For policy holders, the claims process can be incredibly frustrating – and it is easy to see why. Having your claim approved is one thing, but then actually getting the money owed often proves to be another monster task in and of itself. An Accenture study found that 83% of customers who felt dissatisfied with the way a claim was handled planned to switch or had already switched to a new provider. As consumers have become even more accustomed to an instant everything economy, these numbers have only continued to increase. When done right, the claims and payment process can prove to be a relationship saver for an insurer and its customer. This overall experience drives both customer satisfaction and retention, more than any other interaction between these two parties. Improving the claims process is first… Since first impressions are everything, many insurers have poured a significant amount of time and money into reimagining the claims process as a digital-first, customer-initiated effort. With most carriers, this reporting phase can take just minutes if executed properly. It has become an industry-wide standard for customers to be able to initiate a car or other damage claim using a mobile app to take photos, share details, and provide claims estimates as a result. Still, once the claim is made, it can take days – even weeks – to receive the money owed. Nearly all insurers still pay policy holders the old fashioned way using ACH or paper checks. No one wants to – or should have to – wait that long when repairs to a home or car after catastrophic damage are needed ASAP. Particularly in today’s “now-economy,” this experience completely falls short of modern customer expectations, and can prove to be very damaging to an insurer’s reputation. See also: It’s Groundhog Day for WC Claims Handling   Improving the payout process is second… but insurers are often too wary. Luckily, with exciting innovations in the payments and disbursements, many insurers have begun offering instant claims payments to allow customers to receive their money immediately and digitally. Historically, insurers are slow to adopt new technologies, and wary of how they will work and be received by customers. Carriers are extremely careful about how to introduce new technologies that will likely touch many internal systems and processes. As a tried and tested system already used by lenders, banks, gig economy marketplaces, retailers and more, insurance carriers stand to reap a major benefit offering instant payments, as it is obviously eliminating friction and cutting down on the days to weeks it would ordinarily take to receive a paper check or ACH. The claims process is a critical moment in an insurer’s relationship with a customer, and with push payment technology eliminating the headache associated, insurers will benefit from the increased customer loyalty resulting from a great customer experience. Satisfaction increases exponentially with the adoption of instant payments, and attracts new customers Innovative insurers have already begun implementing instant payments as a way to earn both customer satisfaction and loyalty. As previously mentioned, although insurance carriers are typically hesitant to adopt new tech – particularly when it comes to payments – the customer and business advantages of instant payments are just far too great to be ignored. Not to mention, the installation costs for instant payments are relatively low, seeing as payments are the last part of the claims process and therefore do not require significant integration to numerous legacy systems. When it comes down to it, customers are dissatisfied with the friction, time and effort required to cash a check (especially if it takes a long time to get to them in the first place) when they need the funds to overcome or repair an emergency or catastrophe to their home or car. Today, most insurers have a clear target on millennial customers, 33% of whom claimed that they won’t need a bank in five years, according to a First Data study. By exceeding customer expectations through instant payments and truly fulfilling the insurance promise with an instant payout to the account of a customer’s choice, carriers undoubtedly strengthen customer loyalty. At the same time, insurers can also significantly reduce operating expenses by cutting down on claims cycle times, lowering claims leakage and basically eliminating check costs. It is also important to note that instant payments not only help to retain customers but can also be a path to customer acquisition. With a payments experience dominated by the likes of CashApp, Venmo, and Amazon, these customers have come to expect flexibility and instant payments in every aspect of their lives – including their insurance. Now, the paper check just will not cut it. According to a study by PYMNTS.com, paper checks had a dissatisfaction rate of 14.1 percent, the highest among all payment types. See also: How to Use AI in Claims Management   Today, there are only a few insurers using instant payments, but the opportunity remains wide open. In the end, the winners in the claims payment transformation race are going to be the insurers who can gain a competitive advantage through instant payments, improving satisfaction among current customers and increasing the likelihood of attracting new ones.

Insurance has experienced high levels of price competition. Consumers often choose the cheapest offer in such a market, where demand is limited and supply is nearly endless, especially when mainstream products are highly similar. Thus, insurers are in a Red Ocean, a term used for markets where competition is high and profit margin is low. Moving from the Red Ocean to the Blue Ocean -- a market with high demand, low competition and strong profit margins -- is usually linked with product or channel innovation. This innovation would not have to be like the invention of the wheel. Reinvention of an existing product with a new understanding and vision is also valuable. Apple’s iTunes is a good example. Apple created a market by transforming traditional music sales to the digital environment and has been unrivaled for years. Another way of moving from the Red Ocean to the Blue Ocean is by creating an emotional connection between brand and customers. Today’s consumers may make purchasing decision based on their feelings about the brand rather than the specifications of the product. Brands that build strong connections with customers could get out of the Red Ocean. Think of Starbucks; although it sells almost the same product as other coffee shops, it has a very loyal customer base. See also: How to Create a Blue Ocean in Insurance   Why Is Insurance a Red Ocean? This is basically caused by the corporate insurance approach. The insured pays premium; the insurer pays claims. The relation between the parties sounds quite mechanic. It’s like a financial exchange rather than a consumption or purchase. Some may liken insurance to a boring lottery. Companies are also not investing enough in product development, and the oligopoly (few operators) structure of reinsurance deepens the problem. Thus, giant insurance companies compete with similar products, service level and brand identities. How Can Insurers Get Out of the Red Ocean? It might be more effective to answer this question through an imaginary case study. Let's consider there was a company operating in the car insurance business where price competition is high. The company, Amisos Insurance, had been operating in this line for many years and had 5% market share. The company had aimed to get out of the price competition and gain a loyal customer group. But how? The company had started by creating an identity to its brand. Generic rhetoric about being trustworthy, deep-rooted and powerful meant nothing to anyone, so the company decided to position itself as the “good driver’s insurance company” in line with the targeted consumer segment. To create a marketing strategy, the company focused on answering these questions:

• What do good drivers expect from an insurance company?
• Why is Amisos Insurance the company of good drivers? What offer is unique for them?
• How can Amisos Insurance reach them and convince them to be loyal?

Trying to answer these questions had helped to the company to understand what the satisfaction gap for customers was. To fill this gap, the company developed a product that has a rewarding mechanism for good drivers, who had paid premium for years but got nothing from an insurance company or had few claims. The product pays claims in case of a car accident like existing ones do but also gives drivers 50% of their premium back if they spend a year without any claim. For example, if you paid $1,000 for car insurance but have no claims for one year, you earn 500 Amisos points. And you can spend these points to get benefits like a weekend holiday or gym membership. You feel valued. Is it Applicable? Of course, there is a cost of these benefits, and this cost needs to be reflected in premiums. However, this cost would not be high as thought, for three main reasons:

• Because benefits would be bought in bulk, their cost to the company would be much lower. With a 30% corporate discount, a $500 holiday would cost only $350 to company.
• Second, these offers would be more attractive to people who are unlikely to make car accident. So “good drivers” more likely to choose this company. Thus the quality of customer portfolio would be improved.
• Third, customers would be more careful due to they cannot get their “good driver” benefit in case of any claim. Even, small claims may not be reported not to lose these benefits. And it helps to manage moral risk of insurance.

See also: A Game Changer for Digital Innovation   Considering all these predictions %15 price increase would be enough to maintain existing amount of profitability in the short term. (Assuming rewarding mechanism will %25 decrease in loss frequency) In medium term company would have a unique brand identity and a loyal customer segment. So, it would be easier to increase profit margin of the product. However a complete project management would be the main success code of the strategy. In practice following issues needs a close attention;

• Terms of the product and rewarding mechanism should be explained to customers clearly. Being transparent is essential to avoid overpromise and to handle trust issues.
• Customers should be informed enough about their benefit at the point of sales. Dreaming to customers about the rewards that they get after a year without claims should be the key part of the sales process.
• With the launch of the new product, including all existing customer to the good driver product’s campaign would have great impact on the customers. Mouth to mouth marketing effect would support the new strategy.

The strategy implemented by imaginary Amisos Insurance is not the only way of getting out of the red ocean. Even, it maybe be the wrong way for the company in this case. Moving from the Red Ocean to the Blue Ocean is a journey of innovation, needs to continuous tries, failures and retries.

The news of another data breach, this time at Capital One, shows that, despite some progress, we still have so very far to go to head off hackers.

A recent report found, for instance, a 23-day drop in the average "dwell time" for hackers—the amount of time that they spend in a target's systems before being discovered. That's a huge improvement. But...the average is still 78 days. You don't want hackers spending 78 minutes in your systems, let alone 78 days.

Despite a 33% increase in the costs of cybercrime since 2016, investments in cybersecurity have only risen 10%. 

No wonder premiums for cyber insurance are expected to increase 20% a year from 2014 through 2020.

Technology would seem to favor the good guys.

Something called "tokenization," for instance, holds promise. Basically, the actual, valuable data, like a Social Security number, doesn't get passed around. Only a "token" does. It gives the legitimate user access to necessary data but is of no value to a hacker.

Similarly, something called "homomorphic encryption" allows data to be transmitted and processed in the cloud while staying encrypted. 

But these, and other, data-protection schemes only work if they are deployed, along with systems that help employees avoid being duped by tactics such as phishing schemes.

How many more Capital Ones must we see before we get truly serious about protecting ourselves and our clients?

Cheers,

Paul Carroll
Editor-in-Chief

In most instances, when A.M. Best issues its Top 200 U.S Property/Casualty Writers results, there is some jockeying for position – up or down a position or two. However, the 2018 results issued in July 2019 revealed something that literally flew off the page. One insurer moved up 28 positions, another 29 and a third a staggering 121 positions. While the upward movement is interesting in and of itself, it was who the insurers are that really caught my attention – reinsurers! Swiss Re jumped 28 spots, Everest Re 29 and Arch 121. And Munich Re is already at number 18. See also: More Opportunities for Reinsurers in Health   Now, it is easy to rationalize these position changes – mergers and acquisitions. However, it’s what lies beneath that is critical for all insurers to recognize – and changes the market’s competitive landscape in four critical areas:

• Data: Reinsurers have an abundance of data, across numerous categories and geographies. Data is king, and reinsurers have it in spades. This changes the foundation for insights and puts these organizations ahead of the pack because most primary insurers do not have diverse data – at least not yet.
• Information: Data generates information. Reinsurers have information about products, segments, buyers, distributors, channels, loss outcomes – you name it. This allows their decision making to be immediately more robust.
• Skills: At a time when every insurance executive sees a lack of skill as a major issue for their organization, reinsurers have had skills, particularly data and analytics skills, embedded in their organizations for a long time. This puts them down the road in terms of leveraging the explosion of data and information – and using cutting-edge technology to do so.
• Money: Reinsurers have a good deal of money. For a number of years, catastrophe outcomes have not drained coffers, and capital remains abundant. This allows reinsurers to invest in their subsidiaries. And they are doing so, which affects primary insurers directly.

See also: The Dawn of Digital Reinsurance   So, the message is not to lock the front door, turn off the lights and send everyone home because the reinsurers are coming. The message is – the competitors of yesterday may not be the competitors of tomorrow. There are competitors that are focused on changing business decisions and how those decisions are made. There are competitors whose DNA is innovation and transformation, and no one can run from that. The bottom-line message is urgency. If your organization believes it has many years before innovation will transform your operating environment and market position, or that innovation and transformation can be a secondary focus for your organization, consider that there may be a reinsurer just around the corner that has another idea.

Like your health, your pets or your car, your home requires regular maintenance to keep it running smoothly and working properly. Homes that are well-maintained are safer, require fewer costly repairs and retain more of their value. Few will argue the benefit of a well-cared-for home, yet today’s owners are expected to know about and conduct their own preventative maintenance. Homes are the typical American's most valuable asset, and yet we don’t care for them as well as we care for our cars that cost a fraction of the amount. Homeowners are responsible for the physical management of their property, including regular/preventative maintenance, emergency repairs and improvements, all without the training or expertise necessary. So what does this mean for the homeowner? The lack of expertise and training results in routine maintenance and small issues going ignored and undetected until a major failure occurs and requires a costly repair. For example, cracked caulk around a window may not seem like much, but water damage could result in a $5,000 repair that could have been prevented by a $4 tube of caulk and a half-hour of time. The national statistic on the cash value of home maintenance states that, for every $1 that is spent on maintenance, up to $100 of repairs are avoided. Americans spent an average of $9,081 on home services in 2018, and fixing damage, defects or decay is cited as a top reason. In many cases, small preventative measures can prevent outsized expenses (dryer vent cleaning preventing fire; dishwasher drain filter cleaning preventing flood). For example, 13% of home fires annually are caused by electrical system failures. When was the last time you checked your outlets or breaker panel? The lack of preventative maintenance has a real impact on property insurers, as well. Issues like old and corroded water heaters, left unaddressed, have the potential to result in expensive insurance claims, not to mention a really negative experience for the homeowner. Moreover, consumers are starting to realize they aren’t the experts they need to be when it comes to their homes and are looking to their insurers to help given the aligned interests. Research shows that 34% of consumers would be willing to switch to an insurance carrier that offered preventative loss and protection services. How can we reshape the future of home maintenance? As our homes continue to get more complicated and we have less free time, it’s critical that homeowners ensure their homes receive the proper care. However, according to a recent study by Bankrate, the #1 frustration of millennial homeowners is underestimating the costs and the continuing responsibilities of maintaining their home. This frustration, coupled with the lack of expertise, shows us that the future of home maintenance will be provided by trusted parties, like insurers, lenders and others with a vested interest in the home. What’s less clear is if carriers will be able to adapt to the change and offer their customers the services they’re increasingly expecting -- either with their own offerings or by partnering with new companies in the insurance ecosystem. In the future, managed home services and connected devices will allow insurers to move from a reactive model to a proactive one so that they could detect problems before they pop up and result in preventable claims. If this approach is implemented, insurers could meaningfully manage risk as well as deliver a more engaging customer experience -- helping bring one of the last major antiquated industries into the modern world. The adage holds true: An ounce of prevention is worth a pound of cure when it comes to home maintenance.

A recent global research study found that 61% of insurance carriers and financial services firms are moving away from traditional, vertically integrated business models. Think about that for a second. More than half of the industry is fundamentally changing how they do business. Why are carriers taking such drastic measures? The research found three primary market forces – increased competition, evolving customer expectations and new digital technologies. More than 80% of executives expressed concern that technology giants, such as Amazon, Facebook and Apple, could become major competitors or channel disruptors, and insurtech was also identified both as a threat and opportunity based on recent disruption. For years, insurance leaders have felt comfortable in their position – entrenched in a regulated industry and offering a valued service to customers, but new entrants are offering unique value propositions that are available any time, anywhere. Unsurprisingly, the study found evolving customer behaviors and demands that are another challenge shaping the industry. As we all have learned over the last decade, consumers are constantly on the go, and they want to interact with insurance carriers the same way they do business with retailers that provide fast and easy digital experiences. See also: AI Still Needs Business Expertise   In addition, 53% of survey-takers said they must better leverage new technology, such as AI, machine learning, blockchain and IoT, to compete effectively in the changing market and keep up with rising customer expectations. These are the very technologies allowing tech companies to affect customer expectations by using data-driven insights to hyper-segment customers and offer hyper-customized products and services. More simply, platform-based companies have agile business models that allow them to better leverage customer data and quickly customize new products at competitive prices. Given these threats, nine in 10 respondents predictably indicated there is a need for transformational digital change. Modernization and core systems have been a conversation for years, but insurers no longer have to face the costly and time-consuming option of replacing legacy technology – or continuing on the same limited path. With a digital business platform (DBP), they can adopt and integrate new technologies with their existing core systems, allowing them to work with a global ecosystem of partners to become more nimble and customer-focused. Initial findings are encouraging, as 85% of respondents indicated that a DBP represents an opportunity to reposition their companies, and 83% agreed that integration of legacy core systems into a DBP is important for competitive positioning in the next three to five years. However, only 23% have a DBP that is working and providing benefits. Quite the dissonance… On the bright side, 32% of insurance carriers reported having built a DBP, compared with just 23% of banks and 19% of brokerage, wealth management and capital market firms. It isn’t often we hear insurance is ahead of the technology game, but with the opportunities – and threats – at their doorstep, now is the time to act. See also: Insurance 2030: Scenario Planning   Those who attempt to maintain the vertically integrated business model supported by legacy technology will struggle to remain relevant. Meanwhile, digital-forward insurers that capitalize on the path to modernizing core systems with digital features will reap significant benefits. The current industry environment is best summed up with the phrase often attributed to Charles Darwin – “survival of the fittest.” The Research For the research, 471 senior executives in banking, insurance, brokerage, wealth management and cards and payments were surveyed across the U.S., U.K., Germany, Spain, Italy and Japan in early 2019. Nearly 50% of respondents were from institutions with more than $10 billion in annual revenue, and 55% of those who completed the survey were C-level executives. Download a copy here.

The number of states that have legalized marijuana use continues to grow, as 33 states have already approved medical use, with 10 of those states having approved recreational use, as well. According to New Frontier Data, a leading cannabis market research and data analysis firm, the legal cannabis market is expected to grow to $25 billion by 2025. The industry reached $10.4 billion by 2018, with $10 billion of investments in North America, more than twice the amount of the last three years combined.​ Despite the trend toward legalization at the state level, marijuana remains a Schedule I controlled substance under federal law, thus creating the “Marijuana Policy Gap” as characterized by a March 2017 report of the Congressional Research Service, The Marijuana Policy Gap and the Path Forward. Under the Federal Controlled Substances Act (CSA), the cultivation, sale, distribution and possession of marijuana is illegal, irrespective of individual state constitutional provisions, statutes and regulations that legalize and regulate marijuana. The Marijuana Policy Gap is creating uncertainty as businesses consider whether, and in what capacity, to enter the legal marijuana industry. As with any other industry, marijuana-related businesses (MRBs) require adequate insurance coverage to protect against a wide range of risks. However, the Marijuana Policy Gap is serving to limit insurance options available to MRBs to smaller specialized insurers and the excess and surplus lines market, as larger admitted carriers remain cautious with respect to the exposure associated with underwriting marijuana-related risk. This uncertainty is due, in large part, to conflicting judicial opinions on the enforceability of insurance policies purporting to cover marijuana-related risk and the shifting approaches of the Department of Justice (DOJ) in its enforcement of the CSA. While principles of contract law generally prohibit courts from enforcing agreements that are illegal or against public policy, the current dichotomy between state and federal law creates an interesting and often confusing dynamic. See also: Legal Marijuana: An Insurance Perspective   This article will highlight this evolving dichotomy being created as courts attempt to balance the federal regulations deeming marijuana an illegal substance against those states that have determined that marijuana use provides certain benefits to their citizens. Under the Supremacy Clause of the U.S. Constitution, federal law generally preempts conflicting state law. This principle was central to a decision by the U.S. District Court for the District of Hawaii in 2012 in Tracy v. USAA Cas. Ins. Co., 2012 WL 928186, Civil No. 11-00487 LEK-KSC, March 16, 2012. In Tracy, the court held that USAA was not obligated to provide coverage under a homeowner’s policy for theft of an insured’s marijuana plants. In doing so, the court agreed with USAA’s argument that, although the insured’s possession and cultivation of marijuana for medical use was legal under Hawaii law, it was illegal under federal law and that federal law controlled based upon the Supremacy Clause. Thus, the court concluded that it was against public policy to force USAA to provide coverage for the illegal plants. The following year, the U.S. District Court of New Mexico in Hemphill v. Liberty Mut. Ins. Co., No. CIV 10-861 LH/RHS, at 4 (D.N.M. October 23. 2012), expressly adopted the court’s reasoning in Tracy, concluding that an insurer was not obligated to provide coverage for the use of medical marijuana. The court stated that it could not force an insurance company to cover medical expenses pertaining to use of a product that was illegal under federal law. However, the evolving approach of the U.S. Department of Justice (DOJ) toward lenient enforcement of the CSA in states that have legalized marijuana appears to be generating a shift in judicial philosophy on the enforceability of marijuana-related contracts and the coverage provided through insurance policies. In August 2013, a memorandum issued by then deputy-Attorney General James M. Cole stated that, as a matter of prosecutorial discretion, the DOJ would not prosecute federal marijuana offenses in states where marijuana was legal and where “strong and effective regulatory and enforcement systems” were implemented to control the cultivation and sale of marijuana. The “Cole Memorandum” noted that effective state regulation would probably address federal concerns regarding the threats that marijuana posed to public safety, thus obviating the need for federal enforcement. Against this backdrop, the U.S. District Court for the Northern District of California in Mann v. Gullickson, 2016 U.S. Dist. LEXIS 152125 (N.D. Ca. 2016) held, in a 2016 decision, that a stock purchase agreement for two companies that provided equipment and consulting services to the marijuana industry was enforceable. The court upheld the agreement notwithstanding the argument of the purchaser that the stock purchase agreement was void because it involved the sale of businesses engaged in activities that were illegal under federal law. The court further noted that, since Tracy was decided, the federal government had shifted its priorities from enforcement of the CSA in states that permit the use and cultivation of marijuana. The court observed that there had been an “erosion” of a clear and consistent federal policy toward CSA enforcement. As the federal government abandoned federal enforcement of the CSA prohibition on marijuana cultivation and sale by deferring to state enforcement, it apparently subordinated its interests in this arena to those of the states that have legalized marijuana. In another 2016 case, the U.S. District Court for the District of Colorado revisited the issue of whether a policy of insurance covering marijuana-related risk was void as against public policy and federal law. The court in Green Earth Wellness Ctr., LLC v. Atain Specialty Ins. Co., 163 F. Supp. 3d 821, United States District Court, D. Colorado (February 17, 2016), rejecting that notion and finding that the policy of insurance was enforceable, noted that the federal government had taken a “nuanced (and perhaps even erratic)” approach to enforcement of the CSA in states where marijuana was legal and regulated. In distinguishing Tracy, the court, as in Mann, emphasized the “erosion of any clear and consistent federal public policy” in the area of CSA enforcement since that case was decided. Courts continuing to look to DOJ policies and enforcement for guidance in crafting their approach regarding enforceability of marijuana-related contracts and insurance policies may continue to encounter confusion. In 2018, former Attorney General Jeff Sessions rescinded the Cole Memorandum, ostensibly signaling that more stringent enforcement of the CSA prohibition on marijuana would follow. However, Sessions resigned shortly thereafter, before any significant shift in DOJ prosecutorial practices. During his confirmation hearing, Attorney General William Barr pledged not to prosecute marijuana companies that comply with state laws. Nevertheless, Barr is not bound by that position, and he, or his eventual successors, have the prosecutorial discretion to engage in stronger enforcement of the CSA. If that happens, it could have a significant impact on insurers and their insureds, and more specifically, how courts analyze the enforceability of policies covering marijuana-related risk. See also: In the Weeds on Marijuana and WC   Clearly, the marijuana industry presents an exciting area of opportunities for both MRBs and insurers. Nevertheless, insurers considering entry into this marketplace to underwrite MRB-related risk should continue to monitor DOJ policies and their potential impact on the enforceability and coverages provided under marijuana-related insurance policies. The Marijuana Policy Gap will remain a source of confusion for businesses and insurers operating in this space. By remaining informed and educated on DOJ policies and judicial decisions, at both the federal and state level, those enterprises seeking to capitalize on the legal marijuana trend can more fully assess the potential risks and rewards, and will be able to arrive at the soundest business decisions.

It’s not hard to see how drivers with histories of driving violations pose a higher risk to insurers. However, there may be another side to the story that isn’t immediately captured: A considerable portion of major driving offenses are dismissed or downgraded in the U.S. court system. Today, 80% of drivers have access to programs that dismiss or downgrade their violations, which can obscure their driving history and mask dangerous behaviors. This means it’s important for insurers to stay abreast of new ways to help mitigate this risk and ensure they are providing customers with accurate quotes that capture the full risk profile. Downgraded or dismissed? What does it mean? Downgrades and dismissals can happen when courts make certain programs available. These programs are intended to ease the burden of costly tickets and ultimately help drivers stay licensed, insured and on the road. They can also take pressure off courtrooms and judges that are often backed up with cases. Unfortunately, as a result, people’s real driving violation histories may be disguised. In fact, according to TransUnion’s DriverRisk analysis, 57% of original major offenses, such as DUIs, are actually unobservable by insurers due to dismissals or downgrades. In the states evaluated, 27% of traffic tickets are outright dismissed. See also: Smart Home = Smart Insurer!  For example, in New Jersey, drivers can pay $250 to $350 to downgrade certain types of moving violations. A few states have programs for drivers facing a first-time DUI charge to have their case dismissed. For the cases not dismissed, these programs may add delays to the charge appearing on a state-issued driving record. Additionally, there are driving school programs available to drivers to dismiss or downgrade traffic tickets, or to remove points. There are also deferral or probation programs that can eliminate a violation from the state driving record. So, while drivers benefit from fewer points on their license, insurers are potentially mispricing the policies for drivers whose original violations may have been obscured. When insurers aren’t presented with the full picture, this can compromise how well premiums align with actual risks. To make things even worse, the DriverRisk study found that the more serious the violation is, the more likely it is to be dismissed or downgraded. The findings show that 41% of DUIs are likely to be dismissed, and distracted driving violations are dismissed 10% of the time. Without visibility into each driver’s actual behavior, insurers tend to spread the premium needed to pay losses associated with these risks across all policies. This means the base rate for the average driver typically ends up being higher, effectively subsidizing the premium for the drivers with downgraded and dismissed violations. Drivers with dismissed or downgraded violations are more likely to have a loss and a higher loss cost than drivers found guilty of the violation they were ticketed for. Details of Driving Violations It is possible and very important for insurers to gain deeper insight into original violation information for prospective and current customers, in addition to the final disposition decisions. Insurers should seek information that includes court record data so they can provide more accurate quotes and improve adhering to their underwriting guidelines. Implementing court record violation data solutions can enable insurers to capture valuable insight into: convictions from a prior state (which may be associated with a previous driver’s license number), regardless of a change in name or address; convictions while driving outside of the resident state; tickets with dispositions other than guilty; and tickets and violations that are still active (not yet adjudicated). See also: 5 Steps to Understand Distracted Driving   Court record violation data is an essential tool for insurers to develop accurate pricing and underwriting strategies. By understanding a fuller picture of violation history, insurers will be able to more effectively assess the risk of each driver and implement programs to capture the appropriate amount of premium dollars for riskier drivers while providing more affordable premiums to cleaner drivers. For additional information about TransUnion’s study findings and DriverRisk, please click here.

The personal lines segment of the insurance industry is quite active today, with many initiatives and projects underway across the value chain. For many, the objective goes beyond incremental improvements to positioning the company for fundamental transformation. The many projects planned or in progress fall into three categories: Digital Enablement, Core Transformation and Data/Analytics. A newly published SMA research report, Foundational Technologies in Personal Lines Insurance, details the projects and initiatives underway in 2019 and beyond. One of the major challenges we observe in personal lines is the struggle to balance the need to establish a modern, competitive foundation with incorporating new technologies to position for the future. Most insurers have very long lists of projects for things like enhancing portals; replacing or upgrading policy, billing or claim systems; and modernizing business intelligence solutions. These are the types of projects that SMA terms “foundational,” precisely because modern solutions in these areas are table stakes for success today. Incorporating innovative solutions from insurtechs and incumbent tech providers that leverage machine learning, the IoT, wearables, virtual payment technologies and more are highly desirable but difficult to build into operational plans. These advanced types of solutions are what SMA calls “transformational technologies” and will be the subject of a SMA research study and report. See also: Emerging Technology in Personal Lines   All the excitement and visibility tend to center on the transformational technologies, and there’s no question that there is tremendous potential for innovation that can create competitive advantage. Yet the No. 1 task for insurers today regarding technology is to ensure that the foundational technologies are in place to provide the levels of efficiency and effectiveness needed to compete while establishing a flexible base to build on. This is not to imply that insurers should wait to engage in any activity related to transformational technologies. On the contrary, it is imperative that insurers monitor, learn and experiment with new technologies that are most relevant for their business. Thus, the challenges of finding the right balance! One other aspect of technology strategy and plans should be explored: the need to implement foundational technology solutions that already have some embedded transformational tech. Policy systems can leverage chatbots and AI. Billing solutions can begin to accommodate more advanced payment methods. Claim systems should already be leveraging solutions that use machine learning for fraud. Many other examples could be cited, as well. Over time, the various transformational technologies will become foundational as many in the industry begin to incorporate them into their organizations. One by one, the advanced technologies will become table stakes, only to be replaced by a new set of transformational technologies, or at least by new, more sophisticated levels of the existing technologies. See also: Insurtech and Personal Lines   There are a wide variety of strategic choices that senior leadership teams must make today. Allocating scarce resources and budget dollars is as difficult as it ever has been, if not more so. However, the successful personal lines insurers in the digital age will be those that find the right blend of technologies of all manner to create flexible, responsive organizations. For more information, see the SMA research report, Foundational Technologies in Personal Lines: Investment, Adoption, and Business Areas.

With August approaching, football training camps (American football) are opening, and I can't wait. I am reminded of a conversation I recently had with a sports agent about what makes some coaches consistently successful. 

My conversation with Bruce Tollner, a founder of Rep 1 Sports who works with college and professional coaches, focused on the fact that most teams rise and fall on the strength of their leadership, and that's just as true of companies in the insurance industry. It's especially true when it comes to innovation. A.M. Best has made leadership a key component of its proposed innovation assessment process for insurers.

Many coaches will tell you that better players make them better coaches, and talent is certainly a huge part of any organization's success. Acquiring and maintaining talent is a challenge for leaders, and it's important on and off the field to have the right people in the right roles.

But, just as a winning basketball coach might not also be a strong football coach, not just anyone can effectively lead insurance innovation efforts. Subject matter expertise is crucial, not only to understand the game but also to apply perspective. A problem we observe is that sometimes the entrepreneurs, VCs and people whom incumbents hire for their innovation efforts have little to no insurance industry knowledge. The lack of experience and insight to assess technologies and generally connect the dots can limit results.

There is a big difference between people who hold leadership positions and those who are leaders. Leadership flows from the impact that leaders have on the organization, from their passion and how they inspire their teams.

What else makes a good leader?

A mantra of mine is that respect must run downhill before trust will run uphill. The point is that leaders who care about and value input from their teams will engender trust, resulting in a better-run, more-successful organization. Most great leaders listen and develop strategy based on a variety of inputs.

Great leaders then communicate strategy effectively, provide the resources to get the job done and grant authority to individuals to do the job. That last part is important, because assistant coaches and innovation leader can't constantly be glancing over their shoulders to see if the head coach or CEO is going to second guess them, override their decision or fire them.

Another leadership quality is resiliency. Bruce said coaches rarely find themselves in optimal conditions. Elements are always lacking or could be better. The best coaches still find ways to position themselves to succeed, through a consistent and continual process.

My wife is a coach at the college athletics level, and she says that passion for the job, a sense of service to others, commitment to the team and support from the organization are all critical.

When people in positions of leadership don't demonstrate a commitment to innovation, when they simply do innovation to check a box or delegate it to someone else and aren't personally invested, the results are usually disappointing.

In its draft innovation assessment process, A.M. Best emphasized how important leadership is to success. The score for a company depends on setting and communicating strategy, supporting the troops, providing resources and creating a structure and process for success. Best stated that "an enterprise is unlikely to have a high culture assessment if it does not have strong leadership."

I love sports. I love the competition. I love that there's always another game or another season, another opportunity to prove yourself. I like the sports analogy between winning coaches and successful insurance leadership because innovation is a never-ending game. Companies need to position the right talent, have an effective process and show commitment by senior leaders to succeed over the long term, not just in a single instance. Success must be nurtured and maintained; there's no quitting after one unsuccessful play, game or season.

Here's to football season, and here's to the insurance industry's innovation efforts. Wishing your team all the success they earn.

Cheers,

Wayne Allen
CEO