The advance of automation in the auto insurance industry could have come at the expense of the personal touch that consumers expect. But recent research shows that auto insurance carriers are succeeding in striking a balance. A 2018 survey of 24 of the top senior-level auto insurance executives combined with 1,755 auto insurance customers by LexisNexis Risk Solutions found that carriers are increasingly using automation to be more efficient, reduce costs and improve their competitive edge through better customer service. Consumers are enjoying the gains of automation, as well. They now expect the carriers they do business with to offer easy digital access to products and services, but while also providing a personal touch, including being empathetic. Much innovation is taking place across the claims automation continuum – from traditional to touchless handling. For example, the research found that carriers are:

• Continuing to embrace virtual claims options with 95% of respondents using or considering virtual claims processes.
• Touchless claims is growing in popularity as well, with 79% of carriers surveyed saying they are considering or are open to the idea.
• And carriers already using claims automation are reporting a reduction in touches, faster cycle times, increased employee productivity, lower loss adjustment expense (LAE) and higher customer satisfaction.

On the consumer side:

• 57% of consumers indicate they are fairly or very comfortable with automated processes.
• Customers with prior claim experience quickly become dissatisfied when they have to talk with more than one person.
• One in five consumers prefers claim self-service options, mostly driven by the younger generations, but complain that the self-service first notice of loss (FNOL) process asks too many questions.
• Customers prefer fewer touches and expect fast cycle times, as they have become accustomed to the speed of digital service in other industries.
• Even the consumers who are the most supportive of automated processes still want a personal touch when they need it (for example, first-time claimants).

See also: 21st Century Claims: Boosting Efficiency   These findings suggest that carriers need to carefully align their automation strategies with customers’ needs. Automation adoption can be accelerated by matching data and technology solutions to consumer needs and sharing information with consumers. Done correctly, carriers can extend automation for greater mutual benefit ― as long as they maintain an empathic, personal touch with their customers through the communication method of their customers’ choosing. Yet, while many carriers said their automated processes have increased significantly over the past three to five years, that doesn’t mean they’re using a broader array of automation. Rather, it’s most common to see automation in the form of rules-based logic and software-driven photo estimation for non-complex claims at specific parts of the claims process. For example, some carriers are employing automation to simplify and accelerate documentation gathering, enabling customers to upload digital documents and photos via an app, text or website and using automated tools to pull other relevant external documents like police reports. Similarly, automation is being used by some carriers to improve the customer experience to quickly automate claims payments based on a rules-based system (such as those with low dollar value or who use a direct repair program shop). The Need to Simplify Self-Service The study also found that as carriers make small advances toward virtual claims handling, they are also becoming more receptive to touchless claims handling in the quest to fully automate claims. This includes deploying automation solutions such as data prefill to make self-service options easier for customers. However, they need to keep in mind that full automation doesn’t suit everyone. The demand from consumers for self-service options is growing but overall still low and tied mostly to millennials and the younger generations. Until these generations compose a larger portion of the customer base, cost reduction and improving the customer experience will likely remain the key drivers behind further automation. The findings also suggest that low customer demand for self-service is related to customer dissatisfaction with the vast number of questions asked at FNOL and carriers’ failure to fully integrate data upfront in the claims process to simplify self-service for customers. Carriers need to rectify these issues before investing too deeply in touchless claims handling. Though consumers are receptive about increased automation, they still want support in the form of a real person ― particularly if they’ve never filed a claim before and are uncertain about the process. Even millennials don’t want self-service for every situation; they also want human interaction easily available when they need it. It’s critical that customers still get the human touch they want at the relevant parts of the claims process. Remaining Challenges As carriers adopt greater automation capabilities, they’re finding that integrating more data earlier in the claims process leads to more efficient handling. Carriers need to integrate more data prefill solutions that leverage external data sources into the claims process so that self-service options are as easy and painless as possible for customers. The study found that carriers that use a data prefill solution at FNOL experienced a 14% improvement in days-to-pay for bodily injury claims, a 10% reduction in severity as compared with the industry and a 15% improvement in their shopping-rate ratio as compared with the industry. Additionally, while automation progresses in the industry, the research uncovered reluctance to automate. This reluctance is driven by the concern that it will introduce more error and a higher risk of fraud into the non-complex claims process. Carriers are not fully confident that systems are mature enough to counterbalance these types of situations. It is a concern shared by consumers, as well. Consumers’ reluctance ranges from the fear of making a mistake to potential glitches or technology issues that could hurt their claim. These concerns are significantly higher among those who have not had a claim than respondents who have recently filed a claim. Perhaps there is an opportunity for carriers to share more testimonials of customers who have had a positive experience with automated claims processing. See also: Claims Technology: One Size Won’t Fit All   Final Thoughts: Balancing Automation With Empathy The research shows carriers and consumers are largely in sync when it comes to automated claims processing. Even though improving the customer experience may not have been the first or top motivation for embracing automation, the good news is that they’ve achieved it anyway. To retain those customers, they will need to employ a soft variable ― empathy. While consumers, especially younger consumers, increasingly demand self-service and digital access, there are times their biggest desire is a human touch. In summary, automation can help carriers deliver this human touch by freeing representatives to be available when a customer needs personal attention. Carriers must also find ways to customize how they integrate the human touch into the claims experience. Tailoring the claims approach with a blend of automation and human touch to meet the customers’ preference will help carriers do a better job of personalizing the claims process. While the human element of treating others with empathy may be more difficult to improve upon than adding more automation, data and analytics can be deeply incorporated into the claims process to improve accuracy and efficiency. Those factors affect how customers feel about their claims experience.

The voice of the customer has never been so important to business; a growing number of customers now rely on the reviews and experiences of others to help guide their purchasing decisions, and this trend will only increase as millennials make up a greater portion of insurance carriers’ customer bases. This should be viewed as a positive development. Customers, after all, vote with their wallets, and a scenario where carriers provide what customers want (rather than what is best for the carriers) can only drive standards higher. The claims process is where the customer experience can be best affected, so it is no surprise that it is currently in sharp focus. Customers want choice in how and when they engage, as well as the information they receive, but, during a claim, when a distressing loss may have occurred, the importance of human empathy cannot be understated. To deliver these aspects requires a digital, yet humanized, claims experience. In an intensely competitive environment, how can carriers identify quick wins to maximize the impact on customer experience and efficiency for minimum output and disruption? See also: Key Technology Trends for Insurers in 2019   Insurance Nexus held a webinar with claims experts from five companies focusing on improving the claims process with digital technologies: Bea Rolbiecki (AVP senior experience, USAA), Patrick Klas (associate, American Family Ventures), Daniel Regan (vice president, financial services, SAP Ariba), Allan Robinson (EVP field operations and sales and chief claims officer, Horace Mann Insurance) and John Langowski (EVP, chief claims officer, Swyfft). Listen to the webinar recordings today Throughout the webinar, the most striking consistency was the importance all panelists place on the customer. “Put customers first when building your digital experience” Bea Rolbiecki says. This means understanding the customer journey, what they need to do and how they feel at each stage of the journey. By identifying where bottlenecks and pain points are, investment can then be prioritized to deliver the maximum impact on the customer experience. This is a significant departure from past practice, when investments, technological or otherwise, were usually made with profits and board member dividends in mind. Instead, the inverse is now advised. Swyfft’s John Langowski asks of any proposed change, “What would a panel of policy-holders think of this?” It can be easy to be attracted to the new and unknown, but “don’t just grab the next best thing out there,” he warns; investment must be targeted to specific customer needs. Our discussion also highlighted the importance of the relationships between carriers and claims service providers; there is a “definitely a fear of start-ups,” American Family Ventures’ Patrick Klas says. Understandably, carriers might be hesitant to devolve responsibility of their claims processing to a third party who does not have the experience or reputation of a legacy insurer. Rather than see newcomers as “attackers,” however, Klas opines that companies such as Lemonade and Hippo have succeeded in raising industry standards. Customers prefer, and now expect, digital, personalized and seamless experiences, and it is up to carriers to ensure they meet these standards. A final point may reassure those who fear job losses due to the "rise of the machines"; according to Rolbiecki, the whole aim of digitizing the claims process is to deliver a “sympathetic and connected claims experience.” While AI can do much that humans cannot, providing a sympathetic ear after a distressing loss is not one of them. Horace Mann’s Allan Robinson goes further, claiming that “from a claims adjusters’ perspective, the idea we won’t need adjusters is wrong.” Incorporating aspects of AI, intelligent automation and robotics will allow for straight-through processing of less complex claims, meaning adjusters and investigators can focus on more complicated and, ultimately, more interesting claims. This will actually make insurance, particularly claims, a “more interesting…and more fulfilling role.” See also: Using Technology to Enhance Your Agency   This webinar was run in conjunction with Insurance Nexus’ coming Third Annual Connected Claims USA Summit 2019, taking place June 5-6, at the Marriott Marquis Chicago Hotel. Welcoming over 750 senior attendees, Connected Claims USA is the world’s largest gathering for claims executives striving for efficient, customer-centric claims processing. 

They sit in a hazy nether region between brokers and insurers. Outside of insurance, most people will never hear of them. Even those who know of their existence are often only vaguely aware of the role they play. Yet MGAs (managing general agents) offer one of the best ways for new, and established, companies to enter into insurance and benefit from an existing large customer base or to take advantage of the best emerging technology. Want to generate underwriting income without raising massive amounts of capital or waiting a year or more to get regulated? Setting up an MGA may be the answer. A number of the headline popping insurtechs start-ups (BoughtbyMany, Slice, Hippo, Trov, Ladder, Lakka, for example) have chosen the MGA model, often finding insurers or reinsurance partners willing to provide capacity and investment. The concept may not be well understood, but it's no surprise that many emerging companies are curious about how to set up as an MGA. On April 2, our monthly InsTech London evening event focused on MGAs. The room was packed with close to 300 attendees. We had 13 companies on stage, and everyone of them was different. So what’s going on? Brokers to the left of you, insurers to the right… There are five common ways for insurers to connect with their clients: 1) go directly to the consumer 2) use a comparison website, 3) work with a lead generation company (mostly U.S.), 4) work through a broker and 5) use an MGA. Like a broker, an MGA doesn’t retain any capital. Unlike a traditional broker, an MGA is able to "bind" or underwrite risks using third party capital. The MGA gets access to capital and fulfills its regulatory requirement by reaching an agreement with one or more insurers that are prepared to “delegate” their underwriting authority to the MGA. The concept is not new, but it is evolving. Traditionally, most MGAs were happy enough occupying a specialist niche, operating as a class of wholesale broker. This enabled insurers to access unusual (“specialty”) lines of business that they found expensive or hard to source on their own or through a traditional broker network. See also: 3 Steps to Succeed at Open Innovation   In recent years, a new type of MGA has emerged. There are increasing examples of this "delegated underwriting" model being adopted as a stepping stone for companies that want to act like, or become, a full insurer. The MGA still needs to get regulatory approval but has a choice of options for getting up and running more quickly. Underwriting capital is provided by one or more insurers or reinsurers, but the MGA usually retains responsibility for managing the client and its brand. To the uninitiated, the MGA looks no different than an underwriter, offering much of the benefits with limited downside. This is already a big market. Over 300 MGAs underwrite in excess of 10% of the UK’s £47 billion general insurance market. MGAs have traditionally been a major source of incoming business for Lloyd's, representing over one third of its £32 billion capacity. In excess of 4,000 MGAs (also known as “coverholders") from around the world are backed by Lloyd's syndicates. Insurance is provided for property, airlines, motor, livestock and much more. The role of Lloyd’s as the “insurer of last resort” is particularly suited to complex or non-standard business sourced through MGAs. This has made London one of the major underwriters of the U.S. excess and surplus market, covering risks that the major carriers don’t want to take on (for example, beachfront homes in Florida). John Rowlands, formerly at reinsurance broker Guy Carpenter, explained the appeal of the MGA for insurers: “It’s difficult for insurance companies to grow premiums organically. Insurers value MGAs’ specialist product and geographic expertise and distribution, which gives the MGA the ability to underwrite opportunistically and take advantage of market conditions. Insurers are able to strategically grow and diversify with lower execution risk and costs.” John has since joined an MGA himself. Now it's no longer only about insurers looking for help with distribution. The new breed of MGAs are pushing the boundaries beyond the original model. They want to be calling the shots, and in some cases are looking for no more than a "fronting insurer" to provide capacity but with less influence in how the business is run. For a transaction-focused insurtech, MGAs not only offer a quick route to market but are also starting to make the insurtechs attractive to VCs. In the slow-moving world of insurance, MGAs may provide one of the best opportunities to build up a business that can be sold in 10 years or less (timelines that are appealing to VCs). Insurance carriers, brokers and private equity firms have also been getting more active buying into MGAs. Valuation multiples (of EBITDA) are moving beyond the historic range of eight to 12 times up to the high teens. Perhaps not as sparky as the household names in the mainstream tech world, where multiples of 20 or 30 are common, and some in excess of 100 (Amazon, Netflix). There are few (maybe none) analytics or tech companies in insurance with a similar ability to scale exponentially year after year to justify such multiples. MGAs offer a safer, if lower, return. Who will underwrite my MGA? London may be providing capacity for thousands of MGAs, but when it comes to supporting the more recently formed insurtech style MGAs, Munich Re is, by a long way, the most active, and adventurous, provider of capital. Ingenie, Wrisk, BoughtByMany, WeFox, Zego, Trov, Slice, Next, Nimbla, Jetty, Drover, Blink, Simplesurance and So-Sure have all received backing from the reinsurance giant. None of these will make any noticeable impact on Munich Re’s results in the next few years, but unlike most other reinsurers or insurers Munich Re can afford to think long-term. It clearly sees the MGA model as a significant way to access new markets and new technology. Furthermore, the company isn't afraid to double down on its partnerships by also offering investment capital and a trading infrastructure for MGAs. Other insurers, including Lloyd’s syndicates, are offering capacity to the newcomers. Few can match the financial strength or have the willingness to take risks of one of the world's biggest reinsurers, but we're starting to see some intriguing new approaches by insurers and investors willing to get more actively involved in the MGA space. I’ll be back in the future with coverage of other capacity and infrastructure providers in this space that we have got to know well through Instech London such as Insurtech Gateway, Beazley, Hiscox, SCOR, MSAmlin, Evari and Xceedance. Death by data The growth of MGAs may have provided an efficient way for insurers to access niche markets, but it’s also been something of a free-for-all when it comes to sharing information about the risks. This has resulted in a horrible mish-mash of data formats and means of sharing data that even seemed outdated 25 years ago. Digital may be replacing paper, but pdf files and spreadsheets, exchanged via email, proliferate and create major inefficiencies and potential for errors. Everyone knows the situation needs to change. There is a flourishing community of both start-ups and mature businesses developing solutions to standardize formats, centralize processes and cut through the noise. Some are going directly to source, hoping to link up the information provided by the original policy holder directly with the capital provider and cut out the noise in the middle. At some point, the market will figure it out. In the meantime, any MGA that can suck data in from its clients and deliver essential analytics to the capital provider without the need to re-key anything is worth keeping an eye on. Technology: Boon or burden? Not surprisingly, many of the new MGAs have been set up – and received investment – on the premise of using new technology to improve risk selection and gain efficiencies. In established markets, such as property, tools may be provided by and even paid for by insurers. In areas such as emerging risks, most notably cyber, companies such as Zeguro and Envelop Risk offer their proprietary technology as part of the benefit they claim to offer to insurance partners and clients. The value of their IP is built into their proposition (and their valuation). More traditional MGAs are increasingly being required to use new technology to improve underwriting risk selection and data transfer. This can create more costs and complexity, particularly if they are dealing with more than one capital provider and multiple systems requiring specialist skills. There is still a lot of inertia, particularly among smaller companies. MGAs that can continue to acquire and retain clients, and keep losses below an acceptable level, can still call the shots. Few insurance carriers are willing to risk losing profitable MGAs by imposing new technology on them. See also: AI and Results-Driven Innovation   Stuck in the middle with who? What does the rise of MGAs tell us about the future of insurance? Evolution in most markets tends to squeeze out the people in the middle. Friction and thus cost is removed, the fewer people there are in the chain. Those that possess the capital or own the customer are usually the winners. The continuing rise of MGAs suggests that we may be seeing the shift moving in the other direction. Is the middle going to squeeze out those on the edges? On the one side, the placing broker is under threat of getting replaced by direct-to-consumer offerings powered by detailed data and advanced analytics. On the other side, traditional providers of insurance capacity are increasingly having to compete on price and strength of security with the more highly diversified global capital markets that can access analytics that once only existed in-house at insurers. Meanwhile, the agile MGA, with multimillion dollars of investment, is able sniff out the best markets and the cheapest capital. MGAs are growing more powerful, but they are probably not going to become the dominant force in insurance. More likely is that MGAs will continue to evolve as an efficient way to build and launch new and enhanced insurance propositions, tightly linked to excellent analytics and richer sources of data. We may say see the emergence of some mega-MGAs, with income similar to the larger insurers. A few will grow up and decide to become fully fledged insurers. A couple could morph into becoming the analytics platforms of choice for the industry (it still needs one, by the way). Some will fail. But most will cash out, and be folded into their bigger, older, more traditional insurance and broking cousins. It's only been possible to dabble lightly in this topic. Whatever the future is for MGAs they are definitely one way of accelerating the impact of innovation. This fascinating and slightly mysterious area of the insurance market deserves more in-depth assessment. Please feel free to comment below with any areas to explore next, and, of course, all additional insights are welcome.

Artificial intelligence has become a key factor in the digitization of today’s leading customer-facing industries. While banks and telecoms are among the most visible sectors currently implementing conversational AI in the customer experience, the insurance industry is reportedly outspending both (and many others) when it comes to this technology. Revolving, as it does, around data analysis and processing, the insurance sector has long been beholden to a cost structure that disproportionately relies on manual processes. Even a small shift away from human capital and toward automation will result is significant savings of time and  money. In fact, AI is already being used in front-line claims processing, some uniform underwriting and with first-response customer interactions. Tata Consultancy Services reports that the insurance sector invests, on average, $124 million per company in artificial intelligence, compared with a cross-industry average of $70 million. In the U.S. alone, four of the top 10 insurance carriers have deployed some form of machine learning, and Accenture recently revealed that more than two-thirds (68%) of insurance companies now use AI-powered virtual agents at some level in the organization to engender better customer interactions. So, what exactly is driving a traditionally conservative industry to adopt the latest advances in conversational AI? The results at Storebrand, one of Europe’s largest insurance companies, can shed some light on the question. Since implementing a digital insurance agent powered by conversational AI, Storebrand experienced an increase of 162% in customer interactions through chat in just the first four months, with 70% of conversations successfully handled without the need of any human support. For human agents, these figures are both encouraging and startling. Cognitive automation and virtual advisers are poised to replace traditional first-response customer service personnel with more direct access to insurance information, products and support. See also: And the Winner Is…Artificial Intelligence!   Adoption of artificial intelligence is gaining momentum with other applications in insurance, as well. Applying AI algorithms to accurately predict conversational outcomes, Storebrand’s virtual agents can improve customer service by cross-promoting products, and recommending the most appropriate coverage, before a customer is handed over to a human consultant to complete enrollment. Insurance company brings AI to life It’s common to hear customers complaining of having to navigate mountains of complex jargon and legalese to file claims or simply find answers to their questions. The last thing anyone wants to do in a time of crisis is wade helplessly through confusing website forms or sit on hold. But how do these same customers feel about virtual agents? Nearly three out of four insurance customers say they are willing to receive computer-generated advice about their coverage. The digital insurance agent is doing the equivalent work of eight full-time human employees and is able to respond intelligently to questions on more than 1,900 topics. This translates to an impressive 2,111 calls per week, leading to that 162% increase in customers interacting with conversational AI. Personality is injected by human AI trainers into the automated service itself. Made up of experienced customer service staff, these upskilled employees establish the brand’s unique tone of voice through a machine. This helps customers feel comfortable chatting about insurance, while ensuring that conversations remain meaningful, helpful and consistent. A new face for the customer experience Customer response to Storebrand’s digital insurance agent has been overwhelmingly positive. The agent has interacted with more than 250,000 customers and is now successfully answering 70% of all incoming customer interactions, effectively deflecting these inquiries from human operators. The remaining 30% of customer interactions, those that do require human intervention, are immediately and seamlessly routed to customer service representatives within the same screen for resolution. By combining Storebrand’s own expertise in customer service with advanced conversational AI, the insurer has managed to not only strengthen brand loyalty among its customers but also provide instant, 24/7 support without putting undue strain on its customer center -- all within a short time. See also: 3 Steps to Demystify Artificial Intelligence   Explaining complex products and automating first-response functions, conversational AI is about more than just replacing live agents with less expensive alternatives. It is also about boosting productivity by allowing insurance company employees to focus on more complex tasks and activities. As Storebrand has demonstrated, successful integration of conversational AI requires a commitment to continuous investment, evaluation and adjustment to achieve results. In the final analysis, not only can conversational AI adapt the customer experience to each individual and evolve that experience to advance organizational objectives, but it offers real and lasting competitive differentiation in the marketplace.

Back in 2016, Microsoft reported that more than one billion people used its Office suite of applications, which includes the Microsoft Excel spreadsheet. Roughly one in every six people on Earth uses it, Microsoft said. There is no doubt that, when Microsoft first developed this application, the company was on to something important, and Excel still has its place within the Office suite for many users. Of course, Microsoft is not the only company that has produced and promoted spreadsheet programs; there are literally hundreds of similar programs, typically sold as single-seat, stand-alone applications not tied to any common database. For some companies, spreadsheet programs are chosen for their lower cost, ease-of-use and routine reporting. In fact, over the years, employees have become so familiar with spreadsheet applications that they simply don’t want to work any other way. Some call this phenomenon “spreadsheet paralysis,” which refers to the insurer’s common argument that it’s always been done this way, so why change? Reliance on spreadsheets seems especially common with smaller insurers, self-insured groups, public risk pools and their agents, all of which use spreadsheets to calculate and process data. The reason these insurers hesitate to phase out spreadsheets as a primary way to process data is because this dated technology works for what it was designed to do. When technology budgets are formulated, the typical question becomes: Why should we change if it works? It’s easier to simply continue; no extra training is required, and no changes are required in how workflow is managed. See also: How Agencies Can Use Data Far Better   Or are they? What happens when a spreadsheet error is found that affects an entire book of business and puts routine financial and regulatory reporting in a state of instant jeopardy? How long does it take to backtrack, examine the various versions of the spreadsheet’s values, calculations, source data and file history, and correct the error? Or, consider what happens when the policyholder demands something that spreadsheets can’t produce. These demands can arise within customer service, claims or billing, and we know these demands are increasing, leaving many smaller insurers in a scramble to shorten steps, access more information and respond in real time to customer requests. Let’s look further at billing. The complexity of this functional business unit requires access to data points on all things related to customers, their demographic information, policy history, premium, invoice amount and payment. When working in a common spreadsheet application, only one person at a time can access and edit this data, making real-time collaboration with other members of the billing department—much less the other pertinent business units that also touch the customer—impossible. If the application resides within the insurer's intranet, the data being manipulated by the last individual to touch the file most often represents data that was generated by multiple other sources and users, making accurate reporting difficult and delayed. For public entities and other self-insured groups, this problem could play forward to an audit disaster. Even if reporting is 100% accurate, the spreadsheet approach does not take into account the critical importance of secure storage or backups of the data, which, as part of the organization’s core business applications, are typically kept onsite, putting the entire system in harm’s way should a natural disaster occur. Like larger insurers, smaller carriers, self-insured and public entity groups have an opportunity to process data collaboratively, respond faster to customer and auditor demands and operate in a secure environment where data is controlled, available and safe from compromise. Because this method takes into account the importance of software as a service over a hosted cloud platform, data encryption (in transit and at rest) is employed to ensure comprehensive compliance and quality assurance. This method also gives users greater control over calculations and provides audit trails to document every aspect of data access manipulation. The result is an immediate reduction in formula error, improved ability to perform all the routine tasks that a spreadsheet once did and the ability to perform sophisticated risk analysis based on accurate, real-time information. And because it’s a hosted application, output of the right information to the right audience is guaranteed when and where they need it. See also: Understanding New Generations of Data   Yes, there will be some hesitancy among users who are comfortable with the spreadsheet status quo. But the reality is that spreadsheets were never intended to be used to run the business, only support it. New technology enables insurers to do exactly what they had been doing with spreadsheets… and more. From the insurers’ point of view, having modern technologies is a great enticement to the hiring of new technology workers who are looking for the latest solutions to competently do their jobs. At a time when smaller insurers, self-insured and public risk pools are feeling the pressure to become “digitally transformed,” the move away from stand-alone spreadsheets to a collaborative, cloud-based enterprise solution is a great first step.

The insurtech movement spawned what some have called a cottage industry, others a revival, of insurance-focused conferences. While there is now an abundance of choice, not all events are created equal: Some may be strong in networking opportunities but light on valuable content, and others may have great topics but constrain the time, or load panels with so many speakers it is impossible to explore topics in depth. It can be a balancing act to get the right mix of networking and education that delivers the best experience for participants, and not all events succeed. One event that gets it right, which is why I'm happy to serve as emcee, is InsurTech North. When insurtech conferences began to spread, about five years ago, participant numbers were fairly low, and speakers often shared information that left audiences feeling like they were hearing about tech possibilities in some distant future, far beyond the reach of most insurance industry companies. The cultural divide between early-stage companies making big claims about the promise of technology and incumbent insurance carriers hearing these forecasts was so great that many underlying messages benefiting both entrepreneurs and insurers often got lost in translation. For example, many insurers downplayed the potential impact of entrepreneurs, who obviously needed more insurance experience. Likewise, the numerous warning signs to that first generation of insurtechs could not have been brighter or clearer with respect to the need to build new capabilities for an industry that generally was change-resistant, risk-averse or both. The explosion, and subsequent washout, among the first generation of telematics start-ups, for example, yielded multiple lessons for entrepreneurial teams who were tuned in to how to work with the insurance market. As the number of insurtech firms grew exponentially, so did the number of conferences one could choose from to learn about this sector. At this point, if you wanted to attend a conference a week, and sometimes two, you could easily be occupied for at least two years without repetition. See also: Insurtech’s Lowest Common Denominator As with any growth market, the more that firms raced to provide solutions, the less differentiated they became from each other. Such is also the nature of the insurance conferences related to innovation and technologies, with their increase in volume watering down meaningful insights and impact. So, what makes a conference like InsurTech North stand out among the crowd and rise above the noise and familiar formulas? Let’s start with the speakers. It’s not the standard “pay-to-play” model. Sponsorships are not the primary source from which panelists and moderators are chosen. The best events select speakers based on their subject matter expertise. Where sponsors are tapped to moderate a panel, they are carefully paired with the expertise and experiences needed for a session. More valuable events also limit the number of panelists per session to allow more time for meaningful information and dialogue with the audience. A common feature at many insurtech events is the “pitch-fest” competition. Conference organizers who wish to energize and inform their participants often organize some form of showcase or competition for early-stage ventures to make their case to the insurance market. These are typically exciting and informative agenda sessions. The organizers of InsurTech North have taken this concept and made a meaningful enhancement by reaching out to a select group of respected accelerators and venture capitalists to nominate one early-stage company from within their portfolios. This approach provides an opportunity for participants to hear from entrepreneurs with solid concepts and a high propensity for success. At the inaugural InsurTech North event, in 2018, attendees literally witnessed history in the making when data and analytics start-up QuantumSense, nominated by Holt Fintech Accelerator, made its first pitch during ITN’s “Wolf Pack Competition.” Here was a pitch from a live start-up built on a working quantum computer platform. This was a genuine leading-edge capability, with a team who then remained at the conference to field questions and seek support. It’s worth noting that the competition was so fierce that another startup, Maple, representing the MaRS Investment Accelerator Fund, won the judges’ vote and JAUNTIN', from the Global Insurance Accelerator, won the audience vote, showing the depth and quality of companies on the stage. See also: Predicting the Future of Insurtech   The most compelling events offer an informative and actionable agenda, designed for the benefit of the audience, speakers and sponsors. The dialogue in the sessions is candid while balancing strategy and theory with sound tactics. The events provide time for networking and deal making. Last but not least, the event is warm, welcoming, genuine and just plain fun. InsurTech North embodies these qualities and is worth attending. I hope to see you there. InsurTech North’s 2019 conference takes place May 23-24 in Toronto. Sign up using code “ITLten” to receive 10% off your registration fee. To learn more and register, visit https://insurtechnorth.com/

The shock of the global financial crisis put life insurance, as an industry, on the back foot. A period of de-risking and retrenchment inevitably followed as companies looked to consolidate their positions and weather the storm. A decade on, and much of this necessary work has been done. The life insurance sector is on a much firmer financial footing, and growth is back on the agenda. Indeed, for many providers, growth is now vital. An aging population means mounting payouts, thanks to policies of old that were designed when data painted a different picture of risk than the one we see today. Securing new sources of revenue is crucial. There is a huge problem, however: The “pie” of potential customers for traditional life insurance offerings simply isn’t what it used to be, and grows smaller every year. Whereas in the mid 20^th century it was something that most households purchased as a matter of course, younger generations tend to view it as optional, at best, if they even consider it at all. The number of U.S. households that hold life insurance of some sort is now at a 50-year low, and according to trade association LIMRA some 38 million households don’t have any form of life insurance at all. According to a recent study by the same organization, less than 20% of millennials indicated an interest in purchasing life insurance at any point. Two Options So life insurers looking for new revenue have two options. They can try and increase market share of the existing, dwindling pie by wrenching already-engaged customers from rivals in an increasingly competitive environment. Or, they can look for new ways to engage new customers—to grow the pie, so to speak. While the first option is the easy route, any truly ambitious provider needs to think about ways to achieve the second, and the future of the sector in general will depend on re-engaging new generations of customers. The challenge is engagement. The need for life insurance, and the protection it provides, hasn’t changed. What has changed, dramatically so, is how people consume information and purchase products and services. Much of this change has been underpinned by advances in online and digital technologies. Unfortunately, the decade of retrenchment following the crisis also meant life insurers stopped innovating. The sector has always had a reputation for lagging slightly behind the times. More than anything else, growing the life insurance pie will mean embracing the new technologies. The process of gaining and keeping new customers can be broken down into marketing (funneling people to the point of potential sale), policy creation and sale, and then customer retention and upselling. Digital technology holds the potential to transform each stage and how they relate. On the marketing front, part of the problem with the current set-up is overreliance on brokers and agents, who have incentives to target wealthier households of the sort that still routinely look to buy the product (the dwindling pie). But newer forms of media, such as social networks—as well as the sheer ease of sending slick and professional communications in the digital era—can enable a more direct-to-market approach, allowing insurers to supplement their relationships with brokers by directly targeting the lower-income and younger households that the existing model systematically overlooks. Research suggests that younger generations commonly perceive life insurance to be far more expensive than it is in reality—what better way to bust this myth? See also: Digital Distribution in Life Insurance   On the policy design and sales front, younger, online consumers expect flexibility, speed and convenience above all, and are far warier of large or long-term financial commitments than their forebearers. Modern advanced, automated underwriting capabilities can allow for the creation of a far wider range of niche, temporary policies, as opposed to the one-size-fits-all blanket coverage the industry is used to trafficking in. For example, individuals who engage in extreme sports at the weekend may not currently be interested in buying a whole life insurance policy—but may well see the value in taking out time-limited policies for the periods when they know they will be engaging in these riskier activities. By getting new customers into the ecosystem in this piecemeal fashion, the task of then getting those individuals to add coverage, or convert over to full-blown policies, becomes that much easier. The Role of Data and Automation Data and automation can play a key role in efficiently connecting these two steps together. Part of the reason the industry has avoided lots of smaller, niche policies is that most will not apply to any given customer at any given time. But targeted, direct, data-driven marketing on social networks and other channels can get around this limitation, to ensure that potential customers are offered what they specifically need, when they need it. To take the previous example, a Facebook group for extreme sports enthusiasts could be an appropriate channel. Or the appeal could be taken further still, down to an individual level. Part of the problem the industry currently has with engagement is that it still relies heavily on the old-fashioned approach of an annual sit-down with a financial agent or some other intermediary. The ability to identify customers in specific situations and engage them in a timely fashion—someone who has just gotten married, or is buying a house, for example – could prove a huge advantage, and the tools needed to achieve this now exist. The sales process itself also needs to be brought in line with modern consumer habits. In a world where people are used to being able to buy most things at the touch of a few buttons on a desktop or mobile device, this approach needs to apply to life insurance, too. Rather than use reams of paper forms filled with incomprehensible and irrelevant information, the process should be simple, user-friendly, and quick. Advanced, automated, real-time underwriting technology will again have a key role to play here, and this is one area where life insurers can learn from other insurance sectors that are further along this road. With modern technology, the entire process of policy creation and sign-up, from start to finish, needn’t take more than seven minutes. It is the third stage, however—customer retention and upselling—where digital technologies could arguably play the most transformative role in redefining the relationship between life insurers and their customers. There is much excitement about the potential of apps and wearables. A regular stream of real-time data from an individual, relating to, for instance, heart rate or exercise levels, could be very useful for designing precisely the sort of tailored, niche policies mentioned above, as well as for the purpose of targeted marketing. But why should the information only flow in one direction? The life insurance industry has always centered on the collection and analysis of data, and embracing a new digital approach will increase the volume—and individualized nature—of that data by orders of magnitude. The life insurer of the future may have more precise information regarding the health and habits of customers than the individual themselves, their doctor or anyone else. ‘Reciprocal Intelligence’ So why not give back? This is where what we call reciprocal intelligence will come in. As well as providing the core insurance service, insurers could provide regular updates to customers regarding their own data and information – for instance, a message could inform a customer that she's reduced her average heart rate by X over Y period, or that her exercise levels have dipped by Z amount. This could be tied to incentives, function as a health warning or even connect to policy design through, for example, targets to reduce premiums. It would allow insurers to engage with their customers on a regular and meaningful basis, in a non-sales-oriented fashion, as opposed to the far more remote, irregular and formal relationship that has become traditional. This in turn would create far more opportunities for firms to educate and inform customers of the benefits of more comprehensive policies, as well as for more targeted upselling. All of this potential for change carries big implications for insurance firms themselves, in terms of structure and culture. Utilizing these new approaches will mean accumulating and processing huge amounts of data, and then knowing how to use it to maximum effect. It means that life insurance companies will need to become tech-savvy to the core, on an institutional basis. As has often been said in the era of Google and Amazon – “We’re all tech companies now.” See also: New Phase for Innovation in Insurance   Firms looking to engage new customers will need to give serious consideration to the question of how to recruit, or collaborate with, those with the right skills and talent. This will require a top-down element: Firms wishing to lead the way will need to consider creating digital departments, including new board level positions encompassing responsibility for delivering digital strategies (head of reciprocal intelligence included). Firms will also need to work to find ways of integrating the right technology solutions into their businesses. There are already numerous insurtechs that address some of the most pressing problems along the insurance value chain, so collaboration is key. There is no real reason why life insurance shouldn’t be as much of a standard part of life as it was for individuals in the 20^th century. This isn’t a case of VHS being surpassed by the internet, or steam by electric. It is a matter of technological and cultural adaptation to new habits and ways of living. Those that fail to adapt will find themselves scrabbling over an ever-dwindling pie of revenue. Those that do adapt, that grow the pie, could find themselves at the forefront of a new golden age for life insurance. You can find the article originally published here.

Now that we're a good couple of years into the fascination with the potential of blockchain, some breakthrough uses should be popping up, right? Instead, we're starting to see articles like this one from McKinsey that suggests scaling back ambitions, at least in the short run. What gives?

Some of the disappointment may be inevitable. We've all seen the hype curve and know that new technologies, especially ones with as much potential for fundamental change as blockchain, often produce massive expectations, only to then descend into the Slough of Despond for months or years, before reaching their destiny. 

Some of the pushback comes because blockchain's limitations are becoming clear—it's computationally intensive enough that it's not well-suited to massive storage of information, for instance—and because alternative technologies can solve many of the problems that were initially assumed to be the province of blockchain.

But if you'll permit me a geeky analogy, harking back to my days covering the world of technology for the Wall Street Journal in the 1980s and 1990s, those driving adoption of blockchain are behaving too much like Unix and not enough like Linux.

Unix is a well-regarded operating system that became positively adored by almost every major computer company not named Microsoft. Windows had achieved a monopoly on all but the modest number of personal computers then sold by Apple. Companies needed a way to compete with Microsoft, so they rallied around Unix, a key version of which was in the public domain. The problem—and the lesson for the insurance industry—is that just about every company tweaked that version of Unix. 

Something isn't really a standard, is it, if I have my version, you have yours and Sally down the street has another?

Eventually, people in the industry realized they were ceding the key advantage to Microsoft—any program written for Windows could run on any PC-compatible, while programs written for one version of Unix had to be revised before they could run fully on another version. So, the industry formed a consortium to produce a single "kernel" for Unix—and everyone tweaked that. 

I can't even tell you how many presentations I sat through from IBM, HP, Sun, etc. about how their version of Unix was the best, or how little response I got when I argued that the fragmentation of the Unix effort was going to kill everybody's Unix and keep the market clear for Microsoft.

While insurance isn't showing the knuckleheadedness that I saw in the computer world in the '90s, there still is a lot of fragmentation in the efforts to develop blockchain technology. It's tempting to try to set the standard, because a company that sets the rules usually wins the game. There's a reason Bill Gates is still second on the Forbes list of richest people in the world even though he keeps giving his money away through his and his wife's foundation.

The industry would be much better off with a focused, joint effort to develop the core blockchain technology, at which point the competition could be how to build the best uses on top of that technology. This is what happened with Linux. When Linus Torvalds wrote the kernel and put it into the public domain in 1991, development became an open-source project for the entire coder community, not a series of one-off efforts by companies. Competition became about, for instance, developing the best tools for writing apps on top of that operating system, and there was plenty of profit there: Red Hat, for instance, recently agreed to be purchased by IBM for $34 billion. Not Bill Gates money, but I'd take it.

Look at how the telecommunications world collaborates on the standards for each new generation of Wi-Fi and how much business those new standards create. We'll all end up buying new phones once 5G rolls out; video and gaming companies will find new content and services to sell us; etc.

Blockchain will still have growing pains, but we as an industry can do better.

Cheers,

Paul Carroll
Editor-in-Chief

Has the catastrophe (CAT) bond market become passé? Lost its luster? If you were talking about insurance-linked securities (ILS) around the water cooler as recently as 2017, that’s the impression you may have walked away with. CAT bonds were so ‘90s; collateralized reinsurance was where ILS was. And since the credit crisis of 2008-09 the numbers have borne that out. But since the fourth quarter of 2018, CAT bonds have come back into the fore and are proving that they have some inherent advantages over collateralized reinsurance when included in ILS portfolios. I break the ILS sector into three segments: CAT bonds, collateralized reinsurance and reinsurance sidecars and similarly styled vehicles. Collateralized reinsurance includes both primary (to insurers) and retrocessional (to reinsurers) reinsurance contracts, as well as indexed contracts like industry loss warranties (ILWs), because ILWs are typically just an excess of loss reinsurance contract with an additional payment trigger. This article focuses on CAT bonds, and more specifically Rule 144A CAT bonds that typically trade on the secondary broker/dealer market. While CAT bonds are the oldest form of ILS currently being used, their growth following the credit crisis has been outpaced by that of the collateralized reinsurance market. According to Aon Securities, in 2007 CAT bonds constituted approximately $15 billion (68%) of the $22 billion in ILS market capacity, with collateralized reinsurance making up about $3 billion (14%) of that total. By July 2018, CAT bonds were approximately $30 billion (31%) of the $98 billion of total ILS market capacity, while collateralized reinsurance made up about $55 billion (56%) of that total. Why such a change? There are many reasons, but two main ones are: 1) the heightened awareness by cedants of their reinsurer credit risk post-crisis (especially since Hurricane Ike made landfall in Texas the same weekend that Lehman Brothers filed for bankruptcy!), and 2) a desire on the part of investors to access a wider range of independent insurance event risks across the yield spectrum than what was available in the CAT bond market. See also: The Challenges With Catastrophe Bonds   Fast forward to 2019. After two consecutive years of multiple catastrophe losses of moderate size (and in 2017 the most total insured catastrophe losses ever, surpassing 2005), a rarely observed phenomenon hit collateralized reinsurers: a liquidity crunch. While deal specifics vary, in its simplest form a collateralized reinsurer posts 100% of the policy limit (less premium in many cases) as collateral for a given transaction. If a loss occurs, it takes time for the reinsured to adjust the loss, and that amount of time may extend past the next renewal of the reinsurance contract. If the size of the loss is unknown at renewal, the collateralized reinsurer may have to post additional collateral to renew the contract. If it does not have sufficient cash or liquid securities, or cannot quickly raise additional capital, it will not be able to participate in the renewal. Multiply this situation across the many reinsurance contracts in a collateralized reinsurer’s portfolio, and the result can be reduced portfolio returns because the reinsurer has to maintain collateral balances that will only earn money market yields. The need to have sufficient liquid securities available to facilitate reinsurance contract collateral requirements after one or more insured catastrophes was missed by some collateralized reinsurers. Prior to the credit crisis, most investment managers in the ILS sector had significant traditional reinsurance experience and were familiar with the loss adjustment process of significant catastrophes. After the crisis, a number of ILS funds were formed by managers who did not possess this experience and appreciation for the nuances of catastrophe claims adjustment (particularly the time associated with the claims adjustment process). Following the recent back-to-back years of notable natural catastrophe losses, the discussion of “loss creep” began in the trade press, which is not really a new phenomenon and is to be expected within the first year or so of adjusting complex catastrophe claims. Given the need for liquid collateral after a catastrophe, what’s an ILS manager to do? Unless the manager is a multi-strategy or multi-asset fund, the investment mandate is typically limited to ILS and cash. Maintaining too large a cash position creates a drag on portfolio returns and makes the manager less competitive. That leaves the manager with one choice for liquid securities: CAT bonds. While CAT bonds are not highly liquid exchange-traded securities, there is an active over-the-counter broker/dealer secondary market for CAT bond trading, and they are often recognized as Level II assets under Fair Value Measurements standards. CAT bonds have traded continuously at non-distressed prices through major financial market dislocations, including the dot-com bust and the credit crisis. Prior to the credit crisis, however, there was limited visibility into CAT bond secondary market trading volume and pricing. Then, in 2012, the U.S. regulatory agency FINRA launched the Trade Reporting and Compliance Engine (TRACE), which tracked CAT bond (and other fixed income securities) secondary market trades by FINRA-registered broker-dealers and provided a window into this opaque world. CAT bonds proved themselves again as a liquid asset in 2018, particularly in the fourth quarter, despite the catastrophic activity occurring in real-time from events like Hurricanes Florence, Michael and the California wildfire outbreak. ILS managers who were savvy enough to include CAT bonds in their portfolios sold them as needed to raise additional capital for their collateralized reinsurance businesses. According to Swiss Re Capital Markets, TRACE secondary trading volume in 2018 totaled over $2.1 billion, with the second half of 2018 exceeding $1.1 billion and $700 million of that occurring during the fourth quarter. Second half 2018 trading volume exceeded that of the same period in 2017 by 35%. With $30 billion of CAT bonds in circulation at year-end, the 2018 secondary trading volume was approximately 7% of the outstanding market. See also: Dying… or in a Golden Age?   Leaving aside the fact that CAT bond portfolio returns often outperformed those of ILS portfolios weighted toward collateralized reinsurance and sidecars in 2017 and 2018, the data suggests that CAT bonds can also perform a valuable liquidity function in ILS portfolios of all types. CAT bonds clearly give managers of ILS funds a multi-dimensional portfolio management tool that benefits both portfolio return and liquidity. Whither the CAT bond market? I suggest that thou speakest too soon!

In the name of simplicity, I’ll be brief. 1. Decades ago in the Louisiana legislature, a contentious debate was raging over a law requiring motorcycle drivers to wear helmets. Representative V. J. Bella stepped to the podium in the Louisiana House with a stool, a sledgehammer and a watermelon. He placed the watermelon on the stool and slammed it with the sledgehammer. He walked to the microphone, stating, “Enough said!” The legislation was approved. 2. Tomorrow, I’m speaking to a business group. I have 90 seconds to send a message. My left hand will hold a dollar bill. My right hand will also hold a dollar — in the form of 100 pennies. My narrative will be brief. I’ll drop the dollar bill and let it float to the ground. I’ll roll it up and throw it as far as I can. I’ll reinforce the obvious with, “This is a dollar bill.” I’ll hold up the 100 pennies and toss them in the air. I’ll clarify the not so obvious with the following: “This is also a dollar. It has the same value as the dollar bill. The difference between the two is the bill was a cohesive unit when I tossed it — the dollar in pennies were individual units — not cohesive." See also: With Innovation, Keep It Simple, Stupid   Occasionally, an enthusiastic manager or leader decides it’s time for a bold step into the future. It’s time to shake things up. It’s time to turn the organization on its head. That may be the right thing to do, but it does not come without risk. To make such a bold move — YOU MUST BE CERTAIN YOUR TEAM IS A COHESIVE UNIT focused on shared values and goals and not just a bunch of individuals driven by their perception of what’s good for us – without knowing what “us” thinks and feels about someone else’s great idea! 3. Presenting to a client organization, I placed the six individual dolls that were part of a nesting doll on the podium. I held up the first doll and explained, this is you. I then positioned “you” into the second doll - stating, this is you in your family. I followed with – this is you and your family inside of your job/profession/business. We advanced to this is you, your family, your job or profession or business inside of your community. The fifth step was you, your family, your job and your community inside of the marketplace. I closed with this is you, your family, your job, your community and the marketplace inside of the global economy. I then held up the single assembled mass and said – this represents your COMFORT ZONE. You know where you fit and what surrounds you. Even if you are miserable – you are comfortable. That’s the good news. The bad news is – each and every entity (doll) stacked in here will change drastically in the next few years, and if you can’t or won’t be flexible and adapt you will be crushed by those changes. No one stood and applauded – but I could tell they heard the message and were squirming with my presentation and the threat it represented to their COMFORT ZONE. From "The Portable Do It!" by John-Roger and Peter McWilliams we learn: “The bad news about the comfort zone: The comfort zone is never static. It is either expanding or contracting. If you’re not consciously expanding the comfort zone, it contracts. In the heating and air conditioning trade, the point on the thermostat in which neither heating nor cooling must operate -- around 72 degrees – is called “The Comfort Zone.” It is also known as “The Dead Zone.” See also: A Contrarian Looks ‘Back to the Future’   In leadership – KEEP IT SIMPLE – speak in a common language and make certain that what is heard and what is said align. When possible, be brief – USE A PICTURE or a METAPHOR that all can understand. DON’T LIVE IN THE DEAD ZONE - DON’T BE STUPID! KEEP IT SIMPLE. KEEP IT COHERENT!