Generating a superior return on investment is crucial to any company’s longevity. It is essential for even the smallest company to use assets effectively to achieve profitability. Companies that rely on automated equipment most often have maintenance programs in place to insure functionality and productivity. In many firms, their main assets are their employees. Like those relying on equipment, these businesses need maintenance programs in place for their employees to ensure they operate at peak performance. Optimizing employee productivity is a topic of concern for all business owners. Few would disagree that providing employees the right tools is essential to achieving superior output. Items such as ergonomic workstations; training and guidance; and effective technology are tools that almost every company provides. You could call them mainstream items. Unfortunately, regardless of the tools provided to an employee, if employees' health status is compromised, their output will be reduced. An employee’s health and ability to function in the workplace are often directly related. This correlation is vividly evident in how the government views individuals with disabilities. For employees with qualified disabilities, the federal government requires employers to provide “reasonable accommodations” to aid the employees in successfully performing the duties of their position. Examples of reasonable accommodations include providing interpreters, readers or other personal assistance; modifying job duties; restructuring work sites; providing flexible work schedules or work sites (i.e. telework); and providing accessible technology or other workplace adaptive equipment. What can employers do for employees that do not qualify under the disability guidelines, but still have health-related conditions that compromise their work output? Visionary business owners tend to look outside the box for unique solutions and options. See also: Empathy Transforms Health Insurance   Employees can possess both physical and mental health conditions that directly affect their work production. Some employees are very open about their health status, while others tend to stay very private. The degree of assistance an employee seeks to manage a health condition can also vary greatly. Some choose to engage the support of a physician, while others may look to self-remedy. The spectrum is broad and very subjective. This poses a very challenging environment for an employer. Many individuals look to medications, in one form or another, to treat health conditions. If prescribed accurately and consumed in accordance with proper intake guidelines, medications can help an employee’s work performance. The negative symptoms associated with the underlying health condition become non-existent, thus paving the way for the employee to focus on work-related activities. However, improper medication adherence can exacerbate an employee’s health condition and result in, among other things, reduced productivity and high absenteeism. Medication mismanagement, whether it be taking too much, not taking enough or taking the wrong medication, can lead to an adverse drug event (ADE). Approximately 1.5 million preventable ADEs occur each year due to medication errors, at a cost of more than $3 billion. This direct health care-related cost is completely outside the costs incurred by an employer when an employee has an ADE. An ADE that requires a hospital admission is easily quantifiable from a cost perspective. However, those ADEs that are not as acute and do not require hospitalization, which are the most prevalent, can materially affect employee productivity. This financial impact is what the employer experiences. Accordingly, it is prudent to say any help an employer could provide to their employees to ensure the integrity of the employees’ medication adherence makes good business sense. Historically, small employers have not entered the arena of employee medication administration. Larger, self-insured firms, as a byproduct of their insurance platform, have participated, to some degree, in the employees’ medication administration. However, neither navigates to the granular level of medication adherence. There could be multiple reasons why employers have not chosen to address employees’ medication adherence. One of the biggest obstacles is the Health Insurance Portability and Accountability Act (HIPAAA). The HIPAA Privacy Rule legislation establishes national standards to protect individuals’ medical records and other personal health information and applies to health plans, healthcare clearinghouses and those healthcare providers that conduct certain healthcare transactions electronically. The rule requires appropriate safeguards to protect the privacy of personal health information and sets limits and conditions on the uses and disclosures that may be made of such information without authorization. The law is encompassing, and the potential liability to an employer for breaching it is substantial. See also: The Science That Is Reinventing Healthcare   What would be the outcome if new technology made it possible for employers to stay within HIPAAA guidelines while simultaneously providing all of their employees an unparalleled way to achieve medication adherence? The answer is healthier employees who produce more and miss fewer days. That time has come because the technology is available. Those visionary employers referenced earlier, specifically the ones looking outside the box for employee productivity solutions, know what a game changer comprehensive medication administration can be to their profitability. They can validate the value in providing their employees a system that embraces a support team environment, whereby family members and loved ones can help an employee with medication. They know how important it is for employees to take medications on time and in the proper dosage. They realize that timely refills mean continuing compliance and improved adherence. They understand that any positive steps they can take to help their employees with medication administration will be directly reflected on the company’s bottom line. Doctors prescribe medications for their patients. As a general rule, they do not provide them medication management tools. Further, insurance companies pay for medication. They also do not provide medication management tools. Those two scenarios combine to be the root of the medication mismanagement crisis currently being experienced in the U.S. Employers can be the solution. Because employees frequently obtain their health insurance from their employer, it just makes sense for employers to fill the medication administration void perpetuated by the current physician and insurance carrier inaction. It is time for employers to be a resource for their employees and provide them medication adherence solutions. Employee health is enhanced and employer profitability is increased.

In any given year, approximately 5% to 7% of U.S. auto and homeowners will file an insurance claim. For both customers and the insurance company, the claims process becomes a moment of truth. A satisfactory settlement is the ultimate deliverable that may ensure customer loyalty and retention. To work through the claims process efficiently and painlessly, a well-established and trusting relationship with customers is a must, and that begins with ensuring you are reaching policyholders with relevant, accurate and consistent communications. However, considering the many options available for how customers prefer to receive their communications, producing timely, clear and consistent communications can be more complicated than ever before. One area that complicates things is that definition of “the customer” is much broader today; it isn’t limited to the end consumer exclusively. Now, an insurer’s customer can be any individual who interacts with the policyholder, including claims representatives and other employees, the external partner network and the agents and brokers, who often own the relationship with the policyholder. Add to that the fact that we are now communicating with five very different generations of consumers, each with significantly different communications preferences. [See “Communication Preferences Vary by Generation of Insurance Consumer,” below.] The older generation of “maturists” prefers engaging in person, while centennials now entering the workforce grew up with the Internet of Things and prefer connected devices. Also, each generation tends to favor a certain set of channels or devices—and perhaps no one device exclusively. As their needs and lives change, so do their preferences. Many consumers want communications to move fluidly across several devices, and they want every channel to be able to provide the information they’re looking for, along with the ability to resolve any issue in a timely manner. From the perspective of the insurance carrier, the current state of customer communications has been complicated by the proliferation of communication devices and channels over recent years. As technologies have evolved, so have the methods of engagement, from face-to-face communications, to phone and fax, and now SMS text, email, mobile apps, social media and push notifications. While today’s options provide a range of choices, this evolution has hurt many organizations. To accommodate multichannel preferences, many insurers simply added specialized teams, so that they now have a web team, a mobile team, an app team—and all of them operating separately. While adopting a multichannel approach means an organization can deliver communications through multiple channels, it can also mean a lot of redundant work, resulting in inconsistent messaging across all channels and lines of business. For customers, this lack of integration and coordination means they may receive what appears to be conflicting or sometimes redundant information. Insurers may not know exactly what message a customer is receiving at any given time, which also limits the company’s ability to effectively track responses and achieve a true 360-degree view of the customer. This version of multichannel communication is different from omni-channel communications, which is an approach for sending customers consistent, centrally managed messages across all channels. Ideally, implementing an omni-channel approach lets you build a communication template once that you can then use across any channel to reach any destination device. This ensures a level of control over outgoing communications and consistency in messaging, allowing an insurer to present itself as “one company” in the eyes of its customers. Such technology also provides visibility into what is being sent and when to engage with customers according to their preferences. You can then further optimize customer communications by measuring and monitoring customer engagement and behaviors and adjust the touchpoints as needed. See also: Who Is Your Customer; How Is the Experience?   To provide a positive customer experience, insurers need to implement all the available channels to engage with customers and to understand the customer’s journey through the organization. One way to think about such a strategy is: Digital first, but not digital only. Continuing to invest in traditional channels is just as important for elevating the customer experience as it is to develop and use the newer channels. And, in both cases, it is important to gather data and insights along the way to understand each client’s individual needs and goals to continuously improve the customer experience within and outside of the claims process. A better and more satisfactory claims process depends in large part on the strength of customer relationships developed through interactions with your organization. Building long-term, trusting relationships lies in having the ability to communicate clearly and effectively. To achieve this, insurers must look for ways to integrate all communication channels to better understand and improve the customer experience. Organizations that have invested in a solid omni-channel engagement strategy have been shown to enjoy more customer loyalty and retention. And in the insurance industry, in areas where price and product may be largely the same among competitors, customer experience will always be a key differentiator in gaining and retaining business. Communication Preferences Vary by Generation of Insurance Consumer Here are the varied communication preferences of the five generations currently making insurance purchasing decisions. Keep these in mind when creating your customer communications: Maturists (technology non-users), who are now 75-plus years old, have always had a preference for face-to-face communications. For this generation, home ownership is a life goal, and they have often only worked for a single organization, likely focusing on specializing in a single career or job area. As they prefer to engage in conversation in person, their second channel preference is mail. Boomers (technology early adopters) came next and appreciate the value of a face-to-face conversation. However, they are more practical and understand this might be difficult to do consistently. This generation prefers phone calls if they are not able to communicate in person and are very comfortable making or taking calls from home or work. This generation saw economic growth, so it is no surprise they aspired to save, save, save and secure a financial future. They, too, were also quite loyal to their employer, but not to the job or career, often switching to different roles within an organization. Gen X (digital immigrants), born between 1964 and 1980, remembers the world before computers and cell phones and then, as adults, experienced the transition. They have adopted technology well and typically prefer SMS text messages and email over any other communication channel, using their computer or cell phone most frequently. Interestingly, from an employment perspective, this generation begins to move away from company loyalty to a loyalty to self, meaning they follow their career aspirations to whichever organization suits them best, often struggling to find the balance between work and life. Gen Y or millennials (digital natives) were born between 1980 and the mid-1990s. Having grown up with technology and lived through technology’s rapid advancement, they are keen to use social media and mobile apps on their personal devices to get information at a moment’s notice. They also move further away from the being loyal to brands or companies, from a work and consumer perspective, and they seek to feel connected to the organization they work with, not for…as well as with the brands they consume. They tend to make it known that they seek a connection to a brand’s mission, values and purpose. See also: How to Leverage Tech in Customer Communications   The youngest of generations—Gen Z or centennials (digital dependents)—are now entering the workforce. Currently ages nine to 23, this generation only knows the connected world, or the Internet of Things (IoT). Their communication preference isn’t just an app or device, but rather the connectedness of all of their devices—from wearables to smart home devices and smart phones. This generation understands the value of 3D printing, blockchain and more. Only a little is known about this generation as they are still young and studies are still underway, but generally they lean toward starting their own businesses and testing new ideas, while working several other jobs. And because they always have had access to technology and immediate access to information, they unsurprisingly aspire to retain and value privacy. What are the commonalities between the generations upon which insurers can rely? You will find customer-centricity is key to success, across your client base. This is done by adapting to the changing communication preferences and channels of insureds and claimants, enabling two-way communications and delivering a seamless experience. A communication approach that meets these goals can mean the difference between success and failure with today’s wide range of customers.

It’s a well-trodden truth in our industry that not all risks are created equal. And that, for insurers, some risks are riskier than others. But progress marches on, and new technologies mean new avenues of innovation for insurers to explore. And with that, the opportunity to drastically improve risk pricing around more complex perils ought to be a huge priority for many. The early signs are that current attempts to develop more sophisticated approaches to risk pricing are too often focused on a single area of improvement. As the pace of change continues to accelerate, only those insurers that take a more thoughtful, holistic approach to innovation around pricing risks – a three-pronged approach based on quality data, machine-learning and effective deployment– can be confident that they will make the strides required to remain competitive in the long run. Quality Data The first thing an aspiring innovator should consider is data. Of course, the more data an organisation holds, the better its chances of generating new insights, more accurately pricing risks and, ultimately, gaining an edge. It’s this thinking that sees so many insurers investing in new and interesting sources of non-traditional data. However, on average, the biggest gains come in the early stages of scale. When most of the factors influencing a customer’s propensity to claim have already been identified, returns start to diminish and additional data – while freely available – will generally have a lower predictive value. The sudden availability of reams of data has given rise to the misconception that all data is equally valuable and that it’s simply a matter of getting hold of as much as you can. In reality, the ratio of return on investment (in time and attention, if not money) soon hits a brick wall. So, while looking at large volumes of data can be worthwhile depending on the situation, getting more and more data for the sake of it should not be considered a strategy. On the contrary, most of the biggest gains will involve applying newer, sophisticated modeling techniques to existing, well-tested predictors of claim propensity. See also: 3 Steps to Succeed at Open Innovation   But of course, it’s still imperative to make sure this data is of the highest quality. One way to do this is by going direct to the consumer. This enables insurers to take control over the data they receive – asking the precise questions they need the answers to and receiving the data in the format they require, without interference by an intermediary. Best of all, datasets are continuously updated, and risk calculations can change accordingly. Machine Learning Insurers should also consider how they analyze their data. Most risk models are calculated using general linear models (GLMs) – and for those with smaller datasets, perhaps analyzing only the claims on their own book, this makes some sense. But as increased volumes of sophisticated data come into play, GLMs start to show their limitations. There is a visible ceiling to the number of interactions that a GLM can spot, and a human is needed to identify these interactions and rate them correctly. On the other hand, machine learning offers insurers the opportunity to interrogate larger datasets more quickly. And to identify emergent trends or patterns without the need for a hypothesis against which to test or much human supervision. Even better, the benefits brought by machine learning increase dramatically the more data an insurer has. There is little point in applying machine learning to small and simple datasets where a GLM would suffice. Those insurers that apply cutting-edge algorithms to belt-busting datasets unlock a distinct advantage over the competition. Not only do they have more data from which to uncover insights, they derive greater value from each data point, too. Effective Deployment Of course, it is one thing to have the best open-source machine-learning algorithms and apply them to the richest datasets. But it means nothing if insurers can’t quickly deploy their models into a live trading environment, in the highest level of granularity. Ultimately, any innovation around risk pricing requires insurers to get their algorithms out to consumers, on a machine learning platform that can make decisions in real time to quickly price risks and make a call on the level of cover that can be offered. Yet this is easier said than done. Many large insurers are wedded to legacy platforms that are difficult to get away from. And smaller firms can often deploy very effectively in their narrow niche but lack the expertise to do so in more complex product areas. Start small and scale Very few insurers today are making full, joined-up use of these three strategies, nor are many in the position to immediately do so. Agile and innovative insurtechs are making waves with machine learning platforms that enable fantastic analysis that they can take to the consumer at speed. But without the masses of historical claims data that traditional insurers have at their disposal it is very difficult for them to price risks accurately. And it is unlikely that many have the business appetite to incur the level of cost required to learn from their own claims experience over time. On the other end of the spectrum, larger insurers have the data, but moving to a new platform is a huge task, carrying commensurate costs and uncertainties. It cannot be done overnight. Some are starting to take a much more nimble approach through incubator models, with the idea of testing and developing the approaches aside from the core business in preparation for wider integration down the line. But of course, this carries the downside of creating another disconnected silo that will need to be brought back in later – it simply delays part of the problem. Like so many golden opportunities in business, the best approach is probably one of the trickiest to achieve– namely the creation of agile, empowered, cross-departmental working groups, incorporating data scientists, underwriters, compliance and IT security, all working collectively toward shared objectives. See also: How Machine Learning Transforms Insurance   Nonetheless, this is a journey that all insurers will need to go on – particularly those working in more complex markets like home and contents insurance, where the difficulty in pricing some risks presents an opportunity that is simply too big to ignore. Those with the wherewithal to take a smarter, joined-up approach to the transition have a rare chance to gain a substantial competitive advantage.

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

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

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

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

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

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

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

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

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

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

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

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

Technology would seem to favor the good guys.

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

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

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

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

Cheers,

Paul Carroll
Editor-in-Chief

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

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

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

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

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

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