It’s the relay runner’s nightmare: You just can't seem to catch up. Maybe you're in the lead, but you can't shake the person on your shoulder. How do you get ahead and stay ahead?

In insurance, whether you're looking over your shoulder or trying to catch up, you need to know as much as possible about the market and the competition. That’s why Majesco helps insurers assess their technology positioning with our Strategic Priorities surveys. Here are some highlights from this year's report:

Competitive Position — Recognizing Leaders, Followers and Laggards

Too often, strategic planning does not yield the bold changes needed because insurers do not rapidly move into a leading position by going from knowing to doing. This year’s research shows an ever-widening gap that is defining a new era of leaders.

The June 2019 McKinsey article, “How to win in insurance: Climbing the power curve,” emphasizes the gap between leaders and followers or laggards. McKinsey’s research shows that the capital allocated to each business unit from one year to the next is nearly identical – rather than reallocating capital to make bold changes for the future.

Capital shifts indicate priority shifts. They also point to investment strategies. This is consistent with the growing Knowing-Doing Gap emerging in the industry, highlighted by our Strategic Priorities research over the last five years, a gap that is putting some companies at risk given the pace of change and limited resources. Investments aren’t necessarily being made where they are most needed. Many insurers still aren’t recognizing that investments today may result in long-term reductions in the need for technology investments due to platform efficiencies. 

See also: Insurance Innovation’s Growth Challenge  

Taking decisive action around strategy is crucial, particularly with the pace of change and rapidly evolving competitive landscape. As the McKinsey article points out, strategy is about playing the odds, increasing the amount of “doing,” even if some plans fail, to ensure overall success. Insurers must focus on both optimizing today’s business and boldly creating tomorrow’s business – a two-speed strategy.

Strategic Priorities Report Highlights

This year’s research highlights how leaders have replaced legacy, expanded their channels, introduced products and business models and produced higher growth. Even more important, they see greater growth over the next three years. 

If your organization isn’t currently in the leadership position, you CAN catch up. If you know where leaders' investments have been paying off, you have a guide for transformation, optimization, innovation and growth.

Here are some key insights from this year’s report:

• When we asked insurers about the state of their business (growth, systems, products, models and channels), last year was challenging for laggards, which had a 41% gap to leaders, and for followers, which had a 15% gap.
• Leaders are laser-focused on both speed of operations and on speed of innovation. This is reflected in their work on legacy replacement, channel expansion, new products and new business models; followers and laggards are primarily concerned with speed of operations.
• Leaders’ replacement of legacy core is greater by 75% than laggards, and by 20% than followers – putting leaders at a clear advantage. 
• Leaders are creating products and business models nearly 55% faster than laggards and 20% than followers – enabling leaders to capture market share and revenue more quickly.
• Leaders are expanding channels at a staggering rate of 19% higher than followers and 88% higher than laggards – expanding leaders' market reach and their ability to acquire and retain customers and revenue.
• Over the next three years, laggards and followers will drop even further behind leaders.

Bold moves to optimize today’s business and create the future business substantially increase an insurer’s potential for success.  Leaders are blazing trails with new business models, channel expansion, new products and core system replacement while followers are attempting to do a few things and laggards are primarily watching.

Platforms, Production and Products

One of the most fascinating portions of the Strategic Priorities report is what Majesco found regarding platform planning, development and use. We wanted to understand where insurers were in their core system transformation, defining four answers within two simple concepts: Platform and Non-Platform.

• Platform was defined as cloud-enabled, API and SaaS-based solutions or next-gen that were cloud-native, API and microservices solutions.
• Non-Platform was defined as old, monolithic, legacy and modern on-premise solutions.

Consider these two, related findings.

• P&C and L&A and group insurers are operating with Non-Platform core solutions at a staggering 60%, affecting their ability for innovation, speed and agility.
• Insurers introducing new products and services are more likely using Platform-based solutions in the range of 60%-70%, a complete flip from the existing business and reflecting the growing focus on greenfields and startups.

So, many insurers are missing out on agile product development processes that can be found through platform vs. traditional core systems.

Response to Regulatory and Rating Agency Developments

This year, Majesco added an area of focus to cover insurer responses to the rapid advancements in the regulatory arena during 2019. The adoption of the AM Best innovation rating and the introduction of sandboxes by state regulators to test new products in a more rapid, managed manner, are certain to have a growing impact on insurers' innovation timelines. The question we asked was, “How actively is your company responding to these recent regulatory developments?”

For the most part, we found a lack of understanding and planning around these highly important changes within certain market segments. For example, L&A and group insurers lag significantly behind P&C and multi-line insurers in preparation for the AM Best innovation rating, with a gap of nearly 30%. Multi-line insurers outpace both P&C and L&A and group insurers by upward of 35% in the use of sandboxes. For more insight, check out the replay of this webinar, titled, “The Future of Insurance and Regulation:  Optimization, Growth and Innovation” that features individuals from AM Best, Ohio Insurance Department of Insurance and a former first deputy commissioner for Iowa. Their insights highlight the growing need for insurers to be innovating.

See also: How to Innovate With an Agency Partner  

In Summary

Insurers must gain clarity on how to succeed in the future of insurance, which is coming faster than most realize. Insurers must lay the groundwork of a new digital insurance business model that embraces customer, technology and market boundary changes with vision, energy and speed.

How do your strategies align to what leaders are doing? What specific plans can you take to improve your odds of success? How can you rapidly move from knowing to doing?

Your answers will determine your readiness in a new decade and the future of insurance.

Now that innovation in insurance seems to have found a rhythm, many may feel that the pace is manageable and that digital disruption perhaps won't produce the sort of drama imagined a few years ago. So, now seems like a good time to trot out some thoughts from a talk I give occasionally on what happens when an industry goes digital—because that moment still awaits the insurance industry and because the change will be profound.

The example I use of an industry going digital is photography because it's, well, the most visual. Let's start there, then see what the photography experience might say about insurance's future.

A common misconception about digital innovation is that it happens suddenly. In fact, it follows the sort of track described by a character in Hemingway's "The Sun Also Rises," who, when asked how he went bankrupt, said, "Two ways: gradually, then suddenly."

What we think of as photography began in the mid-1820s—nearly two centuries ago—when a French inventor built a camera and took a picture of the rooftops at his estate in Burgundy.

Innovation took a steady path for the next 150 years. Big, clunky cameras became available for professional photographers by the 1850s, and Mathew Brady made photography famous with his images of the Civil War. George Eastman came along (experimenting by baking chemicals into various film substrates in his mother's kitchen) and by the late 1880s had simplified technology enough that amateurs could use cameras. His company, Eastman Kodak, soon produced the first film that could be used in a roll, rather than in hefty plates. and came out with the small, wildly popular Brownie in 1900. Kodak came to dominate photography, and there were huge profits even in this "gradually" phase as the mass market of amateurs began to experience what came to be known as a "Kodak moment." 

Digital technology came into existence with the invention of the transistor in 1947 and soon found its way into use with images. Bing Crosby, of all people, financed a lab that produced a digital sensor in 1951 that could record televised video, and the TV industry nurtured the technology. 

Cameras made the leap to digital in 1975, when an engineer at Kodak—yes, Kodak—developed a sensor that captured still images. Kodak set the invention aside, because it threatened the industry's sales of film, chemicals, paper and cameras, and Kodak had 85% to 90% of the U.S. market. Kodak more or less got away with stifling the digitalization of photography for more than two decades.

Then the "suddenly" moment happened.

In 1997, another French-born inventor, Philippe Kann, was in the hospital in Santa Cruz, CA, because his wife was getting ready to deliver their daughter. He had a digital camera and intended to upload photos of the newborn to his computer, then email them to friends and family. But Philippe (whom I've known for going on 35 years, because he founded an early PC software company) is not a patient man. He also had a cellphone, and he wondered why he couldn't just send the photos via the phone from the hospital. So, he did.

He rigged up a way to attach his camera to his phone, and sent this image:

In that moment, after many decades of "gradually," the photography industry became truly digital, and photography was stripped down to its bare essentials. Those turned out to be, merely: a lens, a storage mechanism and a means for viewing an image.

Despite the legacy of the industry and Kodak's best efforts to protect its profits, there was no need for film, chemicals or paper, nor for all those one-hour kiosks that processed film and produced prints. There wasn't even a need for a separate camera, because the lens and some related transistors and software could be embedded in a phone (or almost anything else) at a cost of a dollar or two. 

When people write about the digitalization of photography, they tend to focus on Kodak, which stumbled into bankruptcy in 2012, and, more generally, on the destruction that ensued. Fair enough. I've written extensively on the topic myself. But there's a flip side to the destruction: Once an industry has been pared down to its simplest, digital parts, those parts can be reassembled in any number of new ways and can be melded with other capabilities to form previously unimaginable products and services. In the case of photography, digitalization created far more value than it destroyed—it's just that the new value was captured by Facebook, Google, Instagram and a host of other companies that figured out what to do with images once they were freed from their physical constraints. 

With insurance, there are only three essentials: a contract, a yes/no mechanism that determines whether a payment is made, and capital. Just as with photography, the structures currently built around those essential parts don't have any particular claim on a fully digital future. There don't have to be agents and brokers selling those contracts. Those contracts don't have to be priced by underwriters and actuaries. The yes/no decision doesn't have to involve adjusters or any other aspect of today's claims process. Capital doesn't have to be put up by insurers or even reinsurers; it could come straight from capital markets or even from novel forms of pooling by individuals. 

You can argue that all the current players will continue to exist, just in modified form, but don't limit yourself. Focus on those three core elements—the contract, the yes/no mechanism and the capital—and think in two directions. First, how can you deliver those three elements as cost-effectively as possible to customers? Going digital lets you reinvent your cost structure. Second, what new business models can you imagine once insurance takes fully digital form, a la what Facebook et al. did with digital images? A new model could mean layering services, such as advice on prevention, on top of digital insurance, or it could mean embedding insurance in previously separate products—including home insurance with the home, auto insurance with the auto purchase, life insurance with wealth-management products or with the purchase of a business or building, etc. 

The key is to take advantage of that "gradually" phase, for however long it lasts, and position yourself for a future based on those three core elements. Because "suddenly" is still out there.

Cheers,

Paul Carroll

Editor-in-Chief

P.S. For those of you who somehow aren't now following every race of Mikaela Shiffrin, the skier I focused on last week because of how competitors are monitoring and trying to copy her every move, here is an update on last weekend that underscores my point about the need to benchmark against others and not against yourself.

Shiffrin has dominated the technical events, especially the slalom, with its quick, precise turns, as much or more than any skier in history but had faltered recently, "only" finishing second and third in the last two slaloms on the World Cup circuit. Perhaps all the camera crews following her every move in training were helping competitors uncover her secrets. But, even as competitors are coming after her, she's moving into new territory, increasingly training for and competing in the 75mph, hair-on-fire, soaring-100-yards-through-the-air-off-jumps speed events. And, over the weekend, she won two speed events, a downhill and a super-G. Lindsey Vonn is known as an all-around skier because, over a 17-year career, she won six events outside her specialty—and Shiffrin won two outside hers in a single weekend.

The competition is always adapting....

Ten years ago, the idea of moving to the cloud was just a vision for insurance companies. Five years ago, the cloud concept became a trend. Today, it’s a necessity. Increasing numbers of insurers realize that the cloud enables organizational agility and digital transformation, two key factors in outstanding customer experience. 

The countless articles and blogs about the cloud seem focused on migration and innovative concepts, such as DevOps and Big Data. But not enough attention is given to a key cloud concept: maintenance. 

Let’s face it, maintenance isn’t sexy, even though most insurance companies spend 10 times more on maintenance than on the transition. What’s more, maintenance contracts with suppliers dictate long-term relationships that last long after the transition has been completed and the go-live euphoria has dissipated. 

This is why it’s critical for insurance companies to choose their software vendor carefully. The functionality of the software product, as well as the delivery capabilities of the integrators, are, of course, important. But you should also examine the quality of service for the business as usual (BAU) period that starts once the software is up and running on the cloud. What are the criteria that should guide the insurer’s CIO when choosing a software vendor providing cloud-based solutions? 

The first thing you should check is if your supplier has an end-to-end operating model. In many cases, software development, integration and maintenance are provided by three separate organizations. Multi-functional vendors (also known as one-stop-shop vendors, or OSS vendors) will take full responsibility for the solution. An OSS vendor leverages its multidisciplinary expertise in IT, database, security and applications to provide end-to-end coverage for any incident that might occur.

The second thing you should look at is the service level agreement (SLA). The SLA must include tangible service level targets and penalties for breaches. Make sure it addresses all metrics relevant to your business, such as availability, performance, incident response and resolution time, customer service window and service continuity (RPO and RTO). 

See also: The Cloud’s Vital Role in Digital Revolution  

It’s important to understand all the service entitlements that represent the extent or frequency of service actions, which could, for example, include an annual disaster recovery drill, a weekly performance audit, quarterly database improvements and running the nightly batches on a daily basis. Also crucial is a monthly report that includes the actual performance against the service level targets and a list of corrective means taken to eliminate or minimize any underachievement.  

The next thing you should consider is multi-cloud expertise and experience. Many insurance companies have hybrid IT architecture, with some of their electronic assets available on-premise and some on the cloud. To remain as flexible as possible, it is essential to choose a supplier with multi-cloud expertise that can cope with a hybrid architecture or CSP switch.

Lastly, the insurance industry is a highly regulated sector, so naturally you should choose a vendor that complies with all the relevant regulatory requirements related to information security and privacy applicable in your country, such as ISO 27001 or GDPR. One way to ensure that your supplier is a professional organization is to examine how the supplier follows industry best practices of IT service management. You could verify this by asking for copies of the documentation of their processes, or by checking if the support managers are all ITIL-certified.

Choosing the right software vendor is not easy, especially because this choice establishes a long-term relationship between the two parties. Make sure you don’t place too much focus on your wedding to cloud transition – it is more important to think of what will happen once you return from the honeymoon.

The insurance industry is facing a flurry of challenges as consumer needs and expectations evolve with a new age. Although collaboration isn’t always common practice in the industry, it’s time that teams learn to work together.

Collaboration Is Key

Insurance companies are beset by three major challenges that demand collaboration.

First, consumers themselves are emerging as a disruptive force. They have an on-demand mindset and expect more from their financial service providers. But the insurance gap continues to grow in the U.S., creating new challenges for consumers and the insurers who serve them.

Next, the introduction of insurtech has shifted the nature of insurance itself. Insurtech has evolved to meet the needs of consumers — meaning more tech, more data and more focus on customers — and has received $10 billion in investments over the past five years. Insurance companies that want to adapt to the market should prepare to join forces with new entrants.

Lastly, data security and privacy regulations are top priorities as the digital age progresses. Yet it's more difficult than ever for companies to avoid regulatory and legal risks because the nature of compliance in the industry shifts almost daily. The General Data Protection Regulation in Europe, for example, inspired a similar privacy act in California. It was rolled out on Jan. 1, 2020, requiring organizations to make changes if they want to stay compliant and keep customers happy.

With market disruptions coming from all directions, insurance organizations must reimagine the industry. Collaboration will be crucial to evolving and meeting these challenges.

Barriers to Collaboration

It seems like collaboration would be a given in such a complex and people-driven industry, but it isn't. In addition to being a highly regulated industry, insurance has practices that have been in place for years — and collaboration hasn't always been a priority.

Legacy tech systems, for one, still reign supreme in the insurance industry and are notoriously sluggish at reacting to real-time needs. These systems weren't built for today's expectations of immediacy. As a result, they make it difficult for employees to collaborate while leading to less efficient and effective work processes.

Aside from legacy technology, many teams are stuck in top-down structures. These types of organizational structures disable cross-department communication and make teamwork a chore. Even goals and incentives are siloed in these structures, so employees often lack a collective sense of purpose.

Teams need a more modern, dynamic way of working if they want true collaboration. They need to be able to adapt quickly, make decisions based on shared knowledge and transcend departmental barriers so their companies can remain competitive.

See also: Model for Collaboration and Convergence  

Collaboration Starts at the Top

Leaders have a duty to position collaboration as a key tenet of success in their organizations. It can be an overwhelming task, especially if your team has been working within legacy systems and structures since its foundation. Leaders who embrace collaboration will see their companies thrive, though.

Above all, it’s important for leaders to approach collaboration intentionally. Give it time and attention. Make sure you acknowledge its importance and model the way forward for employees by lowering any borders between management and teams. This will enable leaders to put strategies in place to inspire people to come together in the spirit of collective innovation while better positioning their organizations for success in today's challenging market.

Now that you have leadership's involvement, here are three other must-haves for a collaborative environment:

1. A set of common goals.

If your departments are going to start talking and working more with each other, they’re going to need a uniting factor. A company vision crafted with a set of common goals helps people unite with purpose. Without this sense of purpose, employees can become confused, misguided and stressed. With common goals, though, they can focus on the big picture: providing the best service to customers.

2. A team-based structure.

As mentioned, legacy systems and structures can inhibit progress. When there’s so much change in the market, your team needs to be nimble and dynamic to adapt. A team-based structure can eliminate company silos that impede collaboration. As a result, communication will be more free-flowing and effective — leading to a more collaborative environment.

3. A shared incentive system.

Once you set common goals and a more open structure, you can fuel teamwork by introducing shared incentives. Use your goals and create incentives to reach them. That way, employees must actively collaborate to succeed. Shared incentives will align every team member — top to bottom — toward goals that reinforce the company's vision. That said, some people in teams contribute less work than they would individually. To overcome this, you'll also want to incorporate an individual component.

See also: 5 Ways to Build Team Capacity to Think  

The insurance industry must evolve if it wants to keep up with the growing number of market changes. That means it’s time for a clear out. Rid your team of its limiting legacy systems and break down its siloes. Only then will you discover what collaboration can do for your company — and your consumers.

This past summer was something of a perfect storm for small businesses, which weathered an increase in ransomware attacks, which in many cases started with an IT vendor or managed service provider (MSP).

Ransomware incidents reported to our company were up 37% in the third quarter when compared with the first three months of the year, and 24% were confirmed to be caused by a vendor or MSP.

Those statistics are bad news for small businesses that manage their IT resources with the help of a MSP and worse news for small businesses that outsource their entire IT operation to the MSP, which includes everything from building the network and managing applications to servicing any and all IT requests.

In fact, in the first nine months of last year, 63% of all the ransomware incidents reported to our breach response unit came from small businesses, many of which rely on an MSP. Why is that figure so high? MSPs make ripe targets for ransomware attacks.

They have to balance, on the one hand, a need for speed and convenience when it comes to being able to respond to clients and, on the other hand, the need to have the right security controls in place. Too often, speed and convenience win out over security controls.

For example, in many cases, MSPs have reused credentials across clients so that MSP employees can service multiple clients more quickly. Similarly, MSPs might not enable multi-factor authentication (MFA) on the remote access point they use to pivot to client environments.

See also: How Municipalities Avoid Ransomware  

In many incidents in the third quarter, attackers exploited the remote management application that connects the MSP to the client. The same MSP user account would log into multiple client environments and install ransomware. If the MSP had set up individual user accounts for each of its clients, it is more likely that the exploitation of the single set of credentials would have only enabled unauthorized access to a single client’s environment, diminishing the risk to their clients.

Further, an MSP user account often has to have full administrative access to assist with regular IT functions, so, when credentials were compromised, the attackers had full administrative access to clients’ environments.

So, why the increase in MSP ransomware attacks this summer? According to Bill Siegel, CEO and co-founder of ransomware response platform Coveware, hackers have found a way to magnify the attacks on MSPs. Specifically, developers of Sodinokibi ransomware are now using techniques employed originally by GandCrab ransomware to make the attacks on MSPs more profitable.

These MSP ransomware attacks over the summer exposed incident response challenges. For small businesses that completely rely on outsourced IT, a massive ransomware attack across clients draws on the MSP’s resources and inevitably leaves many businesses in the dark. Small business owners without a technical background struggle to understand and assist the external legal and forensics vendors who are hired to help them respond to the attack.

The response is further complicated when the MSP itself is also infected with ransomware. Where an attack group knows it has hit an MSP, and infected downstream clients, the group may refuse to negotiate with the end clients and instead only respond to the MSP to increase ransom demands. This tactic can also leave clients with little to no control over their data software recovery.

For all of these reasons, we urge small businesses to ask the following important questions when vetting a potential MSP:

1. Is there a security program in place, including periodic risk assessments to identify areas for improvement?
2. Is there continuing security awareness training across the organization?
3. Is there a SSAE 18 SOC 2 Type II report or similar type of report available to customers, attesting to security control environment?
4. If access to personally identifiable information or protected health information is necessary, how is this protected at the vendor (e.g. encryption, secure remote connections, restricted access, logging and monitoring)?
5. Are security and availability requirements enforced in master service agreement contracts (e.g. sensitive data protection, up-time guarantee/service level agreements, security incident reporting/coordination, regulatory compliance requirements)?

Our third-quarter statistics clearly show that small businesses and MSPs are big targets for hackers. It is absolutely critical that small businesses are working hand-in-hand with all their IT vendors to prevent ransomware attacks from happening in the first place.

History provides interesting insights into the debate around automation and employment. In 1632, King Charles I of England banned casting of buckets, for fear that allowing it would ruin the livelihood of the craftsmen who were making the buckets the old-fashioned way. In 1811, the Luddites in England started a movement where they smashed machines that they viewed as threats to employment. These examples have occurred with increasing frequency since the industrial revolution began. Not coincidentally, the per capita income in the world doubled every 6,000 years prior to the revolution and every 50 years afterward.

According to a Pew study, 52% of Americans think that much of our work can be done by robots, but only 38% believe that it could replace the type of work that they do. Additionally, 76% of Americans believe that robots would increase the inequality between the rich and poor.

But standing in the way of change, when viewed through the lens of history, has rarely worked. The key is to focus on the dislocated individuals and provide training to make sure that they can move into new positions. Historically, new positions tend to be more highly compensated, fueling an upward cycle.

It is clear that the pace of change and automation is increasing. In January, the parent company of Giant, Martin’s and Stop & Shop said it would introduce 500 robots to its supermarkets this year. Sure enough, if you Google “Marty the Robot” – a large, grey cone with a bright smile and “googly” eyes -- you will find out that he is hard at work at 40 Stop & Shop’s in New Jersey, finding and reporting spills in the aisles and calling for a mop.

It will be interesting to see what retailers follow suit. Walmart has given robots a thumbs up. Target? A thumbs down.

The pros and cons of automation are widely written about. The pros: eliminating mindless tasks, saving money on employee costs, having a safer working environment. The cons: reducing human contact with the customer, eliminating jobs for people who need then and decreasing flexibility in the workplace as automated tasks occur at programmed times.

See also: What’s Beyond Robotic Process Automation  

As providers of workers’ comp insurance, we are watching the rise of automation in the workplace closely. One of the ways we do this is to analyze actual claims that are submitted by our insureds, which are most often small to medium-size businesses. In the restaurant sector, we analyzed over 84,000 claims. and in the retail area we looked at more than 20,000.

One area where we are convinced automation could help reduce worker injuries is in coffee shops. Workers who operate espresso machines eight hours a day are reporting repetitive motion injuries akin to “tennis elbow.” In fact, so-called “Barista Wrist” is now a recognized medical condition. Our study of workers’ comp claims in the restaurant industry found that cafés had more lost time due to injuries than any other restaurant type. And the cause of the highest number of days needed to return to work in cafés – 366 days – was due to wrist injuries.

In a parallel from the retail sector, workers in hair salons are reporting hand, wrist and arm injuries from drying hair with a blow dryer, setting the stage for a new condition that could be called the “Brazilian Blow Out Arm.” Perhaps an innovative, automated “Robot Blow Out” could eliminate these repetitive motion injuries.

Among the most dangerous and expensive injuries in our retail analysis (which includes some wholesale) came from workers engaged in the preparation of meat, poultry and fish, which involves cutting hazards caused by sharp tools and machinery. The average paid claim for a worker who sustains a cut ranges from $4,200 - $7,800, depending on whether it was caused by a non- powered tool, by a powered tool or by being caught in or between machinery.

But once again, repetitive motion injuries in meat, fish and poultry preparation are by far the most expensive at $16,200 for the average paid claim. Clearly, this is an area where more automation would be helpful.

See also: How Robotics Will Transform Claims  

All of this gets us back to our original thesis that history has shown that automation is a net positive for workers which, over time, leads to people taking higher-paying jobs. Yes, jobs are eliminated, for sure. With machines, come risk and injuries, that’s undeniable. But it is also clear that robots will take over the mindless, thankless (and dangerous) jobs and likely lead to a workplace that is safer overall.

With all that said, there is one robot that I don’t want to see and that’s: “Matt, The Workers’ Comp Insurance Executive.”

We are stuck in a self-destructive cycle because an industry-wide culture that rejects true innovation leads to a huge talent deficit that prevents innovation.

With few exceptions, there is little in the way of innovation, effective marketing, risk-taking, creativity and substantive investment in systems and technology in the insurance industry. That absence will be the death of many insurers and health plans.

We can’t get enough brilliant people to work in our business because our culture is anathema to most of them.

The most important part of any organization is its people. Yet our industry’s talent deficit is as wide and deep as the Marianas Trench.

Sure, there are some very smart folks doing great work – in health plans, state funds, private insurers, third party administrators (TPAs) and service companies.

They are the exception, not the rule.

Don’t agree?

How many of your brilliant college classmates chose a career in insurance? In your career, you were blown away by someone’s acumen, insight, brilliance, thinking how many times? How many execs in this business came out of top business or other schools?

Why is this?

I’d suggest it is the very nature of our industry; it isn’t dynamic, doesn’t reward innovation, hates self-reflection, abhors risk-taking and doesn’t invest near enough in people or technology.

Proof statements, courtesy of The Economist:

• No insurer ranks among the world’s top 1,000 public companies for R&D investment – yet dozens of insurers are in that top 1,000.
• On average, insurers allocate 3.6% of revenue to IT —about half as much as banks.
• In a study of 500 innovation topics across 250 firms, many insurers are working on the same narrow set of ideas.
• Many property insurers, whose fortunes rely on forecasting climate-induced losses, are still learning how to use weather information.

Tough to recruit talent to an industry that – for Pete’s sake – invests half what banks do in IT.... Or where a property insurer hasn't figured out weather.... Or where all your competitors define “innovation” as doing the same stuff you do... That probably spends more on janitorial services than R&D? (Ok, that may be a bit of an exaggeration.)

Many of the big primary insurers in today’s market will be overtaken by the Apples, Amazons, Googles, Beazleys, Trupos and Slices tomorrow. The names you know are brilliant innovators and have billions upon billions of cash to invest. The names you don’t know have figured out and are diving into markets that the traditional, stodgy, glacially fast insurers can’t even conceive of – reputational risk, very short-term insurance for specific items, disability coverage for gig workers and a host of other opportunities.

Oh, and the innovators avoid all the paperwork, hassle and nonsense that keeps insurance admin expenses at 20% of premiums while frustrating the bejezus out of potential customers. (Having just spent hours on the phone fixing a problem with flood insurance, I count myself as one of the frustrated.)

See also: Realistic Expectations for Insurance in 2020  

And, no, with rare exceptions health insurers aren’t any better. With structural inflation that guarantees annual growth of 5% to 8% and an employer customer that has to provide workers with health insurance, plus governmental contracts that pay on a percentage of paid medical, and record profits across the entire industry, there’s every reason to NOT control costs.

The record profits may well continue till a Cat 5 storm hits the Jersey shore or a deep recession hits or investment portfolios are crunched by macro factors.

In the meantime, Jeff Bezos will be looking for places to plow some of his hundreds of billions.

What does this mean for you?

Critical self-reflection is really hard, and really necessary. This industry is ripe for disruption, and it will happen. The question is, what will you – and your company – do?

2020 kicks off our sixth year of Out Front Ideas with Kimberly and Mark, and we begin the year with our 20 Issues to Watch. You will notice that many of these issues reach beyond our usual focus on workers’ comp and healthcare. We also included issues relating to risk management, workforce management and employee benefits as each affects employers. 

1. 2020 Election Impact

The coming election will undoubtedly have an impact on our industry. With 11 state governors, 35 Senate seats, the entire House of Representatives and the president of the U.S. up for grabs, there could be significant change. The impact on businesses could include changes in healthcare, tax law, leave of absence regulations, independent contractor classifications and more. 

Democratic control could lead to an increased federal focus on state workers’ compensation laws, including federally mandated workers’ compensation coverage for farm workers. 

Virginia will likely have significant workers’ compensation reforms, with 17 bills already introduced. California also has many workers’ compensation-related bills, although recently few have become law. 

2. Healthcare Watch

As healthcare continues to be the hot button issue of the 2020 elections, with it comes uncertainty about what our future coverage model may look like. Regardless of uncertainties, we know coverage is complicated, and any system-wide changes will require years of effort before implementation. Healthcare.gov saw its first rise in new enrollment since 2016, up 1.8%, while renewing enrollees were down 2.9%.

Expect to see the continued rise of employer-led solutions in 2020, with healthcare programs like Walmart’s reducing cost, decreasing disability duration and promoting the best of care for common conditions. Community and local care is also emerging, with the continuation of new entrants into the market. New benefit solutions are also expanding, including apps and platforms, such as:

• Calm, an Apple award-winning meditation app.
• SleepScore, the leading firm monitoring sleep and offering actionable advice.
• Grand Rounds, a personal health assistant firm driving quality, timely care.
• Livongo, a digital health management firm for chronic conditions.
• One Medical, a membership-based primary care platform.

3. Government Affairs and Compliance

Workers’ compensation is one of the most regulated lines of insurance, and this bureaucracy adds to the system costs. Industry engagement with regulators and legislators is increasingly important to ensure we have a voice at the table when change is contemplated. To make the system more efficient and effective, it is critical that third party administrators (TPAs), carriers and employers engage with regulators and legislators at industry events, like those held by the International Association of Industrial Accident Boards and Commissions (IAIABC), and the Southern Association of Workers’ Compensation Administrators (SAWCA).

4. Evolving Health Technology Models

Technology’s place in the evolution of health continues to expand, as seen at this year’s Digital Health Summit at the Consumer Electronics Show (CES). With tools that track health metrics and protect personal health information and with artificial intelligence, machine learning and blockchain all being major topics, the future seems to hold limitless possibilities. A few remarkable devices introduced at CES were:

• Sana Health designed a headset that uses neurowave stimulation from light and sound to reduce pain.
• Valencell launched a blood pressure sensor system that can be integrated into hearables or wearables.
• Mateo’s Smart Bathroom Mat helps individuals monitor their weight and posture using “medical-grade pressure-sensing technology.”

5. Social Inflation

You hear much about this term in the risk management marketplace, referring to the phenomena of significantly increased liability costs due to societal changes. The impact has be associated with:

• Jury behavior prediction becoming more difficult.
• Litigation financing becoming big business.
• Statutes of limitations being extended for a variety of claims, including workers’ compensation presumptions, malicious prosecutions and sexual assault.
• Courts allowing the pursuit of separate “bad faith” litigation for actions taken during the handling of a claim.
• Increased risk management exposures. 

A continuing trend of social pressures could make it very difficult and expensive for companies to secure liability coverage, as carriers continue to increase rates and reduce capacity in the marketplace.

See also: Realistic Expectations for Insurance in 2020  

6. The Power of Influence

Influence can be affected by cultural competencies, personal beliefs and how we feel about ourselves. Personal beliefs play a key role in influencing the level of participation and compliance, trust and communication and outcome of a workers’ compensation case. While technology advancements, wellness programs and regulatory requirements are important, an unsupportive environment, where employees feel dismissed, will affect their engagement. Companies are evolving their advocacy models and improving how they engage with injured workers and patients to accommodate the impact that personal beliefs can have on these cases.

7. Marijuana Workplace Considerations

With 11 states and D.C. having legalized recreational marijuana, it seems only a matter of time before it becomes federally legal. The Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which would federally legalize marijuana, has passed the House Judiciary Committee but will need to pass through the House and Senate for any further advancement.

State legalizations have created challenges for law enforcement and employers because there are no easy tests for impairment with the drug, and no agreed-upon standards of what level of tetrahydrocannabinol (THC) would constitute impairment. The Occupational Safety and Health Administration (OSHA) also restricts blanket post-injury drug testing policies. New THC breathalyzer tests are set to hit the market this year that could assist employers and law enforcement with setting an actionable standard.

8. Rethinking Industry Engagement

Industry engagement affects your marketing efforts, sales and client relations, customer service operations and governmental affairs. One critical area to take advantage of is educational conferences. They bring incredible value to stakeholders, but keep in mind that attendees want to see new sessions and topics presented without presenters selling their services. Additionally, using social media to not only promote your brand recognition and thought leadership but as a platform for real-time engagement with consumers advances your customer service model.

The easiest way to engage the industry and ensure relevancy is getting involved with organizations like the Risk and Insurance Management Society (RIMS), Public Agency Risk Management Association (PARMA), the Public Risk Management Association (PRIMA), the American Society for Health Care Risk Management (ASHRM), Disability Management Employer Coalition (DMEC) and the University Risk Management and Insurance Association (URMIA). 

9. Safety and Loss Prevention

Emerging technologies are assisting in safety and risk management. We are seeing advancements in tech such as wearables that promote safer behaviors and drones that can view dangerous working conditions. 

For all the advances we’ve made with technology, there is little that has been done to decrease injuries related to workplace violence. This challenge has been especially prevalent in the healthcare, retail, hospitality and K-12 industries. 

10. Informed Pain Management

There is no ignoring the opioid epidemic in our country, but the fact remains: The pain is still very real with patients. In 2020, pay close attention to the evolution of pain management as the pressure increases greatly to limit the prescribing of opioids. Focusing on patient-centered care and taking an interdisciplinary and individualized approach to pain care are valuable options to advance patient needs.

11. Defining Value of Risk Management for C-Suite

Risk managers are facing rising insurance costs across multiple lines of coverage for the first time in a decade. This means they have to show their value to the C-Suite without the associated benefit of decreasing insurance costs. Additionally, there are many discussions taking place on the structure of risk management programs, including what duties they should perform and where they should reside within the corporate structure. 

12. Talent 'Reskilling'

Often referred to as "upskilling," talent "reskilling" could help with talent gaps as well as provide further internship opportunities and assist with the training of newer employees and older workers. Moreover, training in empathy and communication furthers engagement. Organizations that are taking advantage of these particular training areas, in addition to using new technology and on-demand environments, will have a decisive advantage.

13. Data Privacy and Cybersecurity

It is estimated that, by 2021, there will be $6 trillion worth of damages due to cyber security attacks. While it has become increasingly difficult for company IT departments to stay ahead of hackers, timely corrections like updating systems to install patches and correcting known flaws can help prevent major shutdowns. 

With the introduction of the California Consumer Privacy Act (CCPA), the most extensive and restrictive data policy regulation in the U.S., the insurance community will need to make adjustments. Elements of this law contradict industry records retention regulations. 

14. Caregiving

An estimated one in six Americans is assisting with the care of a disabled family member, with more than half of these employees working full time. Although paid caregiver leave of absence programs are not widely adopted with employers, they are gaining traction with those that are more forward-thinking. 

When the responsibility of care for someone disrupts the life of an employee, the impact can weigh heavily on productivity and increase absence in the workplace. Companies like Wellthy, a digital communication hub focused on family care coordination, links families with a virtual care coordinator. Often a social worker, this individual advocates and schedules to take over many caregiving responsibilities, which can alleviate the strain on a caregiver, leading to less absenteeism.

15. Public Sector Pension and Workers’ Compensation Debt

The average public entity pension is less than 73%-funded, leaving over $1.6 trillion in unfunded pension liabilities nationwide. Many public entities also have millions in workers’ compensation liabilities without funds set aside for payment of the claims. While there are no easy solutions to these challenges, increasing taxes and reforming pensions may be necessary. Public entity insolvencies is also a threat, which has happened in the past. 

See also: Are You Ready to Fail in 2020?  

16. Does Our System Do Harm?

While we often debate varying state regulations and the resultant inadequacies, we do not ask ourselves enough whether our system does harm. Misaligned incentives, complex claims processes and procedures and a daunting system can all affect recovery for the injured worker. Emergent technologies and an abundance of data offer solutions to systemically improve our industry. These solutions need to be implemented to fulfill the industry’s obligations. 

17. Markets and Rates

For several years, there has been a downward trend in the rates for workers’ compensation guaranteed cost insurance. Claims costs have been steadily increasing, but a decline in accident frequency has offset these increasing costs. However, the focus of retention marketplace (self-insured and high-deductible) is on accident severity. The combination of increased accident survivability, longer life expectancies and new medical technologies mean that the industry is seeing more expensive individual workers’ compensation claims than ever before. 

Additionally, lower returns on investments in bonds, especially municipal and government bonds, could affect premium rates as the insurance industry invests heavily in these instruments. 

18. Mental Health

Access to proper care and a lack of providers continue to be major roadblocks for the mental health crisis in our country. As we continue to break down the stigma, promote wellbeing and assist in improving access to care, many workers’ compensation companies and health providers are offering unique and meaningful crisis management and behavioral health case management and will work to create a wellbeing program for your firm.

Organizations like the National Alliance on Mental Illness (NAMI) are collaborating with businesses and public entities to shed light on issues like suicide awareness and prevention to push a stronger culture of wellbeing. It is also imperative that our own workforces focus on their own mental health. We cannot be good advocates for others if we are not taking good care of ourselves. 

19. Data Validation

The reliance of data in our industry is more important than ever, but is our data accurate? There is no single source for accurate information on the entire workers’ compensation industry, as the National Council on Compensation Insurance (NCCI) and the independent bureau states all have only a piece of the puzzle. Data from self-insured employers is also missing from most analysis. 

The accuracy of data is very important for risk management decision making. Risk managers should be asking what stories their data is telling, including:

• Is my data complete and accurate?
• When my data conflicts with my expectations, what do I do?
• Do I trust my data, follow my instincts or dig deeper?

20. The Americans With Disabilities Act (ADA) and Leaves

Continuing changes to regulations, litigation and risks make this an ever-present challenge for employers. Conditions such as obesity, diabetes, pregnancy-related impairments, depression and stress-related mental health impairments continue to be addressed

Leave programs continue to evolve across the country, with California, Connecticut, Colorado, Massachusetts, New Jersey, New York, Oregon, Rhode Island and Washington and San Francisco and D.C. enacting paid leave. D.C. goes live in July, Connecticut in 2022 and Oregon in 2023. This makes it increasingly critical to understand how these policies run concurrent with a workers’ compensation claim. Alignment between leave programs must be outlined so claims teams are aware and properly engaging the necessary resources.

To listen to the archive of our complete Issues to Watch webinar, please visit https://www.outfrontideas.com/

Follow @outfrontideas on Twitter and “Out Front Ideas with Kimberly and Mark” on LinkedIn for more information about coming events and webinars.

Over the past decade, U.S. tech firms have made significant advancements in artificial intelligence and robotics, making it far easier and more efficient to automate tasks and functions across industries. Artificial intelligence (AI) affects all types of risks and lines of insurance, and the workers’ compensation market has a particularly large stake in the developments.

Although the U.S. has experienced technological change and disruption during prior periods of industrial revolution, the pace and scope of the fourth industrial Revolution positions it to have a far greater impact on the U.S. and global economies. The recent advancements in AI and robotics are some of the most significant computer science advancements of our generation. Google CEO Sundar Pichai has compared the advances to the discovery of electricity and fire, while Bain predicts that the U.S. will invest $8 trillion in automated technologies by 2030.

The U.S. is currently the global leader in developing and investing in AI technologies and robotics; however, our global competitors are rushing to catch up. In 2017, AlphaGo, an artificial intelligence program developed by Google, defeated Ke Jie, the world’s champion Go player. (Go is a popular and complex ancient board game made digital). Since then, global investment dollars in AI continue their upward trend.

See also: Untapped Potential of Artificial Intelligence  

Back in 2015, China’s government launched the "Made in China 2025" campaign to become a market leader in developing these new technologies by 2025. As China and other global leaders invest in smart factories (which are driven by AI and robotics), the rise of these factories will affect not only production worldwide but also potentially eliminate jobs and keep wages down worldwide. This intense focus and investment from our largest global competitors will likely accelerate the pace and scale of change and limit our ability to manage the disruptive effects across many sectors of our economy.

Significantly, the new technologies are poised to challenge traditional assumptions that AI and robotics will be used to perform only low-level and highly repetitive tasks. MIT’s latest research shows that machines are better at pattern recognition and judgment calls. New AI technologies and robotics are also helping doctors detect early signs of cancer by analyzing a condition and comparing it with data points of other patients. (We’ll explore this notion further in our next blog in this series.)

It remains unclear whether the benefits of AI and robotics will outweigh the disruption to many traditional industries and their employees. In fact, a number of influential CEOs, venture capitalists and academics have already raised concerns about how these advances in AI and robotics could fundamentally change our society and the future of work for blue- and white-collar workers.

See also: 3 Steps to Demystify Artificial Intelligence  

Blackstone’s CEO, Stephen Schwarzman, who provided $250 million to launch MIT’s new college for AI and robotics, remarked, “We face fundamental questions about how to ensure that technological advancements benefit all - especially those most vulnerable to the radical changes AI will inevitably bring to the nature of the workforce.”

The best athlete you've likely never heard of is Mikaela Shiffrin, who is close to breaking all the career records in international Alpine ski racing—and is just 24 years old. When Lindsey Vonn was considering one more heroic comeback from injury last season so she could build on her 82 wins on the World Cup circuit and pass Ingemar Stenmark's all-time mark of 86, she not only decided her body couldn't handle any more abuse but also basically said, "Ah, what's the use? Give Mikaela a year or two, and she's going to hold all the records anyway."

Shiffrin, who already has 64 career wins, posted a 2018-2019 season so good that it would qualify as a top-20 or even top-15 CAREER—17 World Cup wins, the overall World Cup title, season titles in an unprecedented set of three disciplines (slalom, giant slalom and super-G) and two gold medals and a bronze at the world championships.

And Shiffrin doesn't just win, she dominates. Ski racing tends to be a hit-or-miss affair, because there are so many variables outside the skier's control—for instance, snow conditions and lighting can change decisively during a race, and start position and course setup can greatly favor certain skiers. Yet Shiffrin won 21 out of 25 races in the slalom, her specialty, over three seasons. (Take the other side of that record, winning four out of 25, and you're a bona fide star.) Races typically are won by tenths of a second or even hundredths, but Shiffrin routinely wins slaloms by more than a second, sometimes more than two seconds. She once won a race by more than three seconds, the greatest margin ever recorded on the World Cup circuit.

How do you compete with someone like Shiffrin? And where might there be lessons for competition in the business world?

In the case of Shiffrin, other ski teams have started sending crews to film her practice sessions. They set up shop up and down the course she's going to ski to capture all the fine points of her technique, to see what drills she's doing, even to watch the interactions of the coaches and technicians who make up her team.

Historically, skiers have been left to train in private, and Shiffrin has bristled at the crowds, but there's no prohibition on cameras in skiing (unlike in football *cough* Bill Belichick and in baseball *cough* Houston Astros). In skiing, if you buy a lift ticket, you have your place on the mountain.

It's too early to tell what the competitors have learned, but Shiffrin has "only" four wins halfway through this World Cup season, has finished second and third in the last two slaloms and looks like she'll win the overall title this year by mere miles and not by a lightyear or two, as she has the last three years.

In the case of insurers, they certainly benchmark against competitors, and they benefit from one of the oddities of the industry—that everyone pretty much has to make their business plans public, given all the filings required by state regulators. But comparisons seem to focus on products or programs. I don't hear the intensity I'd expect when it comes to other comparisons, especially on matters of operational efficiency.

The most startling insight I came away with after helping with a McKinsey book project a few years ago is that, while strategy and operations are often treated separately, a sustained edge on operational improvements can confer a major strategic advantage. The authors of "Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds" found that improving operations 25% faster than the rest of the industry for a decade was one of the five most important strategic moves a company could take. And if you believe, as I do, that insurers can—and must—cut 50% of their operating costs over the next few years, then the issue takes on even more urgency. Get there faster than the other guy, and you can win big. You free up funds to invest in growth, attract more capital at better rates, draw talent and so on, creating a virtuous circle that can drive you to dominance.

But I mostly hear insurers comparing themselves to…themselves. There's a lot of talk about improvement in operational efficiency, but not about how that rates versus the competition—and the competition is the true measure.  

Insurers also brag about shortening the underwriting cycle, the handling of claims, etc., but, again, the frame of reference is almost always the company's prior results and not about competitors—which are also shortening the underwriting cycle, the handling of claims, etc. The same with improvements in customer experience: Sure, you're getting better—but are competitors getting better faster or slower?

In the late 1990s and early 2000s, I used to talk to a friend who was a senior executive at GM, complaining about how slow the company was to adapt to new customer demands in the digital age, and he'd tell me, "We're changing as fast as we can." I told him that the market didn't care how fast GM could change, that customer behavior was going to change as fast as it changed, and GM's only choice was to keep up or not. When the financial crisis came along in 2007-8, GM lost its ability to hide its problems, and it filed for bankruptcy.

I got to sit in on a couple of product review sessions that Bill Gates held in the early 1990s and was struck by how little he focused on his products and how much he focused on the competition. For the first half of each hour-long session, he quizzed the product team about what it thought competitors were doing or could be doing. Only then did he turn to his own product.

While the insurance industry has been making real progress on internal operations, on interactions with customers and on many other fronts, I think it's time to change the basis of comparison. Stop looking at what you did last year, and start looking at what the competition is doing this year. Be more like Gates and like Shiffrin's competitors and less like the GM of 20 years ago.

I'd say to imitate Shiffrin, but I'm not sure a once-in-a-generation genius can be copied. If Lindsey Vonn couldn't do it, I sure can't.  

Cheers,

Paul Carroll
Editor-in-Chief