Microinsurance is an industry that keeps building momentum. Changes in the global economy have created an emerging middle class that has been underserved by traditional insurance models — and microinsurance offers a needed solution. For people in developing countries, who in many cases live on just a few dollars a day, traditional insurance is too costly. Constrained finances and limited awareness act as a significant deterrent for purchasing traditional, risk-mitigating insurance products. However, when loss events like those stemming from Hurricane Maria or workplace injury occur, insurance is necessary to rebuild communities and individual lives. Considering that nearly 6.5 billion residents live in emerging and developing countries like Ghana, the Philippines and Vietnam, the scale of this opportunity exceeds virtually any other single opportunity in mature insurance markets. Much of the (re)insurance market’s recent attention has centered on global natural-catastrophe losses, which have exceeded $500 billion since 2017. Many communities around the world were dramatically affected by these losses, forcing prominent insurers to understand the best way to serve those communities. Why Micro Makes Sense The increased buying power within these developing communities confirms there’s an opportunity for microinsurance to grow. A World Bank study found that, from 1985 to 2017, Vietnam’s per-capita GDP jumped by nearly 10 times from $230 to $2,343. Such gains encourage significant interest and investment specifically focused on microinsurance product development. Allianz, for example, has doubled down on its commitment to the field by joining forces with FPT Group to build insurance products for Vietnam and purchasing micro insurer BIMA for $290 million. In addition, LeapFrog raised $400 million for microinsurance product development and distribution, proof that sophisticated parties believe in the value of microinsurance products. For new markets where skepticism toward high-premium private products exists, microinsurance offers a low-cost option to mitigate risk and grow trust with corporate insurance brands. However, when viewed in the aggregate, there remains a mismatch between high-growth areas in terms of population and income — Latin America and the Caribbean, Asia and Oceania and Africa — and insurance penetration in these areas, which currently sits at only 7%. See also: Microinsurance: A Huge Opportunity   The challenge for investors and the insurers they support is simple: educating communities, developing relevant products and establishing trust in these products; all of which is typically expended before the first premium dollar is collected. The challenge is exaggerated by the high-volume, low-margin nature of individual products, which, in some communities, carry average microinsurance product annual premium of $14. While the economics of microinsurance will continue to challenge penetration and premium capture, insurers can overcome significant hurdles related to education and distribution by presenting simplified and relevant products to prospective insurance customers, and developing and executing a distribution strategy through a multidisciplinary team. How Insurers Can Solve the Microinsurance Quandary Insurers can position themselves for success in the microinsurance market through a couple of different approaches. Chief among those is to streamline their services. Microinsurance is a product of its time. Technology allows all kinds of consumer services to provide hyperpersonalized care, which means insurers need to offer products that are as simple and relevant as possible. To accomplish this goal, insurers must keep the end user in mind during all phases of product creation. Companies need to understand what customers need, how they prioritize those needs, and where their gaps in coverage lie. By identifying these factors, insurers can offer products that clearly spell out the relevant advantages to customers. This clarity can help engage customers and increase the odds that consumers will purchase the coverage. Customers don’t want to pay for coverages they don’t need. Insurers, therefore, must seize any opportunity to create granular products that are simple and affordable. Not only does this approach provide more useful products to buyers, but it also helps insurers limit how much information they must collect during underwriting. Additionally, insurers should build cross-functional teams internally to assist with distribution. Getting the right insurance product to the right customer at the right moment takes a coordinated team of experts. Those who distribute these products need to understand the environments in which they sell and have a stake in the profitability of the product. See also: Microinsurance and Insurtech   These distribution partners must also learn to describe to consumers the differences among products. It is not enough to sell: Distributors must be educators who teach customers that insurance can be as trusted as the local brands they know and rely on. To do that, the distributors and the people they serve must be supported through association with charitable and regulatory organizations. Finally, technology must be leveraged to effectively monitor and mobilize the distribution force and insureds alike. To that end, software developers must build and test features on the basis of real customer feedback and adapt quickly to optimize the products. When the back-end team gives distributors a product that people want, distributors can sell a product that brings clear and tangible benefit to the developing world. Microinsurance will continue to grow as the needs of the global population continue to evolve. Everyone in the insurance industry, from distributors to developers, is responsible for overseeing the growth of this new niche. Only by collaborating to offer a relevant product will insurers successfully earn their share of this new and burgeoning market.

If the workers’ comp industry is serious about leveraging analytics and technology, then we need to create an innovation-friendly legislative framework. A consortium of major corporate players and industry groups should design, promote and lobby for high-level legislative clarifications suitable for all jurisdictions. This will open fertile ground for better and faster innovation. I hereby name this endeavor the “Workers’ Compensation Legislative Imperative to Foster Technology,” or simply “WC-Lift.” Why do we need WC-Lift? State legislatures do not seem to anticipate their role in redefining workers’ compensation as we know it given the promise of technology, analytics and artificial intelligence. Without legislative anticipation, great applications may be DOA in the marketplace if implementation doesn’t fit the letter of law. To insurtech pioneers and their investors, I ask: Would you rather launch a product blindly amid potential claim-by-claim legal objections and hope new case law eventually favors your application? Or would you rather have the path cleared by legislative adaptations that change the statutory paradigm and embrace technology? The WC-Lift mission is to recognize potential reaches of technology as they apply to WC, to know what innovation is incubating and to provide guidance for lawmakers in setting the stage for accepting breakthroughs. A universal framework of immediate statutory changes should be prescribed. These changes anticipate statutory grey areas or roadblocks for new applications and simply clarify an ability to do something new. See also: States of Confusion: Workers Comp Extraterritorial Issues  Just a few examples of law-adaptations in the WC-Lift can include: Open Payment Methodology: Refine the legal definition of “payment” to include “all viable methods of funds transfer and receipt as acceptable to parties of any given case.” For money transaction innovators, this wording removes the risk that WC law might strictly require payment as paper checks drawn from traditional banks. Enhanced Medical Evidence: Confirm acceptability of medical evidence beyond that of written reports from a physician to include “credible statistical and analytical data that enhances contemplation of causation, permanent disability, reasonable and necessary treatment, functional capacity, diagnosis, treatment plan, future cost or life-care estimates; and also refines the selection of providers and independent examiners for specific claimants.” This adaptation says nothing of the weight such evidence carries, but at minimum it opens the playing field for innovators to begin a proving process in shaping adjusting decisions and convincing courts to limit human bias in critical medical decisions. Dynamic Employability Factors: Consider “employability” measurement on an open platform, specifically allowing enhanced evidence to measure permanency or future earning capacity. Statutory clarification can call for “combinations of data from aggregated job postings, analytics depicting most suitable work, predictive value of vocational training, evidence from functional capacity evaluations,” etc. This open field will spark innovation in aligning individual claimants with an outlook for their future employability and earnings. As machine learning proves out, this evidence should carry more weight in case decisions. Like and Kind Awards Comparison: Allowance of “historical data for like cases to be considered in valuation of settlements and awards” as an enhancement to case valuation and the mediation/settlement process. Dollar-value based on analytical historical precedent and informed by individual case nuances can be a precursor to any statutory process by which settlements are evaluated and approved. Open Filings Methodology: Recognizing the burden of state filings allows a “compliance appeal process whereby adjusting companies can propose technological means to satisfy filing requirements or alter requirements that are obsolete based on technological means to automate the transfer of information, confirm and update critical status.” Any legislature adopting this premise is in a position to benefit from technological advancement aimed at efficiency and accuracy for the greater good. See also: Predicting the Future of Insurtech   The possibilities are vast. Consider that the early mission of WC-Lift is not to change low-level statutory process nor to adopt controversial legislative positions but simply to create safe openings that deliberately engage any and all jurisdictions in embracing technology. WC-Lift is not upsetting the apple cart but rather creating a bigger cart with more apples to choose. The drawback, if any, is that adoption by states will require a span of time where technology and new evidence must be tested with perhaps greater diligence but minimal harm. The payoff is ensuring a future that identifies and nurtures emerging strains of innovation that truly improve WC outcomes and claimant experience. I invite any interested parties with the wherewithal to charter this notion of WC-Lift to contact me and get started. Legislatures need us!

“Define the vision, own the strategy, ship great products” — these are perhaps some of the most commonly uttered phrases in any product management (PM) job description. While they capture much of the essence of what PM entails, those of us who are less familiar with PM as a discipline may find words such as “vision” or “strategy” a bit abstract. So what is a product vision? When one Googles around for “product vision,” definitions pop up in various sizes and flavors. To thoroughly understand the idea of a vision, it is important to also understand two other concepts: strategy and tactics. Here is how I would explain these concepts to a product newcomer:

• Vision: the goal you’re trying to achieve
• Strategy: doing the right things toward achieving this goal
• Tactics: doing these things right

Illustrating via an Analogy Let’s use an analogy. Suppose I would like to plan an exciting Christmas getaway with my girlfriend this year. I’ve often heard from friends about how Strasbourg turns into a magical place with its elaborate Christmas market. So I begin planning a trip from Heidelberg to Strasbourg by pulling up Google Maps. After a quick dance with the loading spinner, Google Maps presents many options for how to get from Heidelberg to Strasbourg, including going via car, transit or even bicycle. Each transportation mode comes with several routes that I could take. This user interface captures the essence of “vision” and “strategy” very well. In this case, I have the vision of “an exciting Christmas getaway in Strasbourg,” and Google Maps helps me understand the various strategies I could employ to get there (i.e., mode of transport and route). Just like in the realm of products, there are often several different routes that one could take to arrive at a single destination. We can continue expanding on this analogy by choosing a transportation mode, then selecting one of the routes. At this point, the user interface outlines detailed turn-by-turn directions for the route that I have selected. These steps represent the tactical features or milestones that I must achieve to stay on course with the selected strategy: to follow a route that Google Maps recommends for driving from Heidelberg to Strasbourg, I need to carefully follow each turn that it prescribes. Another way tactics play into this analogy could be ways to prepare for the trip so as to minimize the need to stop along the way, such as filling up the gas tank before leaving or bringing lunch. The message here is simple: to properly execute against a product strategy, we need to use the right tactics and make sure they add up to something bigger. Six Reasons for Having a Product Vision Now that we have discussed what product visions are at a high level, I hope you understand why they are so important. For those who are still skeptical, there are many practical reasons why you should have a product vision. I will highlight six of my favorite reasons below: 1. Visions Are a Prerequisite for Change In 1997, the late Steve Jobs narrated a famous TV commercial for Apple called “The Crazy Ones.” The spot ends with him saying: “...the people who are crazy enough to think they can change the world... are the ones who do.” This quote has always stuck with me because it captures the idea that innovation always starts with someone who believes he or she can create something and change the world. For me to have an amazing Christmas getaway in Strasbourg, I need to first have the idea of going on such a trip, and then believe enough in it to act on it. Similarly, to create a product that moves humanity forward, someone must first come up with an idea of how to do so and then act on it with conviction. See also: How to Speed Up Product Development   2. Visions Simplify Ideas One of the school games that left the deepest impression on me was “Telephone,” where the teacher lined up all of the students in a single row and then whispered something into the ear of the first student. The teacher instructed this student to pass on the message by whispering into the ear of the next student. This process repeated until the last student in line received the message. It was always surprising how different the initial message was from what the last student reported. This game taught me a simple yet important lesson at a young age: Communication is hard. It is especially difficult at scale, where complex ideas must be conveyed across many different teams and organizations. Within the context of a tech startup, how can we make sure that the vision our founders have in their heads is clearly understood by the entire company so that we can collectively execute toward this common end goal? This is where the product vision comes in — as a team, it is crucial for us to develop a clear and concise vision that conveys the essence of our shared end goal. We should then regularly use this vision in our communication to maximize the chances of everyone understanding the same version of the vision. Each word in the vision statement should serve a specific function toward guiding the team, rather than needlessly adding complexity or further diluting the message. If we do this well, any single team member should be able to articulate an understanding of the vision that matches what the founders had in mind when they founded the company. 3. Visions Align Groups As companies grow, the responsibilities of team members tend to become increasingly specialized. On a day-to-day basis, this means that people will spend most of their time working on a specific part of the vision and become an expert in that area. While this phenomenon is an important part of organizational evolution, it is important that all team members retain an understanding of how their part fits into the overall collective goal. A well-crafted and clearly communicated product vision can serve as an important tool for aligning groups and empowering team members to make better decisions independently. 4. Visions Unlock Collective Imagination Different people can have varying perspectives of the same reality. Because of this, a product vision is often the single most empowering tool you can give your team. Given the same goal, team members may have a slightly different view on it, enabling them to use their own imagination to work toward it in a slightly different way. Thus, a well-articulated product vision can be the key that unlocks the maximum potential of your team. When this is done effectively, the collective intelligence of the group will always outperform any individual person regardless of how smart that person may be. 5. Visions Help Distinguish “Motion” From “Progress” The product vision is the goal of our journey, so it is naturally the single most valuable reference point for differentiating motion from progress. If we ride a horse with our eyes closed, it would be difficult to tell whether we are getting closer to our final destination or not. Conversely, if we know where we want to go and do a pretty good job of keeping our eyes on the prize throughout the trip, we will have a much better idea of whether we’re getting closer with each milestone that we achieve. 6. Visions Support Effective Prioritization Similar to #5 above, a product vision provides a quick and simple way to articulate tradeoffs between ideas and make sure we are focusing on the things with the most impact for our customers. The vision helps articulate the amount of “user value” that any given project delivers because everything we do should slightly improve the status quo and move the world closer to the new reality that we’re trying to create. I hope you’re now convinced and eager to start creating a product vision of your own. The next section discusses some tips for how to go about doing so. How do I create a product vision? Vision is about telling a story. When I lived in Seattle, I used to attend this wonderful meetup called “Fresh Ground Stories” hosted by a man named Paul Currington. It occurs monthly and operates like an open mic specifically for storytelling. Thirty minutes before the event begins, anyone can put his or her name into a box and sign up to tell a story as long as the stories are real and about the individual themselves. I once signed up to tell a story; I was very nervous, so I asked Paul for some advice. He smiled, then calmly said: “Always know your last line before you begin.” As I continued working in product over the years, I’ve found this advice very helpful for articulating product visions. Within the context of storytelling, your last line is your goal. It is how you want to leave the world when you are done. For product, your vision is what you ultimately want to achieve. It is the summary of how you envision the world looking when you have finished what you’re creating. At this point, we get into some territory that can be tricky to explain because there isn’t really a “right answer” for how to go about coming up with great product visions. There isn’t a checklist of specific tasks to complete that will ensure you have a 100% success rate. Similar to telling a story or writing a novel, product visions can require lots of imagination and creativity, and inspiration for doing so can come from anywhere. See also: A Vision for 2028, Powered by Telematics   Sources of Inspiration There are two primary buckets: intrinsic and extrinsic. Intrinsic Intrinsic inspiration comes from within:  ideas and feelings that I notice within myself, which I then try to tie into the product that I am working on. Here are some examples:

• “Imagine a world where...”: A vision can be as simple as seeing what comes out when you try to finish the sentence.
• Dissatisfaction with the current world: When was the last time you felt like something about the world just could be better? What didn’t feel right about it? How would you make it better if you had a magic wand?
• Intuition and gut feeling: Sometimes we just have a feeling that something is off and could be improved. Explore these feelings, and try to get to the bottom of them.

Extrinsic Extrinsic inspiration comes from surroundings: observations about the world that could inform the next step in an ever-evolving society. Some examples are:

• People around you: When was the last time someone you know said something smart? How might you expand on those ideas and integrate them into your product?
• Gaps in existing products: What does the competition look like? Are there any customer segments that are underserved?
• Trends from other industries: Are there other industries that are going through similar changes? For instance, how might we compare and contrast insurtech with fintech and e-commerce?
• History of the world: Are there past events that vaguely resemble what’s happening in your product area? For example, what parallels can you draw between the rise of manufacturing and the rise of automation?
• Random person on the street: Basically, extrinsic inspiration can come from anywhere. Perhaps the most important thing is that we pay attention and take time to reflect a bit when we find something interesting.

Giving It a Shot Armed with the tips from above, perhaps you are ready to create your own product vision now. If you feel comfortable, please share your visions in the comments section; I would love to see what kind of great ideas you have, let’s have a discussion.

On March 14, insurance credit rating agency A.M. Best released its Scoring and Assessing Innovation (Draft). Per its press release, “AM Best defines innovation as a multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services or business models can be created organically or adopted from external sources.” The rating agency further notes, “Innovation always has been important for the success of an insurance company, but, with the increased pace of change in society, climate and technology, it is becoming increasingly critical to the long-term success of all insurers.” Best begins with an assessment of the commitment of senior management to innovation. In the compliance world, this is also called the “tone at the top.” Best broadly labels this criterion “Leadership.” If there is a firm commitment, then a positive culture of innovation follows throughout the enterprise, the second component (“Culture”) of the Best scoring model. This requires sufficient resources devoted by the insurer to bring to market new products, processes, services or business models and, per Best, “…a demonstrable impact on its long-term financial strength.” This is the third component of the model (“Resources”). Finally, existing company governance structures, policies and procedures must facilitate an innovative environment and address enterprise-wide data management and compliance obligations. (“Process and Structure”) That all sounds logical. See also: Changing Nature of Definition of Risk In what could be said to be an understatement, Best next observes, “A challenge for insurers is aligning the use of customer data with varying regulatory restrictions related to consumer privacy. The rules for mining of personal data are expected to fall within the confines of governance and encompass regulatory guidance.” While this is axiomatic, it also demonstrates an inadequate treatment of the various risks posed by innovation as characterized in the draft. Consider A.M. Best’s 2013 document, Risk Management and the Rating Process for Insurance Companies, in which “Operational Risk” is defined as: “Financial exposures arising from damage to a company’s reputation or franchise value stemming from a wide variety of external and internal factors, such as: management change; business interruption; fraud; data capture; data security and integrity; claims handling; and employee retention.” Operational risk is one of the pillars of the A.M. Best Risk Management Framework. Consequently, a properly governed insurance company will take into account the full scope of regulatory compliance issues raised by innovative technology, which is more than today’s increasingly complex and fluid data security regulatory environment. Enterprise risk management (ERM) must also assess the risks associated with replacing a wide range of systems and, potentially, relationships, that may occur with innovation. While insurtech startups have captured the imagination – and capital – of insurers, these ubiquitous private firms are also third-party vendors that should be subject to the same due diligence as any other service provider. This isn’t to suggest the insurance industry and the consumers of its products should curb their enthusiasm about innovation, or to minimize the benefits that are being realized by both insurers and insureds from what insurtechs have enabled. It is to say, however, that unless we innovate all elements of insurance operations at roughly the same time, innovation will be marked with unnecessary failures, regulatory entanglements and costly litigation. It is not just consumers who are affected by innovation. The whole spectrum of service providers integral to the delivery of benefits to insureds must be on board if there is to be success in these technological initiatives or, as Best puts it, if the insurance company is to be, “relevant and successful.” This includes legal and regulatory compliance, but it also must include making certain that every entity that must adapt to innovative technology adopted by an insurance company is capable of doing so. Currently, predictive analytics driven by access to big data have already been adopted by many insurers to improve the underwriting and claims processes. New web-based distribution systems – which rely on big data, as well – make getting insurance easier in the increasingly competitive world of small business insurance. Platforms such as bi-BERK (from Berkshire Hathaway) and Pie Insurance are but two examples of how technology is making it easier for small firms to do business with large insurance companies. For personal lines of insurance, the Internet of Things (IoT) has provided new opportunities to enhance the customer experience. It is vitally important, however, for insurers to understand the relationship between innovation and their partnerships with a wide range of service providers. In other words, change management is important throughout the environment in which the insurer operates. If any one participant in that environment is told to “just do it” (with apologies to Nike), then there is a risk that innovation will fail. While third-party service provider (vendor) management should already be part of the insurer’s ERM program, onboarding these vendors when new technology solutions are implemented should be something specifically acknowledged by A.M. Best when scoring for innovation. In a recently released study, process mining company Celonis looked at how both leaders and business analysts in the U.S., U.K., Germany and the Netherlands view business transformation. The results were startling. Sixty-two percent of C-suite executives set key performance indicators (KPIs) for their transformation initiative without understanding what’s going wrong in their business first. That led the sponsors of the survey to observe, “This suggests that many businesses are undergoing disruptive transformation processes because they think they should, rather than knowing exactly why they must.” See: Celonis (2019), Why are Business Transformation Initiatives Being Launched in the Dark? See also: New Phase for Innovation in Insurance   Echoing that theme, in a report by Valen Analytics, 2019 Outlook: The Data Race Intensifies, it was noted: “Adding to the innovation challenge in insurance is a trend of long IT backlogs, with most insurers reporting a backlog of one to two years. For the 22% of respondents unable to identify how long their IT backlogs are, it may be one indicator that technology innovation is not at the center of business strategy.” Today, the risk run by the A.M. Best effort at innovation scoring is that insurers will not do the thorough risk analysis necessary before launching and implementing significant technology initiatives. Only then will the path to innovation be focused, aligned with well-defined company objectives and capable of delivering value to all who are part of the claims, distribution or underwriting environments. Without that assessment, “bright shiny objects” will continue to be embraced for no other reason than to say that they were.

Workplace violence can happen any time and anywhere. This session at the RIMS 2019 Annual Conference & Exhibition reviewed a spectrum of workplace violence risk management tactics, including red flags that can foreshadow an event and training on what to do if an event does occur. Speakers included:

• Dr. Teresa Bartlett, senior vice president, medical quality, Sedgwick
• David Rydeen, senior director, risk management, Raising Cane’s Chicken Fingers
• Officer Chris Perez, Brockton Police Department

Workplace violence can stem from a variety of issues. Domestic disputes, mental health issues, drug abuse issues, disgruntled employees and racism are all drivers. OSHA reports that 2 million incidents occur each year, many of which (non-fatal incidents like bullying or harassment) go unreported. Robbery-related homicides and assaults are the leading cause of losses in retail. In this setting, there are tactics to help. For instance, post clear signs that there is limited cash on hand/surveillance cameras in use, maintain an unobstructed view of and from the cash register and sales area and create and train on a clear policy as to what to do in case of an event. Approximately 70% of attacks occur within the healthcare industry. Train your staff so they know what to do. Frequently involve police and first responders in that training. It is important to have protocols in place when events escalate and train on de-escalation skills. See also: Workplace Violence: Assessment, Response   Whatever the industry, it is important to know the warning signs. A mishandled termination or other disciplinary actions are often triggers. Know that you are not required to call someone in to work to terminate the person. Also be aware of weapons on the work site. Listen for motivations. If someone is suicidal, the person probably will not have problems hurting others. Drug or alcohol use on the job is also a red flag. Try to be aware of employees’ personal circumstances. Your management really is the front-line defense and must be consistent and present. Family conflicts, financial or legal problems and emotional disturbance can all indicate problems. Gently address any noticed changes in a non-threatening way. Start with, “Your energy is different today. Is everything OK?” Other behaviors to look for are:

• Increasing belligerence
• Ominous, specific threats
• Hypersensitivity to criticism
• Recent acquisition or fascination with weapons
• Apparent obsession with a supervisor or coworker or employee grievance
• Preoccupation with violent themes or interest in recently publicized violent events
• Outbursts of anger

Know your resources. Meet with local city and country law enforcement in preparation of an emergency. Invite them to your building for a tour. Provide architectural diagrams of the site and make them aware of emergency routes and all entrances/exits. See also: Broader Approach to Workplace Violence   Risk managers must focus on designing a customized approach that matches the goals of their organization. Use clinical resources such as mental health professionals and nurses and look to umbrella policies for planning assistance. Plan for post-event strategies, including crisis management companies to meet with witnesses and a plan for HR to go to the homes of those affected and cannot return to work immediately. Dealing with the aftermath is extremely important, especially for survivors. A variety of PTSD-related conditions can lead to a variety of mental health implications for employees. Access to psychological help will be essential. There are also return-to-work strategies that will need to be applied, including gradual exposure therapy or possibly assigning an employee to a job in a different department. All of these strategies are geared at proving that it is safe to return.

The past decade has been transformative for U.S. marijuana laws. Not since the era of Prohibition has the U.S. wrestled so broadly and intensely with the cultural, judicial and economic implications of legalizing a formerly illegal substance. And while the push to reform state marijuana laws continues sweeping the country with unambiguous fervor—a late-2018 Gallup poll showed 64% of Americans favor legalization—many questions and complications remain for those in the insurance industry. Whether it’s being used as medicine or for recreational leisure, marijuana's core problem for insurers is a policy landscape where myriad state laws now conflict with the fact that the federal government still considers marijuana illegal under the Controlled Substances Act (CSA) and classifies it as a Schedule I drug with "no currently accepted medical use in treatment in the U.S." What’s more, the particulars of individual state laws are anything but uniform, and what’s considered legal in one state may be unlawful in another—even if they both allow for some degree of marijuana possession or consumption. “This has all led to a real insurance quandary,” says Brenda Wells, director of the risk management and insurance program at East Carolina University in Greenville, NC. “Do they cover it? Do they not cover it? And if they do cover it, how is it valued? These are just some of the questions they’re wrestling with at this stage. And it can get confusing.” Marijuana and Homeowners Insurance The question is simple: If a policyholder has some marijuana—or is growing it within state-mandated limits—and it’s damaged in a fire or stolen from the property, will a homeowners insurance policy cover the loss? The answer is not so straightforward. Not only are insurers nervous about covering marijuana-related losses because of the legal disparities between state and federal policy, but most homeowner policies also contain explicit exclusionary language related to controlled substances, which means that a claim for lost, stolen or vandalized cannabis may be denied if the insurer believes the loss falls within the exclusion. This can wreak havoc on the enforcement of contracts between an insurer and its clients, says attorney Richard Blau, an insurance expert and shareholder at GrayRobinson and head of the firm’s medical marijuana team. To emphasize his point, Blau cites a now-infamous 2012 Hawaii federal court ruling that said a homeowners insurance policy did not cover the theft of one woman’s marijuana plants grown for medicinal use. The homeowner, Barbara Tracy, was allowed to grow and possess marijuana for her own medical use, and after 12 plants were stolen she submitted a claim to USAA for $45,600. USAA initially agreed to pay Tracy $8,801 for the claim, but Tracy sued, claiming the plants had a far greater value. USAA argued that, because marijuana is federally classified as an illegal Schedule I substance, it was under no obligation to cover the loss at all. The court ultimately agreed with USAA, stating that even though Hawaii law permits the use of marijuana for medicinal use it is illegal under the Controlled Substances Act and therefore not subject to homeowners insurance coverage. “So on the one hand, you have a lot of insurance companies that operate in many different states, which means they arguably fall under federal jurisdiction. They’re worried their charters could be challenged under federal law,” Blau says. “But you also have what I think is the larger issue of judicial precedence that says insurance contracts are not enforceable under federal law. The good news is that… we now have an alternative line of cases where judges have ruled that as long as the claimant stayed within the scope of state law the insurance contract is valid and enforceable. But the split of judicial opinion needs to be reconciled.” See also: In the Weeds on Marijuana and WC   According to Wells, a lot of insurance companies “are reluctant to even talk” about whether they will cover marijuana-related homeowner losses, adding that “the industry in general hasn’t been handling this very well, but they need to figure out if they’re going to cover this. And if they are, they need to be prepared to pay claims like they would for anything else.” Trying to find a catchall approach to the marijuana home insurance quandary produces a staggering variety of anecdotes, opinions and legal vagaries that fluctuate from state to state and from insurer to insurer. At the end of the day, whether a loss is covered will most likely be up to the individual insurer. “Legal marijuana is one of a few Wild West issues facing property insurance right now. It’s vast, uncharted territory,” says Janet Tulsette, a Connecticut-based property insurance consultant who has recently specialized in the intersection of insurance and marijuana law. “Not only is it complicated…but it’s also so unprecedented, which means insurers are reluctant to be the first to make any bold moves one way or the other. They’re playing it relatively safe, but that makes things more complicated, not less.” As of right now, some insurers are looking to individual state laws to establish a precedent for coverage. For instance, Allstate went on the record in 2014 saying it would cover the loss of marijuana in Colorado, where cannabis is legal for both medicinal and recreational use, adding that marijuana plants grown with a state license—and not exceeding the legal state limit—would be “limited to the perils and limits under additional protection for trees, shrubs, plants and lawns.” Marijuana and auto insurance On a consumer level, the intersection of legal marijuana and auto insurance has been fairly uncomplicated thus far, and that’s because the insurance ramifications for getting caught driving high are no different than those associated with driving under the influence of alcohol. However, cannabis-related businesses are finding it extremely difficult to obtain commercial auto insurance policies that can adequately cover various auto-based aspects of their businesses, including the transport and delivery of cannabis-related products. “A lot of the mainstream underwriters are pretty old school, and their vision of a driver in this industry is like a stoner pizza delivery guy,” says Jeff Kleid, owner of the California-based Elite Green Insurance Solutions, which provides a suite of insurance products to the cannabis and hemp industries. “They think that since these men and women are delivering marijuana they must also be smoking it while they’re driving. And that couldn’t be further from the truth. This is a problem of perception as much as it is a problem of legal disparities.” Kleid is quick to point out that insurers are also reluctant to write commercial auto policies because there’s a significant dearth of claims and risk data essential to underwriting. “Insurance is a data-driven industry, and because it’s been illegal for so long there’s not enough data out there to make insurers comfortable working in this space,” Kleid says. Marijuana and life insurance As more and more Americans legally smoke cannabis for recreational and medicinal use, life insurance providers have had to grapple with its impact on the application and underwriting process. According to insurance specialist Michael Quinn, life insurance providers are wrestling with whether smoking marijuana carries the same health risks as smoking cigarettes. “Regular smokers are charged tobacco rates, which are often four times higher than those for non-tobacco users,” Quinn says. “But some insurers are deciding to treat marijuana differently.” For instance, Prudential tends to offer some of the lowest life insurance rates for marijuana users because they do not place them in the same risk pool as cigarette smokers. According to Prudential, a preferred non-tobacco rate is granted to users who smoke marijuana no more than three times per week, and insurance applicants must admit to marijuana use during the application process. Meanwhile, providers like United of Omaha offer non-tobacco rates for those who smoke marijuana no more than three times per month, while John Hancock stipulates that it considers smoking marijuana “drug use” and will not offer applicants competitive rates. “Based on your marijuana use alone, there is no telling what kind of rates you will be offered. You could technically get rates anywhere from substandard to preferred plus,” Quinn says. “However, a company like Prudential looks at the reason behind your marijuana use, and if it’s for medicinal reasons your rates will be based on the severity of your health condition, not the marijuana use alone.” Many in the industry echo this distinction. “For underwriting consideration, the first thing we must determine is whether the use is recreational, or if the proposed insured had been issued a prescription for medical use,” Pinney Insurance underwriter Mike Woods says. “If it’s for medicinal purposes, underwriting is going to be looking to the specific issue that the marijuana is being used to treat." Marijuana and business insurance As anyone familiar with the legal cannabis industry will attest, there is a lot of money to be made from insuring cannabis-related businesses. According to Fortune, the U.S.’s legal marijuana industry grew to $10.4 billion in 2018 (it was $6.5 billion in 2016) and employed more than 250,000 people. What’s more, Fortune estimates that investors will “funnel more than $16 billion into the industry” in 2019. The need for a comprehensive approach to insuring various aspects of the legal marijuana industry is becoming increasingly critical for everyone from growers to dispensary owners, and there are signs that the insurance industry is starting to pay attention. To be sure, a handful of niche carriers and subsidiaries have begun filling the gap. For instance, Brown & Brown Insurance now offers marijuana business insurance through a new company division called Cannabis Insurance Professionals (CIP), which is based out of California and licensed in all 50 states. CIP garnered national headlines last year after the company paid out more than $1 million to one of its clients whose marijuana crop was destroyed in the 2018 Thomas wildfire. “There are small private insurers trying to fill the gap, but not many. And most of these companies are non-admitted, coverage is limited and the price is expensive,” says Dawna Capps Evans, executive director of the National Cannabis Risk Management Association (NCRMA), a membership-based trade organization that provides risk management and insurance solutions for CRB owners and investors. According to Evans, the current insurance landscape leaves business owners with tough choices. “They can either purchase very costly insurance, or they can go uninsured or under-insured—which leaves assets unprotected and exposes them from a personal liability perspective—or they have to piece a plan together from many different insurers, which can be extremely time consuming,” Evans says. See also: Marijuana and Workers’ Comp   According to attorney Meghana Shah—partner at Eversheds Sutherland LLP and co-founder of the firm’s cannabis industry team—the conflict between state and federal law once again rears its head, potentially exposing marijuana businesses and their ancillary service providers (such as insurers) to federal criminal liability. “Business owners and insurers alike remain concerned about the risks associated with doing business in the cannabis industry,” Shah says. “For cannabis-related businesses, the inability to secure insurance renders them unable to protect themselves against common business risks, some of which have the potential to irreversibly cripple their business.” Adjacent to this concern is the limited access that CRBs have to the banking system. Consider, for instance, that in 2014 Colorado’s Fourth Corner Credit Union was chartered to serve the “unique financial needs” of cannabis-related businesses. But despite operating within the boundaries of Colorado’s legalized marijuana framework, the application for a master account from the U.S. Federal Reserve System was denied because of marijuana’s continued illegality at the federal level. This is just one example of how the disparity between state and federal law has forced the legal cannabis industry to operate within a cash-intensive “gray market,” bringing with it all manner of concerns, including theft, the risks of currency transportation, money laundering and cash hoarding. “The lack of banking options is a unique and significant risk for the cannabis industry right now because so much of this economy is being fueled by large, cash-based operations, and that leads to significant exposure,” Evans says. “Banking and financial institutions play a critical role in our economy, and most businesses take for granted the way they use these institutions in a secure way. Without access to safe banking in the cannabis industry, insurers are going to be very reluctant to get on board.” In an effort to address this particular problem, the House Financial Services Committee voted 45-15 in March to advance the Secure and Fair Enforcement (SAFE) Banking Act, which aims to protect banks and other financial institutions from federal prosecution when working with cannabis-related businesses operating in compliance with state laws. What’s more, the act would prohibit federal banking regulators from sanctioning financial institutions that work with CRBs and would also protect ancillary businesses—like insurance companies—from being charged with money laundering or related financial crimes. And while the SAFE Banking Act still faces an uphill battle, many in the industry are extremely optimistic about what it foreshadows. “The industry is only going to grow, and the losses associated with legal marijuana are only going to increase,” Tulsette says. “The insurance industry really needs to come up with comprehensive and substantive solutions. They can only keep their heads in the sand for so long.”

One of the most fun and inspiring endeavors I’ve undertaken in my post-corporate life has been to advise select early-stage companies, portfolio managers and accelerators. Startups need lots of marketing advice, especially early on when there may not be a CMO on board. As a result, my work often involves defining audience targeting strategy and the value proposition (from the buyer’s perspective), building the messaging framework and then spending lots of time advising on how to navigate the corporate gauntlet. The problem is, even with a well-defined marketing, communications and sales strategy, a startup at the pre-seed, seed or even A-round stages may not have the endurance to make it through the corporate gauntlet.  The effort is just too complex and time-consuming given the demands and limitations on a young company’s talent and the sensitivity to monthly cash burn. You may say, well, the startup world is a bit Darwinian.  Only the fittest survive, and that is to be expected. My bet is that while most everyone at work in the corporate world acknowledges their own bureaucracies, too few act on the recognition that their people, policies, and processes can absolutely affect startups’ survival, which, in turn, hurts enterprise efforts to transform and innovate. Those in the corporate world pay a price for killing or weakening these innovators, who are a source of new capabilities that established companies are unlikely to create on their own. Corporate leaders can do something about it – if they can summon the leadership, courage and tenacity to do so. What exactly is happening? Here’s a sampling of what I see founders run into, once the introduction is made and there is an expression of interest to learn more. First, a couple of months pass to get a meeting on the calendar, and to take place with at least some of the right people in attendance. See also: How Startups Win Customers’​ Hearts     The conversation after the presentation and demo moves to: “We love this tech, and it would do a lot for our organization…” Yet, within a couple of follow-up meetings, phone-calls and other internal introductions, the conversation switches over to one of many variations on the big “but” …

• “But we have too many priorities.”
• “But we have to pick our battles with [fill in the blank – procurement, compliance, information security, et al.]
• “But we have so many open roles that there is no one here to lead the pilot.”
• “But we cannot get the support in 'the business'; they are just focused on this quarter’s sales.”
• “But it turns out we already do this or can do it ourselves.” [This is often untrue.]

These are real quotes from real conversations with well-paid, smart and accomplished corporate managers who get the reality of declining customer franchises, diminished brand commitment, new and unbounded competitors, legacy distribution, etc. Some of them are actually – yes – digital natives, and all are at least digitally enlightened. I wonder, are they simply beaten down? Are they afraid? Do they define their roles as being great at repeating how things have always been done, and not deviating too much? Or are they trapped inside a legacy mindset, an outmoded idea of the value of speed (no, you cannot expect the world to wait for your annual planning cycle), and higher internal hurdles for getting approval to do new stuff than to maintain the status quo? There are common characteristics inside large enterprises where the future is being advanced with meaningful adoption of some of the imaginative business models, offerings and technologies developed by startups:

• Leaders are allowing the processes, policies and procedures that are fit for the purpose of innovating to co-exist alongside those that are essential to sustaining earnings predictability.
• Leaders are willing to try new things and know that failure is a natural and expected part of experimentation.
• Leaders are speaking up and advocating for policy and process change and holding themselves and their people accountable for delivering the short term while also taking steps to the future.
• Leaders are developing their people, ensuring collaboration and diversity through action not just talk and having their people’s backs when they take risks.

See also: Who Will Win: Startups or Carriers?   Startups are discouraged by enterprise relationship opportunities where the pace and bureaucracy are simply too slow and complex to be practical when they have to demonstrate milestones every month to their investors. Is your company or another one you know of missing out as a result? Do you believe something can be done to change?

This article is based on a keynote speech, “Disruptive Leadership,” at the World Forum Disrupt, Strategy & Innovation Conference in New York City. The pace of change we are experiencing today is as slow as it is going to get for the rest of our lives. Everyone talks about disruption: digitalization, automation, virtual reality, artificial intelligence, big data. The corporate world is polarized at the moment. Companies today sometimes feel that they must choose between flexibility, on the one hand, and the stability, on the other. There is a lot of talk about agility as a way to bridge the gap between the startups and the industry incumbents. According to McKinsey, “Truly agile organizations learn to be both stable (resilient, reliable and efficient) and dynamic (fast, nimble and adaptive).” Disruptive leaders are the ones who can stand in the middle – the ones able to speak both the language of the legacy world and the language of the startup world. They stand in the sweet spot between rapid change and rigid stability. In fact, disruptive leadership is the single most important ingredient of agile organizations. Disruptive leadership is not reserved for tech and innovation departments only. It is about changing the organization's DNA, instead. Through my work over the past decade, I have been observing highly effective leaders, and, as a result, I came up with five main pillars of disruptive leadership. I will cover three here and follow up a second article that has the final two, plus a conclusion. 1. Past — Future Startup leaders ask: How could we do it tomorrow? Legacy leaders ask: How have we done it so far? Disruptive leaders ask: How might we do it today so that we bridge the gap between yesterday and tomorrow? Disruptive leaders are able to keep one eye on the present and the other on the future. They know that, to successfully lead a disruption, they need to keep the significant part of their existing operations stable. They also understand, however, that experimentation is crucial to be future-ready. Balancing these two conflicting goals is not easy. There are not a lot of leaders who can do this. It’s a missing skill in the market. See also: InsurTech Forces Industry to Rethink   Some traditional companies try to bridge the skills gap by hiring leaders from the startup world, which often fails. Why? Because they often don’t pay the necessary respect to the existing culture and the existing business model. They are great at innovation, but they are often not adequately skilled to balance stability with change. Reflect: How much time are you carving out in your day to think about where the future is headed? 2. Limited — Unlimited Limited vs. Unlimited thinking is closely related to the previous point. Our past and our present are mere indications of what is possible. Truly unlimited potential lies in the future. Disruptive leaders create an appealing vision by thinking in an unlimited manner and are then able to tie it back to reality and find ways to make it happen. Startup leaders focus on closing the so-called opportunity gap – the gap between the way things are and the way they could be. Legacy leaders focus on closing the performance gap – the gap between the way things are and the way they should be. Disruptive leaders focus on both. They aim to make improvements to the existing product or service (performance gap), while at the same time challenging whether that product or service is relevant any more (opportunity gap). Reflect: What can you do to move from limited thinking to unlimited thinking both in relation to your company and for your career in general? 3.  Internal — External Legacy leaders have an internal focus: How have we done it so far, and what is it that we are strong at, that we want to offer to our clients in the future? Startup leaders are extremely client-focused, on the other hand; they are great at listening and designing a business that meets their clients’ needs. As usual, a disruptive leader is the one who can do both – honor the legacy and the strengths of the company, while keeping another eye on the external world: clients, competitors, new entrants, emerging risks. See also: Industry Demands an Open Ecosystem   Disruptive leaders keep a close eye on all the players up and down the value chain because they understand that clients of today may be competitors of tomorrow, and vice versa. Value chain disruption is becoming more prominent, so keeping an eye out on the external developments is critical. Reflect: How much of your time are you carving out to observe the market and understand the developments up and down your value chain?

A report by The Insurance Insider last week that AXA won't contribute more funding to its insurtech venture fund underscores just how hard innovation can be for big corporations, even when you have the sort of all-star cast that a fund like XL Innovate can assemble.

Picking winners and losers among investments is plenty hard—the rule of thumb is that nine out of 10 startups fail. On top of that, corporate venture funds typically have conflicted agendas.

To get top talent, you have to pay handsomely for good returns—Silicon Valley titans like John Doerr and Vinod Khosla set the bar, having become billionaires as VCs. Chasing those returns, the VCs want to be able to invest in anything with great promise. Fair enough. But here's where it gets tricky.

The corporation typically isn't just looking for a return on investment. It wants to find a product, a line of business, a business model, a something that could produce a step change for the company or even reinvent the business. Basically, the corporation is looking to be Dayton Hudson, a stodgy family retailer that in 1962 let one of the brothers test an idea for a discount retailer—when I tell you that the name he chose was Target, you realize just how successful he was; his experiment subsumed the rest of the company. 

The XL Innovate early investment in Lemonade illustrates the tension. Lemonade is now a unicorn, valued at $1.5 billion to $2 billion, so the fund has generated a spectacular return. Yet Lemonade's renters and home insurance, even together with its slick interface, aren't likely to move the needle for AXA's life and health lines or its financial services.

And XL's Lemonade experience is for a company being sophisticated about how to innovate. Our chief innovation officer, Guy Fraker, tells of being at State Farm years ago, in the pre-insurtech days, and trying to get the company to invest in Relay Rides. Guy was sure that the peer-to-peer, car-sharing service would succeed, and the $500,000 investment finally happened, but only because a senior executive cut through the review process and expensed it. Guy later learned that State Farm sold its stake in the company (now called Turo) after a year and tripled its money, but it's not as though that extra $1 million moved the needle for the mammoth insurance company.

Historically, the best insurance companies have been run by financial geniuses, who have figured out super-smart ways to use all the capital they amass. Warren Buffett, for instance, has used Berkshire Hathaway's insurance assets to finance much of his wizardry. And there's a lot to be said for the insurance industry's financial sophistication. The industry financed the recovery from Katrina, Maria, 9/11, etc., and is rebuilding sections of California following the devastating wildfires, all without taking on debt. 

But the game is changing, and financial brilliance is no longer enough. The bad news is that the challenges will be tough, as the AXA report shows. The good news is that the industry seems to be coming to grips with the change. A.M. Best's decision to start rating companies on their innovation capabilities, in particular, will not only provide companies with incentive but will help steer them toward the right path.

Cheers,

Paul Carroll
Editor-in-Chief

Artificial intelligence (AI) seemingly has been discussed everywhere over the last few years, and now it’s made its way into the commercial insurance industry. Organizations are using AI and machine learning for everything from streamlining operations to offering more personalized care and better customer service. There is an increasing sense of urgency about getting started on the AI journey. The question is how. Do they develop a custom solution in-house or purchase a third-party solution already on the market? At first blush, the temptation to build can be strong — after all, you can design exactly what you want for your specific environment. In reality, it’s hard to accurately weigh the perceived benefits of a highly customized internal platform against the time and cost requirements compared with purchasing a tested, third-party solution. To help figure out the best course of action for your organization, I’d like to share some criteria that may guide you. Staffing Developing a quality AI-based platform that effectively addresses specific needs requires a dedicated team. To build this team in-house, your organization will need to hire more than just data scientists. Full deployment of a new solution requires product managers, software engineers, data engineers, data scientists, operational experts to develop process and operational workflows, staff to integrate data models into operations, people to manage onboarding and training of the employees who will ultimately use the solution and staff who can quantify value. It’s also important to have all these members operate as one unified team instead of spanning various organizational groups that are not 100% aligned. For some organizations, this may not be a big deal. For others, the process of recruiting, hiring, training, managing and scaling down staff is one of the worst, and often most prohibitive, parts of embarking on the AI journey. If it’s too daunting to put together a team with the necessary skills, opting for a third-party solution that already has this figured out could be the way to go. See also: How to Use AI in Commercial Lines   Data What types and how much data does your organization currently pull? If you can glean industry-leading insights and possess a treasure trove of information internally, you may want to keep it under lock and key, developing new ways to access and analyze it in-house. But this is usually the exception rather than the rule due to the complexities involved in the insurance industry. Even very large organizations with a high number of claims may lack a preponderance of data on a particular feature, injury or litigation scenario. An external vendor, however, could have data aggregated more broadly to cover all situations. External AI vendors draw on a wealth of anonymized and aggregated data from both public and private sources. This means data models can be trained more quickly and accurately. Customization This is an area where in-house development wins. Your organization can build something from the ground up completely specific to your needs at every turn. If you opt for a third-party solution, there are some constraints that you have to adhere to. However, it’s important to think of customization not just at a point in time but also across the entire life of the AI solution. While you might be able to build exactly what you want right now, if you don’t have continued focus, the solution will become obsolete rapidly. This brings us to the next point. Continued Focus Just because an AI-based solution is created and implemented doesn’t mean the work is done. It is, in fact, just the start of a journey that requires a dedicated team focused obsessively on the problem. These solutions need to evolve fast, or they will rapidly get irrelevant. Models need to refresh. And platforms and software need to be updated, maintained and optimized. When planning for this in-house, factor in both the staff and time involved to refresh models, fix bugs or add fields or features. If you go the third-party route, maintenance and improvements are typically included in the cost or subscription. If you feel uncomfortable dedicating an internal team to the project on a continuing basis, it might be better to go to a third party. Security When it comes to security, in-house platforms have an edge because data is not shared outside of the organization. While you still have to ensure that your networks, systems and endpoints are carefully managed, you are in control. While evaluating third-party vendors, it’s important to check their security credentials and processes to handle data. They need to be as good as your internal processes (if not better) with clear evidence of tight controls through certifications like SOC 2 Type II, HIPAA and HITRUST. Time to Capture Value There is a race going on to bring down cost structures dramatically. This is driven by the premium pressures in the market. The primary way to improve combined ratios is by pushing on operational efficiencies. Time matters. It’ll help to think hard about how you could capture value quickly. Ask yourself how much time it will take to:

• Assemble the team
• Receive data and set up a data pipeline
• Design the solution
• Build the solution and create a testing infrastructure
• Operationalize the solution
• Design and implement a way to track value
• Continuously iterate on the solution

Cost Your ultimate decision may come down to some basic math. Once you’ve narrowed the list of potential outside vendors and receive their quotes — which typically include a continuing fee that covers hosting, support, performance and additional improvements — you can compare them with what you estimate for the total of building a solution internally. In calculating this estimate, factor in staffing, training, infrastructure and hosting costs as well as maintenance and continuing improvements, as previously discussed. See also: Leveraging AI in Commercial Insurance   I hope these guidelines assist you in making the decision on how to best bring AI into your organization. There are pros and cons to both building and buying. The trick is to prioritize your needs and what is actually feasible and realistic for your company to ensure that the result more than justifies the means to get there.