transparency and trust

Insurance companies are called walled gardens for a reason. Customers have little chance to see how their data is managed. For example, they will never know that their data is shared with third parties. It’s no wonder that customers grow distrustful of insurance companies, particularly when facing long claim processing times or receiving claim denials—while the cost of premiums is ever-increasing. 

However, when multiple insurance companies choose to contribute data to the same decentralized and shared ledger, it can lead to three big advantages:

1. Insurance companies can build more complete customer profiles and eliminate duplicate records. As the data in the blockchain ledger is immutable, the insurance companies won’t doubt its authenticity.  
2. Customers will get visibility into what data their insurers have on them, and how this data is processed. Plus, when blockchain is combined with machine learning and AI, claim processing can be automated, thus accelerating payouts. 
3. Blockchain helps automatically verify third-party claims or payments made through personal devices. Further on, the insurance company will be able to see all those transactions reflected on the blockchain.

Streamlined claim management

Selling and managing insurance policies is a labor-intensive process. In the context of high competition, insurance companies that stick to slow and paperwork-heavy traditional approaches lose to more digitally savvy competitors. The latter are able to offer lower premiums by automating claim management. 

Some of the processes can be automated by means of smart contracts which are getting popular for property and casualty insurance. When used in combination with connected devices, a smart contract can trigger automatic claim processing when, for example, anti-theft sensors go off under certain pre-programmed conditions. 

However, the truly streamlined insurance management requires increased trust from both insurers and consumers. The best way to reach this balance is to create a blockchain-based ecosystem with a considerable number of high-profile participants. A model illustration is the Bank of China, which has recently partnered with leading insurance companies and launched its own blockchain. Once new records are added to the blockchain, the distributed ledger technology helps update and validate the data against other records in the network, which significantly reduces operating costs, at the same time providing high security for transactions.

The distributed ledger technology also deals with one more factor that slows down claim management—the need for bank transfers. As a rule, customers don’t see payouts in their accounts for weeks. However, when banks and insurers have a single system they trust, the payouts can be processed without considerable delays.

See also: Blockchain, Privacy and Regulation 

Final thoughts

Blockchain is a decisive factor in transforming the insurance industry and helping it break free from outdated traditions. The need for innovation in insurance is critical—customers are craving transparency, speed and cost flexibility. Blockchain is designed to deliver on these desires and meet all the participants’ particular expectations. 

When there’s little to no chance of fraud, people will trust their insurance agents more. When complex policy claims are processed 10x faster, there’s no room for friction. At the same time, when claim processing is automated, insurers have more possibilities to be flexible with pricing. 

What’s more, the covered use cases are just the beginning. With more blockchain-based applications going live and more companies entering into collaborations, the insurance industry can grow its tech ecosystem to create better products for case management, audit and risk modeling.

Analytics can be a great equalizer in every industry. It's why 90% of respondents to a McKinsey survey call their analytics investment "medium to high" and another 30% referred to the investment as "very significant" proof that the surveyed understand the value that analytics possesses.

Those investors—especially the commercial insurers—understand the value of analytics and get their money's worth. In addition to improving sales targets and reducing churn, analytics can increase profitability when it comes to underwriting and selecting risk.

Still, the full potential of analytics goes beyond the insights it provides insurers. When merged with modern technology, data and analytics can fuel efficiency, accuracy and productivity. When used within the decision engine to drive automation, for example, data and analytics can help insurers expedite processes and improve customer experiences, even without human intervention.

Automated reports and actions provide insurers new ways to optimize their day-to-day operations. However, the marriage of automation and analytics is especially vital for the small commercial market as they contend with higher volumes of policy quoting and writing. Using predictive models, automation can reduce the amount of human effort it takes to sell and service policies for small businesses.

Analytics and automation present opportunities to optimize every facet of growing market share for small commercial insurers if properly applied. The sooner that insurers embrace the two, the better off they—and their customers—will be.

Analytics and Automation Can Deliver

When it comes to risk assessment for small businesses, insurers are usually hampered with limited or even misleading information. Unfortunately, this can result in a gap between a risk-appropriate rate and the quoted premium. Thanks to automation and analytics, however, that sort of disparity can be a thing of the past.

See also: What Predictive Analytics Is Reshaping  

While there are many ways analytics and automation can be used to improve the small commercial insurance industry, there are three particular areas where major improvements have been demonstrated. For insurers that are on the fence about committing to analytics and automation, here's where their influences will likely be most visible:

1. Simplified Applications

By automating customer quoting and underwriting, insurers can phase out the process of collecting troves of information on an application. With reliable third-party data sources, automation can fill in many of the blanks present on typical applications. Insurers will then only need to ask for what’s relevant for the predictive model to assess the risk and provide direction on pricing.

In the same vein, the automation of processes and decisions empowers insurers to use straight-through processing for new applications—quoting and binding policies entirely through an e-commerce experience, without involving staff or consuming staff time. Typically, this is a far more streamlined process for both the insured and insurer, and delivers improved customer experiences.

2. Expedited Claims Processing

Small businesses are acutely sensitive to how long it takes insurers to pay claims and how good (or bad) their experiences are. Analytics helps insurers triage claims while suggesting different processing options.

According to a LexisNexis study, the availability of this data helps shorten processing cycle times by up to 15%. For example, through IoT (internet of things) devices, an insurer can detect water heater leaks and other high-risk problems in real time, enabling the insurer to anticipate potential claims and possibly even prevent them.

Of course, being fast is only part of the equation—the process must also be accurate. Thankfully, automation and analytics improve processes by catching overlooked data points. When sophisticated analytics are applied against a large sample of detailed claims data, the resulting insights can, for example, highlight the best way to get an injured employee back on his or her feet and offer a customized plan to do so.

See also: What’s Beyond Robotic Process Automation  

3. Improved Risk Identification

By using reliable third-party data, such as information available through a data consortium, insurers can more quickly and accurately identify risk—even if it’s in a sector where they have little or no experience—and ensure that risk-appropriate pricing is quoted. Analytics thus becomes a valuable growth engine for insurers to confidently expand into different business lines and regions.  In an environment where 40% of the smallest organizations have no business insurance whatsoever, insurers that embrace modern technology could reap significant rewards. By combining analytics with automation, the small business insurance market could be transformed—which would be welcome news for both insurers and their customers.

Did a Chinese general from 500 B.C. know more about the current state of data and analytics than many modern insurers? 

Sun Tzu, the over-quoted author of The Art of War, wrote about battle – not binary code – yet his most famous saying perfectly captures the dilemma facing today’s insurers attempting to embrace data analytics: “Tactics without strategy is the noise before defeat.”

The buzz around big data is as loud as ever, but life and health insurers report mounting pressure to define a strategy and deliver a return on investment, according to RGA’s 2019 Global Life and Health Data Analytics Survey. Many are struggling. While eight out of the 10 major multinational organizations participating in RGA’s online survey reported having a data analytics strategy in place, half were in early stages of putting this plan into practice and one had not yet begun.

What accounts for the delay? Part of the problem may rest on a simple misunderstanding. It can be tempting to make the mistake of classifying data strategy solely as an information technology (IT) function, focusing on the back-end processing and management of ever more complex and voluminous data sets. But transforming a collection of initiatives into a successful data and analytics program requires more than efficiently managing ones and zeros. A true strategy should enable a carrier to maximize business value from data.

Technology is an enabler along the journey, but, to succeed, a carrier must first agree on the destination. Is the enterprise seeking to enhance in-force management, generate more leads, accelerate underwriting, engage more customers, manage claims more efficiently or something else? In RGA’s Data Analytics Survey, carriers identified the business areas most likely to be transformed by data analytics over the next three to five years. Eight of 10 participating insurers agreed that data analytics would have a “high” or “very high” influence over practices within distribution, underwriting, claims management and marketing/branding functions, with 60% of respondents sharing the intent to invest significantly in data-driven accelerated underwriting.

See also: Understanding New Generations of Data  

Next, the insurer must understand the many data sources available, whether traditional (fully underwritten) applications and financial disclosures, digital sources such as electronic medical and prescription records and insurance-linked wellness programs or more leading-edge information gathering via social disclosures and “Internet of Things” devices. Interestingly, only one carrier in RGA’s Data Analytics Survey acknowledged using wearable information such as steps, sleep and heart rate monitoring from wearable devices, but 60% of respondents plan to use wearable sources in the future. 50% indicated plans to employ “digital fingerprint” data that draw on social media disclosures, although none of the respondents use such data sources today.

To respond to these questions, successful data strategists adhere to four basic principles:

• Prospect — Effective data valuation – the evaluation of internal and external data sources – and processes to identify, prioritize and acquire new data sources are essential.
• Communicate — Carriers with successful data strategies have focused on understanding and communicating the data assets available within the enterprise. 
• Optimize — Extracting maximum value from the data available generally involves identifying new or underused data assets, enriching existing sources and monetizing data or data-driven algorithms.
• Protect — Data protection is an essential consideration. Carriers must constantly weigh how to best eliminate or mitigate risks related to data privacy and protection. 

Know the Landscape

Defining a data strategy begins with these four principles, but it doesn’t end there. As Sun Tzu noted, “He will win who knows when to fight and when not to fight.” Before pursuing a plan of attack, Tzu argued that the successful general first surveys the field of battle and evaluates the strengths and weaknesses of both armies. An effective data strategist must study the industry landscape and determine what information is available, relevant and compliant.

The data and analytics field is advancing more rapidly than regulatory rulemaking in certain markets, and carriers are challenged to plan for the future while regulatory constraints and expectations are still shifting. A “guidance map” can help, so long as it is revisited regularly. In most regions, a single piece (or two…) of legislation tends to govern overall approaches to data use. Building off this legislation, carriers can establish overall frameworks to guide risk mitigation and anticipate which data applications are likely to be acceptable. This is a start – not an end – and insurers must continue to track and respond to overall regulatory change.

Conducting a data inventory, either through manual fact-finding and in-person interviews or by purchasing an automated system to crawl available databases to catalogue them, is another important step. Aside from revealing gaps, an inventory can democratize awareness of available data beyond a small coterie of experts and help carriers draw on the collective insight of the broader organization. RGA’s Data Analytics Survey asked insurers which data sources they currently use within their organizations. In the underwriting function, the top data sources used today were claims history (60%), prescription data (50%), lab/exam and motor vehicle (40%).

Top Down or Bottom Up? 

Armed with greater insight, insurers can draw up a “target list” of data sets to pursue. This is easily the most resource-intensive task facing any data strategist, but it can also be the most rewarding. When determining the best approach to developing such a list, size doesn’t matter, but organizational maturity does. Our favorite general could have been advising any insurer’s board room when he wrote: “He will win who knows how to handle both superior and inferior forces.”

A bottom-up method is best-suited for a larger, better-resourced data and analytics team. With this approach, companies dedicate a team of seasoned professionals to systematically explore available data sets throughout an organization for untapped opportunities. This requires a deep understanding of market conditions, the capacity to methodically break down big data sets into more manageable segments and the freedom to delay immediate return on investment. The team should regularly meet with business leaders to evaluate progress.

See also: Data Prefill: Now You See It, Now You Don’t  

A top-down approach has more in common with the fail-fast ethos of a startup and works best in leaner, more limited and less structured organizations. Participants brainstorm business problems that can be solved as new and interesting data sources emerge. Rather than examining all available data, set by set, resources are focused on gathering input from business leaders, synthesizing project ideas, evaluating what business needs benefit most from a data-based solution and then coming to a consensus around concepts with the greatest chance of success. This approach generates results faster and with less investment, but, because it relies heavily on the knowledge and guidance of a few executives, it can miss opportunities. 

Tzu realized more than a millennia ago that, to win, any enterprise must out-think, rather than out-fight, an opponent. When it comes to today’s modern insurance landscape, military metaphors only extend so far. Still, it’s undeniable that a new competitive contest has emerged over data, and an effective strategy will distinguish the victors from the vanquished.

Curious? Contact us to discuss techniques to develop an effective data strategy in your organization.

The automotive claims process has long been strenuous, time-consuming and costly both for insurers and consumers. The moment an incident occurs, a driver is placed in a world of stress. In addition to managing the emotional strain that is a car crash, the driver now has to deal with several different parties to repair the damage. Traditionally, it takes one to three days after filing a claim to initiate contact with an insurance adjuster (it takes even more time if the adjuster needs to inspect the damage).

There is suddenly an unexpected burden consuming time and money and requiring paperwork. But advancements in artificial intelligence and telematics (such as our new Claims Studio) can revolutionize the claims system by validating claims, processing them much faster and placing safety at the forefront for drivers. 

Here are three ways the insurance industry can adapt to improve the claims process: 

Validating Claims

Automotive claims have historically been a manual process, where drivers retell their side of the story following a collision. These details are then shared with insurance companies, adjusters and, at times, even courts, to resolve claims and disputes. This process leaves room for ambiguity and human error, because, as we all know, there are two sides to each story. We also have to take into consideration the shock that results from a car crash – a driver might not remember or realize immediately the need to take photos of the damages or call the insurance company to begin the claims process.

Insurers can help drivers mitigate this complicated and stressful process by implementing advanced technologies, now available, that provide accurate, unbiased crash storylines. These narratives detail key findings such as the severity of a crash, where the vehicle was hit, the driver’s speed (before, during and after a collision), the weather and more. A claims adjuster needs this information to do his or her job. When this information is incomplete or inaccurate, the process takes longer, and costs increase for the driver.

Accelerating the Claims Process

In addition to enabling insurers to settle claims more seamlessly and accurately (preventing potential fraud), these technologies aid in settling claims earlier, paving the way for better customer experiences. For example, our solution automatically populates crash insights and reporting into a web portal or directly into an insurer’s claims management system, providing insurers with many details needed to quickly process a claim. By offering claims adjusters this information within 10 minutes of an accident, insurers are empowering them to help drivers quickly resolve their issues.

Placing Safety at the Forefront

The use of artificial intelligence and telematics has brought significant benefits to insurers and consumers. Several auto insurers are already using mobile telematics to assess risk and promote safer driving behavior, but the benefits don’t start and end there. In fact, one of the most important – and life-saving – aspects of the technology is the ability to detect crashes within moments of their occurring. Technology provides real-time notifications of a vehicle crash to quickly send roadside assistance to drivers when they need it most. By providing critical details like GPS location, time and driver identification, new crash detection solutions enable insurers to save valuable time in emergency situations, offering an added level of peace of mind. 

See also: Untapped Potential of Artificial Intelligence  

In some instances, the new technologies could also save a life. One instance is Discovery Insure, a South Africa-based insurer that uses our Crash Detector to send immediate roadside assistance and paramedics to customers following collisions and life-threatening crashes. One customer, Evelyn Sadler, received immediate attention after a taxi swerved into her vehicle, causing it to go airborne. As the distracted driving epidemic increases, causing 1.25 million people to die in road crashes each year, insurers can offer drivers technologies and solutions that can keep safety at the forefront and prevent many deaths. 

The future of the automotive claims system is already here, with several insurers realizing the impact this technology has on their bottom line. I’m excited to continue to watch this space grow – and hope that additional insurance organizations will quickly follow suit.

The news of an outbreak in China of a new type of coronavirus (2019-nCoV), leading to respiratory illness, recalls previous potential pandemic infections. Coronavirus was behind SARS (Severe Acute Respiratory Syndrome) in 2002 and MERS (Middle East Respiratory Syndrome) in 2012. The outbreak is being linked to people eating the infected meat of small mammals or reptiles -- an echo of Ebola.

It is assumed, not proven, that this virus is passed between individuals by droplet spread because of the presence of respiratory complications. In scientific circles, there is concern about how it has jumped the species barrier. The suggestion that this rapidly mutating virus could develop a more powerful grip on its new human hosts is a grave concern. The WHO preliminary estimation is that each infected person could potentially transmit this virus to between 1.4 and 2.5 other individuals.

The WHO is not advising restriction on trade or travel. Chinese cities and airports are in lockdown, but cases are already reported outside China, underlining the sinister potential for rapid person-to-person spread. The advice offered so far by health authorities is simply to avoid contact with people who are ill, to wash hands and wear a face shield.

Insurers can do little to identify infected individuals during the window before they become symptomatic. The features are commonplace: fever, cough, shortness of breath and breathing difficulties. But in severe cases the virus may lead to pneumonia and even death.The latest epidemiological data reveals the proportion of deaths in currently reported cases is 4%. MERS was much higher at 23%. [Here is the latest bulletin from the WHO.]

While it is likely the WHO will label this an international public health emergency, insurers need not panic. The pattern of broad-spectrum severity, with deaths mainly in sickly individuals, is akin to most flu outbreaks.

In any outbreak of a novel virus, priorities include developing a vaccine if transmission is sustained and finding a drug to stop illness in infected individuals. It is important to retain perspective, and social media and hyped news headlines don’t help. So far, the number of confirmed cases and deaths remains low, with many who died already being in poor health, but the speed at which the situation is unfolding hints this could change. The 2002 SARS outbreak in China infected 8,000 people in 37 countries, claimed 750 lives and was a deadlier virus than 2019-nCoV currently appears to be.

See also: Selling the Urgency of Life Insurance  

Most of the action related to this outbreak centers on China and includes an obligation to monitor and report accurate data and take steps to limit contagion. But this type of event can quickly develop global consequences. Life and health insurers should therefore tune into the available sources of verified information, including WHO and Centers for Disease Control and Prevention to keep pace with developments, modifying their selection and claims criteria as or when this becomes necessary.

You can find this article originally published here.

One of the most daring bits of technological espionage occurred in the summer of 2009, when the Stuxnet virus—clearly designed by Israel and the U.S., though neither has ever 'fessed up—silently attacked centrifuges in Iran that were being used to enrich uranium for use in nuclear power plants and potentially weapons. The virus infiltrated the centrifuges' controllers and occasionally sped them up or slowed down the motors for short stretches over the course of months, gradually burning out about a fifth of the machines and making a big dent in Iran's nuclear program.

This was James Bond-level work. Not only were the centrifuges deep inside Iran, but they were separated by what's known as an air gap—there was no physical connection to the outside world. Over several years, spies had determined what sort of equipment the Iranians likely used and had written a virus using "zero day" vulnerabilities that had been saved for just such an occasion—they had never been exploited by anyone, so the victim would have zero days' notice that an attack could use them. The spies then infected computers at a handful of companies identified as likely doing illicit business with Iran, trusting that the virus would find its way to the centrifuges and quietly start putting them out of commission. 

The good news: The Stuxnet attack worked. The bad news: Hackers have recently devised malware that, like Stuxnet, can take over the controllers of your industrial machinery, shut down processes and encrypt your data until you pay a hefty ransom. And your security isn't nearly as good as the Iranian nuclear program's.

The malware is known as Snake or EKANS (as in, "snake" spelled backward). It was only identified by cybersecurity experts in the past month-plus. As this article in Wired explains in detail, the malware targets "industrial control systems, the software and hardware used in everything from oil refineries to power grids to manufacturing facilities." Hackers appear to have claimed at least one major victim: the Bahrain national oil company. (The choice of target raised the prospect that Iran might be behind the attack, but the cybersecurity community currently believes that mercenaries, not state sponsors, are to blame.)

While Snake isn't nearly as sophisticated as the "zero day" attack on Iran's centrifuges was, there are so many points of vulnerability for businesses that there's really no good response, at least for now. 

Insurers will need to raise rates, as many have already been doing because attacks and payment demands have soared. This New York Times article says ransomware increased more than 40% last year, and the amount demanded more than doubled just in the fourth quarter. The article adds that "even these numbers underestimate the true cost of ransomware attacks, which have disrupted factories and basic infrastructure and forced businesses to shut down." 

Some insurers may start to provide a separate policy for ransomware or may cover just a portion of the cost of ransom, especially for companies that seem to be frequent targets.   

The potential targets should already be identifying and closing as many vulnerabilities as they can, because the threats to customer and key corporate data have been known for years. (We first published on the topic in 2016.) Those efforts should include frequent training to harden a company's exterior, among other things educating employees on how to avoid "spear phishing" and other forms of "social engineering" that can trick people into downloading an infected file. Those efforts should go beyond the exterior, too, to suppliers and others with whom you share a digital connection, because they can pass along a virus—the major Target breach in 2013 came through a vulnerability in its HVAC system. IT departments must also continue their efforts to use AI and every other technology at their disposal to identify and control data breaches as quickly as possible—at the moment, the average time to discover a breach is almost 200 days, and the time to control one is nearly 70 days. 

While the good guys should eventually gain the upper hand, I really just have one concrete suggestion for now. Though the notion seems cynical to me, I think you might want to invest in some Bitcoin. If you have an operation that may be vulnerable to ransomware, and you'd pay off an attacker, you'll want to figure out Bitcoin now. Bitcoin is how hackers will demand to be paid, because it's anonymous, and, if you have enough on hand or at least have experience buying some, you can respond faster than you would otherwise and get your business running again. 

I wish I could be more optimistic and helpful.

Cheers,

Paul Carroll

Editor-in-Chief

The insurance industry may have its roots in the West, but its future will be written in the East. Within 10 years, China will represent 20% of global insurance premiums. Within 20, it will become the world’s biggest insurance market, according to the Swiss Re Institute. 

Although China’s insurance market has been rapidly growing for years, 2020 will likely be an important tipping point, the year in which the global market can no longer afford to be detached from it. Here’s why—and what it means for the industry.

China’s insurance market has never been more dynamic than it is today. The country boasts 1.4 billion consumers, and, while the insurance penetration rate is less than 5%, it will quickly catch up with the average of 6.1% for the rest of the world. The  government’s target of achieving RMB4,500 billion in annual industry premiums is also predicted to be met this year.

Chinese insurers have scaled quickly, in part, through technologies that enable them to serve clients without any human involvement. But these are not enough to satisfy increasingly sophisticated demand, which is why China’s insurance regulator, the CBIRC, recently announced several significant measures to open up foreign access to the domestic market. 

As of the first of this year, foreign investors can now purchase a full stake in domestic Chinese life insurers. Look for the multinational insurers without an existing footprint in China to take advantage of this opportunity, potentially leapfrogging those that entered the market earlier via locally owned entities. Foreign entrants have frequently struggled to make headway in China’s challenging business landscape, but the cancellation of restrictions by the government represents a step change in the rules of engagement and will surely lead to more external investment in the sector.

See also: The Real Disruption From Robotics, AI  

Further changes – including the easing of requirements effectively limiting the access of foreign insurance brokers to just a handful of the largest firms – will start to have a lasting impact on the Chinese market during the coming year.

As China opens its insurance market to the world, Chinese insurers are eager to create their own growth opportunities abroad. Their internationalization has been accelerated by the demands of China’s economic development strategy, the Belt and Road Initiative (BRI). Since its launch in 2013, more than 60 countries have signed on to projects with China or indicated an interest in doing so, according to the CFR. Whether a new port, railway or power plant, each project has required insurance coverage, thereby creating a global portfolio for Chinese insurers. 

Last year, leading Chinese insurers such as China Re and ZhongAn went one step further and announced corporate initiatives with partners across Latin America, Europe and Southeast Asia — key growth corridors for the BRI. This year, look for a Chinese insurer to capitalize on the hardening reinsurance market and make a strategic acquisition in the service of the BRI. This will provide the insurer with a more stable platform to serve Chinese companies engaged in BRI projects, while also empowering them to support China’s growing investment focus in the international business services, financial services, retail and technology sectors.  

Ultimately, the international M&A activity likely to be driven by Chinese interests this year will give a new edge to the global insurance market. To some, these new entrants will appear threatening. To others, in particular those with an understanding of China and Chinese culture, the new entrants will rightly represent a stimulus for growth and expansion. 

In turn, Western insurers have centuries of experience to share with their Chinese counterparts. Infusing China’s already successful ecosystem with corporate processes that are transparent, progressive and responsive will help the market to benefit society and achieve sustainable growth. 

China has long been a strategic growth destination for the global insurance market, albeit a challenging one to navigate. But macroeconomic, regulatory and commercial trends now clearly indicate that the time has come not only for that to be a realistic prospect, but for Chinese insurers and their Western counterparts to work more closely together on a much broader stage around the world. 

The most preferred product design provides maximum coverage with a minimum price. As a result, the insurance industry consists of dozens of companies selling the same products at similar prices.

Fortunately, cheese manufacturers do not think like insurance companies. Otherwise, we all would eat the same, tasteless white cheese, and we would never experience Gouda.

The key reason for the monotony of the insurance market is that companies consider product development in quite a mechanical way. By contrast, while the iPhone is a wonder of technology, it was designed by an industrial designer, not by hardware engineers. I do not even want to imagine how a mobile phone designed by engineers would look.

In fact, you do not have to be the most creative person in the world to design an insurance product. Asking the right questions and getting real answers would be enough.

Let's consider an imaginary case study.

See also: How to Speed Up Product Development  

“Amisos Insurance” has been operating in the health insurance market, where competition is high. The company would like to develop an insurance product to differentiate itself in the market and gain a niche, loyal customer base. By answering the following five questions, in line with the company’s marketing strategy, we will be able to design a unique insurance product that meets customers’ needs and expectations.

Who Is the Target?

Regardless of what, start with the defining of a target segment. Designing a product without defining the target segment and not understanding their expectations is like trying to sell one size of dress during Paris Fashion Week.

Example answer: Potential health insurance customers, aged 22-55, moderately overweight.

What Is the Problem/Need?

If there is no problem, there is no need. No need, no product. Defining the product in depth is key for the determination of the solution.

Example answer: Most of these people need guidance, support and incentive to live healthier lives. In addition, being overweight triggers health problems, so the loss/premium ratio is bad in this segment, and premiums are high.

What Is Your Solution?

This is exactly what the product is; our solutions to people’s problems. The product you designed should provide the most possible benefit in the broadest perspective to people. Think beyond claims!

Example answer: In addition to classical health insurance coverage, the product includes a wellness program that aims to make people healthier; “Healthier Today.”  

• Insureds would be examined for their body mass index, blood pressure, EKG, etc.
• Nutrition and training consultancy would be provided based on measured value.
• Discounted nutritionist and gym services would be offered.
• Healthier life would be supported via mobile apps, wearable devices and cloud health monitoring services.
• Daily, weekly, monthly targets would be followed by using gamification methods.
• Small gifts and instant premium discounts would be provided depending on the hit ratio of customers.
• In this way, customer engagement, satisfaction and loyalty will be ensured. Also, loss/premium ratio will be improved.

What Is Your Difference?

This is a question that insurance providers often miss. It seems like most are unaware of the importance of differentiation even though it is the only way to get out of the bloody price competition in the market. 

Example answer: Beyond covering hospital expenses, the product offers free and discounted services to support customers’ healthier life, by using nudge and gamification mechanisms.

How Would You Describe the Product in One Sentence?

This is the easiest and the hardest question. If you gave the right answers to the first four questions, this one is a piece of cake. But if you had missing answers, it's not easy to generate a meaningful sentence.

Example answer: Amisos Insurance is here to support your healthy life today, beyond covering your hospital expenses.

It is possible to apply this case study to any company or any insurance line. With few exceptions, I think products developed in the insurance market are not able to provide answers for these fundamental questions.

See also: Bridging Health and Productivity at Work  

As you have guessed, product design in five minutes is a metaphor. To design a good insurance product, you must first have market know-how, empathy with the customer and knowledge of insurance principles.

The situation is a bit like this story about Picasso:

——

While Picasso was enjoying his evening meal at a restaurant, the waiter recognized him and asked, “Mr. Picasso, I am a fan of your work. Please, could you do a little drawing for me?”

Picasso drew a picture immediately, extended it to the waiter and said. “You owe me $100,000.”

The waiter objected, “$100,000? Why? That took you no more than five minutes to draw!”

“No,” Picasso said. “It has taken me 40 years and five minutes.”

The importance of driving innovation and adapting to change has never been more important. There are over 1,500 insurtech companies looking for ways to improve efficiency on multiple fronts. From the internet of things (IoT), robotics process automation (RPA) and artificial intelligence (AI) to wearable technologies, telemedicine and augmented reality/virtual reality training (AR/VR), everyone is looking for a way to automate and speed up processes. 

In 2020, insurance customers can now apply for a policy by answering a fraction of the questions they had to answer a decade ago. Why? Some data fields are now pre-populated using third-party data vendors or information captured by sensors, wearable technology and drones (e.g., a homeowner adds a pool, or assessing the condition of a roof, etc.). The insurance customer now receives a quote in minutes, as many carriers are attempting to leverage, in the insurance space, lessons learned from companies like Amazon, Uber and Netflix. 

This article will discuss Chesapeake Employers’ Insurance’s approach to innovation and why a top down/bottom up approach leveraging a corporate venture capital (CVC) subsidiary could help your organization stay ahead of the innovation curve.

CVCs and Investing Categories

Some of the largest companies in the world have used CVCs to enhance their organizations through technology scouting, innovation committees and acquisitions of startups. Examples include Amazon, Apple, Motorola, IBM, Google, AT&T, Verizon and Volvo. More recently, insurance companies such as USAA, XL Catlin and American Family have begun leveraging CVCs to help put the innovative technologies of insurtechs into the hands of their employees, agents, policyholders and injured workers. As noted in the book, Ten Types of Innovation, “Successful innovators analyze the patterns of innovation in their industry. Then they make conscious, considered choices to innovate in different ways.” 

Insurer-affiliated CVCs can leverage certain advantages over traditional venture capital institutions. Insurer-affiliated CVCs bring industry knowledge and expertise, significant volumes of data for testing and validating an insurtech’s solution and a network of users who can support the rollout of any product and ultimately provide references for future customers. This partnership, formed between a data-rich insurer and an idea-rich startup, helps both sides succeed. Nevertheless, to sustain a successful CVC program, efforts taken on by CVCs will need to align with either a strategic or financial corporate objective or strike a balance in between the two objectives. 

See also: A New Frontier for Venture Capital  

Investing at Chesapeake Employers

Chesapeake Employers has developed five categories to describe how it plans to invest and innovate through a subsidiary, iCubed Ventures, LLC. The focus will be on providing market intelligence for Chesapeake Employers and investing in opportunities that align with the core mission and while improving the speed to value experienced by customers.

1. Investing that connects to current business models (correlated investing) — Investing in insurtech-focused VC funds or insurtech/startup companies that align directly with Chesapeake Employers' core purpose of improving the experience of agents, policyholders, injured workers and employees. This type of investments is straightforward, as it is focused on strategic objectives. 
2. Investing not directly connected to how the company processes business (non-correlated investing) — Investing in VC funds or startup companies that do not directly map to the current business platform but present an opportunity for creating a significant return on investment (ROI). 
3. Socially responsible investing — Investing focused on the betterment of society, the local economy and improving relationships with government and regulators. The direct ROI on these investments can be lower than the previous two categories but should be enough for the efforts to be self-supporting. Chesapeake Employers believes that socially responsible corporate actions enhance the long-term success of all Maryland businesses.
4. Hot-spot investing — Investing focused on creating awareness and the opportunity to "try before you buy." With over 1,500 insurtechs funded by $29 billion in capital, insurance companies can serve as a beta site for startup insurtech companies. These activities provide additional sources of innovative ideas while helping to allocate resources to the opportunities most likely to succeed, enhancing the CVCs ROI indirectly. 
5. Non-CVC investing — Chesapeake Employers, with CVC assistance, may invest in self-developed efforts focused on creating speed to value with agents, policyholders, injured workers and employees. This area covers call centers, claims systems, underwriting systems, marketing, advanced analytics, robotics process automation, apps, IoT, etc. Given the rapid change in the marketplace, internally developed solutions are becoming more heavily influenced by external trends and insurtech activity. 

Bottom line, Chesapeake Employers is looking for opportunities to invest in processes and procedures that will improve operating efficiency, drive down costs and improve profitability while making a difference in people’s lives. These are forward-looking opportunities for the company.

Top Down/Bottom Up Innovation

Chesapeake Employers believes the innovation tone from the top is just as important as the passion and energy being displayed by employees from the bottom up, so it formed the Chesapeake Innovation Committee (CIC), composed of marketing, finance, claims, medical, underwriting, IT, actuarial, premium audit, subrogation and legal professionals from across the organization. 

The team of 20-plus employees analyzes deal flow reports from investments made with venture capital funds, monitoring departmental trends and innovations, networking with universities, listening to podcasts (e.g., Spot on Insurance, the Insurance Innovators Podcast, 11FS InsurTech Insider), attending industry conferences, monitoring LinkedIn and more. 

As Andrew Romans said in his book, Masters of Corporate Venture Capital, it is important to “[a]ccess business intelligence and innovation in order to understand technologies, business models and trends that impact core and peripheral businesses. Many corporations call this technology scouting. This activity can be viewed both as offensive and defensive.” 

The CIC helps take the pulse of the marketplace, allowing the company to scout technologies that could be differentiating. For example, at the 2019 RIMS Annual Conference & Exhibition, some CIC members had the chance to walk the halls and visit over 400 vendors sharing their innovative solutions. The vendors focused on work flows such as security monitoring, opioid addiction prevention, co-branding of products, claims analytics, claim adjuster metric measurement and monitoring, return to work, certificate of insurance tracking, durable medical equipment (DME) cost reduction, occupational medical services on the job site, social media detection for special investigative units and much more. The CIC created a recap of the top vendors of interest, including information from the company website, company contact information, key features of the solution shared at RIMS and the opportunity that would be created if Chesapeake Employers leveraged the solution in the future.

In an example involving LinkedIn, some members identified and viewed the 2019 Global Insurance Symposium video. CIC members provided a recap of the key points from the conference including comments made by guest speakers from the Global Insurance Accelerator (GIA) and the 10 insurtechs the GIA invested in during 2019. Watching the two-hour video led to booking a demo at RIMS with one of the insurtechs, with a solution targeting workers’ compensation claims adjusters. 

See also: Insurers: the New Venture Capitalists  

The Drivers of Change

There are several themes affecting the world around us. In no order, these are some of the themes we feel will change the face of insurance as we know it for generations to come:

• Customers and agents want speed to value (S2V) as expectations rise with regard to customer experience and self-service capabilities.
• The "Uberization" of everything is all around us (i.e., replacing inefficient, outdated processes with ones that marry digital and customer experience).
• The human-machine partnership and augmenting human processes with artificial intelligence and robotic process automation are here to stay.
• The convergence of big data, advanced analytics and capitalizing on the "digital footprints" customers leave behind to nudge customers and change habits is more important than ever in the insurance industry.
• Transparency is all around us, and injured workers, patients and our customers will expect it going forward.
• The impact of apps and wearables is growing due to ease of use and easy access to information via gamification and GUIs.
• Wallet share and customer face time are critical.
• Outlier and anomaly detection techniques for identifying bad actors/fraud are becoming more powerful.

With the CIC identifying and researching innovation trends, and the CVC making minority interest investments through third-party funds, co-investments and direct investment channels, the company is well-positioned to stay ahead of the innovation curve. Each day, more employees are sharing innovative ideas via email and “water cooler” chats. These conversations, which discuss ideas and technology that could help the company achieve greater effectiveness and efficiency as a company, represent a culture of continuous learning, marketplace awareness and taking action. 

Conclusion

As Lior Arussy said in his book, Next is Now, 5 Steps for Embracing Change, “We cannot predict what the future will bring, but there is plenty of compelling evidence that those who embrace change will reap the rewards of financial stability and marketplace relevance.” It will be important for the entire insurance industry to measure and monitor innovations inside and outside our industry. For those that leverage CVCs and innovation committees, where all levels of the organization are evangelists for innovative change, we believe our industry will not only survive but thrive well into the future.

Amid all the investment activity in the insurance industry, I distinguish two types of startups by using a very straightforward – and I believe a black-and-white, legal – perspective: If a firm must comply with insurance regulations then it is an insurance firm, and not a technology firm, regardless of what technology it uses to get and keep customers.

Why all the activity? Why is the insurance industry a target for transformation or a destination for disruption for investors?

VCs, other investors and the startup entrepreneurs view the trillion-dollar global insurance industry as a group of (very) old companies using (very) old processes to conduct commerce. From their perspective, the industry is an extremely large addressable market of companies that are seriously out of touch with the realities of how commerce is, and should be, conducted in the mobile, digital, connected marketplace in the Internet era. 

For investors, it is an industry ready to be plundered!

Brokers: the sweet spot of many startups

Quite a few of the insurance startups are targeting insurance brokers as a sweet spot to be disrupted. And a sweet spot it is. Estimates from various sources put the number of agents and brokers in the U.S. insurance industry at between 300,000 and 400,000. 

See also: Agents, Brokers Are Dead? Not So Fast!  

[Note: For the purposes of this post, I will use the term "broker" to mean either insurance broker or insurance agent. I agree that I’m taking liberties doing that.]

Brokers: target for transformation

There is an important fact about insurance brokers: Customers can’t legally purchase insurance without using one.  

I believe that investors forget that brokers are legally required in the purchase of insurance, think that fact (i.e. the law) will change to the benefit of the startup they are invested in, are ignorant of the fact or willingly ignore the fact.

(If you’re wondering … Yes, I believe there are VCs or other investors who would willingly and illegally ignore insurance regulatory requirements and related laws.)

The key question is: Can the insurance broker space be disrupted or transformed?

My answer is no.

I believe the broker space can’t be disrupted, as in, broken apart, thrown into disorder or interrupted in their normal course or unity.

Customer-Broker Paths

However, I believe the broker space can be transformed. 

Specifically, the customer-broker paths can be transformed. In reality, through the applications of technology through the decades, these paths have been transformed, are being transformed and, I suggest, will continue to be transformed.

See also: What a Safer World Means for Brokers  

Consider the visual below. The visual captures past, existing and potential future customer-broker paths. But keep in mind two points:

1. Even through the process of transformation, the broker (whether person or algorithm) remains because the broker is legally required in the insurance purchase.
2. The transformation is about transforming the path between customer and broker but is not about transforming the role (or the essence of the role) of the broker.

The history of customer-broker paths is founded on face-to-face (F2F) meetings, whether in the customer’s home, in the broker’s office, at car dealerships or in banks. 

Beyond F2F paths, technology has acted as an interface that has eliminated time and distance between the customer and the broker. But whether at the other side of a computer screen, via a mobile app, through an email or using a chatbot on an insurer web portal, there must be a broker present to sell the insurance line of business. Even algorithms used as brokers have to comply with the requisite insurance regulations: no leprechauns, no pixie dust, no magic. 

Technology redefines the existing paths, introduces new paths and makes the activities enabling any of the customer-broker paths both more effective and more efficient. 

The technologies, whatever they are, do not, of course, replace the broker even if they make the broker appear in a virtual reality or in Second Life or "embed" the broker in a hologram.