The chart below compares the government's Bureau of Labor Statistics' inflation calculations for Medical Care versus the Kaiser Family Foundation's research into how much insurance premiums have been increasing. The differences between the two calculations are huge. From 1998 - 2018, the government estimates that health costs have increased by 107%, but for some reason insurance premiums have increased 288%. In fact, 288% is a material understatement because that figure does not include the huge increases in deductibles. One might say, "Well, this means the insurance companies are overcharging!" That is a possibility, but if the insurance commissioners of America are that bad at reviewing rate filings, which I doubt, then all the insurance commissioners and their staffs should be replaced ASAP. Another reason I don't think the difference can be accounted for by declaring insurance companies are grossly overcharging is that between the combination of the ACA, which to some degree limits their profit margin, and a review of their financials, their profit margins do not suggest this level of overcharging. Another perspective is that government-sponsored healthcare expenses do not increase nearly as much as the costs covered by insurance companies. Medical care is medical care, unless if under government programs patients get materially less care or the insurance companies subsidize government programs by overcharging everyone who buys their own insurance. A third alternative is that the Bureau of Labor Statistics' numbers are just plain wrong. I trust the Kaiser numbers because they are associated with Kaiser Permanente Insurance, so they know what premiums are being charged. Premiums are easier to verify, too. See also: The Science That Is Reinventing Healthcare   In your day-to-day world, what difference does all this make? Maybe none except by adding to your humor or frustrations. Or, perhaps it adds to your conspiracy theories. In selling benefits, though, I think it helps the intelligent and educated producer sell and advise the educated and intelligent buyer. Understanding the true inflation of medical care will help people make better decisions.

The digital transformation of the insurance industry is first and foremost motivated by the demands of clients, who are always looking for the easiest way to solve claims. New technologies also can improve processes, eliminate fraud risks and collect data that can be used to personalize services.

Together with banking and finance, insurance is one of the most highly regulated industries, and any change must go through lengthy and rigorous probation. This explains the lag in using state-of-the-art technology compared with other industries.

However, things are changing, and the insurance industry can see gains of $1.1 trillion just from AI.

Here are five ways technology can make the insurance industry better for clients and more efficient for providers.

Process Automation and AI-Based Decisions

Digitization has affected most business sectors by cutting processing times, simplifying procedures and offering more power to clients. The insurance industry can benefit from all this, too.

Claim processing can be stepped up, with clients performing some part of the registration process, then letting AI do the rest. Technology can also increase renewal rates and cut down churn by sending automatic reminders or scheduling automated payments.

Underwriting is no longer delegated exclusively to people. Now it is a mix of automatically computed risks and human decision-making.

Since this industry relies heavily on extensive paperwork, any help regarding recording, sorting and retrieving information is a notable improvement. OCR and computer vision make insurance brokers’ works easier and save time.

Self-Service Portals and Chatbots

Clients are becoming more tech-savvy with their ever-more=powerful mobile devices. They are no longer ready to wait in lines at an office to be served by an insurance officer. The trend is to create a website or an app where clients can buy a policy, submit claims and evidence, create support tickets and request payments as quickly and conveniently as possible.

This should be part of an integrated omnichannel strategy, where the client has a choice of communication channels with the insurance provider.

See also: In Age of Disruption, What Is Insurance?

While some clients still prefer talking to a human agent, and this service is not going anywhere any time soon, chatbots are gaining ground. These solutions are helping insurance companies reply on the spot, thus eliminating waiting times, which are frustrating for customers.

IoT-Based Prevention

Better prevention methods could help avoid a great deal of the hazards for which insurance companies have to pay. Pipe leaks, fire outbreaks, gas leaks and more can become things of the past with the help of smart IoT sensors, which are becoming the norm in modern homes.

This is something AXA is already testing within smart homes. When home appliances are connected to a central system and give constant feedback, it becomes easier to avoid accidents by simply shutting off those posing a high risk. In a disaster, it will also be easier to process the claim because there is a clear record of the underlying cause.

Fewer Accidents With Self-Driving Cars

Self-driving cars will eventually be able to avoid collision with each other and other objects, reducing the number of accidents and saving insurance companies millions of dollars.

Until then, installing smart safety systems in vehicles can also diminish the number of accidents or at least minimize adverse outcomes.

Healthier With Wearables

Most chronic health problems are preventable if people adopt a healthy lifestyle. Some insurance companies are already implementing gamification schemes to motivate their clients, with the prize being a discount in the insurance premium paid. The motivation of the insurer here is that the cost of the bonuses or discounts is far less than the doctors' fees.

Technology can also help medical providers keep track of the entire care delivery cycle, from the admission to long-term remote monitoring. This can smooth out the friction between hospitals and medical insurance providers, as this insurance portal development project explains in detail.

Ethical Issues of IT in Insurance

Although the consumer’s benefits in the form of personalization and less friction are apparent, there is also a darker side of using IT in insurance. Ethical issues include:

• Data governance. Because these systems are very recent, there are few legislation points covering data accessibility and management, except for GDPR and some others.
• Security and privacy. As with any other information systems, the problems of authentication and encryption remain relevant.
• Transparency. Most smart systems act as black boxes; therefore, clients and staff have no way to explain why the system returns a particular answer. This contradicts the fundamental right of the client to be fully informed about the service.
• Bias and discrimination. The primary concerns here are related to the ability of AI to qualify a specific client as high-risk and deny the client the service or put the client at a disadvantage.
• Job losses. Reports show that as many as 18% of current insurance jobs could be automated by 2025.

See also: IT Security: A Major Threat for Insurers  

Despite the risks, using IT in the insurance sector means that there are fewer intermediaries between the client and the provider, faster service, less friction and overall more accessible policies. As the insurance tech is maturing, it’s time for providers to weigh the advantages versus risks and consider a digital pivot while it can still provide a competitive advantage.

More and more companies are seeking to differentiate themselves with an effective customer experience strategy. To advance those efforts, some firms hire highly skilled “chief customer officers” or engage expert consultants for assistance.

But there’s also a fair share of firms that choose to go it alone, proudly proclaiming that “we know what we’re doing.” Those five words, though, could undermine the effectiveness of those firms’ customer experience (CX) improvement strategies. Why? Because there’s more to customer experience strategy than meets the eye. It’s easy for most anyone to think they’re a customer experience expert. After all, each of us is a consumer ourselves. We know what it takes to make a customer happy – keep promises, abide by the golden rule, serve with a smile, etc.  It’s not rocket science, right? Well, maybe not rocket science, but definitely science. See also: Why Isn’t Customer Experience Better?   The fact is, there’s a whole science to shaping great customer experiences and, contrary to what many business people think, it’s not all common sense. To help illustrate that – to underscore how “we know what we’re doing” could be a dangerously overconfident viewpoint – below are a few examples of customer experience strategy considerations that may surprise you:

• What’s most important isn’t shaping customer experiences, it’s shaping customer memories. For a business to derive strategic advantage from its customer experience, people need to remember it positively. When a friend or colleague asks you – “what do you think of [Company/Product X]?” – your response is grounded in your recollection of the experience, which is actually different than the experience itself. It’s for this reason that the best CX strategies capitalize on cognitive science to shape customers’ memories more positively, thereby elevating people’s impression of the overall experience.
• Fixing customer pain points won’t get you where you want to be. Business leaders are, by and large, fixers. They are trained early on, and subsequently coached and encouraged, to find problems and fix them. Fixing problems is a good skill to have, and many a career has been built on such aptitude. It’s also a valuable skill when managing the customer experience – after all, a customer experience with fewer pain points is a better customer experience, right? Yes, but there is a catch. Merely fixing pain points may help achieve competitive parity, but it doesn’t necessarily deliver competitive differentiation. It doesn’t make your customer experience memorable. Achieving that often requires more than just fixing existing customer touchpoints; it requires introducing entirely new ones that enhance the experience in a meaningful way.
• What customers don’t see is as important as what they do see. Most companies focus their customer experience strategy on the live, digital and print touchpoints that people encounter when patronizing the business (call them “onstage” components). That’s entirely appropriate, but it’s also only a partial solution. Equally important are the “backstage” components – the behind-the-scenes workplace practices that help shape the mindset, behavior and engagement of company employees. From hiring profiles to training programs to compensation practices to cultural norms, these are all backstage elements that customers never see, yet they materially influence the quality of the experience delivered. The most successful customer experience strategies take this into account, balancing their attention across both the onstage and backstage parts of the equation.

If you found some or all of these operating principles eye-opening, you’re not alone. While engineering a great customer experience definitely requires a heavy dose of common sense, it also involves science and subject matter expertise that isn’t at all common. Former U.S. Secretary of Defense Donald Rumsfeld once famously declared that there are “known knowns” (things we know we know) and there are “known unknowns” (things we know we do not know). But, he cautioned, there are also “unknown unknowns” (things we don’t know we don’t know). See also: The Best Boost to Customer Experience   So, if you’re a business leader launching a customer experience transformation, be wary if you hear your team confidently declare that “We know what we’re doing.” Consider that moment a coaching opportunity, and engage in a little pushback. Challenge your team to honestly evaluate their expertise. Challenge them to augment their CX knowledge, through books, training and other resources. Challenge them to entertain the very real possibility that “unknown unknowns” – things they don’t realize they don’t know about CX – could sabotage their best efforts to create a winning customer experience strategy. [A version of this article originally appeared on Forbes.com.]

“Once you have tasted the taste of sky, you will forever look up.” -- Leonardo da Vinci Is it time to recast our vision for where Insurtech 2.0 should be headed? People say that the worst thing you can do is start off with an apology. I still must begin with one; not for the headline on this article, but for living in central Florida. While most of the country has been bombarded with freezing cold, we’re living with the windows open, wearing shorts and playing golf. My apologies. The apology is important because it is involved in how I came to ask the question as to whether it’s time to “flip the bird” on insurtech. As we were working on our flower garden, five Florida sandhill cranes walked by. These magnificent birds are almost four feet tall and have a six-foot wingspan. They have a most graceful gait as they strut by, bobbing their heads to and fro. Sandhill cranes are always looking for food. They do not have a meal plan with the Golden Corral or any other buffet restaurant. Because they eat insects, seeds and other small pieces of anything edible, being so tall means they are always looking down at the ground right in front of them. Sandhill cranes plod slowly, heads down as they wander back and forth without any discernible path or plan. As these five walked by, they passed right beside our cherry tomato plants. The plants were full of ripe fruit and located at the same height as their eyes, but the cranes walked by without giving them a second notice. With their focus down on the ground in front of them, they had no idea that luscious, delicious and nutritious cherry tomatoes were there for the taking. All they had to do was look up. But with their habitual downward gaze, they were oblivious to what was right there in front of them. See also: Insurtech 2020: Trends That Offer Growth   As I watched the sandhill cranes miss their golden opportunity, I wondered if the same might be said about insurance organizations and their use of technology. Are they forever missing insurtech opportunities for greater customer engagement/protection, enhancing distribution channel effectiveness, eliminating unneeded tasks/data and driving down costs? Are there significant openings to leverage technology all around the insurance industry that we are missing because we are only looking down right in front of us? I believe that the answer is a resounding “yes”—it’s time for insurance organizations to stop emulating sandhill cranes. Insurance organizations need to lift up their heads and stop looking just at their feet. There are many reasons that insurance organizations only gaze downward:

• We’ve been doing things this way for as long as we can remember.
• Once upon a time, one of our executives designed the way we’re doing things, and we don’t want to risk his/her wrath if we question one of the “children.”
• Even though revenue streams are in retreat, doing things the same way is predictable.
• Our core system only does things one way, and the road to replacing it is very long and expensive with no guarantees.
• We’re too busy to try anything different.

It’s time to “flip the bird” from a sandhill crane and become more like a hawk. Hawks are always looking for movement and change. Spotting an opportunity from above, they swoop down for a quick strike and make off with the reward while others are still assigning a committee and study the opportunity. Hawks are discerning when they strike—not grabbing at anything or everything; they ignore that which will not help. They selectively pick only that which will benefit them and their family. And when they grab onto something, they never let go. Teddy Roosevelt said, “Complaining about a problem without posing a solution is called whining.” Because I don’t want to incur the wrath of TR, let me propose some solutions to consider: If any organization, or anyone, says they totally understand insurtech and have a perfect solution, grab your wallet, run and don’t walk to the nearest exit. Don’t wait for the perfect solution but try something now. Remember that the enemy of the good is the perfect. Look to your front-line employees for ideas and suggestions. After all, they bear the brunt of the self-inflicted pain associated with the current approach. Because you will not have all needed information before you start, be willing to adjust and learn as you try. See also: Is Insurtech a Game Changer? It Sure Is Some define insurtech as very complex and all-consuming with extremely expensive leaps. But why can’t we look at it more as a continuing evolution, small changes over time, that will eventually add up to significantly alter the way we sell and service insurance. So why don’t you “flip the bird” on insurtech, keep your head up, and get into the game! This article first appeared in the 2019 edition of “Last Agent Standing,” published by www.paradisopresents.com.

Have you heard of the marshmallow test? A marshmallow is placed in front of a kindergarten child, and an offer is made; you can eat this marshmallow right now, or, if can wait for 15 minutes, you will get a second one. This experiment, which sounds quite simple, provides invaluable insights about the self-control dynamics of humans. The experiment was conducted first in 1960, and the results have been evaluated over the years. It was found that kids who were able to hold off a long time without eating a marshmallow were more likely to have higher SAT scores. Similarly, in their adulthood, these people had a better body mass index, more self-confidence and less tendency to be addicted. Studies also show that delaying gratification gets harder under stress and keeps getting harder, the longer you delay. If you realize that you forgot your entrance card after driving in terrible traffic in the morning, you will be defenseless against dessert at lunch. Buying insurance is an act of delaying gratification, like retirement saving, dieting or avoiding sugar. It takes real self-control to spend your money on a product that you don’t enjoy when it is not mandatory. Delaying today’s pleasure for a possible future benefit, buying car insurance instead of a new phone…. So, if buying insurance is an act of delaying gratification, how can you help your customers on this issue? See also: Is Buying Insurance Like Ordering Food?   Develop Desired Products Perhaps be a supporter on good days rather than just compensate for the bad days? Why don't life insurance companies try to make their customers' life happier? At least they could send them a cake on customers' birthdays. Enriching an insurance product with benefits that can be used immediately can also help customers to delay gratification. Offering free car washing service once a month to your car insurance customers will definitely make them more satisfied with their purchase. Ease Purchasing Did you know that we suffer physical pain when making any payment? Neurofinance studies show that spending money activates the areas of the brain associated with physical pain and feelings of disgust. And the activation is much more when payment is in full view. Ask your customers to pay in cash, if you want to make your customer suffer. PayPal, mobile wallets and contactless payment are much kinder solutions. Know Your Best Customer The best insurance customers are those people who make regular savings, eat healthily and do volunteer jobs for the community. Why? Because those people have enough self-control to delay daily pleasures. As they are aware of their responsibilities, they will be more likely to purchase insurance. They will also do their best to avoid risks. Identify this customer segment and flag them as the best customers. Appreciate the Will Being appreciated strengthens our will, motivating us to be more responsible. Insurance companies should appreciate their customers both emotionally and financially. The health insurance company that appreciates customers with emails for being careful about pursuing a healthy life would increase customer satisfaction. The insurance company that gives small gifts to customers who have not any claim for years would likewise be rewarded with customer loyalty. Knock on the Door at the Right Time High stress leads people to instant gratification. Long-term plans are usually made in quiet moments. If you are not able to check the pulse of your customers by using a wearable device data for now, don’t worry. Just call your customer in the morning instead of evening after a busy work day. Speech emotion recognition systems are also powerful tool that should be used in call centers. See also: The Behavioral Science on Buying Insurance   Automate Decisions Delaying gratification is a real struggle when you do it the first time. We struggle mentally, but it becomes easier the next time, and finally it turns into a kind of habit. Our brain automates the action, so we don’t have to spend our self-control power. It is difficult to get consumers to adopt the insurance purchasing habit, so there is bloody competition for the customers who already have this habit. Customer acquisition is silver, but retention is golden. Insurers rely on insurtechs for the technological transformation of the industry. But first the industry needs a customer-oriented transformation. This may be possible by understanding the emotional and behavioral tendencies of consumers. Thanks to Walter Mischel, who inspired this article with research for more than 50 years on delay of gratification and self-control.

This an excerpt from an interview that HIStalk conducted with Al Lewis, JD, the author of several books on healthcare outcomes, the operator of the website, They Said What? Because the Wellness Industry’s Pants Are On Fire, and the founder and CEO of Quizzify. The full interview can be found here.  Tell me about yourself and what you do. I am CEO and quizmeister-in-chief of Quizzify, which is a an employee health literacy company. As we say, wiser employees make healthier decisions. However, I believe we are having this conversation because of my personal blog, which is called, “They Said What?” in which wellness vendors, diabetes vendors and related vendors are critically analyzed to in fact show that they usually don’t achieve what they claim to achieve. You’re offering $3 million to any company that can convince an impartial panel that its program can save employers money. Do you have concerns about having to pay up? None whatsoever. The entry fee is $300,000, and, believe me, it’s worth [the risk] with this impartial panel of five judges, of which I only get to appoint one and the burden of proof is on me. They don’t have a chance, which explains why nobody has tried to take me up on it. Is it lack of knowledge or intentional deception that motivates wellness companies to sell services to employers without having sound science behind them? Confucius put it very well. He said, and in those days it was all gender-specific, that, “When a man makes a mistake and it’s pointed out to him and he doesn’t correct it, he is telling a lie.” So at this point, these folks know they are lying. They have made the gamble, and it’s a good gamble, that vastly more people are going to read their ads than are going to read my website. So what they do, and they’ve gotten very good at this in the last couple of years, is simply ignore my postings instead of responding to them so as not to create a news cycle and a whole discussion. Is the available science good enough that they could do it right if they really wanted to? I would say that, for wellness generally, it is mathematically impossible to save money. There are not enough wellness-sensitive medical events. Even if you were to reduce 100% of them, you could not pay for most wellness programs. I’m not going to say it’s impossible, but it has clinically never even gotten close to that 100%. The typical reduction in risk is 0%, somewhere between minus 2% and plus 2%, while you would need a mathematically impossible 100% to 150% reduction to break even. Most vendors are counting on the fact that most employers have absolutely no idea how many of their employees go to the hospital every year for diabetes. I could tell you if you like, unless you want to take a guess. Out of 1,000 people under the age of 65, how many go to the hospital with a primary diagnosis of diabetes in the insured population? I’ll say two. Actually, that’s very close. It’s more like one. Occasionally, I run health and wellness trivia contests at conferences. How does the radiation in the CT scan compare with the radiation in an X-ray? But I also throw in that specific question. If you added all the diabetes events and all heart attacks together in a typical employer population, what would the rate be per thousand? In fact, it would be two, if you put both of those together. The guesses that I get are usually somewhere between 20 per thousand and 200 per thousand. What about the perception of the incidence of chronic disease in general? It’s not my take, it’s the world’s take. Because I do this show of hands thing, I do these trivia contests all the time. The employer benefits community thinks it is between about 20 and 200 of these events per 1,000 employees. Which of course makes no sense whatsoever. This is just what they say because they get bombarded with information talking about all the people who have diabetes and all the expensive chronic disease. Let’s take those two things one at a time. A lot of people do have diabetes. They may not even know it. It’s not going to become an issue for them for many years after they find out. If in fact an employer intervenes, they may possibly be able to control it. But what the [employer is] doing is saving Medicare money down the road because virtually nobody goes to the hospital with diabetes before the age of 65. Yet employers want to start paying for medication for these folks, so it’s a net increase in cost. And then your other point of chronic disease. I’ve written extensively on this fallacy that 86% of cost is chronic disease. If you read... carefully, you’ll find that they are saying that 50% of adults have chronic disease. Now if you’re defining chronic disease that broadly, you’re including a whole lot more things besides the things that a wellness vendor can get to. You’re including arthritis. You’re including hypertension. Who doesn’t have hypertension? If you put all that together and say, “Let’s count every dollar that someone with hypertension spends on healthcare....” So. someone with hypertension breaks [a] leg, you count that. You probably don’t even get to 86%, but most of that is also going to be in the over-65 population. In the under-65 population, the major drivers of costs are birth events and musculoskeletal. The wellness vendors have done a great job of moving the goalposts. It used to be they would say, “You’re going to get a three-to-one financial return.” Then they started saying, “You’ll get a one-to-one return.” Now they’re saying, “There is really no financial return, but the employees will be healthier.” If you actually look at the health of the employees … I’m not going to name names, except to say that there are a handful of vendors, generally the ones validated by the Validation Institute, that get more than a trivial improvement in health. There are other vendors — and I don’t mind naming names; Interactive Health and Wellsteps come to mind — where employees actually get worse as a result of these programs. If that’s the case, won’t those companies eventually get fired for failing to deliver? Some number of them are getting shown the door, but new employers are coming in. The problem is that the vendors have figured out how to measure outcomes fallaciously in such a way that most employers and most consultants aren’t going to catch them. They compare participants [with] non-participants, for example. It’s been proven up, down, sideways, backwards, forwards and eight ways to Sunday that every iota, every dollar of savings in a participant versus a non-participant comparison is due to the mindset of the participants versus the non-participants and not to the program. How do I know that? There are several data points. Studies have benchmarked those things and found exactly that. But the most dramatic one is a company called HealthFitness Corporation that did a wellness program for a company called Eastman Chemical. They separated the groups into participants and non-participants in Year Zero. But due to a whole bunch of incompetence and delays, they didn’t get the program started until Year Two. By the time they started the programs, the participants had already dramatically outperformed non-participants. The funny part about that is that my nemesis, the Snidely Whiplash to my Dudley Do-Right or the Lex Luthor to my Superman, was stuck with this, so he moved the goalposts. He said, “Oh, we overlooked that. That was our bad. We weren’t competent enough to realize that the program had actually started in Year Zero, not in Year Two. Therefore, you don’t know whether it’s due to the participants or non-participants.” That turned out to be a big enough lie. And I don’t mind saying, oh, I’ll say on the record, Ron Goetzel is a liar. He can go ahead and sue me. The difference between him and me is that, if he calls me a liar, I’ll have him in court the next day. [Editor's Note: We have emailed Goetzel to see if he wants to respond or offer a general defense of the economics of wellness, as he once did via an article we published. If he does so, we will update this article. To our knowledge, he has not yet responded to the original HIStalk article, published last week.] They put out a graph that shows suddenly that the program started in Year Zero, not Year Two. The people who actually did the program got upset enough with that. If you go back and look at the website now, they have in fact replaced the lie with the truth, which is that the program started in Year Two after dramatic savings had already been found. You’ve made the case that the simplest way to measure a workplace wellness program’s success is to ask the people who signed up if they participate regularly and see benefit from it. Do most programs fail even that basic test? There is a tool put out by the Validation Institute that is the most elegant tool for measuring the cost-effectiveness of programs that I’ve ever seen. We are big supporters of it. You ask employees two questions. How much did you use something? You may not even have to ask them that because you already know. Then, did you find it useful? Then you multiply the number of times somebody used something times the usefulness they found. That gives you an engagement score as your Y axis. On the X axis is the cost of the program. You plot the engagement score against the cost of the program and you can tell in a single graph how cost-effective your programs are as viewed by employee use, employee engagement. For the rest of the interview, click here to go to histalk2.com.

Thinking about insurance industry trends for the next year was always a fun exercise whether I was at the META Group, Financial Insights (IDC) or Ovum (now Informa Tech, I believe). Each trend captured the opinions from our team of technology-focused insurance industry analysts concerning what we thought would occur over three to five-plus years for each specific issue. Once the trends were finalized by the team, our trend report drove a significant part of our research agenda for the following year. Instead of trends, I decided to publish my realistic expectations for the 2020 insurance industry:

1. The League Tables (ranking of insurance carriers) for each major insurance line of business will look the same at the end of 2020 as the tables look at the end of 2019.
2. There will continue not to be any (statistical or otherwise meaningful) correlation between investment levels in startup insurance firms and any measurable impacts on incumbent insurance firms specifically or the insurance industry generally. (Hype does not equal reality regardless of how much PR digital ink is spewed by the startups!)
3. Insurance firms will continue in their grand tradition of exhibiting "magic bullet" syndrome: believing that the latest technology or technology application can resolve their major business objectives and can be implemented by using minimal company resources.
4. Insurance firms, particularly in the U.S. and Europe, will continue to struggle to rationalize the large multiplicity of each of their core administration systems (i.e. policy administration, billing, claims management systems).
5. Independent agencies (and broker firms) will continue to sub-optimize their operations by not acting in the reality that they are joined at the hip with each of the carriers they conduct business with.
6. Although insurance firms will continue to recognize the absolute criticality of data, the firms’ various data elements will collectively behave more like useless sludge than a clean and useful resource.
7. The lack of clean, standardized data will continue to hinder (stop?) insurers from successfully deploying customer-facing (and other market-facing, including producer-channel-supporting) initiatives.
8. Most insurers will continue to give lip service to providing world-class customer service.
9. The number of independent insurance agencies and insurance broker firms will continue to decrease as M&A continues in the producer channel, but the number of agents/brokers will remain stable.
10. 5G, immersion technologies (AR and VR) and enterprise streaming will join the never-ending parade of technologies/technology applications in 2020, already chockablock with other "supposed insurance firm immediately must haves" that include leveraging social media, offering increased functionality on mobile devices, virtual agents/chatbots, interactive video for client onboarding and customer service, IoT, big data, cognitive computing, deep learning and machine learning – all of which technology firms will use as door openers as they reach out to insurance CIOs and CTOs.
11. Cyber risks will continue to cascade through any device connected to the Web used, owned, leased or otherwise in the possession of society (families, individuals, businesses, federal/state/local governments and the military) adding more pressure on insurers to decide whether or how to profitably offer protection or services.
12. I’ll continue to hope, in vain, that increasingly more insurance firms will realize the importance of using geospatial solutions as critical components of decision-making, whether the geospatial data comes from terrestrial or Earth Observation sources.

See also: Are You Ready to Fail in 2020?  

Technologies in the artificial intelligence family have great potential in insurance, according to a recent SMA survey of P&C insurance executives. This should come as no surprise to anyone following the developments in machine learning, natural language processing, computer visioning, chatbots, virtual assistants and related technologies. After a long and varied history of AI technologies (including the lengthy AI winter), we are now on the verge of the golden age of AI. At least that’s the storyline most have bought into. But in the context of the insurance industry, is the potential of AI overhyped? Or, despite all the enthusiasm, is the ultimate impact even underestimated? To answer those questions, it is necessary to examine the technologies and their possible uses. There is not one easy way to express the potential of AI for P&C. And much of the actualization depends on the time frame. It is important to recognize the many different technologies that compose the AI family. Insurers see the highest potential in machine learning, robotic process automation (RPA) and technologies to analyze unstructured data (natural language processing and data mining). RPA implementations, in particular, are taking off like rockets in the industry. Insurers of all sizes are already leveraging the technology to automate routine tasks. Many projects are also underway using machine learning to assess risk and identify fraud (among other things). So, value is already being delivered, and insurers are moving forward with AI-related projects for specific technologies. Several factors are driving the interest and activity in AI. First, insurance is a process and data-intensive industry. Massive amounts of both structured and unstructured data are captured, routed, organized, and analyzed. The industry has just scratched the surface on the traditional data, and new data sourced from sensors and connected devices is added to that. The possibilities to automate for efficiency and analyze for insight are tremendous. Second, insurance is a people-intensive industry. For most lines, experts are required to sell insurance, assess risk, handle claims and manage operations. Many of the seasoned experts in various disciplines are expected to retire over the next five to 10 years. This creates a compelling need to automate low-level tasks and augment human expertise for more complex tasks so that the potentially smaller and less experienced workforce can continue to propel the industry forward. See also: What Will AI Change First?   Yes, there is a lot of hype about how AI will transform the industry. And the potential transformation may still be a few years away as the power of AI technologies slowly ripples across the industry. But the convergence of industry factors, the rapid progress of the technologies and the experience gained by other industries in their AI deployments mean that AI is likely to transform insurance over time. So, it’s safe to assume that the potential of AI technologies is overhyped for the near term but underestimated for the long term. See SMA’s new research report, AI Technologies in P&C: Insurer Progress, Plans, and Potential, for more details and insights.

Having watched about as much sports as humanly possible over the holidays, I thought I'd borrow the bit that Scott Van Pelt uses to open his SportsCenter broadcast on ESPN: "Best Thing I Saw Today." In my case, the best thing I've seen lately is this video interview of Marc Andreessen, officially on "Why You Should Be Optimistic About the Future" but also on how to think about innovating so you can thrive in that future.

I'm not much of a consumer of video—during my days at the Wall Street Journal, the line was that "one word is worth a thousand pictures"—but this video provides as clear a window into Silicon Valley thinking as I can imagine. You can spend a bunch of time in Silicon Valley meeting with executives, or you can spend half an hour watching that video and pick up nearly as good a sense of things. (Allow 45 minutes if you stay to the end, as the discussion veers off into the future of government, capitalism and civilization itself—self-doubt not being a trait much valued in the Valley). The production values wouldn't cut it on ESPN, but the video displays all of the intelligence mixed with arrogance, the blue-sky thinking mixed with hard-won experience and the intensity mixed with playfulness that make up the Silicon Valley ethos.

I'll call out some insights for those of you who won't devote half an hour to the video, but let me first explain who the players are. 

Andreessen has perhaps the highest profile of any VC these days, as one of the two name partners in one of the most successful firms in the Valley, Andreessen-Horowitz. He also carries the residual fame from having led the development of the first commercial browser, initially as a college student and then as the chief technologist at Netscape in the mid- to late 1990s. (I've always had a soft spot for Andreessen because, when he burst onto the scene, an interviewer had him list his favorite books of all time, and one I'd written on IBM's travails of the time made his top five. I've also long been amused that, while Andreessen is a billionaire, his net worth always seems to be about half that of his father-in-law, whose major insight on technology and innovation was... land. The father-in-law got a basketball scholarship to Stanford, where he majored in geography, of all things, and decided that all that farmland in the Valley would be worth a lot more as office space. He bought all he could way back in the 1960s and became the area's biggest commercial developer.) 

The interviewer, Kevin Kelly, is a big deal in his own right. (He's the one on the left, rocking the Alexander Solzhenitsyn-like beard.) Kelly co-founded Wired magazine and has evolved into a guru on the future of technology.

For the insights, here is a chronological summary, including a few time stamps, in case you want to jump right to that spot:

After some chit-chat, including a funny story illustrating that even the most eminent technologists can be fooled by the pace of change, Andreessen quickly makes his first bold assertion: that the internet is just beginning to change culture. He says the technology first had to become universal, to form a sort of global mind, and that's just about happened. So, he says, we're now at the threshold of major change in how people think and interact, all around the world.

Asked how he determines what technologies will work and what won't, he kiddingly objects to the question. He says that just about all technologies work—after they've failed for a long time, usually at least 25 years. He says Radio Shack introduced the first smartphone in 1982, but all smartphones failed until Apple came along with the iPhone in 2007. Videoconferencing traces back at least to the 1960s and a demo at the World's Fair but has only come into its own recently. He says fiber optics were invented in the 1840s but took almost a century and a half to catch hold. So, he says the real question about technology isn't whether, but when (which he admits is a really hard question).

For me, the most important part of the conversation begins at about the 6:50 mark. It concerns the future of AI. In particular, is AI a feature or an architecture?

Andreessen says that most of the startup pitches he sees treat AI as a feature—he jokes that AI tends to be the sixth and final bullet point in a deck because the founders only realize they need to include it after they've written up the rest of the bullet points. But he sees AI as a platform and thinks the implications are profound.

He says that, when you have a new layer of architecture, everything above that layer has to be rewritten and will end up being different. As examples, he cites the changes that occurred when the internet became a layer of the tech architecture and that are happening now because of the mobile and cloud platforms. He says AI could, for instance, do away with the need for forms and databases that people search through; instead an AI could just give you the answer. He notes that this is the approach that Google is trying to take with search. It doesn't want to give you loads of pages of results to search through, as it did early on; it wants to give you the answer.

Andreessen offers a qualified endorsement of voice technology. He says it will play a key role, perhaps in conjunction with AI, and thinks it has crossed a threshold that will lead to very fast improvement from here on. But he doesn't see that voice can be a straight replacement for the keyboard or touch screens. 

He also expects that 5G will improve at a super-rapid pace because leadership in the technology has become a point of honor for nations, especially the U.S. and China.

At about the 25-minute mark, he and Kelly go back and forth on why innovating via analogies doesn't seem to work very well. They talk about all the "Uber for X" business models that were expected, and Andreessen explains why such analogies often prove dangerously facile. 

If you're interested in the history of venture capital, at about the 27-minute mark Andreessen traces its roots all the way back to the 1600s. He says the term "carry"—the roughly 20% of profits that VCs take on their investments—began as the amount of the fish that investors in a whaling expedition were entitled to carry off. Who knew?

More importantly, he explains the importance of the portfolio approach that VCs take to their investments—an approach that is increasingly understood by innovators in corporate environments but that, in my opinion, still needs to penetrate much deeper. Andreessen says you have to assume failure for many ventures, because that's just how the world works. The trick is to test in a rigorous, inexpensive way so you limit the expense of the failures. Then the successes can more than cover for the failures.

I hope you find the video half as insightful as I did. Maybe you, too, will even get a chuckle out of things like Andreessen's reference to the inventions of the transistor and microchip as "not obvious"—Silicon Valley speak for "abso-freaking-lutely brilliant and totally out of the blue, but I have to maintain my detached persona and certainly don't want you to think I'm acknowledging that those inventors were smarter than I am." 

Cheers,

Paul Carroll
Editor-in-Chief