In 2006, years before Lemonade started to disrupt the insurance industry and the terms "fintech" and "insurtech" became known at large, Daisuke Iwase co-founded the first digital life insurance company Lifenet in Japan. Lifenet has been disrupting the Japanese life insurance sector right from the start by providing direct distribution of life insurance products via the internet – something that many still say is impossible to do. We’re therefore excited that Daisuke Iwase, a real pioneer in digital innovation, sat down with us to share his secrets on how he uses his experience in his current role as group chief digital officer at AIA Group. AIA Group is 100% focused on the Asia-Pacific with a presence in 18 markets, and headquarters in Hong Kong. The portfolio includes over 33 million individual policies and over 16 million group scheme members. AIA has an outstanding track record of growth. It is the largest life insurer in the world in terms of market capitalization. There is a major commitment to digital innovation, especially in transformative business models. Summer 2006, many years before people even thought fintech and insurtech could disrupt the digital landscape and the overall industry, you decided to start a digital life insurance company. Can you share how this came about? Daisuke: “Let me start by describing the industry landscape at that point. Many complex products, lack of transparency, mistrust, distrust in life insurers, consumers looking for more simple, transparent and convenient solutions. At the time, we had most industry colleagues telling us it was impossible; no one would buy life insurance digitally. Regulators wouldn’t give a license to two random individuals. But then, May 2008, we launched Lifenet with a capital of more than $120 million and with a license awarded to a new independent company. This was the first license awarded since 1936!” Impressive! Basically, you were insurtech 1.0, operating in a time before unicorns or the rise of fintech and insurtech … Daisuke: “In hindsight, we were a little bit ahead of time, yes. Fast forward three, four years to March 2012, we were still small but growing rapidly. We basically tried to build something that made total sense, but faced many challenges. We went public on the Tokyo Stock Exchange, raising additional capital. We also persuaded Swiss Re to come on board to become our lead investor. And a little later, in 2015, KDDI, Japan's second largest telco, became the largest shareholder of Lifenet. So it has been a journey, but a very interesting journey.” See also: New Efficiencies in Life Insurance   Lifenet celebrated its 10^th anniversary summer of 2018. Many say the company not only stands out because of its business model, but also because of its corporate culture. About 65% of the staff comes from other industries. Can you share a bit about this exciting period at Lifenet and being the first challenger in a huge, matured market? Daisuke: “At that time, Japan was the second-largest life insurance market in the world with over $400 billion in premium written every year. We came with a very simple solution: term and supplemental health insurance that was sold online with transparency, empowering the consumers, saving cost and giving the cost back to the consumers. We had successes, challenges and setbacks. I must say I am really proud of what we have achieved at Lifenet. I think we inspired many other challengers that shared the belief that incumbents could change the way they engage with their customers, the way they design their products, the way they engage with the millennials. But we did not yet disrupt the market.” Nevertheless, you had a significant impact on the Japanese life insurance industry and probably also beyond Japan. What lessons did you learn? Daisuke: “Let me share three lessons. First, consumers do not necessarily behave in an economically rational manner. Makes sense if you think about it. When was the last time you made a purchase solely based on economics? So, there is a lot more than just delivering value to the customers. Second, having the best products does not necessarily make you the one with the largest market share. History has shown that many times the companies with the best products do not necessarily win, but companies with the strongest distribution do prevail. Third, my humble experience reminds me of a case I read during my time at business school. It was on channel distribution strategy in marketing, and it said, ‘You can eliminate the intermediaries, but you cannot totally eliminate the functions they are serving.’ So, while we believe that by going direct to customers we can create significant value, there are many reasons that insurance agents have existed for a long, long time in history, and there are multiple functions that they serve that cannot be totally eliminated; they have to be replicated in different forms. That’s why technology is a tool to either help you sell life insurance in a more productive manner or help consumers buy life insurance more efficiently. But, during this time, from 2008 to 2018, most consumers did not wake up in the morning yearning to buy life insurance more efficiently.” Technology, at the end of the day, is a means to an end. So, then in late 2017, Keng Hooi, CEO of AIA Group, approached you and offered you another challenge. Daisuke: “Yes, and I shared these views with my current CEO now at AIA. AIA, given its strong distribution presence, should focus on enabling and empowering the distribution force through the power of technology. Not much later, as Lifenet celebrated its 10th anniversary in the summer of 2018, I made my transition from an entrepreneur to lead the digital and innovation initiative for the largest Pan Asian life insurer.” In Europe, most people know AIA through the Tottenham Hotspur sponsorship. Can you tell a bit more about the company? Daisuke: “AIA is the largest independent publicly listed pan-Asian life insurance group – with a presence in 18 markets around the Asia-Pacific region. We were rooted in Shanghai a century ago in 1919.  We completed the reorganization driven by AIG’s liquidity crisis in 2008, leading to the positioning of the company for a public listing.  As of June 2019, AIA was valued at $120 billion, becoming the largest life insurer in terms of market capitalization.” So, here you are, making the transition from a start-up to this huge company. What drove you to make this transition? Daisuke: “The reason is exactly the size and the potential impact that I can have through the AIA platform. Through AIA, I can touch the lives of our 30 million customers across 18 markets. Needless to say, I am very excited about the opportunity. I truly believe that we are at a very interesting time, when the fundamental nature of a life insurer is significantly changing from a payer to a lifetime partner, supporting the health and the life of our policyholders. But I also believe that the life insurance industry will not be disrupted in the foreseeable future because of one reason; it is the low purchase frequency of the product. The power of digital is at its best when it involves something that is of very frequent purchase like an Amazon product or travel, etc. With the way life products are designed to date, this is not the case.” What should be the way forward then, in your view? Daisuke: “We can add much value by going digitally but with somehow limited impact. What we can do is change the nature of the engagement. The engagement takes place when we pay you when you're sick or you are diseased and thus becoming a more engaging partner of your healthy life. The opportunity for digital to have more impact will be larger. Just looking at the fundamentals, Asia's middle class will continue to grow. This middle class will make up the majority of the new rising middle class who, as they increase their fluency, would seek protection coverage for their loved ones. AIA’s competitive advantage lies in our extremely robust and competitive distribution force through highly disciplined management of agency and through the new partnerships that we are pursuing with our bank or telco partners and other non-traditional partners as well as our focus on health and wellness.” Can you share a bit about the strategy to make this happen?  Daisuke: We've identified four strategic areas that we would like to focus on as part of this innovation initiative. First is distribution digitalization. Second is customer engagement and ecosystem. Third is proposition enhancement, primarily around health tech. And fourth is artificial intelligence and data analytics. We're looking for companies that are willing to build a base in Asia to properly support us, offer robust technology and solutions and partner with other countries in our 18 markets to realize the vision that I've shared with you right now.” Scaling insurtech innovations with the incumbentsorganization seems difficult. Having been at the other side of the table, I'd say your experience as an entrepreneur means that you probably approach things differently compared with a traditional large insurance company … Daisuke: “I'm not interested in doing innovation for the sake of innovation. I only want to focus on things that have real impact, and by impact we mean something that moves the needle for our $120 billion market capitalization. I've noticed that innovation cannot happen in an isolated lab or isolated group office.  It has to be embedded into the strategic priorities, it has to be driven by the markets, the countries that are running their businesses day to day. We need to have a clear budget to support that. We need to have close alignment with our internal technology team to assess and build real businesses, and of course there needs to be a change in the culture and the mindset, which so often hinders innovation and challenging new initiatives.” See also: What Is Really Disrupting Insurance?   How do you tackle this from your current role as the executive who is responsible for digital, data and innovation? Daisuke: “As I mentioned earlier, I think there's a lot that we can do to make our distribution partners, our agents, our banks, our telco partners sell life insurance more productively to enrich our customer experience and to enable our employees, our colleagues to operate much more efficiently. Previous to my arrival, AIA had already embarked on many digital initiatives. For instance, last year we led a strategic investment of $500 million, as an investor group collectively, in WeDoctor, an online healthcare solutions platform, providing seamless online and offline healthcare services as well as integration of general practitioner and specialist doctors in China. WeDoctor has 27 million monthly active users on its platform, and through this strategic alliance we believe that we can deliver a new value proposition for our customers and access the broad customer base that WeDoctor has and many more digital initiatives we have pursued.” How do you think the future of life insurance will look? Daisuke: “I think of many things that may change in the future, but then my 10 of years experience running Lifenet made me humble about how slow or how little consumer behavior actually changes. What will not change is the fundamental nature of the life insurance product, a financial solution to offer protection for families in the future. But we are listening to many changes that are happening around us, that affect the way consumers behave, the expectations consumer have, and the role that life and non-life insurers may play. I hope that you can feel the energy from Asia. The opportunities ahead are serious commitments to driving our growth further through technology and innovation.”

I raised two boys, or, maybe more correctly, they raised me. I was lucky – at the end of the process I have “two sons” who make me proud and whom I love dearly. I was unprepared to be a parent when I became one, but through trial and error, the grace of God and some blind luck I survived. As I reflect back on the experience, I also got a “PhD” in management and leadership. I now realize that parenting, like business, gives the organizational “parent” the opportunity to react to behavior or influence the growth, development and maturation of the child. As I ponder the process of change and growth in the marketplace and in organizations that serve this global economy, I see parallels. Change is the transition from today through tomorrows. How we address this determines the success – ours and our organizations' and their members'. Will we react and manage the behavior of our followers and the change that comes at us, or will we be a leader and design the future we want and grow the people who are our organization? In a conversation with a friend named Beau (he’s twice the parent I am; he and his wife, Kaci, are raising four children and doing a great job) we concluded that the world of parenting is a great laboratory for management and leadership issues. Consider babies and their crying as a metaphor for the people in your organization. Babies cry when they are hungry or wet or have some other discomfort that needs fixing. They can’t effectively articulate their issue, but they can manipulate us as the caregiver (manager/leader) through their whining until we solve their problems (and ours, by quieting them). Let’s compare two options: pacifiers and breastfeeding. Pacifiers have no nutritional value, of course, and left to pacifiers alone a child will starve to death. (In some countries a pacifier is called a “dummy.” Think about that.) See also: Key Difference in Leaders vs. Managers   Breastfeeding, on the other hand, is the safest, best and most natural means of nurturing a child. Breast milk alone can sustain a child for the first six months of life. Breast milk and breast feeding are about growing together – a most intimate link between the mother and child. Breast feeding is not about quieting a child but about developing that child. It is a living system. It is the best. As the head of your own organization, you know that change happens. It makes you tired, sometimes overwhelmed and causes great discomfort in the people you call your team or family. Do you manage the change by handing each “whiner” a pacifier just so the person will shut up and get back to work and leave you alone? Do you accept the responsibility of leadership and do what needs to be done to design tomorrow? Do you take the time to grow each team member, quieting the person through intimacy and nourishment, making the person better-prepared for tomorrow? Remember: A pacifier alone will ensure starving, while “breastfeeding” will guarantee growth.

The world of self-driving trucks continues to expand as new technologies are being tested and more companies are emerging with revolutionary autonomous fleets of semi-truck tractors that increase safety and efficiency. There’s no denying that these 80,000-pound tractor trailer rigs, which number over 2 million in the U.S., will disrupt the trucking industry as fleets convert to autonomous units. It won’t be long before it will be normal to see these special trucks on the highway. Experts say seven years or less. Already, Australia’s Rio Tinto has 73 huge autonomous mining trucks hauling iron 24 hours a day. In 2017, the Texas legislature passed a pair of bills legalizing both driverless cars and trucks, allowing these new self-driving trucking operations to deliver cargo to every corner of the Lone Star state. Unlike other states, such as California, self-driving developers don’t need special permits to test in Texas. Executives with several autonomous trucking firms say that they are working closely with Texas authorities, who, supporters say, are big boosters of trucking tech. Even the U.S. Postal Service has tested transporting mail there via robotic trucks. Texas has also kicked off a number of U.S. Department of Transportation (DOT) projects to promote advanced truck tech with funding from a federal grant that will enhance the safety of all autonomous vehicles in the state. A year-old startup company in Dallas, called Kodiak Robotics, will be running its driverless trucks on roundtrip hauls of more than 400 miles between Dallas and Houston. For now, Kodiak will have a “safety driver” available in the cab to make sure the robotic trucks don’t misbehave, but eventually the truck fleet, often traveling in convoys, will be monitored remotely through advanced camera technology similar to military drones. The latest technology has extended the autonomous vehicle industry’s Lidar remote sensing standard of 270 yards to nearly 1,100 yards. There are also a bevy of sensors that monitor thousands of data inputs each second to help navigate and control every function of the truck. The technology is also self-learning. The benefits are pretty obvious. Autonomous trucks can transport goods 24/7 with no mandatory 11-hour-per-day operating limits. They are fuel-efficient with little down time; there are no cell phone, passenger or other driver distractions; and the driverless trucks obey all traffic laws. Increased trucking safety and efficiency are clearly the goals. See also: The Real Story on Transportation   It’s no surprise that other big firms like Daimler (Mercedes), Waymo (Google), Volvo, Volkswagen, UPS and Tesla are all vigorously testing automated trucks. Keep in mind, the stakes are high. Trucks are the backbone of the U.S. economy, moving over 10 billion tons, 70% of all the country’s freight, and generating more than $700 billion in revenues in 2017. Trucking is the largest industry in 29 states, with Texas demonstrating steady revenue growth of 2.1% annually for the past five years. With no sign of trucking being slowed by technology, experts focus on the existing and future physical and mental demands of long-haul truckers. In turn, trucking operations using workers’ compensation insurance, or the Texas ERISA-based alternative injury benefit plan, expect that truck driver injuries or illnesses will decline. According to the U.S. Department of Labor, Bureau of Labor Statistics (BLS), vehicle crashes are the leading cause of workplace deaths, with frequency of motor vehicle accidents on the rise over the past five years. In 2017, there were 2,077 workers’ compensation fatalities involving motor vehicles, accounting for 41% of all work-related deaths that year. The National Highway Traffic Safety Administration says over 90% of such accidents are due at least in part to driver error. There’s no doubt that truck drivers are highly skilled, to drive their semi-trucks safely, but trucking firms report that nearly 70% of their highway big rig accidents are largely attributed to drivers’ unsafe actions. How will autonomous trucks deal with errant drivers? Besides the long hours behind the wheel, other causes of injuries to drivers include the fact that semi-trucks are like mobile warehouses, with drivers performing a wide variety of duties in and around the tractor trailer and its cargo, often in adverse weather or road conditions. Drivers, particularly with an aging workforce, are understandably more susceptible to back, shoulder and knee claims. It’s a tough, demanding job. Lost-time injuries and the inability to assume meaningful transitional return-to-work duties are a challenge with trucking company fleet scheduling demands. Smaller trucking firms may have no other transitional duties available. The nation’s 3.5 million commercial truck drivers in 2017 experienced 47,860 injuries or illnesses out of a total of 882,730 total occupational injuries. The National Safety Council states that motor vehicle claims are by far the most expensive workers’ compensation claim, on average at over $100,000 each. The National Council on Compensation Insurance (NCCI) says that, over a five-year period, these roadway claims accounted for 28% of claims above $500,000. According to Commercial Truck Insurance HQ, a company that assists in obtaining various trucking related casualty insurance quotes, typical truck driver workers’ compensation insurance (NCCI category 7219) costs between 8% and 15% of a truck driver’s salary. With an average driver’s salary of $57,000 in 2019, this is an annual employer workers’ compensation premium of $4,580 to $8,550. With prior accidents or injuries, some trucking firms can experience annual per driver premium rates as high as $24,960 in Texas and $31,200 in California. Unlike for the majority of the country’s labor force, a reduction in frequency and severity of truck driver claims can translate into significant cost savings to the various employers that manage their truck hauling and delivery services. Despite operating challenges like slick roadways, construction zones, severe weather, stalled vehicles or obstructions in the roadway, extreme precautionary measures are woven into the autonomous technology to ensure that safety is the top priority. Lane departure – often a beef with auto vehicles trying to pass trucks on the freeway - is better than ever. Trucks in caravans are expected, for the most part, to stay in the right lanes. Other enhancements include: forward collision mitigation; active breaking; and anti-rollover stability. Enhanced health and wellness is expected for drivers who are assigned to ride along in the cab and who will be able to use mobile devices at will or even eat or sleep in the cab as the autonomous unit travels. What about vehicle liability? It’s assumed by legal and insurance analysts that the firms operating the driverless vehicles are most likely the deep pockets in the event of a serious accident or injury. Liability insurers are banking that trucking firms will have a lower frequency and severity of vehicle liability claims, as well. Overall, experts claim the savings to trucking firms using autonomous vehicles will ultimately be in the tens of billions of dollars. This helps both truckers and their employers as the new technology rolls out. Assuming safety improves for both truck operators and other vehicles on the highway interacting with these trucks, the next big question has to do with truck driver jobs. The trucking industry currently has over 3.5 million Class 8 heavy-duty (GVWR of 33,001 pounds or more) truck drivers, but it has steadily lost its most experienced baby boomer drivers due to retirement or disability. While truckers were highly unionized until the 1970s, about 13% of the drivers are in unions, and over 10% of truck drivers, about 350,000, are solo operators who own their own trucks. The average age of truck drivers is 55, with 94% male, averaging only $45,000 per year in annual salary. Sadly, truck drivers also suffer a higher degree of chronic disease, including obesity, diabetes and high blood pressure. Adding to severe driver shortages is the fact that younger generations of employees are not interested in being in a sedentary, and often lonely, job. Long-haul truck drivers average 240 nights a year away from home, sleeping in the cab, motels or at truck stops and eating at diners or fast food restaurants. Over 100,000 truck driver positions are expected to be open in 2020 alone, with greater shortages predicted for the future. A bigger question will be the nature of work that new drivers will experience. What can a truck driver/operator expect as a job description in the future? See also: Rapid Evolution of Autonomous Vehicles   So how does all of this new technology affect workers? Are truck drivers going to be out of a job? Employers say that their intention is to have truck drivers in the cab to assist in loading and delivery, security, as well as logistics, route planning, and communications. So far, trucking companies state that their drivers for the foreseeable future will remain in the truck cab, much like an airline co-pilot, with the ability to take over the driving in the case of emergencies. Automation and robotics have had a huge impact on our country’s workforce, but additional advancements are well on their way. It’s expected, for instance, that ride-sharing programs like Uber and Lyft will be displaced ultimately by autonomous vehicles operating 24/7. This technological leap in transportation should ultimately translate into massive productivity increases. But qualified drivers are needed in the interim to see us through this transition phase before autonomous vehicles, including trucks, are the norm. Our nation’s most important economic asset – employees – may struggle as employment opportunities shift direction, but autonomous driving technologies will change the employment landscape, creating efficiencies and enhancing workplace safety in ways we’ve never witnessed.

At first blush, there wouldn't seem to be much in common between the unionized workers at GM who just walked out on strike and the gig workers at companies like Uber and Lyft that would have to be classified as employees, not contractors, and provided benefits under legislation that California approved last week. Yes, GM workers make cars, and Uber/Lyft drivers use cars, but how else are those stamping out auto bodies on an assembly line eight hours a day related to those who opt in and out of providing rides in their cars?

The answer is health insurance. The workers' issues take different routes to get to health insurance, but they both land there, with a thud.

Among Uber/Lyft drivers and other gig workers, many are just looking for any kind of health coverage—which accounts for the vast majority of the benefits that employers very much don't want to provide these workers. GM workers want wage gains that GM could easily afford if so much of compensation didn't get sucked up by health insurance. GM spends $9 an hour per worker on health insurance, a cost that logic suggests could be cut in half, given that the U.S. spends twice as much as other developed countries on healthcare while getting slightly below-average care. Turn those cost savings into wages, and workers could receive an extra $9,360 a year. That would be a raise of 14% to 26% for line workers, right off the top. Think the UAW would be happy with that? 

The new California law, the GM strike and scads of other evidence suggest that our current healthcare system, including today's approach to health insurance, can't continue indefinitely, and, as Stein's Law says, "If something cannot go on forever, it will stop."

I have a broad prescription, if you will. (It has nothing to do with a political stance.) I even have a suggestion on how to get there from here. But, first, it's worth understanding how we stumbled into today's predicament, through more than a century of haphazard actions that are now defended zealously by lobbyists but that don't come close to resembling a plan.

Health insurance began as a charitable endeavor in the early 1900s, mostly so that workers who got injured or fell ill would have their wages covered while they sought care. Treatment didn’t cost much because there wasn’t much care to be offered. Treatment didn’t last long, either – generally, within a couple of weeks, the patient either recovered and returned to work or died. (Harsh, but true.) When Blue Cross was founded at Baylor University in 1929, it charged enrollees just $6 a year. 

Then World War II came along. The federal government instituted a wage freeze—after all, companies were pitching in to win the war. Unions, much stronger in those days, pushed companies to improve benefits in lieu of wage increases, and businesses went along. Remember, at the time healthcare was cheap. The federal government endorsed the arrangement by giving businesses a tax break on the cost of health insurance they provided.

And that was that. The unique structure of today's health insurance market in the U.S. was put in place.

In the decades since, having employers as suppliers of health insurance has divided the country into haves and have-nots in a way that no one anticipated. You typically got robust insurance through your employer; you received a lesser form through the government; or you likely did without. Only 7% of Americans had individual policies in 2017, while 49% were insured through employers; 9% were not insured, and Medicare or Medicaid covered the remaining 35%. 

The divide got worse in the 1980s and 1990s when insurers switched from non-profit to for-profit status. The five-headed behemoth known as BUCAH (for the Blues, United Healthcare, Cigna, Aetna and Humana) marketed based on the discounts they offered employers. That, perversely, encouraged providers to raise prices—that way, the insurers' discounts looked all the better. 

By now, as a doctor said recently, "It'd be like…your car mechanic…saying, 'Well, I think it’s going to be $17,000 to get this fixed,' and you say, 'Well, how about $149?'"

That's mostly fine if you get your health insurance from an employer, which gets the discount, but those who don't get insurance at work are left out. They're expected to pay that $17,000 list price. In fact, providers go to great lengths to make sure they do. 

Today, healthcare and health insurance prices are finally rising so much that even the haves are struggling. Employers have been pushing more of the insurance cost onto employees, many of whom can't afford it and opt for deductibles so high that they're afraid to use their insurance.

What do we do now?

My answer: Insurance needs to switch from being associated with the employer to being associated with the individual. That change has already happened with retirement funds, as corporate America has gone from providing pensions a generation ago to perhaps contributing to IRA and 401(k) savings today. So, we know such a change is possible.

It could get started rather easily, simply by acknowledging that the tax break given to employees three-quarters of a century ago was a well-meaning stopgap in extraordinary circumstances that shouldn't define our healthcare system for eternity. Then we eliminate the tax break.

Now, that change would be fought as hard as can be because undoing that credit would be the start of a series of upheavals to a nearly $4 trillion-a-year healthcare system—and people will do a lot to protect $4 trillion. Wars have been fought for less. 

But it's possible to outmaneuver the naysayers and define a rational solution through an exercise called a future history, which I've also seen referred to as a clean sheet of paper. Basically, you pick a time in the future and imagine in detail the best possible version of something, such as the healthcare system. Then you write an article dated in the future that explains how you, hypothetically, got there. 

If you pick the right time frame—usually three to five years for a company but probably 20 or 30 years in the case of something as complex as healthcare in the U.S.—you can eliminate a lot of the angst. You aren't talking about reducing anybody's bonus this year. If you think about healthcare in 2050, you aren't even talking to those who will be the big players then; they'll be long retired. And everybody will have plenty of time to prepare.

Nobody can defend something like today's system, based on a historical anomaly that has led to wildly, erratically high prices and such a divide between haves and have-nots, so let's design something better. Let's design something. Let's design something.

I prefer ideas like those proposed by economist Uwe Reinhardt, but almost anything would be better than what we have, because we won't fall into it. The change won't happen in time to help GM and its unions or Uber and Lyft and their gig economy workers, but at least we'll be heading in a rational direction.

Cheers,

Paul Carroll
Editor-in-Chief  

In part one of our series, we explored the evolution of traditional marketplaces toward fully integrated experiences that include complex industries such as regulated services. In this article, we’ll take a more focused lens on the insurance industry and the value that can be created through digitally connected ecosystems. Let’s break this out into the four key stakeholder groups that would benefit from a connected insurance marketplace:

• Customer
• Adviser
• Carrier
• Reinsurer

It’s all about the customer…duh! Let’s face it, most people don’t really enjoy buying insurance. Most of the time, they are making the decision under pressure (they’ve been hard sold) or appeasing social norms (“everyone says I should buy insurance when I have kids”). What they really want is to get through the process as easily and quickly as possible. However, as an industry, we require personal data points to predict and manage risk through a pooling of profiles. For a customer, the only way to obtain insurance is to provide enough personal data to allow an insurer to make an informed risk assessment and product offering — and the process can be extremely time-consuming. Data is inherently built into insurance. For the customer to have a great experience, we need to collect the information as easily and unobtrusively as possible (no more needles and cups…please!). Convenience and accessibility are key decision-making factors for consumers today, which is why we’ve seen major industries like banking and retail digitize much of their business processes. An integrated marketplace can remove the hassle and wait time for clients by digitizing checkpoints and interactions. The less paperwork and redundancies that are involved in the process, the better the experience will be for the client, which translates into more revenue for businesses. Advisers matter more than ever For complex products like life and health insurance, most consumers decide on buying these products after a series of conversations with a trusted professional. The adviser in this equation is there to educate, support and guide the customer’s decision toward the best solution to meet their needs. The real role that advisers play is coach and therapist. For great advisers, most of the time spent with clients is less about the products and numbers, and more about understanding the people and their goals, dreams and fears. Therefore, advisers have the essential role of understanding various carrier products and making recommendations based on what they know about the client — all while adhering to industry standards and compliance regulations. See also: Designing Workplace of the Future   This is very difficult to do at scale with paper-based processes. One of the benefits of a digital marketplace is supporting advisers with “product discovery.” Searching and comparing insurance products can be done much faster through the use of technology. Marketplaces also increase options for advisers, thereby creating value and a better experience for clients. Having a larger pool of insurance products to choose from, advisers can leverage technology to filter options based on the client’s goals and financial situation. Using technology to alleviate manual processes and automate compliance will enable advisers to spend more time doing what they do best; coaching and supporting their clients. Advisers care deeply about people. Insurance is about protecting people. Finaeo is about supporting advisers through the use of technology. Carriers are moving toward digitization About two months ago, I was in a carrier’s office discussing the future of insurance distribution and the role it would play in the customer experience. We started getting into the subject matter and sharing examples of areas where today’s experience is broken. All of a sudden, in a proud moment, an executive almost stood on a chair to share a profound insight: “Six months ago, our organization came to a great conclusion; we have to focus on the customer.” This “perceived insight” seems so trivial, but, in fact, is the tipping point of a billion-dollar incumbent understanding what matters most: the customer experience. By providing a digital-first experience, carriers can help prospective clients with education, analysis and recommendations to meet their individual needs. A seamless experience means policy-holders will enjoy, as best as they can, the decision to spend money on the insurance they likely aren’t excited to pay for. Making the customer experience as great as possible will provide carriers with a significant competitive advantage. An integrated digital marketplace helps insurers in a few ways:

1. Access to data to make better risk decisions
2. Understanding of how products are performing in real time
3. Increased visibility in the moment of purchase

Risk management is about math. Insurers use models to predict if the premium that consumers pay will be profitable based on their health. Insurance companies compare the client’s personal information to their internal risk guidelines (known as “underwriting rules”) to produce a price in exchange (i.e. marketplace) for a policy. Carriers that obtain the right information digitally and automate it against their underwriting models will have the opportunity to make better decisions at scale. In addition, they will have the opportunity to layer on technologies such as machine learning to drive insights on product manufacturing that previously would be unseen. These “hidden secrets” are the key to unlocking the future model of insurance. Once carriers can optimize their understanding of customer data and risk management, they can start to develop a more competitive product offering based on their ability to understand the performance of products in specific markets and customer segments. Carriers that are digitally connected with their customers will have the opportunity to create, deploy, analyze and iterate on products not in multi-year cycles but in real time. Lastly, buying insurance is all about a series of choices, but what truly elevates a carrier is the ability to capture the attention of the “buyer” (which could be the adviser or policyholder, depending on the distribution model) in the moment of purchase. Today, insurance is an open — mainly analog — marketplace where buyers can choose from an array of carriers to obtain the coverage they need. Carriers are competing for business against their competitors on a daily basis and are relying on their brand strength to win the business. However, in today’s world, people spend most of their time online. Therefore, carriers need to adapt their marketing efforts to stay competitive and create content that resonates with modern consumers. Once connected to a digital marketplace, carriers can start to develop more targeted “in the moment” marketing and advertising campaigns and quickly leverage modern marketing strategies such as A/B testing, retargeting and segmentation. Reinsurers can change the game In an industry centered on risk management, the ultimate risk-bearer, the reinsurer, holds one of the most important and influential roles in the market. As with many financial markets, the availability of capital is more flush than ever before, and, by nature, value is being eroded. The traditional relationship between supply-chain participants has shifted, and the expectations of value creation are stronger than ever before. In any market where a pyramid distribution model exists, there is an inherent risk of channel conflict. It’s an accepted and known reality of insurance that co-opetition exists and that, as a result, there are trade-offs made in growth strategies that stem from a desire to maintain the “perceived” conflict. Every partner that a reinsurer works with ultimately sends the reinsurer similar information, and, by helping the industry standardize these data requirements, reinsurers can help create a more efficient, compliant and valuable relationship with the industry. Helping carriers move toward a digital-first distribution model will ensure that reinsurers are capturing the most information possible to generate a better view into how risk management decisions affect their partner’s distribution strategies. This symbiotic relationship can now be focused on strategic value rather than capital access. In short, money is fluid and available; partners are hard to find. Today, the industry looks at exchanging insurance as a buy/sell model. Even in the language we use (“distribution,” “sales,” “supply chain”), we talk about the purchase as a good rather than a service. Financial services is a deeply personal and complicated experience for most people. An integrated marketplace experience allows everyone to focus on the most important part: the customer relationship. Each stakeholder in the experience should be seen as a partner, not as a buyer/seller in a service marketplace. Ultimately, to create the best experience, the industry needs fully integrated and digitized marketplaces that provide today’s digital customers with the experience they expect and deserve.

I have mentioned before that analysts benefit from stronger commercial awareness. But what do I mean by this term? The easiest way to explain is to set it in context. A lack of commercial awareness is normally shown when an analyst presents findings. The impression the analyst leaves with internal customers is of being naive. I’ve written before that this too often happens to otherwise very technically capable analysts. Their work may be based on high-quality, well-prepared data. Their analysis may be statistically robust and perhaps even presented using engaging data visualization. But, if the analysis ignores commercial priorities or constraints for the business, or recommendation would actually destroy value, it is doomed. Other problems can be ignorance of competitor behavior, agreed strategy or even how the business makes money. As someone who works with a number of the U.K.’s largest businesses, I regularly see the need for commercial awareness. Clients request training or mentoring to hone this skill. So, in this post, I will seek to draw back the curtain on what is meant by this term. Commercial Awareness 1: Understanding Finances This might sounds like a Captain Obvious statement, but most analysts and data scientists have no background in finance. Yet much of their work requires a good understanding of how the business they serve makes money. The work can often also require an awareness of current financial performance, so the analyst can understand priorities. Having worked with a number of finance professionals, as well as a bank and an insurer, I’ve found that much training or communication on this topic assumes too much in terms of people’s understanding of the basics. See also: Expanding Into Small Commercial   The single best sources I have found is a great book called “Naked Finance” by Dr. Dave Meckin. I had the pleasure of being on one of Dave’s training courses many years ago, and he really brought the subject to life. In this book, he helps explain key topics, including:

• Understanding profit and drivers of profit
• Reading the three main financial statements
• Understanding how companies are valued
• Seeing what drives share price movements
• Comparing value of potential projects (NPV)

If you recognize the need to better understand the basics of business finance, then I highly recommend Dave’s book. Commercial Awareness 2: Strategic Alignment Another way analysts can get it wrong is failing to understand the context of not just current performance but also future plans. In a previous post, I recommended that customer insight strategies need to influence and be aligned to the business strategy. Analysts will benefit from understanding not just the final communication of the business strategy but also the rationale. What does the brand stand for? How is it different from competitors'? How does this play to strengths or opportunities? What participation decisions have been made with regard to markets, products, channels and segments. Understanding more clearly the unique identity of the business will help analysts. Take time to read strategy documents, to understand more clearly threats, opportunities and relevant profit levers. A great tactic here can be job shares/swaps/shadowing, giving analysts the opportunity to work with the finance or strategy teams charged with strategic reviews. Analysts can develop an appreciation of priorities and which potential insights actually align with bigger picture -- another way of avoiding coming across as a naive analyst. Commercial Awareness 3: Market and Competitor Intelligence Guest blogger Peter Lavers has shared before on the need for B2B businesses to have market and competitor insights. The same is true for business-to-consumer firms. Failing to understand the dynamics and trends in a market can result in inappropriate recommendations. Not knowing what competitors are doing and what has worked in the past can result in “insights” that sound just like copycat or too-late recommendations. I shared before the advantages of a broader holistic definition of customer insight. Within that approach, there are advantages to including market and competitor intelligence teams. Too often, these fine people are kept separate from other data analysts or market researchers. Often, they report into finance or strategy lines. However, the regular analysis of market and competitor behavior often allows them to develop crucial domain knowledge, expertise that may prove crucial to analysts and modelers, for example when developing econometric models. See also: Innovation: ‘Where Do We Start?’   Some of these teams also develop models of market behavior that are very useful for scenario modeling and stress testing strategies. At the most basic, analysts need to know if apparent strong performance by their firm or a competitor is truly out-performing the market (or just “a rising tide lifts all boats“). How Do You Develop Commercial Awareness? I hope those thoughts are useful. You may include other aspects within commercial awareness. If so, please do share comment below or on social media. Either way, I encourage you to invest in developing the commercial knowledge of your analysts. Doing so can pay you back in spades, in terms of their confidence and impact on other stakeholders. Feel free to get in touch if you’d like to know more about my training courses to develop these skills.

Have you ever wondered, “Where would basketball be without the three-point shot?” It has been my husband’s favorite shot as a player, coach and fan, and it's mine as we watch Big East Creighton basketball games, because the energy, excitement and momentum completely change in seconds! You may never have considered this (and you may not even care), but it bears real relevance to what is happening within the insurance industry right now regarding the relationship between innovation and regulation. The history behind the development of the three-point shot is fascinating. The rule was actually tested as early as the 1940s, but it didn’t become mainstream within the NBA and NCAA until the mid-1980s. Suddenly, a team that was down by two points with only seconds left could do more than tie the game — they could win! A dunk used to be thrilling (and it still it is), but there is no question that the three-point shot (one simple new rule) has generated greater popularity, attendance and income for basketball teams – literally a game-changer! But here’s the nugget: The reason that the rule became mainstream was NOT because coaches and players wanted the rule. It was because fans loved how it transformed watching the game, and league commissioners wanted to please fans. The regulating organizations and the fans were jointly instrumental in bringing about the change. Moving Innovation From Concept to Precept Today’s insurers are finding themselves at a similarly historic point on the pathway to innovation. Customer needs, expectations, desire, lifestyles and technologies are driving change in insurance. Some insurers have been innovating and testing their ideas, with some success. But now, regulatory organizations that govern our industry are fostering innovation with sandboxes for testing new products, and rating agencies are planning to score carriers’ innovation efforts and outputs as part of the ratings process. This completely changes the nature of the word "innovation." It borrows the idea of innovation as a conceptual word and recasts it as a formal precept. Some insurers might see enforced rigidity, but it is the exact opposite. It is the freedom to innovate in the direction of customer and market opportunity, with potential guidelines that may help insurers invest wisely. This is just another example of the customer driving the change, with the regulatory bodies listening well enough to bring validation and accreditation to the change. As we’ll see throughout the rest of this blog, insurers are now free to make three-point shots and have them count! In our latest thought leadership report, The Future of Insurance: Optimization, Growth and Innovation, we explored the idea that companies should take this opportunity to reinvent themselves. Last week, we started by looking at this opportunity from the standpoint of strategic alignment. How does a two-speed model for transformation fit the strategic alignment needs of insurers that are trying to innovate while they also need to optimize their current business? See also: An AI Road Map to the Future of Insurance This week, we’re looking at how two recent regulatory events signal innovative opportunity for insurers. Can we use the changes in our game to learn and innovate? Can we use the rule-book as a tool for optimizing our processes and growing through innovation? We begin by looking at the details of regulatory possibilities. We will then follow up with some suggestions for insurer response. Innovation and Regulation — Is there really an opportunity here? With the rise of insurtech, the flow of capital into insurtech, changing customer demographics, shifting market boundaries and the pace of emerging technologies adoption, insurance regulators have noticed.

• The National Association of Insurance Commissioners (NAIC) established an Innovation and Technology (EX) Task Force to monitor insurtech developments and help regulators stay informed and educated. One of their tasks was to explore the use of a sandbox to accelerate innovation.
• A.M. Best proposed a new innovation assessment to be included in the annual AM Best rating review.

So, the regulatory gears are in motion for change. Let’s look at both of these signals in light of their impact on insurers. The Sandbox Concept — “You are now invited to innovate. Potentially, one of the most important changes considered by regulators is the sandbox. In November 2016, Munich Re America submitted a proposal to the NAIC to lower the barriers to test new ideas, address how innovative ideas can be quickly developed and launched in an environment that is strictly regulated via a “regulatory sandbox.” This legislative proposal for the sandbox, similar to what has been used in Europe, would allow an insurance commissioner to receive an application from an insurer or other licensee that essentially says, “We can meet the consumer protection need of that law in another way,” but still in a supervised environment via the sandbox. Adding support to the concept, the American Insurance Association in December 2017 presented a model law to the National Association of Insurance Commissioners that would allow for the creation of a regulatory sandbox in which insurers could test digital innovations without fear of running afoul of regulations. In 2018, I had the opportunity to speak to a few state insurance commissioners and some of their staff, sharing our consumer and SMB research that reflects the changing customer needs and expectations. At the end of one discussion, the commissioner commented to staff that they needed to understand these changing needs because these are the customers they serve. What an insightful comment! Since that time, states have been taking differing approaches. Some believe sandboxes are not necessary or that their legislature would not allow for sandboxes. Others, including Connecticut, Illinois and Wisconsin, believe their current regulatory environment allows them to provide guidance to innovators without the need for a sandbox. Arizona, Utah, Vermont and Wyoming are taking steps to encourage sandbox environments. In late May 2019, Kentucky became the first state to pass a bill to create a sandbox for the development of creative risk management. The launch of the sandbox concept in various forms offers one of the most potentially important shifts made by regulators to encourage insurance innovation. This is a potential game-changer — one that aligns regulators with customers! Where previously some innovations might be stifled by regulatory constraints, the NAIC is signaling that it would like for these innovations to count toward the improvement of the industry. Those that embrace new ideas and test and learn are free to capture the growth opportunities in a changing marketplace. The Innovation Assessment — “You can talk the talk, but can you walk the walk?” In early March 2019, A.M. Best published a draft document, “Scoring and Assessment of Innovation Methodology and Criteria.” The document states, “Given the accelerating pace of innovation and magnitude of change, insurance companies that fail to innovate may find it difficult to sustain long-term success/profitability and may ultimately be subject to anti-selection and loss of relevance. Those insurers that successfully incorporate innovation will likely strengthen their organizations, increase their customer base and improve efficiency, which will support their financial strength.” Hence, they are introducing new innovation scoring criteria. The report states, “A.M. Best defines innovation as a multi-stage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services, or business models can be created organically or adopted from external sources.” How does this look in practice? The innovation scoring and assessment includes two components: innovation input score and innovation output score, both of which have sub-components. The innovation input subcomponents include leadership, culture, resources (allocation, strategy, management) and processes and structure for innovation. Innovation output subcomponents include results and level of transformation. The natural tendency for insurers will be to look at the criteria and find out what they need to do to “look innovative.” But when insurers examine the criteria more deeply, they will quickly realize that this is impossible. A.M. Best has created a framework for analysis that is transparent from top to bottom. The goal for insurers won’t be to look innovative, but to take the innovation criteria as a helpful guide to actually become innovative through and through. See also: Future of Insurance Looks Very Different   If the A.M. Best proposal moves forward, insurers will be tagged, like this:

• Non-innovator: Companies receiving an innovation score of less than 12
• Reactor: Companies receiving an innovation score between 12 and 17
• Adopter: Companies receiving an innovation score between 18 and 22
• Innovator: Companies receiving an innovation score between 23 and 27
• Innovation Leader: Companies receiving an innovation score of 28 or higher

The best part about the innovation scoring is that it is holistic, covering people, process, leadership, transformation and results. With the knowledge of what may be coming from A.M. Best, insurers are now able to ask themselves some important questions. Are we investing our resources in areas of innovation where we are likely to see transformative results? Cloud-based platforms, such as Majesco CloudInsurer and Majesco Digital1^st Insurance platforms will help insurers achieve the transformation results and launch innovative products in weeks rather than years that can lead to higher A.M. Best innovation scoring. Are our processes and structure designed to make the most use of real-time data and digital connectivity? A.M. Best will be scoring the alignment of strategy and innovation in light of data’s use in decisions, solutions, problem-solving and data governance. Are we ready for insurance’s innovative three-point shots? The lesson that we gain out of these regulatory signposts is that we are close to a day when innovation is no longer optional, but it becomes an embedded tool for buzzer-beaters against the competition. Regulation and innovation are not incompatible. When combined effectively, they will please customers and open new markets and opportunities. Insurance will see a resurgence of popularity and the game will never be the same. Is your organization ready to change its game in light of an industry that is driving toward innovation?

Insurers already collect heaps of data; with artificial intelligence, they can use it to its full potential and improve at every level, from automating call center request processing to helping make accurate assessments and executive-level decisions. Through its power to recognize patterns and anticipate actions, AI can provide a predictive environment where risks are anticipated and hedged. So far, it seems that the main areas of AI application in insurance include customer experience (58%), process optimization (43%) and product innovation (19%), according to a 2018 study by Everest Global. AI could also be applied to fraud, which a report by the FBI shows costs more than $40 billion per year. The insurance industry is prone to multiple fraud schemes. However, most fraudsters follow well-known patterns that AI can identify in minutes. The need to address fraud will become even more critical in coming years when more policies will be issued and handled exclusively online, and AI will be able to highlight any abnormal patterns during claims. See also: Untapped Potential of Artificial Intelligence   Claim Support Right now, the insurance sector requires a lot of staff for processing and inspecting claims. This makes policies more expensive and case-solving more cumbersome. These manual tasks can be at least partially replaced with a chatbot to record the claim, verify the details, make sure there is not a fraud attempt and pass the claim along. Through computer vision, the chatbot can also analyze the evidence and assess the damage. Better Underwriting The complaint about insurance policies is typically their price. AI can create personalize rates based on the client’s actual choices and lifestyle. Factors such as the distance traveled, diseases, financial stability and more can create dynamically priced policies. Metromile, for instance, uses an AI-enhanced sensor system to monitor the driver’s behavior and any incidents. A similar solution could be created for life insurance based on data provided by fitness trackers and medical records. This is called behavioral premium pricing, and it’s about paying for what risks you take. You are no longer just a data point in a statistic; you are paying for your actions. It’s not about approximating but about taking responsibility. Better Marketing and Customer Experience An enhanced online profiling tool can help insurance companies tailor products for a wide array of client segments. Using natural language processing and scanning comments from online platforms and forums can lead to the creation of innovative insurance products that are more adapted to the modern client’s needs. It’s listening to the client’s voice but in a new, AI-powered way. Customer experience is all about speed and reliability. The time to settle a claim is a key performance metric, and it can in many cases be reduced from days to minutes. The next step of using AI is not so much about innovating but about integrating. We have different services providing us with insurance for health, car and home, but we can hope to see universal insurance models that are customized to the client’s needs and priced dynamically according to the perceived risk. A McKinsey report, Insurance 2030, describes a fictional client who uses his digitally powered AI assistant to do some daily chores, while insurance premium is computed on the go, based on the client’s decisions and lifestyle. People will become more careful and try to prevent claims instead of repairing or treating. Until now, joining an insurance pool was about sharing risks, but AI is making us more responsible for our own actions. Is the Public Ready? Any new technology is just as good as the adoption rate. The good news is that Accenture has found that as many as 74% of customers are willing to use computer-generated insurance advice through easy-to-use channels, such as messengers and voice. See also: Strategist’s Guide to Artificial Intelligence   In the era when a selfie is enough to buy insurance, like in the case of Lapetus Solutions, the customer gets much more than an insurance policy. The customer gets healthcare advice, possible savings, and dedicated products. The downside of this approach has to do with privacy. In a world where your insurance company can determine what you did last night and if you took your medication, do you feel safe or do you feel part of a Big Brother system? What is the perfect balance between customization and intrusion?

What is remarkable about the debate over California Assembly Bill 5 (Gonzales) is how unremarkable the issues actually are in the debate over the Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903. Of course, as has been well-documented, the Dynamex holding and AB 5 could disrupt the digital platform “gig” economy, and misclassification of employees as independent contractors is a vitally important issue. It has serious implications for the fundamental fairness of how businesses compete with one another and how we value and protect workers on whose endeavors our entire economy depends. But the debate, while appearing in the digital marketplace as its latest forum, is multi-generational. The Dynamex decision is the current law of California as it relates to classification (employee or independent contractor) disputes over wage and hour obligations of California employers. AB 5 is intended to codify this decision not only for wage and hour determinations but also for unemployment insurance obligations and workers’ compensation coverage. This legislative process has led to chaos, with a host of employers asking for dispensation from the “ABC” test borrowed from Massachusetts (and used in Illinois and New Jersey, among other states), arguing that the test should not really apply to, among others, dog groomers, hairdressers, real estate agents, truckers and insurance producers. The list goes on and on. The queue is as long as it was in Casablanca when desperate people were seeking exit visas at any cost from Rick’s Café Américain. But Dynamex isn’t the product of the California Supreme Court sitting down together over lattes one afternoon and deciding, “Well, let’s change the law on classification disputes involving independent contractors and see what happens.” It was a final decision in which the trial court and the court of appeal used existing tests for independent contractor status to arrive at the conclusion that Dynamex workers were, in fact, employees. In other words, even though imposing the now infamous “ABC” test in California, the Supreme Court affirmed the decision of the court of appeal. It is unfortunate, but not surprising, that Dynamex is being divorced from its facts in the current, overheated debate in Sacramento. Perhaps the most important part of the court’s lengthy decision is found in this part of the factual record: “Prior to 2004, Dynamex classified its California drivers as employees and compensated them pursuant to this state’s wage and hour laws. In 2004, Dynamex converted all of its drivers to independent contractors after management concluded that such a conversion would generate economic savings for the company.” Dynamex, 4 Cal.5th 917, emphasis added. There is simply no test for classification status that would not be triggered by this action. And indeed it was, in the lower courts invoking both Martinez v. Combs (2010), 49 Cal.4th 35 and the now iconic decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d 399. That leaves us with the question – how to address the misclassification of a workforce while preserving the ability and prerogative of an individual worker as a sole proprietor to offer his or her skills to businesses that need such services on an ad hoc or project basis while not displacing work that would normally be done by an employee. See also: Keys to California’s Consumer Privacy Act   It is a question for the court – because the legislature could not resolve it – to clarify the comment: “As explained, in light of its history and purpose, we conclude that the wage order's suffer or permit to work definition must be interpreted broadly to treat as 'employees,' and thereby provide the wage order's protection to, all workers who would ordinarily be viewed as working in the hiring business.” Dynamex, 4 Cal. 5th at 916, emphasis in original. This is the “B” part of the test adopted in Dynamex that is causing millions of dollars to be spent lobbying in Sacramento and may result in tens of millions being spent in a costly ballot measure in 2020. This is also the core issue left unresolved by AB 5. What AB 5 does in its present state, however, is to accelerate the path to the Supreme Court for it to address the ABC test in a broader context than the facts presented in Dynamex. It can be argued that the legislature is doing little more than asking, ultimately, for the court to refine its application consistent with the public policy objectives articulated in that decision. However, the complex rules now in AB 5 will cause both employers and workers considerable grief in coming years.

July marked the 50th anniversary of the maiden moon landing, and the social media algorithms weren’t going to let us forget it. A truly incredible feat of human ingenuity, the moon landing proved to the world’s 3.6 billion inhabitants that the sky was not the limit and that progress was coming, and coming fast. And so it has. What started with Apollo 11’s landmark lunar mission, quickly blossomed into an era of explosive productivity (and reproductivity -- 4 billion extra people) for humankind. Medical advances wiped out deadly diseases, and wireless technologies connected us globally and allowed products, services and tasks to be accessed and accomplished from the palm of our hands. Fifty years ago, MRI scanners didn’t exist; today, wristwatches can take ECGs. The last half-century has witnessed a frenzy of technological innovation in almost all facets of human life. Well, almost all. Houston, we have a problem child. The insurance industry didn’t get the memo. It seems implausible that you could write $5 trillion of premium globally without riding the wave of technological change; but, in relative terms, the techniques used and services offered by the industry have by and large remained static ever since the moon landing. [caption id="attachment_36533" align="alignnone" width="500"] A 1960s insurance cover note — the form was likely quicker to complete than today's equivalent.[/caption] In 2017, the incoming Manulife CEO Roy Gori succinctly summarized the state of the industry with refreshing honesty:

“We need to transform our business to be much more of a technology-driven company…We need to become a much more customer-orientated organization and quite frankly the entire industry does. In many ways, if I’m absolutely honest, our industry is still in the dark ages.”

The insurance industry has managed to get away with remaining product-centric and making incremental marginal gains. Incumbents have benefited from business model inertia with high barriers to entry, such as minimum capital requirements and exacting regulatory standards. In the time it took the music industry to go from vinyl to tape to CD, through piracy, downloads and on to today’s streaming services -- insurance added questions to forms and put them on websites.

“If you apply for an insurance product, you’ll get a 16-page application form with 120 questions, more often than not. It’s still very paper-based, very manual, and, as a result, our industry net promoter scores are really very poor” (Roy Gori)

But things are about to change. Countdown Initiated The good news is that filling in endless forms to get an insurance policy may soon be a thing of the past. An armada of over 600 insurtech companies has assembled and raised a total of $8.5 billiion in funding over the last five years. (source: fintech global database) [caption id="attachment_36534" align="alignnone" width="570"] A group of plucky insurtech founders plan their next sortie.[/caption] Last year, over $3 billion of rocket fuel was invested in insurtech alone, double the 2017 total investment.

“Venture investors have recognized the scale of the opportunity being addressed and are allocating larger sums to invest in rapidly growing insurtech solution providers. At the same time, incumbent insurance companies have joined the scramble to back companies that are developing and integrating new technologies in ways that could either threaten — or enhance — incumbent business models.” (source: Global Insurtech Summit)

The second quarter of 2019 has seen over $800 million sunk into four insurtech players: Lemonade raised $300 million at over a $2 billion pre-money valuation; Collective Health secured $205 million at approximately $1 billion pre-money; and PolicyBazaar and Shuidi Huzhu bagged $152 million and $145 million, respectively. (source: Willis Towers Watson) With seven-figure money pouring into multiple unicorn scale-ups, (re)insurance industry eyebrows are rising almost as fast as insurtech valuations. For the first time, incumbents face a new breed of tech-savvy, customer-obsessed startups that are unencumbered by legacy systems and starting to aim at their customers. But, the imperial old-guard isn’t going to move aside for insurtech rebel insurgents. The race to adopt new best practices has already begun, and smart (re)insurers are investing heavily in modern tech approaches, with data analytics top of the wish list. This critical industry software update certainly won’t download overnight.

“Making this shift is much easier said than done. Underwriting has historically been slow to change, yet clients — and the perils they face — are rapidly changing. Making transformational investments to reinvent the role of underwriting has never been more important.” (source: McKinsey & Co.)

But, fortunately for the industry behemoths, for every insurtech competing with an incumbent, there is another offering to empower them. The question comes down to “what’s next?” From the Dark Ages to the (White-) Space Age. Insurance leaders embark on this voyage of technological discovery just as the industry faces a paradigm shift, as human risk migrates to machines. It’s too early to know precisely how autonomous cars will affect motor insurance, but KPMG predicts that the market will shrink 60% by the year 2040. While the likes of Tesla may prove to be insurance kryptonite, another of Musk’s iconic companies, Space-X, is helping accelerate a revolution that will give them a new super-power: geospatial analytics. [caption id="attachment_36537" align="alignnone" width="530"] source: CB Insights[/caption] Only five years ago, there were approximately 15 commercially useful earth observation satellites in orbit. Today, thanks to SpaceX and other new launching options, over 350 observation satellites encircle the Earth, and the insurance industry is on the cusp of unlocking the potential thanks to branches of AI, such as deep learning and computer vision.

“What was once niche has today become a booming business, with estimates putting the number of small satellites to be launched between 2018 and 2027 in the range of 6,500–7,000.” (source: Geospatial World)

The outcome of this space renaissance is unprecedented levels of high-quality, reliable and regularly updated data, in every nook and cranny of our planet. Thanks to recent advancements in branches of AI, such as deep learning and computer vision, these rich data sets are now cost-effective and ready for prime time, with the insurance industry a willing benefactor. See also: Insurtech’s Approach to the Gig Economy   Critically, insurers don’t need to attempt to build and manage this advanced capability in-house. Many leading names have already partnered with geospatial players, initially on the catastrophe response side. To see a real-life case study on how geospatial visual intelligence improved claims response in the aftermath of Hurricane Harvey, take a look here. Data-hungry (re)insurers have discovered that these evidence-based insights can tip the scales in their favor long before an event or claim, by pre-underwriting the risk. Starting today with property insurance. Death to Forms: Frictionless Property Insurance In a world where we can summon a car, or our favorite Mexican restaurant’s veggie burrito, at the touch of a button; shouldn’t we be able to get insurance cover for our homes by just providing our address? One of the fastest-growing insurtech ventures in the U.S. certainly thinks so. Hippo recently joined the unicorn insurance stable, raising 100 million Series D at a $1 billion valuation.

“We launched Hippo to transform the outdated and often frustrating relationship people have with their home insurance provider into one that’s approachable, modern and always adding value,” (Assaf Wand, co-founder and CEO of Hippo)

Traditional insurers can’t change their onboarding process overnight, but one company is providing them with insights to better understand the characteristics associated with individual properties or large portfolios, from a simple address input. [caption id="attachment_36538" align="alignnone" width="570"] Machine Learning / Computer Vision + Satellite Images = Property Insights[/caption] Geospatial Insight is a U.K. company pioneering the use of artificial intelligence on satellite imagery to improve decision-making in insurance (full disclosure -- we liked them so much, I led their Series A investment round with VenturesOne). Their latest product, PropertyView, delivers new insights and enriched data to help insurers, reinsurers and brokers better understand characteristics associated with individual properties or large portfolios, supporting more confident risk selection and more accurate pricing and coverage. See also: Insurtech Needs a Legislative Framework   With machine learning that is constantly evolving, the company has created feature extractors detecting buildings, cars, driveways, solar panels, roads, containers and more. For residential and commercial property, the information includes building size, building height and number of stories, total floor area, roof type and material. AI-Powered Roof Material Identification

“The key is that we can do it at scale and at a reasonable price. Similar technology exists in the U.S. but is either more costly or is driven by drone, use which is considerably more difficult to scale up.” (Dave Fox, CEO of Geospatial Insight)

The use of geospatial big data analytics by property insurers and reinsurers offers to improve risk understanding in a globally scalable, rapidly deployable and affordable manner. It also allows insurers to rapidly populate risk-focused property databases, reducing the burden on clients to provide this information and aiding client on-boarding and retention. Innovative approaches prove that, 50 years from the moon landing, insurance might just be about to join the space race. One small step for insurtech; one giant leap for an industry.