A little-known part of my professional career was a four-year stint as an entrepreneurship professor at a private university. All my students fell into one of three buckets: those who wanted to actually learn and were always prepared; those who just didn’t care; and those (the majority) who wanted to know what they needed to do to get the desired grade. 

That's how we see insurance industry incumbents when it comes to their innovation strategies. Some want to excel. Some don’t seem to care as much. Most want to know what they need to do to get a good innovation assessment score from A.M. Best, as part of a general hope to remain relevant or maintain market share.   

As we have said repeatedly, we don’t see that treading water is a strategy for growing and gaining an innovation advantage. Yet too many companies are being tutored on their innovation education  by advisory firms that seem to support just checking the boxes for a passing grade from A.M. Best. 

We have read through paper after paper, release after release and promotion after promotion from advisories on how to score well on the A.M. Best Innovation Assessment. These advisories promise to help incumbents stockpile evidence about leadership on innovation, about culture shift, about resource commitment and allocation. These advisories will help incumbents show that they have a process in place and a structure to follow.

But do they support real, measurable results? Not so much. 

The insurance industry historically has been an amazingly innovative community when it comes to asset and investment management and financing the risks we know, measure and understand. How many industries could take hits like hurricanes Harvey, Irma and Maria and California’s wildfires—all in just the last couple of years—and come out intact? But the industry's innovative DNA does not extend to technology advancement and how to serve a customer base that historically were captive buyers—their only real choice was which company to buy from—but now has alternatives. 

So how should insurance industry incumbents think about innovation, if they want to do more than the minimum? How can insurers innovate and use technology to improve margins or to produce new, organic revenue growth, based on core premiums and, perhaps, on revenue not related to insurance? 

Obviously, it has to begin with a process that focuses on results, not checking boxes. Most of the advisory firms that have served the insurance industry for decades are very effective at enhancing the industry's "financially innovative" DNA. But too many have limited, if any, experience guiding incumbents through an innovation system designed, from the beginning, to produce measurable results within a short time. Many traditional advisories are fluent in financial innovation or perhaps core systems deployment but not in digital innovation. ITL has seen this issue up close, as we have been brought in after some advisory firms have finished innovation engagements.

Just like a student who wants to learn, companies must be willing to ask non-obvious questions and do more than simply follow the herd. 

Don’t misread what I am saying here. We believe that Best’s inclusion of an innovation assessment as part of its rating process is terrific and, based on what we know, will drive companies toward effective innovation.

But I challenge the industry (and the advisories that counsel insurers): Do not innovate for a passing Best assessment score. Do better than that.

Apply a little genetic engineering to your own innovative DNA. Stretch those innovation muscles, and move courageously into the future.

Here's a free bit of advice: As you think about building an innovative system, realize that, as surely as trust follows respect, culture follows success.

Wayne Allen
CEO
Insurance Thought Leadership

Having worked in fintech since 2005, I witnessed the fintech wave forming, cresting and eventually crashing into the financial ecosystem. If there is a fraternal twin to banking, it’s the insurance industry. Both industries are built on managing risk, capital, compliance and distribution. Not everything in fintech will apply to insurtech, but there’s a lot we can learn by assessing the impact of fintech on the banking system. The insurtech revolution will likely be more of an evolution--a more gradual shift and less of a big bang. The proof is the banking system. While it has clearly been affected by fintech, the tsunami of change has been less violent than what some predicted at the height of the craze. Technology Is an Arms Race Technology can be transformative, like the computer, the internet, the iPhone and many other examples. But, oftentimes, technology is iterative: One widget is replaced by a more efficient or lower-cost widget. Advantages are often short-lived. Look at small dollar lending within fintech. Putting the entire application process into a digital format and with instant funding was incredible, but this has become the industry standard. Billions of dollars have been pumped into that space. In just a few short years, the software was commoditized. Short of a truly defensible business model with unique intellectual property or network effects, most companies will find themselves in an arms race. No single technology will be the holy grail. Instead, a company’s ability to continually innovate rapidly will become the goal. A lot of variables dictate how well an institution innovates, but here are some common mistakes that I have seen in fintech and now within insurtech as a potential technology partner:

1. Carriers cannot always articulate what problems they are trying to solve and what success looks like
2. Decision makers aren’t involved enough or don’t provide enough support in the innovation process
3. Failing fast or testing concepts is cumbersome

Over the course of a year, innovation teams probably meet hundreds of startups. At Verikai, we have had the most success with innovation teams that are well-versed in the problems of the business. The challenge for startups is that we don’t know what we don’t know about your business. It’s difficult enough to sell a young technology but almost impossible to sell something to a client that can’t articulate its own problems well. It feels like some innovation teams are browsing instead of shopping; at Verikai, we believe that’s because there isn’t always alignment or support from the decision makers. By contrast, an innovation leader started off our meeting the other day by articulating all the problems he was responsible for solving and how solutions would help the business. He had me at hello. See also: FinTech: Epicenter of Disruption (Part 1)   Even if you create alignment, it’s incredibly difficult to push an insurance carrier into simple tests. There are a ton of valid reasons for why on-boarding is slow, but you have to find a way to cut through these barriers. Even the banks eventually found ways to re-engineer their internal processes to accommodate startups. Whether for contracts, audits, compliance, certifications or whatever, I would encourage carriers to find a way to “yes” rather than “no”. Half the battle is accelerating your discovery process. Obsession over the latest technology craze is understandable, but what teams should really focus on is creating structure, culture and process that allow a company to adopt all of the relevant technologies in the coming years. Sandboxes: Not Just for Kids More data has been created this past year than all the previous years combined. There’s no way that any regulator can keep up with the proliferation of data and technology. While fair lending may not exist within insurance, the concept of disparate impact is shared with the industry, as is the concern for safety and soundness. In banking, regulators began creating sandboxes and town halls to encourage dialogue and learning. In addition, the fintechs began pushing regulators and Congress to change regulations to accommodate new business models. As the insurtech movement matures, I’d expect to see a lot more interaction with regulators. It’s important that each carrier understands the shifting sands. Startups are more likely to lead with regulators, but it’s important that they not be the only voice at the table. Working with regulators is an incredibly important aspect of long-term planning for insurers. Direct-to-Consumer Is Difficult There are only so many people looking for financial products at any given time, and they’re not always in the digital channel. Fintech lenders, over time, became incredibly adept at customer acquisition through digital marketing. But even the digital market had an upper limit. The obvious place to then hunt for customers was through the banks themselves. At first, fintech was the sworn enemy of banks, but now they are often partners. Insurtech, like fintech, will find a pain point that big insurance companies cannot address efficiently. Insurtechs will exploit it for what it’s worth, but will need to broaden their distribution over time through partnership. Certainly, there are MGAs that already write on behalf of their carrier partners, but I suspect an even deeper partnership is possible in many cases. While digital channels are incredibly appealing, brokers/agents are still relevant to many people. The point is that the digital market is a growing pool, but that there’s still a much larger body of water to fish from. Don’t be surprised if competition moves to cooperation over time. Unbundle to Bundle Fintechs were incredibly strong at finding niche markets that could be easily exploited under the noses of the banks. The same will hold true within insurance, but the demands of investors and capital will drive insurtechs to go after an even greater share of the consumer wallet. All companies fear the Amazons and Apples entering the financial services market. However, it’s fintechs like SOFI, Marcus, Chime, Varo, Robinhood and countless others that are beginning to bundle multiple products to create modern, digital banks. The most expensive thing in fintech has been acquiring customers in high volumes. Naturally, companies can justify higher costs if they can increase customer lifetime values through cross-selling. And, there is a potential network effect for the winners. Whether insurtechs do the same thing or possibly some giant fintech player enters insurance, I suspect it’s a matter of time before someone will try to create the Amazon of the insurance space. See also: What Gig Economy Means for FinTech   The Early Days It’s certainly going to take a while for all of these predictions to play out, but it’s important to have a long view. So far, I’m not sensing any panic in the industry. But, at the height of the mortgage crisis in 2008, no one paid too much attention to the peer-to-peer lenders lurking in the background. Somewhere around 2015, the banks went into high alert. Depending on who you are and how you are positioned in insurance, the hindsight of fintech may be prescient for your company.

Smart technologies, artificial intelligence (AI) and machine learning are all on the agenda for insurers. But how intelligent are the systems really? Google, Amazon or Facebook have led the way, and data is the currency of the future. This is particularly true for insurers, because, if you know your customers' behavior and life situation, you can price risks more accurately, minimize fraud and better meet customer expectations. Because processes are data-intensive and driven by repetition, many customer inquiries, damage reports or data analyses could theoretically be standardized and automated -- ideal prerequisites for using intelligent machines. Nevertheless, the insurance industry is one of the few industries that has barely arrived in the 21st century. Paper-based processes and outdated IT systems with incompatible interfaces are the rule rather than the exception. For this reason, according to a study by the strategy consultancy Bain, companies have so far concentrated on using smart algorithms to make individual sales processes more efficient or to provide more targeted information. According to Bain, the greatest potential slumbers in downstream areas: The property and casualty (P&C) insurers alone could increase premium income by almost 25% and reduce costs by almost 30% through consistent digitalization. The greatest savings are possible in claims settlement and acquisition costs. See also: Strategist’s Guide to Artificial Intelligence When IBM's Deep Blue chess computer won against the then-reigning world champion Garri Kasparov more than 20 years ago, this was celebrated as historic. However, Deep Blue did not win through cognitive intelligence, but because it could calculate all conceivable moves. Today's AI methods, which go beyond just computing capacity and are based on algorithms that use large amounts of data to learn to carry out tasks without pre-defined rules, have so far largely failed in the insurance world. The reason: Very few insurers have an IT infrastructure that would allow customer data to be bundled over the entire contract term and all interfaces. The systems therefore do not have sufficient high-quality and correctly classified training data with which to learn the algorithms. Instead, most companies rely on systems that obey fixed rules. For example, some providers work with chatbots to process customer inquiries faster and more automatically. Digital language assistants, which process natural language and interact directly with the customer, point in a similar direction. Whether in writing or by telephone — the basic principle is the same: Employees are relieved of routine tasks so that they have more time for those questions where personal contact is really necessary. Nevertheless, experts agree that AI will revolutionize the insurance industry in the medium to long term. Smart algorithms will help identify insurance fraud faster and assess risks more accurately. This allows AI to be used to create personalized products. In combination with sensors and the "Internet of Things" (IoT), AI also helps to prevent fraud. See also: And the Winner Is…Artificial Intelligence!   Together, these many possibilities will lead to insurance products that are much more individual and fair for the collective. If insurers can refine the risk profiles of their customers on the basis of the customer's history and behavior, they can determine whether this customer is trustworthy. The subjective decisions of individual experts would then be opposed by objective, trained systems that could not be impressed by emotions or stress. Today, on the other hand, customers quickly end up in a drawer based on their profession or place of residence that does not correspond to their actual risk profile. Artificial intelligence could calculate trust on the basis of data and synthesize it, so to speak. Customers who are trustworthy can then benefit, for example, from lower prices or faster claims processing.

Netting of subrogation payments, the exchanging of payments between carriers at regular intervals instead of on a claim-by-claim basis, is a concept that has been around since the mid-1990s. It is once again back in the news with the announcement that State Farm is developing its own blockchain solution to net subrogation payments between itself and another unnamed carrier. Some say this is an innovative solution for the use of blockchain for the insurance vertical, but is it really nothing more than a hammer (blockchain) looking for an old nail (payment netting)? All will agree there is room for vast improvement in reducing friction of the subrogation workflow, including the exchanging of funds. Carriers send thousands of checks to each other on a monthly basis in the settlement of subrogation claims – the same process that has occurred since the beginning of time relative to the subrogation process. It’s expensive, involving the printing of checks, mailing costs and the labor to apply funds by the receiving company. Each payment needs to be broken down and applied in the claims system to the individual lines of coverage for the original claim payment and then balanced out in the accounting platform. In a "netting" scenario, the total value of what two companies owe each other is issued by one payment, but then still has to be reconciled on both an outbound and inbound basis, making sure to reconcile every claim that is affected. Remember, each side of the payment has premium ramifications. Many touchpoints, applications and processing. No wonder this has been an issue, but why does it still garner so much focus, with the advancement of financial technology and the reduction of check processing fees? Shouldn’t we now be focusing on a more holistic solution for the industry affecting more than just the payment? In the mid-1990s, banking costs drove the netting conversation as a way to reduce fees, but the industry wasn’t able to come together on how to solve the problem. Competitive pressures, internal constraints and the problem of how to reconcile the carriers' multiple platforms contributed to the futility of the conversation. Industry organizations even tried to solve the problem but with no success. 9/11 changed forever how the banking industry dealt with checks. The country was brought to a standstill for three days due to air traffic being halted (remember, checks were physically moved between the Federal Reserve branches on a daily basis via planes at that point). One of the outcomes of this national tragedy was the implementation of the Check 21 Act in 2004, allowing the image of the check to have the same "value" as the original check. Financial technology, better known as fintech, was developed to place the imaging process of the check into the hands of the business customer, allowing it to image the payment and send it to the bank. The banking industry gave the insurance carrier a digital scanner so the carrier could do the teller’s job of scanning the payment instead of the bank incurring that cost, but the insurance industry still had to manage the application of funds manually as it did before. Great move for the banks and yet carriers couldn’t figure out their now 10-year problem of netting even though technology existed to take that scanned copy of the payment and automatically apply it to the claim file via new insurance technology. No changes were required to claim platforms of the paying carrier or how the receiving company had to apply the funds – just a straight automation opportunity with a substantial labor savings. However, the major carriers still pursued the netting solution even though the problems they were originally trying to solve were no longer an issue. See also: Blockchain: Seizing the Opportunities   We are now 15 years removed from the introduction of fintech by the banking industry, and the netting conversation remains! Banks allow their business customers to image and deposit their checks through a scanner. Consumers manage their accounts through their mobile devices along with the ability to transfer money to each other through apps such as Venmo or Paypal. Moving money has become extremely inexpensive, with the result for all of us being the reduction in the processing fees. Then why does netting continue to be promoted as a problem that needs to be solved when the costs have dramatically decreased? One does have to wonder. The industry is working through various use-cases for blockchain, and, yes, you guessed it, the financial transaction of the netting of payments is still being pursued. The original problem of check processing costs is no longer an issue, while the same issues of allocating the information to both claim files remains. Participation remains problematic, but the level of concern increases if a blockchain is being managed by one of your competitors. Who has access to the data? Where is it stored? How can it be used? Does a netting solution created and managed by a carrier create a competitive advantage for that carrier? If we can get beyond these questions, the bigger issue remains as to why time, money and effort are being used to address a 20-plus-year-old issue that can be handled via existing technologies rather than complicating the process with the additional friction of netting being added to the industry’s expense? Maybe the alternative is to use blockchain to digitally transform the subrogation workflow affecting LAE in dollars rather than cents while also maximizing recoveries. Our industry will continue to evolve and build on new technologies. Let’s be sure to swing our hammers at nails supporting the future building blocks rather than those 20-year-old rusted out nails.

After the 2009 global economic crisis, the U.S. economy has risen to strength once again. Yet certain economic indicators — both in the U.S. and abroad — indicate that prosperous times may be ending. “The end is near for the near-decade-long burst of global economic growth. The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world,” says John Graham, a finance professor at Duke University. Economic downturns mean less spending, but they don’t mean fewer property and casualty risks. As a result, insurance companies that take steps to address coming economic slowdowns find themselves in a stronger position to weather a downturn or recession. The Economic Outlook for 2020 In a recent Bloomberg survey, most economists agreed that the chance of a recession is high. “In fact, more than three-quarters of corporate chief financial officers expect one by the end of 2020,” say Scott Lanman and Katia Dmitrieva at Bloomberg. Meanwhile, some economists are looking at the unemployment rate, which has been a consistently reliable indicator of a coming recession since 1948, adds Joseph LaVorgna, Natixis chief economist. LaVorgna says that the U.S. economy has entered a recession whenever the unemployment rate increased 50 basis points, or 0.50 of a percentage point, over its trailing cyclical low. While unemployment is currently only 30 basis points over its low, it rose to 4% in January from a low of 3.7% in November. A rise to just 4.2% could indicate the start of another recession. Many economic experts believe that business leaders are wise to expect a recession. “All of the ingredients are in place: a waning expansion that began in June 2009 — almost a decade ago — heightened market volatility, the impact of growth-reducing protectionism and the ominous flattening of the yield curve, which has predicted recessions accurately over the past 50 years,” says Campbell Harvey [subscription required], a business professor at Duke University. See also: The Great Recession And My Business   Research on the housing market also has some experts speaking in terms of recession. In January 2019, BuildFax CEO Holly Tachovsky noted a decline in single-family housing authorizations, which can be used to track economic decline. “While this is only the second consecutive month of declining indicators, this shift is in stark contrast to the white-hot housing market that the U.S. has experienced since 2013,” Tachovsky says. Not all experts agree that a recession is coming. For example, Anthony Chan, chief economist at JPMorgan Chase, has predicted 2% economic growth for 2019, based on his own examination of housing debt and housing growth. While Chan says the economy may slow in the next couple of years, he places the odds of a recession in 2019 or 2020 at about 15%. What Insurance Companies Need to Consider Among insurance companies, concerns about a coming recession are high. In the most recent Goldman Sachs Asset Management insurance survey, 41% of insurers said they believe a recession will occur in 2020 or in 2021, James Comtois at Pensions & Investments reports. Insurance companies are also forecasting fewer opportunities for investment in the coming years. “Insurers predict a U.S. recession is coming, just not this year. As a result, they are continuing to commit capital but are more selective in the risks they are taking,” Michael Siegel at Goldman Sachs explains. For insurance companies that often invest in bonds, concerns about rising interest rates or companies defaulting on debts tend to top the list of items to watch as the economy fluctuates. For insurers that want to weather an economic downturn, however, a broader view is essential. For example, consumer confidence plays a significant role in economic health, but it’s a factor that many insurance companies tend to overlook. Consumer sentiments about the state of the economy have a profound effect on their spending behavior, which makes consumer confidence a key indicator of future economic behavior, says Jeffrey Gundlach, founder and CEO of DoubleLine Capital LP. Currently, Gundlach notes a gap between consumer sentiment and future expectations. Small businesses also seem to be losing confidence in the economy, which could not only predict a coming recession but help to fuel it. Certain political decisions could also hasten the economy’s momentum into a downward turn. In January 2019, government consultant and fiscal policy researcher Dan White testified before the Maryland state senate’s budget and taxation committee that an extended government shutdown could cause a U.S. recession. The implementation of tariffs could also expedite the arrival of a recession, Paul R. La Monica of CNN adds. How to Prepare for a Recession Businesses in every industry feel the effects of a recession, particularly when the downturn is severe or long-lasting. Fortunately, insurance companies can take steps now to preserve their strengths, shore up weaknesses and perform more effectively during periods of consumer and economic uncertainty. The companies that fare best during a recession share several behaviors, say researchers Martin Reeves, Kevin Whitaker and Christian Ketels in Harvard Business Review. They take steps to prepare, consider long-term implications and focus on maintaining growth through a recession — albeit at a slower pace. “The most effective way to prepare for a recession is to strengthen the way your business operates today,” says Sarah Meusburger, human resources director at Banner Associates, Inc. Meusburger recommends adopting a culture of continuous improvement that incorporates the same behavior Reeves, Whitaker and Ketels discovered in their research: a long-term approach to business growth and stability. The Importance of Customer Relationships During Lean Times Customer relationships remain one of the most important assets for companies that seek to weather a recession. To thrive in any economic climate, it’s important to identify your most loyal and highest-margin customers and to protect your company’s relationships with them, says Michael Evans, managing director of Newport Board Group. “In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers,” Evans says. See also: The Great Millennial Shift   One way to strengthen customer relationships now is to focus on aligning internal culture with external branding, says Denise Lee Yohn, brand leadership expert and author of What Great Brands Do. “To offset eventual price comparisons between your and competitive offerings, you should increase the perceived value of your brand now so that you can draw upon that brand equity in the downturn,” Yohn says. Aligning brand identity and internal culture builds value, differentiates an insurer’s brand and encourages customers to choose your brand and remain loyal. You can find the article originally published here.

Every so often, an innovation emerges that forever changes the way people perform an everyday action and paves the way for future innovations. In the world of insurance software — especially customer-facing apps — a game changer today is low-code and no-code software development. Low-code and no-code development enables people without extensive programming experience to design and create apps through a software platform’s configurability features and graphical user interfaces. That is a simple technical definition of low-code and no-code. In lay person’s terms, low-code and no-code is an innovation that makes digital transformation easier for businesses to execute, and that offers numerous advantages. In the era of smartphones, we take for granted the ability to make a phone call that connects us to another person on the other side of the world, nearly instantly. A century ago, however, that was only a dream. The first commercially viable trans-Atlantic telephone call occurred in 1927, connecting executives in New York and London. Walter S. Gifford, president of the American Telephone & Telegraph Co. (some may have forgotten this was the original name of a company we recognize by the initials AT&T), said during that call: “Today is the result of many years of research and experimentation. We open a telephonic path of speech between New York and London... That the people of these great cities will be brought within speaking distance to exchange views and facts as if they were face to face…no one can foresee the ultimate significance of this latest achievement of science and organization.” See also: Digital Innovation: Down to Business   Fast-forward to 2019, and conversations bridging even greater distances occur many times a day in the global insurance industry, serving as a foundation for developing new coverages and accelerating business processes. As with that first telephone call, one day we’ll look back on low-code and no-code development as enabling an era of innovation in insurance. Advantages of low-code/no-code Insurance organizations embracing low-code and no-code development stand to gain several advantages, including:

• Speed to market. The ability to introduce new products and services quickly has always been helpful in a competitive marketplace. For that reason, insurers have long relied on excess and surplus lines as a way to swiftly launch specialty products and grow market share. First movers have an advantage in insurance, and new products energize the distribution channel. Low-code and no-code offer ways to tailor and support new products, in admitted and non-admitted lines.
• Brand differentiation. In the era of digital transformation, customers expect brands to offer memorable digital experiences. Who offers the best experience, from quoting to claims? Which insurance industry companies make it easy to do business? These are important considerations for customers who have become conditioned to using apps from top consumer brands. Low-code and no-code enhance insurance organizations’ ability to deliver digital experiences and set themselves apart from their competitors.
• Operational efficiency. Insurers have already captured much of the low-hanging fruit in reducing expenses, which is why their expense ratios generally have not shrunk significantly in a long time. Low-code and no-code could change that by making internal software innovation faster and cheaper at every level of an organization. From a digital perspective, low-code and no-code development is like a force multiplier. It can accelerate the response to business opportunities, not just in the IT department but in every department.
• Ease of implementation. Getting employees to do something new, in insurance or any other industry, can take a lot of time and training. The low-code/no-code movement simplifies standards and user interfaces, which makes it easy to learn, build, and implement. In a short time, insurance organizations can shift from thinking about apps to creating them.

Empowered businesspeople The low-code/no-code movement offers an elegant solution to several operational problems that insurance organizations encounter regularly. For example, enhancing the digital experience is often an exercise in “Where do we even begin?” In addition, time for skilled IT staff to perform traditional coding for new products and digital apps, or to integrate changes and updates, is scarce. Limited development resources inevitably mean backlogs for the IT department, meaning that great ideas for new apps tend to remain just that, until programmers can turn them into usable tools. See also: Digital Innovation in Life Insurance Low-code/no-code empowers the people who are closest to the core business and its customers to design and create innovative apps, using cloud-based visual tools. A terrific idea to engage customers and make it easier to do business with the insurance organization no longer has to wait for traditional programming expertise. Instead, a "citizen developer" inside the business can make it a reality, and quickly. The low-code/no-code movement is a game changer in highly competitive and time-critical functions such as risk assessment, quoting and underwriting. There is much more to low-code/no-code than just saving time and money, however. Most, if not all, productivity investments that insurance organizations make are intended to free staff to better serve the customer. Perhaps the most significant advantage of low-code/no-code is it lets all employees take a bigger role in that effort.

The insurance industry has a trust problem – and that’s not even the bad news. Consumers’ lack of trust in the financial services sector is well-documented. The Edelman Trust Barometer found that financial services was the least-trusted industry in the eyes of consumers.  According to an Accenture study, only 27% of consumers consider insurers to be trustworthy. And Deloitte found that only 11% of people have strong trust in insurance agents and brokers. The worse news is that the industry’s preferred instrument for narrowing this trust gap might actually be widening it. That instrument is consumer disclosure, and it has long been the insurance industry’s go-to strategy for cultivating trust: trying to provide transparency in coverage parameters, commissions and other thorny topics. However, as currently practiced in insurance (and most businesses), consumer disclosure is far from the elixir the industry purports it to be. If anything, it is the antithesis of transparency, for two key reasons. Disclosure Downside #1:  Readership First, hardly anyone reads disclosures.  Admit it – as a consumer, when was the last time you read one? Amazon.com has underscored this point in a most amusing fashion via the terms of service it provides to software developers who use its Amazon Web Services (AWS) platform. In the excerpt below, Amazon explains that customers can’t use AWS software to build “life-critical or safety-critical systems.” However, as the highlighted section shows, the agreement lifts this usage restriction if the U.S. Centers for Disease Control and Prevention declare the presence of a “widespread viral infection transmitted by bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh…  and is likely to result in the fall of organized civilization.” Yes, you read that right… Amazon is disclosing a contingency for the Zombie Apocalypse. If that catastrophe befalls us, you’re allowed to use AWS software for whatever you need to survive. The fact that the flesh-eating undead can be referenced in an official document like this, with hardly anyone noticing, speaks to a larger and more serious issue: Disclosure documents are an awful way to communicate important information to your customer. Companies bury important details in opaque disclosures that they count on no one reading. Examples abound – conflicts of interest for your financial adviser, service fees for your bank account, cancellation fees for your gym membership, price increases for your cable TV package and – of course – coverage exclusions for your insurance. Organizations hide behind these disclosure documents and point to them as evidence that anything important is indeed revealed to the customer. The reality, however, is that many companies (and sometimes entire industries) use disclosures to convey information that they don’t really want anyone to see. Disclosure Downside #2:  Comprehension The second reason why disclosures fail to advance transparency and trust is because hardly anyone can understand them. These are typically large, dense documents filled with unintelligible legalese and fine print (a shortcoming that was noted by the Federal Insurance Office in its own study of the industry’s transparency). The Edelman 2018 Financial Services Trust Barometer found that consumers viewed “easily understood terms and conditions” as the No. 1 factor that would increase their trust in financial services. But, as the same study revealed, a lack of information transparency is the top reason why consumers distrust this industry. There is a fundamental misalignment between what consumers value (information transparency) and what insurance firms actually deliver (information obfuscation). That discrepancy will continue to haunt the industry until disclosures are transformed from legally mandated administrative documents into genuine displays of customer advocacy. Moving From Confusion to Clarity Accomplishing that transformation will require reinventing the disclosure so it clarifies instead of confuses, and inspires confidence instead of undermining it. Here are some examples of how the insurance industry could achieve that:

• Make disclosures obsolete. One way to attack the disclosure problem is to minimize the need for these documents in the first place. While it would be naïve to think disclosures would ever go away in the highly regulated insurance business, firms should still ask themselves: Are there changes we could make in our business practices that would reduce the need for these mind-numbing disclosures? Southwest Airlines’ highly successful “Transfarency” strategy is a great example of this approach. In contrast to many of competitors, Southwest doesn’t have to agonize over consumer disclosures because it built the business around a simplified and nearly fee-free pricing structure (i.e., no baggage fees, no ticket change fees, etc.).

• Design for visual appeal. Today’s jargon-filled insurance policy contracts, disclosures and amendments not only appear to have been written by lawyers, they appear to have been designed by lawyers. No offense to the legal community, but creating documents with visual appeal is not their forte. That is the domain of marketers, and it appears those folks rarely have an opportunity to work their magic on these types of insurance documents. They are often walls of text with little white space and few navigation clues. That might seem like an insignificant issue – marketing “fluff” – but it’s not. The layout, design and typography of a document can materially reduce the cognitive load it creates on the reader. Put simply, a visually appealing disclosure can engage and enlighten consumers much more effectively than a poorly designed one.

• Use vignettes to build understanding. Even the most jargon-free disclosures suffer from an important shortcoming – they describe terms and conditions in an almost academic fashion, detached from the realities of people’s everyday lives. One can read a disclosure paragraph and gain a theoretical understanding of a concept (e.g., damage from floods vs. wind-driven rain), yet not fully grasp its practical application. This is where explanatory vignettes can be used to great effect. Serving as a complement to traditional disclosure language, these are short “stories” that depict a common customer episode and more vividly illustrate how the legal terms translate into real life impacts. (Some insurers, for example, use this approach to underscore what types of calamities are, and aren’t, covered by a policy.)

• Leverage other communication platforms. The way people like to consume information has changed drastically in recent years, yet disclosures have not evolved accordingly. In today’s digitally enabled world, many consumers like to learn more by watching (video) than by reading (documents). Complex concepts that are conveyed in a written disclosure could be reinforced in a more engaging fashion via a few short videos delivered right to a policyholder’s inbox. The media used to communicate insurance disclosures haven’t changed in decades, but consumer behavior certainly has. It’s time for insurers to bring disclosures into the 21^st century and leverage the digital communication avenues that so many other industries are using to great effect.

*          *          * If insurance providers want to strengthen their customer relationships and instill greater trust in their industry, they need to move beyond regulator-mandated disclosure. After all, just because something is legal, doesn’t make it right for your customer. The key is to communicate with consumers in a clear and forthright way – and disclosures, if properly constructed, can help advance that cause. It’s a cause that insurance firms should vigorously embrace because, when companies communicate with clarity, they send an unmistakable signal to consumers. It’s a signal that you’re advocating for them, that you’re helping them avoid unpleasant surprises – be it in the form of uncovered losses, unexpected fees or the zombie-induced fall of organized civilization. And in the insurance business, that’s the kind of advocacy that makes for a great, trustworthy customer experience.

This is the second in a series. The first article can be found here. Our industry is facing a major problem related to hazard data: More hazard and event data providers are producing higher-resolution footprints for a larger number of catastrophic events than ever before. All this data is difficult (and, in some cases, impossible) for insurers to process fast enough to deploy timely responses to their insureds. If this problem sounds all too familiar, you’re not alone. At SpatialKey, working with our clients has highlighted a consistent struggle that many insurers are facing: There is a gap between the wealth of data available and a carrier’s ability to quickly process, contextualize and derive insight from it. Carriers that try to go it alone by relying on in-house data teams may find that they’re spending more time operationalizing data than deriving value from it, particularly during time-sensitive events. Catastrophe data has evolved tremendously with our data partners, such as KatRisk, JBA and Impact Forecasting, becoming more agile and producing outlooks, not only during and after events, but well ahead of them. We’re seeing a push among our data partners to be first to market with their forecasts as a means to establish competitive advantage. And, while this data race has the benefit of generating more information (and views of risk) around a given event, it also creates a whole lot of data for you, as a carrier, MGA or broker, to keep up with and consume. Three key considerations that arise while operationalizing data during time-sensitive events are:

1. Continuous file updates make it difficult to keep up with and make sense of data
2. Processing sophisticated data requires a new level of machine power, and, without it, you may struggle to extract insights from your data
3. Overworking key players on your data or GIS team leads to backlogs, delays and inefficiencies

1. Continuous file updates throughout the life of an event File updates can bring you steps closer to understanding the actual risk to your portfolio and potential financial impact when an event is approaching or happening. At the same time, the updates can make it exceedingly difficult for in-house data teams and GIS experts to keep pace and understand what has changed in a given model. Data providers, like KatRisk, are continuously refining their forecasts (see below) as more information becomes available during events, such as last year’s hurricanes Michael and Florence. Using SpatialKey’s slider comparison tool, you can see KatRisk’s initial inland flood model for Hurricane Florence on the left, compared with the final footprint on the right. The prolonged flooding led to multiple updates from KatRisk, enabling insurers to gain a solid understanding of potential flood extents throughout the event—and well in advance of other industry data sources. See also: Using Data to Improve Long-Term Care   Over the course of Hurricane Florence, SpatialKey received five different file updates from just one data provider. That means that, for the data partners that we integrate with during an event like Hurricane Florence, we load upwards of 30 different datasets into SpatialKey! If you’re bringing this type of data processing in-house, it’s both time-consuming and tedious; in the end, you may end up with limited actionable information because you can’t effectively keep up with and make sense of all the data. A solution that supports a data ecosystem and interoperability creates efficiencies and eases the burden of operationalizing data, especially during back-to-back events like we’ve seen the last two hurricane seasons. 2) Hazard data sophistication Beyond just keeping up with the sheer volume of data during the course of catastrophes, being able to process high-resolution models and footprints is now a requirement. Many legacy insurance platforms cannot consume the quality and resolution requirements that today’s data providers are churning out. High-resolution files are massive and a challenge to work with, especially if your systems were not designed for the size and complexity of these files. If you’re attempting to work with them in-house, even for a small-scale, singular event, it requires a lot of machine power. The most sophisticated organizations will struggle to onboard files that are 5-, 10- or 30- meter resolution, such as the KatRisk example above. And, doing so could make the model prohibitive, meaning you’ll have spent time and money on data that you won’t be able to use. 3) Dependency on in-house GIS specialists The job of 24/7 data puts an enormous strain on data teams, especially during seasons where back-to-back events are common. For example, during hurricanes Michael and Florence, our SpatialKey data team processed and made available more than 50 different datasets over the course of four weeks. This is an intense effort with all hands on deck. Insurers that lack the expertise and resources to consume and work with the sheer volume and complexity of data that is being put out by multiple data providers during an event may find the effort downright grueling—or even impossible. Additionally, an influx of data can often mean overworking a key player on your data or GIS team, leading to backlogs and delays in making the data consumable for business users who are under pressure to report to stakeholders and understand financial impact—while pinpointing affected accounts. The role of a data team can be easily outsourced so your insurance professionals can go about analyzing, managing and mitigating risk. It’s time to automate how you operationalize data As catastrophes grow in frequency and severity, it’s time to explore how you can easily integrate technology that will automate the process of operationalizing data. See also: Turning Data Into Action   Imagine how much time and effort could be diverted toward extracting insight from data and reaching out to your insureds rather than processing it during time-critical events. There’s an opportunity cost to the productivity that your team members could be producing elsewhere. Check back for Part 3 of this series, where we’ll quantify the actual time and inefficiencies involved in a typical manual event response workflow.

The public sector faces a set of unique risks and challenges. In this session at the RIMS 2019 Annual Conference & Exhibition, members of the Public Risk Management Association (PRIMA) discussed trending topics related to public entity risk management. Speakers included:

• David Demchak, president & CEO, Connecticut Interlocal Risk Management Agency
• Raymond Sibley, director of risk management, City and County of Denver
• Gary Langsdale, university risk officer, Pennsylvania State University
• Jane Waters, insurance program administrator, DC Office of Risk Management
• Mark Walls, vice president, communications and strategic analysis, Safety National (moderator)

How do you educate elected officials on the value of risk management?

• To get their attention, it is important to discuss what matters to them – cost. We developed a total cost of risk model and showed them their losses relevant to them. For instance, showing cost per student for a school district is easier to understand than a straight dollar amount.
• It’s best to educate them as soon as possible when they get appointed. Get to them first. Show them how risk management supports all of the agencies. When you help them, or get them out of trouble, they tend to come back to you as a resource.
• Equating cost to an item – the cost of a fire truck, staff hours, the cost of a teacher’s salary – helps tremendously.

See also: The Globalization of Risk Management   Law enforcement liability is a hot topic. What challenges are you facing?

• Officer-involved shootings, the use of force and the use of deadly force are trending up. We started looking by the selection process. There is a dwindling supply of job candidates, and our vetting process was outdated. We spent a tremendous amount of time updating how we recruit. In fact, we found that recruiting from within the community is very effective. Psychological screening and proper onboarding is also very important on the front end, so we overhauled those processes.
• Profiling accusations are high. The advent of body cams can help to calm communities that certain actions were legitimate, but not every police force has them. Those that have implemented body cams have experienced very positive results. A picture is worth a thousand words.

If you are in a state without court liability caps, how do you deal with that?

• This has a huge impact in how we react. In many cases, we have a strong bias to push a reasonable settlement rather than risk a rogue jury verdict. Many times, juries are motivated by emotion and award accordingly.

See also: Cognitive Biases and Risk Management   PTSD is creeping its way into workers’ comp benefits. What is your experience with PTSD claims?

• It’s brand new. Anyone can file a PTSD claim; it’s not just public safety employees. So far, from what we have seen, none of the claims quite fit the definition, but I expect we will see many in the future.
• We have three layers of help – early reporting, peer counseling and individual psychological help. You cannot report a PTSD claim until over 30 days, so we are hoping these resources will alleviate these situations before they become a workers’ compensation claim.
• Employee Assistance Programs (EAPs) can be a very helpful resource in this situation. They may have solutions to help you handle this.

The first part of this series is available here. I started working for Getsafe in October as a newcomer to the insurance industry. Needless to say, I had a lot to learn about insurance as a domain as well as about Getsafe. I spent the first month or two on the job trying to gain as much context as possible to formulate some opinions of my own. Here’s a summary of my learnings from these explorations: The customer lifecycle is super, super long. The timing of insurance purchases generally correlates with the occurrence of major life events, which means that on average people will only need to buy an insurance product every few years. This presents some pretty interesting challenges for customer engagement as the long timeline between purchases means that we will need to be very creative about how to stay relevant and top-of-mind. We also need to make sure that our products and services can evolve with the lives of our customers. Insurance was meant to be personalized. A very interesting aspect of today’s insurance is that it is possible to lose money by selling more product. This is because insurance as a business relies on making sure that the amount of money collected from customers exceeds the amount of money paid out in claims in aggregate over time. The word “aggregate” is key here, because at the moment the industry does not have the means to make sure this equation always holds at an individual level, meaning that companies simply make money on the “low risk” customers and lose money on the “high risk” customers. Insurance can be a part of every lifestyle. Many companies supplement revenues from their core business with commission from selling insurances. For example, retail shops often sell insurance for the goods that people buy at the store. Banks often cross-sell homeowners insurance policies when customers apply for a home loan. From the perspective of an insurance company, this means that there is likely an opportunity to vertically integrate and position insurance products as a part of a lifestyle instead of purely as standalone purchases. See also: Global Trend Map No. 15: Products   How people buy insurance can become more natural. At Getsafe, every new employee spends a part of the first week mapping out the customer acquisition journey from initial discovery to completing the first purchase. When I went through this exercise, the customer acquisition journey looked something like this:

1. Customer realize he needs insurance.
2. Customer explores options via various tools.
3. Customer gets quotes from some of these options.
4. Customer selects one option.
5. Customer purchases insurance.

What stood out to me here was that the first step of the journey required customers to somehow realize they need insurance. This feels unnatural, because insurances do not occur to me as something that people generally wake up each morning and just decide they need. Insurances do not directly address any fundamental human needs in the way that food fulfills hunger or friends create a feeling of belonging. To me, it feels like the customer acquisition journey ought to have a “step #0” that starts somewhere before the needs of insurances are fully realized by the average consumer. Insurance has a noble origin. As I learned more about Getsafe and the insurance industry, I started asking myself a very fundamental question: Why does insurance deserve to exist? So I started researching the origins of insurance. To my pleasant surprise, insurances have a relatively noble beginning, serving as the instrument by which any given community can empower its members to recover from disasters. Unfortunately, this narrative has gotten lost, because today we generally view insurance companies as sleazy, sales-driven businesses that profit from the fear in individuals. The sense of communal benefit and protection is nowhere to be found in the average person’s perception of why insurance exists. This represents a very large gap between that starting place and where things are today, and I think our mission to reinvent insurance should also include helping people understand how it fits into their lives and why it is good for them and their community. Turning inspiration into concrete statements To add up these learnings, here are three statements that start to concretely articulate how the inspiration from above could inform our product vision. Imagine a world where...

• ...Getsafe provides products and services that directly address human needs. There should be a reason for people to wake up in the morning and want to use one of our products or services.
• ...Getsafe engages with people before they realize they need insurance. We want to be a part of the journey to help them understand how insurances may fit into their daily lives.
• ...Insurance feels more like a companion rather than a pile of paperwork. Getsafe should bring insurance back to its roots and re-create a sense of community around it.

With these concrete statements, we can start to tell a story about the world that we would like to create. Here is a high-level pitch for what we are trying to achieve at Getsafe. Bridging insurance with human needs “Peace of mind” is a basic human need, and here are some ways that the average person might articulate this fundamental desire: I need to...

• ...plan for the future.
• ...have a backup plan.
• ...stop worrying.
• ...feel safe.
• ...be ready for the “what-ifs.”
• ...know my family will be OK.

As an insurance company, providing the appropriate coverage to our customers is one way that we can try to address “peace of mind” for them. Unfortunately, insurance is really complicated, and most customers need help understanding what they need, when and why. Traditionally, insurance agents have tried to bridge this gap by setting up long appointments to interview customers about their needs. For us as an insurtech, how can we use technology to do this better? How can we seamlessly bridge “peace of mind” with insurance products such that it feels completely natural to our customers? See also: How to Speed Up Product Development   The insurance of tomorrow Technology has become ubiquitously embedded within the daily lives of people. In today’s on-demand economy, consumers gravitate toward real-time access and instant gratification. This trend provides the optimal environment for next-generation insurance products to incubate because it affords us ample opportunity to inject ourselves into the everyday lives of people. With a mobile-first approach, our app lives inside the pockets of our customers and travels with them wherever they go. As long as we are providing tangible benefits to our customers, we have the opportunity to position insurance as a life companion, rather than a necessary evil. We foresee the evolution of the “insurance experience” in two phases: 1. Insurance as an app Over the last two decades, technology has dramatically changed how people interact with many products and services. This same movement toward digital and on-demand is now finally gaining traction within the insurance industry. For Getsafe and our insurtech peers, this means that we have the opportunity to define what the “insurance experience” ought to feel like in this new world. As an example, customers can now purchase and cancel insurance policies in real time, without scheduling an appointment or filling out a long contract. We will build technology to transform interactions that have traditionally been complex into one that is frictionless, fast and fair (i.e., claims). 2. Insurance as a lifestyle Because insurances are complicated and usually irrelevant to daily life, we believe that insurtechs will aim to achieve far more than the digitization of insurance products. We believe that for the industry to truly progress, insurance products must become more ubiquitous in the everyday lives of consumers. It should be clear to our customers how we enable them to live the lives they’ve always wanted to live. They should not perceive insurance products as something that they need to buy but hope never to use. Getsafe will reinvent insurance by creating an insurance experience that caters to the digital, on-demand needs of customers. We will scale our operations by developing internal tools. Ultimately, we will also create products and services that bridge human needs to insurance products. Conclusion If you’ve gotten this far, thank you for reading! I sincerely hope that you’ve found both of these articles useful and that you’ve been able to find some tips to apply to your daily work. Feel free to drop any questions or comments and contact me!