June 28 was National Insurance Awareness Day in the U.S. While you didn’t see any greeting cards marking the occasion at the corner store — it’s not a Hallmark holiday — Insurance Awareness Day underscores the important role that insurance plays in our lives. The focus is typically on policyholders, and the day is a good time for those who are insured to consider all the ways coverage protects us from the unexpected. That said, Insurance Awareness Day is also an opportunity for people who work in the industry to reflect on the relationships we have with partners and colleagues. Collaboration across networks within the industry make the delivery of the coverage that protects policyholders possible. That’s what makes Insurance Awareness Day a great time for carriers to think about broker relationships. See also: What a Safer World Means for Brokers   Why does the carrier-broker relationship deserve special scrutiny? The main reason is that the two groups are incredibly dependent on each other for success, yet the relationship is often overlooked. In some cases, carrier and broker relationships border on acrimonious. Here are four ways carriers can improve this crucial working relationship: 1. Identify your top 10 brokers and explore more cross-sell opportunities. Because brokers serve as intermediaries with buyers, carriers typically work with a large number of brokers. That strategy is helpful for gaining market share, but the downside is that working with so many different brokers can make it more difficult to focus on the truly critical relationships. One measure you can take today to remedy that is to identify your top 10 most productive brokers and concentrate on that group, examining the type of business they bring in and identifying meaningful cross-selling opportunities. In this way, you can set your company and your top brokers up for win-win relationships, which will strengthen the bond. 2. Improve speed and efficiency in business processes that affect brokers. Brokers evaluate carrier relationships on a number of points, including how fast the carrier underwrites and binds policies. As a carrier, now is a good time for you to evaluate whether your core business processes cause bottlenecks for brokers. If you’re not sure your processes are meeting broker expectations, take a look at processes from quotes on the front end through reporting on the back end. Evaluate whether new technology can help you speed tasks. Carriers that are efficient and more responsive to brokers have a great opportunity to differentiate themselves in a crowded marketplace. 3. Understand the big picture from the broker’s perspective. If you want to be the carrier of choice, you’ll need to take steps to understand your relationship with brokers in its totality. Competitive rates are a key driver, of course, but it goes beyond that. It’s important to understand all the relevant benchmarks. With the right reporting tools, you’ll have an accurate view of how much business the broker has written. An accurate account of the meaningful business you and the broker generate is a powerful tool to have at your disposal during meetings. It provides both parties with crucial insight about the importance of the relationship. 4. Review your data access and quality. Information is the key to moving forward and remaining competitive in a changing marketplace. Carriers generate copious amounts of data during the course of operations and during interactions with brokers, but that doesn’t mean the data is accessible and of sufficient quality to be meaningful. With all the consolidation in the industry, data silos are a persistent problem. If data resides in several different repositories, it’s harder for the carrier to fully understand the market or accurately gauge the demand for products. Take a look at your data to make sure you have access to all relevant information — and that it is reliable and in a usable format. Many carriers express the goal of becoming the carrier of choice for brokers. They know price is a key issue, so they look at ways to reduce costs. Price is important, but it’s not the only attribute that determines broker preferences. Opportunity, speed, efficiency and effective partner relationships are also essential considerations for brokers. See also: The New Agent-Customer Relationship   So, if you want to be the carrier of choice for your brokers, take the opportunity on National Insurance Awareness Day to focus on broker relationships. Make sure you’re creating win-win opportunities for your most productive brokers, be responsive to their concerns about processes, understand their perceptions of your relationship and make sure you’re using accurate, complete data. By following these four tips, you can overcome the obstacles that keep many carriers and brokers from collaborating more effectively and find new paths to foster more cooperative relationships. In this way, you can set your organization apart in the insurance marketplace, not just on National Insurance Awareness Day, but all year long.

It’s no secret that millennials don’t care much for insurance companies. In fact, recent Bain & Co. research found that 80% of millennials say they would move their insurance business to new entrants that are capable of creating and delivering more value than incumbent insurers, leaving incumbents especially vulnerable to insurtech startups. But when it comes to millennials, what exactly is value, and how do insurance companies make good on it? Over the last year, Cake & Arrow has been conducting research with millennials to help the industry better understand this elusive demographic, and in doing so to answer precisely this question. In our research, we found that when it comes to insurance, creating and delivering value for millennials goes far beyond price and convenience–the two areas where insurance companies have been especially focused as they invest in their digital transformation efforts. 2016 research (also by Bain & Co.) suggests that value exists in a hierarchy, and falls into four distinct categories: functional, emotional, life-changing and social impact. Price and convenience both fall into the functional category, the lowest level of the hierarchy, meaning that, while they are important (and, according to the hierarchy, prerequisite for delivering higher-level value), they fail to deliver the highest-impact value–emotional, life-changing and social impact. When we studied millennials, one of our research hypotheses was that to deliver value at the highest levels means resonating with millennial values, that is, the important and lasting beliefs that influence their behaviors, attitudes and priorities. Our research identified three key values driving millennials: Community & Authentic Connect, Interdependency & Social Good, Transparency & Autonomy. Through a sequence of ideation, design and user testing, we were able to validate that insurance products that resonate with these values ultimately deliver more value (and higher-level value) to millennials than traditional insurance products, fundamentally changing the way they think about insurance. See also: Overcoming Concerns by Millennials   Looking at the industry at large, we found that there are a handful of insurance companies, mostly startups, that are taking these values to heart and designing solutions that not only address millennial needs and concerns but also resonate with their values to deliver value at the highest levels. 1. Eusoh Eusoh actually isn’t insurance at all. It’s community-based cost sharing, offering an alternative to insurance. A small, little-known startup, Eusoh has built a cost-sharing platform for pet-related veterinary expenses. Unlike traditional insurance, Eusoh customers don’t pay monthly premiums. Instead, they pay a $10-a-month subscription fee to join a cost-sharing community group with like-minded pet owners (there are currently groups for Jewish Dog Lovers, Urban Dog Owners, Large Cats, LGBTQ+ Cat Lovers and more). Community members pay for their vet visits up front and submit veterinary expenses; these costs are then shared among the group, and members get reimbursed. Members are also able to see how their funds are being distributed among the group through a dashboard that displays all the different expenses submitted for different pets and how much money each member was reimbursed. Eusoh also promises significant savings to its members, with the average cost of traditional pet insurance being around $800 for 10 months and Eusoh averaging only $133. What we like about Eusoh: Traditional insurance isn’t all that different from Eusoh’s cost-sharing model. At the fundamental level, both are about distributing expenses and risks among a group of people to lower costs for everyone. The big difference is that, in traditional insurance, customers pay their monthly premiums, and, if they themselves don’t have a claim, they have no idea where their money goes. What we like about the Eusoh model is the way it surfaces the community aspect of insurance so that customers can see how their contributions are going to help others. In our research with millennials, we learned that being able to see and understand how the money they were paying to their insurance company was being used to help other members of their community made insurance feel more valuable to millennials, and more worth the money. By charging a subscription fee, and then only billing members for the actual costs incurred by the community, Eusoh is able to resist a problem that has long plagued the industry–customers feeling like their insurance companies are just trying to rip them off. 2. Life by Spot Life by Spot offers flexible, short-term life insurance with one- to 30-day policies starting at as low as $7 a day. The insurance is geared toward travelers, athletes and other risk-takers. Life By Spot applicants are instantly approved, and there are few exclusions (Spot is like your cool older brother who “approves of the activities your mom wouldn’t”). While short-term life insurance might seem gimmicky at first, the founders see orienting life insurance around experiences (like skydiving or a surf trip to Brazil) rather than more traditional major life events (i.e., marriage and children) as a means of introducing millennials (who are increasingly prone to delaying traditional life events) to life insurance earlier on in their journey, creating a funnel for bigger life insurance policies down the road. Life by Spot also has plans to deepen its ties to outdoor and athletic communities with a new injury protection policy starting at $5 a day that would cover policy holders with high-deductible insurance plans who are injured up to the amount when their health insurance kicks in. Set to officially launch later this summer, the new product has already proved promising. The company recently soft-launched the product with the Austin Marathon with impressive results, offering the policy as an add-on to runners when registering for the marathon. While supplemental coverage like this is nothing new, the distribution approach is fresh and highly relevant to its target consumer. What we like about Life by Spot: Our research showed that people are more open to sharing costs and risks (as well as data and other information) when it is with a community of people they identify with. While Spot may seem niche, this is precisely what we like about it. We like that Spot takes a traditional product and spins it for a specific community, one with unique values, risks and behaviors. The spin on life insurance is more than just a marketing message (millennials can see right through this, according to our research); there is a change at the product level that corresponds with the values, risks and behaviors of this particular community, creating a sense of authenticity and trust in an industry where these things are increasingly difficult to come by. By making policy holders feel like they are involved in protecting a like-minded community and the kind of lifestyle this community values, Spot is able to create more value for millennial consumers, beyond what traditional insurers currently offer. 3. Toggle Insurance Toggle is a new, millennial-focused insurance brand launched by Farmers Insurance late last year. Currently a renters insurance product, with adds-on like credit building and coverage for pets and side hustles, Toggle has plans to expand its insurance offering to create an entire ecosystem of modern insurance products geared toward millennials. The name Toggle refers to the customer’s ability to “toggle” different coverages on and off, and coverage levels up and down, to create completely customizable insurance that befits the individual customer’s budget, lifestyle and coverage needs. What we like about Toggle: One of the mistakes we see players in the insurance industry make is to assume that simply having a digital product is enough to capture millennial consumers. For these players, innovation often ends here - at direct-to-consumer digital products that, while making buying insurance simpler and easier, fail to deliver value at the highest levels. What we like about Toggle is that they understand that a digital product is simply a foundation. To deliver value to millennials requires going beyond digital. In fact, our research found that in the age of Facebook, data breaches and digital burnout, millennials are increasingly wary of new digital products, and autonomy and transparency are more important than ever to securing their loyalty and trust. Toggle takes both autonomy and transparency to the next level. Rather than simply packaging various coverages at different price points for customers to choose from, Toggle provides consumers with true autonomy, allowing them to select exactly which coverages they want to include (and those they don’t), and giving them control over precisely how much coverage they want. As far as transparency goes, the product goes above and beyond to ensure that customers are never caught off guard by any “gotcha moments.” Rather than burying limits and exclusions in the fine print, Toggle calls them out from the get-go and allows customers to “toggle” on more coverage where it might be needed. See also: The Great Millennial Shift   4. Jetty Jetty is just one of a handful of new renters insurance startups geared toward millennials. Founded in 2015, Jetty has set out to not only make renters insurance easier, faster and more affordable, but to make the overall experience of renting simpler, safer and more accessible for everyone. What makes Jetty unique from other startups in the renters space is the way the company is going beyond insurance to solve the most pressing problems for renters. In addition to a renters insurance product, the company also offers Jetty Deposit, a way for renters to bypass the financial burden of coming up with a security deposit by paying a one-time percentage fee of the would-be deposit amount, and Jetty Lease Guarantee, a service by which Jetty will act as a renter’s guarantor, for a small percentage of the yearly rent. In May, the company launched Student Housing Express, which enables student housing properties to “instantly approve qualifying students who aren't able to get a traditional guarantor.” While Jetty may not be the cheapest renters insurance on the market (most policies start around $9-10 a month compared with Lemonade’s $5), the company's service offerings beyond insurance demonstrate an understanding of the more holistic experience of being a renter, building loyalty with renters before they even start thinking about insurance. What we like about Jetty: Jetty first caught our attention a little over a year ago when we learned about Jetty Deposit and Jetty Lease Guarantee. To us, these products appeared to be novel solutions to the significant financial hurdles facing millennials (about 70% of whom are renters) and unlike anything other players in the industry were doing. At the time, a lot of the millennial-related insurance products we saw on the market seemed to ignore the financial realities of millennials, many of whom are burdened with student debt, have little money saved (millennials under 35 have a median savings of just $1,500 ) and haven’t had opportunities to build credit. While many of these insurance products were catering to elite millennials with disposable income, when we surveyed millennials last summer, we found that the two greatest challenges they face are financial security and stability and uncertainty in the future. While insurance products can certainly help create more certainty, Jetty’s supplementary products truly address the challenge of financial security and stability in a way that few other insurance products are able to do, freeing up capital that might otherwise be spent on a security deposit to help millennials do things like build up their savings, pay down debt or save for a major life purchase. __ While all of these products boast seamless digital experiences that make buying insurance faster, easier and more convenient, what makes these four companies special isn’t fancy technology, low prices or convenience, but the way they connect with higher-order millennial values to offer tangible solutions to real-life problems, ultimately cutting through the digital din to deliver more value to millennial consumers. To learn more about the insights from our millennial research, download our report, Millennials & Modern Insurance. The article was originally published here.

Each year, California burns. With another record wildfire season come and gone, each new season seems worse than the last. While mitigation against firestorms is tricky, evolving technologies like fire-fighting foam—used for pretreatment and suppression sprayed around a property or on combustible building materials—can help businesses avoid peril and keep doors open as long as possible. In 2018, major fires stretched from the Oregon border in Northern California south to the Los Angeles suburbs – a distance of over 685 miles (1,100 km). The worst was the Camp Fire (so called because of its outbreak on Camp Creek Road in Butte County), which broke a 2017 record for the number of structures destroyed (15,573 – 472 of which were commercial) and killed over 80 people, according to CBS News. It became the deadliest wildfire in California’s history and the worst in a century in the U.S., according to the state of California. Three fires alone – the Camp, Woolsey and Hill fires – caused total insured losses of $9.05 billion, which could balloon to over $13 billion when final tallies are in. CoreLogic, a third-party loss estimator, places total California wildfire losses for 2018 at between $15 billion and $19 billion. Of the 20 largest wildfires in California history, 15 have occurred since 2000. While data shows the overall frequency of wildfires has remained relatively constant season-on-season, the size, volatility and impact of wildfire events has dramatically increased. Is this a new normal? Can improved risk mitigation techniques help extinguish wildfires once and for all? Reinsurance and risk modeling experts have begun using terms such as “mega-fires” and “the new abnormal” when mentioning recent wildfire trends and also identify several contributing trends to worsening conflagrations. See also: Spreading Damage From Wildfires   Some of these factor include an increase in property development in and adjacent to areas between unoccupied land and human development; an increase in fuel loads such as dead trees on the ground; an increase in weather volatility from year to year; longer dry seasons; intense seasonal winds that change fire behavior; and, multiple fires erupting at the same time and often in close proximity. Foam “coverage” for fire-protection Among fire mitigation solutions, one of the more novel has been the application of environmentally safe, biodegradable fire-fighting foam used for pretreatment and suppression around a property’s perimeter and buildings where the fire threat is imminent. One such solution, marketed by Consumer Fire Products, Inc. (CFPI), a professionally trained brigade of fire professionals dedicated to wildfire property protection, is applied manually from private fire trucks fashioned with state-of-the-art equipment. The brigades coordinate closely with local incident command centers and operate within active fire zones, at the behest of insurers and other interested parties. Major insurers often work with companies like CFPI to evaluate exposed locations, assess fire threats and prioritize deployment of resources. Customers with significant exposure and within close proximity to the forecast fire path could be identified, allowing CFPI to patrol these locations and take precautionary measures such as clearing brush, relocating flammable materials away from combustible construction and, as a last resort when under imminent threat, spraying buildings and foliage with biodegradable, fire-fighting foam. Although the ability to know exactly where to invest and deploy protective services real-time is challenging, the concerted monitoring of conditions with underwriters has enabled protection services, once deployed, to continue until conditions like wind speed, low humidity and underbrush dryness have diminished enough over a seven-day period to safely discontinue services. Insurance support Innovative approaches and services represent part of the new frontier in predictive and proactive mitigation responses. As such capabilities emerge, it is imperative that the insurance industry be at the center of any such dialogue. After an event, insurers should ramp up communication efforts with customers – making immediate contact and maintaining it until adjusters can access affected areas to assess damages, advance funds and analyze and facilitate customer needs (e.g. finding temporary storage locations or modifying existing undamaged structures). Besides property insurance, which covers existing structures, and time element coverages to protect against business interruption, some “inland marine” coverages can also help in the rebuilding phase (e.g. repairing a burned-out site that is damaged by ensuing mudslides), like builders’ risk, installation floaters, riggers liability and construction block. Mudslide Mitigation Heavy rains during the wet season in previously burned areas can often cause devastating mudslides, which can further exacerbate and even increase property loss. According to the State of California Department of Insurance, insured losses from the 2018 mudslides—which especially hit the Santa Barbara area hard—resulted in 358 commercial property claims, totaling $129.2 million. Taking all claims into account – commercial and personal property – the grand total was $589.5 million, according to CBS News. Damages from mudslides can be as costly as damages from fires. Some tips to mitigate mudslide dangers include monitoring local warnings to know if you are in a mudslide-prone area; being aware of your surroundings and the possibility of mudslides; and, being mindful of the potential for large pieces of landscape, including trees, logs, boulders and other debris fields, as well as “floating” destroyed houses, buildings, vehicles, etc. to fall or move in your vicinity. See also: How to Fight Growing Risk of Wildfire   Insurers can now strengthen their clients’ defense and better preserve their property partnership with policyholders. They are looking into how this in-event mitigation service on a large scale can be tailored to meet the customers exposed to various natural perils. By doing this, top insurers are taking risk prevention and mitigation to the next level.

The world’s largest sporting event of the summer kicked off (pun intended) in France this month and continues through July 7. According to Reuters, more than 1.5 million supporters are expected to attend the 2019 Women’s World Cup matches in the nine cities hosting the tournament. With record-breaking attendance, the rising popularity of women’s soccer also means an increase in crowd-related risks and the need for a comprehensive risk management plan. To ensure a safe and positive experience for all, host cities and venues must consider risks from all angles and think about how to prevent and respond to potential incidents. The responsibility for crowd safety goes beyond city and stadium officials, first responders and security staff. Members of the public – the crowd itself – also can and should take an active role in ensuring everyone enjoys the event without incident. Risk analysis First and foremost, city and venue officials need to identify and assess risks and have a plan ready to address them. This analysis requires total situational awareness and a thorough assessment of potential vulnerabilities, including everything from how many exits are available at the venue, to what can happen between the stadium and the parking lot, to understanding how crowds typically interact and move throughout the event. This kind of assessment requires thinking about the event in a broader context, beyond the stadium gates and the confines of the match itself. Risks are not limited to the main location or time of an event. Attendees should remain alert before, during and after an event, as well as inside and outside the venue. See also: The Globalization of Risk Management   Total situational awareness encompasses:

• Infrastructure
• Environment
• Crowd/human behavior
• Emerging technologies

Infrastructure Host cities and stadium officials need to consider what infrastructure exists to support the event. Is there a comprehensive map of the venue that includes all the entrances and exits? Are they secured? Is there an emergency plan in place for various crisis scenarios? If so, when was the last time it was tested it? Prior to a major event, every venue should do a practice run-through to make sure the plan is up to date. By going through the various crisis scenarios, you can identify gaps in the plan and figure out how to fill them, before an actual crisis occurs. Environment While security personnel are typically sufficient for the entrance into a big event, hostile attacks are increasingly occurring outside the main venue. For example, in naturally open spaces such as parking lots, perpetrators have easy access to large groups outside of the stadium’s protection. Also, think about the venue itself. Is the place/location of special significance to any group or cause? Does the timing coincide with a particular holiday or anniversary? When considering a potential attack, officials should also monitor social media, before and during an event, for clues and possible tips that an incident may occur. Crowd/human behavior Finding the right balance between creating a fun, entertaining atmosphere and a safe place for large crowds to gather can be tricky. On one hand, you want an open, inviting space; on the other hand, you must maintain order and some kind of control. With people from all over the world coming together, safety instructions and protocol must be visual and easy to understand. For example, emergency exits should be clearly marked and accessible. Security and other staff, such as concession workers and maintenance crews, should be trained to watch for body language, verbal cues and unusual behavior that might indicate potential threats. A “see something, say something” policy, where people are encouraged to report suspicious behavior, is helpful to enlist community vigilance to prevent incidents. Emerging technologies From passive surveillance to handheld apps and artificial intelligence, advances in technology are enabling a better understanding of risks. Closed-caption television (CCTV) cameras that allow a central command center to monitor crowds are widely used in venues today. Advances in facial recognition algorithms and AI enable computers to analyze faces and raise red flags when someone elicits extra scrutiny. With machine learning, computers are getting better at detecting bodies and objects in crowds. Whether it’s distinguishing between a flashlight and a firearm, crowds pushing each other and a fight, or a joke and negative intent, artificial intelligence is analyzing real-time video feeds to better identify threats. Proactive policing and passive surveillance, such as millimeter wave technology, can identify weapons (explosives, guns or knives) with nearly 100% accuracy. Mobile apps can turn any phone into a body cam, so that all staff (from concession workers to maintenance crews) can feed images to security. Stadiums can even set up “no drone zones” with equipment that can intercept drones within a periphery and turn them around. See also: Why Risk Management Is a Leadership Issue   For crowd safety, some stadiums offer apps that can guide event attendees through the venue or allow them to send alerts if a family member or friend is lost. These apps can also “crowd-source” security, allowing fans to provide real-time information on potential threats to the on-site command center. Using sensors placed strategically in and around the venue, exact locations can be determined and security personnel dispatched quickly and efficiently. Be part of the solution Public safety is everyone’s responsibility. It takes community involvement, and being aware of and caring about the person next to you, to make a positive impact. Everyone – players, fans, stadium employees and even the public at large – plays a role in keeping the peace. Whether you’re heading to France this summer or attending some other crowded event, my advice to you is simple: Pay attention, be smart and, most importantly, have fun!

I started writing yet another article trying to convince risk managers to grow their quant competencies, to integrate risk analysis into decision-making processes and to use ranges instead of single-point planning, but then I thought, why bother? Why not show how risk analysis helps make better risk-based decisions instead?

After all, this is what Nassim Taleb teaches us. Skin in the game.

So I sent a message to the Russian risk management community asking who wants to join me to build a risk model for a typical life decision? Thirteen people responded, including some of the best risk managers in the country, and we set out to work.

We decided to solve an age-old problem – win the lottery. With help from Vose Software ModelRisk we set out to make history. (Not really: It's been done before. Still fun, though).

Here is some context:

• Lotteries are an excellent field for risk analysis because the probabilities and range of consequences are known
• In Russia, as in most countries, lotteries are strictly regulated. There is a rule: When a large amount accumulates, several times a year it is divided among all the winners. This is called roll-down.
• If no one takes the jackpot before or during the roll-down, then the whole super prize is divided among all other winners
• So the probability of winning is the same as usual, but the winnings for each combination can be significantly higher if no one wins the jackpot.

We set out to test our risk management skills in a game of chance.

June 8, 2019

Whatsup group created. Started collecting data from past games. Some of the best risk managers in the country joined the team, 15 in total: head of risk of a sovereign fund, head of risk of one of the largest mining companies, head of corporate finance from an oil and gas company, risk manager from a huge oil and gas company, head of risk of one of the largest telecoms, infosecurity professionals from Monolith and many others.

June 9, 2019

Placing small bets to do some empirical testing.

June 10, 2019

First draft model is ready…

June 11, 2019 

Created red team and blue team to simultaneously model potential strategies using two different approaches: bottom up and top down. Second model is created…

June 12, 2019

Testing if the lottery is fair, just in case we can game the system without much math. Yes, some numbers are more frequent than others, and there appears to be some correlation between different ball sets but not sufficient to produce a betting strategy. The conclusion – the lottery appears to be fair, so we will need to model various strategies.

June 13, 2019

Constantly updating red and blue models as we investigate and find more information about prize calculation, payment, tax implications and so on. The team is now genuinely excited. Running numerous simulations using free ModelRisk.

June 14, 2019

Did nothing, because all have to do actual work.

June 15, 2019

After running multiple simulations, we selected a low-risk, good-return strategy. Dozens more simulations later, here are the preliminary results, using very conservative assumptions:

• probability of loss 9.8%; worst-case scenario, we lose 60% of the money invested
• probability of winning 90%; 80% of the time, winnings would be between 50% and 100% of the amount invested, after taxes (this means there is a high possibility to double invested cash at relatively low risk)
• potential upside significantly higher than downside

Red and blue team models produced comparable results.

June 16, 2019

Started fundraising.

If we manage to collect more than the required budget, we decide to make two bets: one risk management bet (risk management strategy) and one speculative bet with much higher upside and as a result greater downside (risky strategy).

Full budget collected within just a few hours. Actually collected almost double the necessary amount and, as agreed, separated 50% of the funds into the second investment pool. Separate team set out to develop the risky strategy. While I was an active investor in the risk management strategy, I decided to play a role of a passive investor in the risky strategy and only invested 16% into the risky.

June 17, 2019

Continued to develop the model, improving estimates every time. Soon, we felt the financial risks were understood by the team members, and we needed to take care of other matters before the big day.

First, took care of legal and taxation risks. Drafted a legal agreement clearly stating the risks associated with the strategy, the distribution of funds and the responsibilities of team members. Each member signed. Agreed to have an independent treasurer.

Then started to deal with operational risks. Apparently transferring large sums of money, making large transactions and placing big bets is not plain vanilla and required multiple approvals, phone calls and even a Skype interview. Five team members in parallel were going through the approvals in case we needed multiple accounts to execute the strategy.

Probably the biggest risk was the ability of the lottery website to allow us to buy the tickets at the speed and volume necessary for our low-risk strategy. This turned out to be a huge issue, and we found an ingenious solution. The information security team at Monolith did something amazing to solve the problem, and I mean it, amazing. I have never seen anything like this. It’s a secret, unfortunately, because, you guessed it, we are going to use it again.

The strategy that the lottery company recommended for large bets is actually much riskier than the one we selected. How do we know that? Because we ran thousands of simulations and compared the results.

June 18, 2019

The lottery company changed the game rules slightly. Ironically, this slightly improved our 90% confidence interval and reduced the probability of loss. So, thank you, I guess.

More testing and final preparation. The list of lottery tickets waiting to be executed.

In the true sense of skin in the game, team members who worked on the actual model put up at least double the money of other team members.

June 19, 2019

8am. We were just about to make risk management history. A lot of money to be invested based on the model that we developed and had full trust in. I felt genuinely excited: Can proper risk management lead to better decisions? I am sure other team members were excited, too.

By about lunch time, the strategy was executed. We bought all the tickets. Now we just had to wait for the 10pm game. Don’t know about the others, but I couldn’t do any work all day. I couldn’t even sit still, let alone think clearly. Endorphins, dopamine, serotonin and more.

At 9:30pm, we did a team broadcast, showing the lottery game as well as our accounts to monitor the winnings, both for excitement purposes and as full disclosure.

Then came the winning numbers. Two team members actually managed to plug them into the model and calculate the expected winnings. We had the approximation before the lottery company did.

You guessed it: We won. Our actual return was close to 189% on the money invested after taxes (or 89% profit; remember, our estimate was 50% to 100% profit, so well within our model). We almost doubled our initial investment. Not bad for risk management. (Good luck solving this puzzle with a heat map.)

June 20, 2019

More excitement, model back-testing and lessons learned -- and, perhaps the most difficult part, explaining to non-quant risk management friends why, no, this was not luck; it was great decision making.

In fact, our final result was close to P50. We were actually unlucky, both because we didn’t get some of the high-ticket combinations and, more importantly because five other people did, significantly reducing our prize pool.

Let me repeat that: We were unlucky and still almost doubled our money.

June 21, 2019

Job well done!

Ask 10 people what direct contracting (DC) is in healthcare, you’ll get 10 different answers. It’s not a clearly defined term. When doing research for her master’s thesis on "Employer-Provider Direct Contracting" at Georgetown University, Lisa Elder found that “there is no research on the effectiveness of direct contracting.” She had to rely mostly on anecdotal studies of DC and the marketing language of employee benefits firms that had tried it. Her takeaway: There is no consensus on how to define direct contracting in healthcare. This is a problem for employee benefits advisers who want to communicate what direct contracting’s benefits (previously referred to as direct-pay programs) are for their clients. What Direct Contracting Should Not Involve So, what should DC look like? Let’s begin by being very clear on what it should not involve. There are too many arrows. There’s nothing “direct” about this model. It’s a dishonest contract: a relationship of three (or more if a vendor is involved), not the two that the name implies. Yet many employee benefits brokers offer this type of arrangement, replete with the administrative fees that such an arrangement entails. Those fees can add up quickly. Say a benefits broker or vendor charges 10% of the cost of care for implementing the agreement and uses a TPA that charges 15% for facilitating the employer-physician relationship. See also: 4-Step Path to Better Customer Contacts   The cost of a $20,000 knee surgery replacement would balloon to $25,000 because of unnecessary third-party fees, leaving less value for the employer and physician. Yes, using a preferred provider organization (PPO) that discounted off a $55,000 charge for inpatient knee surgery would be even worse. But creating a less-bad PPO network via an improper “direct” contract shouldn’t be the goal for employers. The Right Way to Implement Direct Contracting A DC agreement should look direct⁠—like this. Think of it this way: Once a direct contract is in place, it should remain in place if you, the benefits adviser, were to disappear tomorrow. That requires a great deal of forethought in how the DCs are written, but it’s the right way to implement direct contracting. Establishing a DC this way maximizes and preserves value between your clients and their physicians. That, in turn, goes a long way toward demonstrating your value and commitment to transparency as an adviser. 3 Tips to Help Ensure “Direct” Contracting Real direct contracting has the potential to revolutionize the healthcare experience for employers by stripping out third parties that don’t add value. Your job as a benefits adviser is to ensure that DC is simplified, streamlined and truly direct. Here are a few tips on doing that:

1. Use Medicare prices as a benchmark for establishing reimbursement rates. 130% for physicians and 150% for facilities has worked well for Wincline in its DC client relationships. The true beauty of DC is that employers and physicians can sit down and discuss the price and value related to exchanging services.
2. Ensure that payment to physicians is timely (≤14 days). One of the biggest selling points for physicians on embracing DC agreements is that they won’t have to spend time and resources collecting payment for their services.
3. Make clear to employees that, under DC, member cost share is waived. Provide incentives to employees to use outpatient facilities rather than hospitals by eliminating their deductibles and co-pays if they do.

See also: 3 Major Areas of Opportunity   Have more questions on how to become a forward-thinking leader on direct contracting in the benefits advisory space? Check out our guide on direct contracting (be sure to download our whitepaper) and drop us any thoughts you have about DC.

Data is powering the new economy and is the main driver behind much of the transformation of industry and society. According to multiple sources, 90% of the data in the world has been created in just the last two years. In measuring the volume of data, we have blown past exabytes and are now calculating volumes in zettabytes (a trillion gigabytes). Soon we will be talking about Yottabytes and Brontobytes. As valuable as this data explosion has been, it has brought along some major challenges. Insurance, just like every other industry, is grappling with three big challenges. Managing the Real-Time Data Flow Insurers already find it difficult to manage data at rest – the data they collect or acquire and store in databases. Managing the cost, cleansing and organizing the data for transactions and analysis, and governing data usage all require significant resources, technologies, and skills. Layer in real-time data that is beginning to flow from the edge, generated by sensors and devices connected to the things (and people) that are insured, and the management challenges grow by orders of magnitude. Managing data in motion and determining where data should reside (edge, cloud, on-premises) will be tremendous challenges in the decade ahead. And the sheer volume, velocity and variety of data will make governance and usage much more complicated. See also: Transforming Claims for the Digital Era   Securing Digital Data Data security is a huge issue today, with regular headlines regarding breaches of massive amounts of sensitive data from big (and small) organizations. Software and resources for security are already a big line item in many insurance CIOs' budgets. Digital data spread across the connected world will make that task even more difficult, requiring the significant deployment of automation and AI technologies. Insurers must be aware, not just of the potential for data theft, but also of the new possibilities of data alteration. For example, photos of property or vehicle damage could be altered to show a greater degree of damage or even to show damage where there really is none. Regulation on Data Usage We are in the early stages of a great debate over who owns data, who has rights to use it and how data may be used. The global tech giants that have built their businesses on data are under intense scrutiny regarding these issues. Insurers have the additional consideration of industry regulation dictating how data can be used in the industry. Government and industry regulations will continue to evolve, which in itself creates a challenge for insurers. See also: It’s Time to Accelerate Digital Change   Of course, there are other challenges like acquiring and training talented individuals who can address these three areas and harnessing AI technologies to make sense of all the data. Both of these areas are vital and the subject of much research and debate, but they rest on the foundational issues of managing, securing and regulating data. This blog may sound discouraging, but there will be solutions and opportunities related to these challenges. Perhaps the most important strategies that insurers can adopt is to focus on recruiting, training and retaining highly skilled data professionals, and partnering with world-class organizations that have the technology and resources to tackle these challenges and enable insurers to capitalize on the power of data and analytics.

Technology is the foundation of the insurance industry: the means to solve or approximate answers to questions about the cost and availability of insurance, in addition to ways to reduce risk, improve service and expand coverage. When technology makes it easier to track possessions, when people can see—in real time—the whereabouts of goods they pay to insure, when reporting a lost or stolen item takes minutes rather than hours or days, eliminating paperwork and the temporal hell of waiting to speak to a customer service representative, of having to endure music on hold, when technology increases efficiency and accountability, everyone wins. Winning translates into not losing your possessions. Winning is a product of technology: a product unto itself in which your smartphone or tablet is a source of intelligence, syncing with an accessory that is strong enough to thwart thieves and smart enough to alert you about attempts to steal your possessions. For consumers, these benefits speak for themselves. For insurers, these benefits speak to the need for a single voice—authoritative in its text and absolute in tone—that says, “Yes We Will.” That message is one of hope (and change), regarding the use of mobile devices such as Mimic Go, where people can enjoy much-needed peace of mind not only about their valuables but items of sentimental value, too. Items that cost little, financially, but whose emotional cost is incalculable. Items that insurers underwrite but often fail to understand, because a minor loss to an insurer can be a major—and irrevocable—loss to a person, couple or family. See also: Mobile Apps and the State of Privacy   To protect these items, whether they are on a shelf or inside a suitcase, starts with technology. Without that technology, insurers and policyholders are without—period. They are unable to learn what is otherwise knowable, the status of their private or professional possessions. They are, in a sense, dispossessed: blind to the status of their most prized possessions and dependent on chance, having been denied the chance to buy and install the tools that lessen theft. They are without the actual sense of sight—and touch—because they cannot see what they cannot tap on their screens to open: an icon that shows them, a symbol that tells them everything is okay. That a solution exists, that insurers can give people incentives to use it, that people are already eager to adopt it, that it can avert the villainous and assuage the virtuous, or at least hinder criminals and help lower specific incidents of crime, is a good thing; a great thing. Achieving that goal is a matter of awareness. Insurers owe it to themselves to inform the public about the relationship between mobility and safety. Put another way, insurers cannot afford to maintain the status quo in which people go about their lives—and go wherever their work takes them—without the technology to track and secure their possessions. See also: Innovation: ‘Where Do We Start?’   Insurers owe it to policyholders to further safety, not frustrate it. Insurers have a duty to do the right thing.

Back in 2015 and 2016, we heard from oh-so-many insurtechs whose business model hinged on having carriers buy their gadget and give it away to customers because of the benefits the gadget provided. This model was flawed from the outset because of the prohibition in the insurance industry against this thing called rebating.

Fast forward to 2019, and a lot of innovative companies are thinking about a similar business model, only in reverse. Instead of selling insurance and throwing in something of value, companies are considering selling something and throwing in the insurance. This time, the idea may pass muster.

The combination could be especially hard for regulators to turn down if it enhances consumer safety, which, after all, is a key goal for insurers. Let's say a transportation network company (TNC) such as Uber has a device like a two-way camera system that monitors driving behavior and offers free insurance to drivers who will install it. How does a regulator say no to safer drivers?

What if the TNC gets clever with the bookkeeping to meet regulatory requirements? Just because a driver sees herself as buying a device and getting free insurance doesn't mean the TNC has to account for revenue that way.

Regulators will face some key questions, in new forms. Does an offer represent an inducement beyond what is reasonable? Are newcomers being given an advantage over incumbents? While regulators have traditionally been more protective in personal lines than in commercial lines, figuring that businesses have more expertise at their disposal, does the digital blurring of personal/commercial boundaries change the thinking? In a world of on-demand insurance and microinsurance, where the cover is increasingly tied to a physical device, how do you separate the two?

If some sort of bundling/rebating does work this time, the changes could be profound. Buy a cellphone from T Mobile and get a little life insurance with that. Agree to rent a property via Airbnb and get some homeowners insurance. The possibilities are endless.

In many ways, the history of the computer industry can be traced to the 1969 consent decree between IBM and the Department of Justice, which threw out the longstanding structure of the industry. In that case, IBM was no longer allowed to bundle everything—hardware, software and services—and sell only to those that would buy a whole package. The unbundling created opportunities for mainframe clones, services companies such as today's big consultants, etc., eventually including Intel, Microsoft, Google, Facebook and so on. Allowing for a rebundling of insurance could lead to similar innovation.

During the first internet boom, a Harvard Business School professor described to me what he called the Las Vegas business model—it's hard to have a normal restaurant or hotel in Las Vegas when casinos are giving away good food and rooms to entice gamblers. With the new possibilities of bundling/rebating, many in the insurance world may soon see just what the Las Vegas business model feels like.

Cheers,

Paul Carroll
Editor-in-Chief

Despite the troubling persistence of cybercrime, many organizations are not doing everything they can to protect themselves from the serious threat of data breaches and other cyberattacks. A Spiceworks survey of 581 IT professionals showed that 62% of organizations did not have cyber insurance policies. This can be attributed to a slew of reasons, but perhaps the most perplexing one is a lack of reliable policy offerings. As demonstrated by the percentage of uninsured organizations, the market for cyber insurance is essentially untapped. According to the Insurance Journal, 71% of the market for cyber insurance belonged to just 10 writers in 2018, and the National Association of Insurance Commissioners reported that only 500 companies offered cyber insurance in 2016, compared with nearly 6,000 offering commercial insurance. Additionally, a Ponemon Institute study of more than 1,000 IT professionals showed 80% of those surveyed said they believed it was likely that a successful cyberattack on their organization would occur within 12 months. Clearly, the need for cyber insurance exists. It just isn’t being addressed. The reason for this is that cyber insurance is a relatively new policy area. In fact, it’s still so new that it lacks the standardized terms and pricing that are so essential for creating baselines for policies in other markets. And even when those policies are created, it can be difficult to determine what qualifies as cyber coverage. If a breach occurs due to a stolen password, for example, is that considered cyber, crime, theft or general liability? This confusion also can lead to insureds making cyber-loss claims under different policies, even if the insurer doesn’t offer cyber insurance—underlining the importance of creating well-defined cyber policies to protect policyholders and insurers alike. This lack of established policy structure leads to uncertainty about how policies should be written, making it difficult for companies to confidently guard themselves against losses. As a result, many companies don’t offer cyber insurance because they’re unsure how to properly quantify risk and, in turn, price policies. This apprehension is understandable. It’s difficult and risky to try to provide estimates without a sufficient amount of credible information from which to infer. See also: Quest for Reliable Cyber Security   Still, cyber insurance is quickly becoming one of the most profitable and fastest-growing lines of coverage. Premiums increased by 8% in 2018 to $2 billion, and the market is projected to reach $14 billion by 2022. So, how does an insurance company find a way to understand cyber risks, calculate their costs and reliably predict the frequency of losses? By significantly reducing the likelihood of an event resulting in a claim. As obvious as it might sound, it’s important to remember that insurance ultimately comes down to risk, and when that risk is significantly reduced—or virtually eliminated—it benefits both the provider and the policyholder. To accomplish this in the cybersecurity arena, companies should recommend insurers use risk-reducing technology, such as tokenization and encryption, to better guard the sensitive data they are trying to protect and to reduce the risk and likelihood of a data breach or other cyberattack. By leveraging these additional security processes, insurance companies can more accurately build policies, knowing the risk of damages from a data breach is effectively nonexistent. Tokenization, such as that offered by the TokenEx Cloud Security Platform, especially excels at reducing risk through its use of pseudonymization and secure data vaults. Pseudonymization, also known as deidentification, is the process of desensitizing data to render it untraceable to its original data subject. It does so by replacing identifying elements of the data with a nonsensitive equivalent, or token, and storing the original data in a cloud-based data vault. This does two things. First, it allows tokens to be stored in a business system for future use without interrupting crucial business-as-usual processes. Second, it virtually eliminates the risk of theft in the event of a data breach. Because there is no mathematical relationship between the token and its original data, tokens cannot be returned to their original form. Instead, when detokenization is required, the token is exchanged for the original data, which can be done only by the original tokenization system—there is no other way to obtain the original data from the token alone. So if a breach occurs, the exposed data is worthless to cybercriminals. The original, sensitive data sits undisturbed in a secure cloud data vault. In effect, no loss occurs. Additionally, tokenization can further reduce risk by addressing many international regulatory compliance obligations. Influential privacy regulations such as the European Union’s General Data Protection Regulation and the California Consumer Privacy Act refer to tokenization specifically as an appropriate technical mechanism for protecting sensitive data. It also reduces the scope of Payment Card Industry Data Security Standard compliance by removing payment card information from organizations’ cardholder data environments. Because tokenization satisfies controls concerning the processing of sensitive data, it can prevent losses stemming from fines and other penalties as a result of noncompliance. See also: Paradigm Shift on Cyber Security   So when determining how your company should write its cyber insurance policies, consider recommending tokenization as a risk-reducing step for policyholders. It’s a small upfront investment for them that can better protect their data, their policy and your ability to provide reliable coverage.