Looking back on the recent push for innovation in the insurance industry, I'd say that 2017 was the first year that insurtech truly piqued the curiosity of a lot of executives and companies. At the beginning of 2018, I predicted the industry would shift from talking to doing. So, where do we stand a year later? And where should we be going in 2019?

 We're not as far along as I had hoped we would be. Companies talked a lot about innovation during 2018, but most were content if they could check a box marked "innovation" and haven't yet forced themselves to do the hard work that comes with the task. More companies designated an innovation leader, joined an incubator, provided some money to update legacy systems to prepare for innovation somewhere down the road, took an executive group to Silicon Valley to see what radical innovation looked like, etc. There was less actual innovation, however, than I expected and more of what I'd call "innovation by press release." 

These more limited actions in 2018 likely satisfied senior management and the board—which was the principal, if unstated, goal, I suspect—but the day of reckoning is still coming, and it's now a year closer. There are some, including people I respect deeply, who don't think the day of reckoning for insurance will be that severe. They think the industry is too tightly regulated, requires too much capital and has too much legacy infrastructure and knowledge to be upended through a technological transformation. Change has certainly been evolutionary, not revolutionary, to this point. Insurtechs are mostly trying to work with incumbents, not replace them.  

But I keep thinking back to conversations I had in the late 1990s and early 2000s with a friend who had a C-suite job at a Fortune 500 company. I kept telling him that the company faced an existential threat, to which he replied that the company was changing as fast as it could and that the day of reckoning was off in the distance. I argued that the market was going to change at its own pace, whether his company could keep up or not. It didn't. It filed for bankruptcy protection. 

I also keep thinking about all the tech giants, including Amazon and Google, that are sniffing around insurance. Yes, Silicon Valley companies like asset-light businesses, not businesses that require as much capital as insurance, but they'll go where they see opportunity, and the operational inefficiencies and poor customer experience in the insurance business reek of opportunity. When I suggested to a brother-in-law, who runs a programming group at Amazon, that something like health insurance might be prohibitively complex, he just smiled and said, "We do complex." 

So, I suggest we step up the pace in 2019. We may be going as fast as we can—but still not be innovating fast enough. 

The will to innovate is clearly there. I see it all around. I also understand the regulatory and legacy factors that seem to require a measured pace. For added complexity, a wave of mergers and acquisitions may well arise and consume a great deal of management attention. 

But we need to get innovation past the press releases and into the market. Consumers are demanding change, and we either have to deliver, or we'll get pushed out of the way so that someone else can. We'll wind up with a bevy of patents for buggy whips just as some guy we've never heard of rolls out the Model T. 

Have a great week. 

Paul Carroll
Editor-in-Chief

The world of insurance is changing rapidly. From transformational advancements driven by insurtech, artificial intelligence, robotics process automation, blockchain and wearables, to changes in the way insurance companies design and implement new products (e.g., design thinking, minimum viable product and behavioral economics), innovation is happening all around us. As Karen A. Morris said in her article "Innovation Lessons From the Flock," “The feather in every innovator’s cap is the ability to question, relentlessly and with energetic humility.” There is no doubt that insurance companies across the country are questioning the impact of changes on their ability to compete. However, the insurance industry may need to spend a little more time thinking about how their customers are purchasing insurance and how the point of sale is potentially changing. This article will share some examples of areas where insurance companies may need to rethink how they attract and retain insurance customers in the very near future as purchasing habits evolve. The Rise of Subscription Models In the CNBC article titled "The ‘Netflix’ Model of Car Ownership Is on the Rise for Drivers Who Need Wheels – Without the Debt," the author discusses the growing trend of automakers, dealers and startups that are offering subscriptions as an alternative way to get into a vehicle. By subscribing to a vehicle, a person can avoid the traditional leasing of a vehicle or financing the vehicle through the auto manufacturer, used car dealer or bank. For insurance companies, perhaps the most important feature to note about a subscription model is that the automaker, dealer or startup will charge a flat monthly fee packaging together all the expenses associated with owning or leasing a vehicle. Included in that fee, you guessed it, is personal automobile insurance. The article mentions a number of companies offering subscription options. A visit to the news sections of these companies shows how fast dealership partnerships and car subscriptions are growing. See also: Digitalization – the Great Disappointment   Professional Employer Organizations (PEOs) For the workers’ compensation line of business, insurance companies will need to monitor the impact of PEOs and aggregators of services that offer to own the insurance risk for multiple clients across multiple states. Through the law of large numbers, mobile claim reporting apps, strategic partnerships with pharmacy benefit managers, third party administrators and insurance companies, PEOs are able to sell the fact that they are better equipped to handle the workers’ compensation claim life cycle. As you can tell from reading the financial results of a number of the largest PEOs, they are growing rapidly… translating into more and more companies where somebody other than the insurance companies competing in the open market are owning the insurance relationship directly through a relationship with the PEO. Why the Point of Sale Matters For insurance companies that are relying on their traditional sales channels of agents and direct sales to renew their current customers or attract new business, they may be in for a surprise some day soon. As subscription models and PEOs continue to attract and rapidly grow their customer base, traditional insurers will lose customers who are shifting to these new low-hassle business models. A good analogy in this case would be the boiling frog in a pot. If you place a frog in a pot of boiling water, it will jump out immediately. If you put a frog in a warm pot and slowly raise the temperature, the frog will continue with business as usual. In a similar manner, if insurance companies don’t recognize that these new models are slowly but surely taking away business, an insurance company could some day wake up and find that a lot of customers have disappeared from the market. Researching Who Owns the Relationships There is no doubt that some companies have gotten out ahead of the curve when it comes to recognizing that the point of sale for insurance has started to change for auto liability, workers’ compensation and a few other lines of business. Although we won’t name the insurance partners of subscription companies and PEOs, there are some easy ways one can find out the information. For publicly traded companies, searching for insurance keywords in the company’s 10-K/10-Q is a fine place to start. For both public and private companies, searching their website and visiting areas that address frequently asked questions related to accidents and filing a claim can also be helpful. For one subscription company, the authors identified the startup’s insurance partner by downloading the app and visiting the FAQ section. By looking for answers related to questions about accidents and insurance, we found the number for the insurance provider, dialed it and heard the name of the insurance partner. For one PEO, we were able to visit the insurance resources section of the website and learn everything about the workers’ compensation program (e.g., certificate of insurance form, claim reporting form, pharmacy benefits provider, etc.). See also: Reinventing Sales: Shifting Channels   Conclusion As Larry Keeley said in his book, "Ten Types of Innovation – The Discipline of Building Breakthroughs," “Successful innovators analyze the patterns of their industry. Then they make conscious, considered choices to innovate in different ways.” Based on the trends and patterns we have described, it will be important for insurance companies to rethink where they should focus their energy when it comes to the point of sale for certain lines of business. As the competitive landscape continues to evolve, those who adapt first and recognize shifting points of sale will likely have a first mover advantage from a data analysis, relationship and diversification perspective.

A new form of online abuse and exploitation of young people is growing rapidly. It’s called “sextortion,” and it’s defined as the threatened dissemination of explicit, intimate or embarrassing images of a sexual nature without consent, usually for the purpose of procuring additional images, sexual acts, money or something else. New research from the Cyberbullying Research Center indicates that sextortion is more prevalent among adolescents than first realized, and youth are often involved as both victims and perpetrators. The disturbing results from surveying more than 5,500 middle and high school students from across the country showed:

• 5% of 12- to 17-year-olds had been the victim of sextortion
• 3% admitted to sextorting others
• Most were victimized by a boyfriend or girlfriend (32%) or other friend in real life (22%)
• Only about 5% said the extorter was someone they didn’t know very well
• Many victims didn’t tell anyone about the incident; girls were more likely than boys to have told a parent

Sextortion hasn’t received the extensive study or media coverage that other types of online crimes have, but two detailed studies have shown that perpetrators tend to have multiple victims, generally ranging from 10 to more than 100 (Brookings Institution study). Another concern, raised in research by the University of New Hampshire, is that about 70% of victims provided compromising images of themselves voluntarily or were tricked into providing them. This factor seems to contribute to the reluctance of many sextortion victims to report the crime. See also: Time to Talk About Sex Abuse in Schools   The impact of sextortion on victims has been as serious as other forms of bullying and cyberbullying. In too many cases, the outcome is suicide. Many manifest the same mental and physiological symptoms of those who have suffered face-to-face sexual assault, including depression, anxiety, eating disorders and distrust of others. Some whose pictures were distributed in their schools and communities faced further harassment and even physical abuse. Increasing awareness and education of young people and their families about the dangers of sextortion is the first step in protecting children. Parents and friends who are sympathetic and supportive help alleviate the isolation that victims often experience. Several best practices for cyber safety and online behavior can help prevent sextortion in the first place:

• Teach children that sharing any kind of inappropriate images – of themselves or others – through their computer or phones puts them at risk of serious trouble, from being embarrassed, coerced by others or possible criminal charges.
• Be sure to keep webcams, including those built into laptops, secure. Cover the lens or close the lid of the laptop when you don’t intend to use the camera.
• Ensure antivirus protection and privacy settings are in place to reduce the risk of cyber intrusion, distribution of personal information or “remote control” by perpetrators.
• Parents, let your children know that it is safe for them to come to you for help if they receive any kind of threat online, and that you will assist them supportively if they make mistakes in judgment.
• Watch for unusual signs of social withdrawal, anxiety, anger or rage, as well as any suspicious attempt to conceal what a child is doing online. These could be indications that the child could be threatened or could be involved in threatening someone else. If this happens, talk to the child frankly, show your concern and seek help from a professional, if necessary.

See also: 5 Tips for Success in Cyber Litigation   As technology becomes more sophisticated and our personal lives are increasingly connected to cyber space, the online hazards that young people are likely to encounter will require all of us to be more vigilant. We encourage you to learn more about bullying, cyber bullying and sextortion so you are better prepared to protect children from abuse.

Numbers may numb the senses, but that does not mean insurers should forsake the chance to achieve something that, in contrast to their current approach to marketing, can be numinous, relatively speaking, because neither a lack of communication nor communication that lacks style can yield anything of substance. Insurers need not go back to the drawing board, when they should go to the photography studio instead: a place for photographers, artists, designers, writers, and directors—all of them working in a studio spacious enough for them to realize their vision, which itself is a study in the transformation of space. It is the conversion of space into living space—the way a studio lends itself to interpretation by way of a camera lens—that can allow insurers to further their message through the medium of video or photography. Achieving this goal starts with finding a studio in which a room has plenty of space for invention, and reinvention. To have such a studio is to have the solution to a challenge that is otherwise a logistical mess and a financial disaster. Enter FD Photo Studio, literally or virtually, because this is where insurers can begin to turn their message into effective marketing. I mention this disruption in how photographers do business, or how businesses can leverage a series of photography studios that have low hourly rates and a suite of equipment and services, because the biggest barrier to a shift in marketing is the refusal of most studios to change their prices—to change, period—in the face of changing needs and demands. See also: 10 Essential Actions for Digital Success  With the solution now available, insurers have no reason not to banish the banal, to erase the execrable, to delete the detestable. They do, however, have every reason to express themselves visually—to have a vision that verbalizes a specific set of values—so their marketing speaks for itself. They have to articulate what they believe. They have to believe what they say—they have to know what they believe—so what they say is not only believable but true, so what consumers see is a picture of what insurance is, so what appears on paper or develops on-screen is the summation of a collection of ideals like honor and integrity and hope and opportunity. That honesty is the best policy, for insurers, is both a matter of justice and a measure of goodness. To have a marketing campaign that blurs what should be clear, or to perpetuate a message that fails to clarify what is right, is neither good for business nor a good to possess. It is bad optics, as pundits are wont to say, because it is just plain bad. See also: Engaging Employees: Key to Success Let insurers, therefore, resolve to make excellence a priority and professionalism a promise to keep. Let them produce an actual snapshot of their industry, which says a lot without having to say a word; unless words are necessary; unless the words condense a thousand words into a memorable sentence; unless the sentence implies what consumers will likely infer: that insurers are great marketers.

I have been asked a number of times to provide my perspective on the insurance industry in the time of the Industrial Revolution 4.0. In this piece I'll do so, but first, how did we get to 4.0? What preceded and led to this brave new world of what's now called "IR4"? The first industrial revolution occurred in the late 1700s, with most agreeing that the seminal event was the development of the first mechanical loom in England in 1784. More broadly, the period was defined by mechanized production facilities, usually with the help of water and steam power. The second industrial revolution, in the late 1800s, was defined by the concept of division of labor and by mass production, with the help of electricity. Think of hog slaughtering or early automobile assembly lines. The third industrial revolution, starting in the late 1960s, was characterized by the introduction of the electronics and IT systems that accelerated the automation of production and business processes. Think of the room-sized computers of the '60s and '70s. The fourth industrial revolution is happening right now. The IR4 concept was pioneered by Professor Klaus Schwab, founder and chairman of the World Economic Forum. The idea is that we are now entering the fourth major industrial era since the initial industrial revolution of the 18th century. This new world is characterized by the fusion of many technologies and the blurring of lines between the physical, digital and biological spheres. This evolution to what we now call cyber-physical systems, or embedded systems, is leading very rapidly to a world dominated by systems that are controlled or monitored by computer-based algorithms, and integrated with the internet and its users. This kind of connected and communicating world has enabled the development of such things as a smart power grid, remote medical monitoring and autonomous vehicles. This is the "Internet of Things": technology becoming embedded into all facets of society, and even into our bodies. As dramatic as this may sound, the fourth industrial revolution is even more transformative than the previous three in other ways, as well. The speed of recent breakthroughs has no historical precedent; it is exponentially faster in adoption than previous industrial revolutions. Additionally, it is disrupting almost every industry in almost every country. This scope and pace is unprecedented. Like the revolutions that preceded it, the fourth industrial revolution has the potential to raise global income levels and improve the quality of life for populations around the world. At the same time, however, this revolution could yield greater inequality along the way. Access to technology varies widely, so developments like robotics have the potential to displace workers in precisely the parts of the world that need help advancing most. The reason is that there are three separate but connected kinds of disruption going on simultaneously. Technological disruption: artificial intelligence, blockchain, telematics, genomics, the Internet of Things. Economic disruption: imagine: AirBnB is now the #1 hotel company, Uber is the #1 taxi company, big stores and shopping malls are fighting for their lives. Sears, the Amazon of the 20th century, recently declared bankruptcy, and many traditional bricks-and-morter retailers are threatened. Social disruption: some parts of the world are aging rapidly, with attendant retirement savings and healthcare challenges, while other parts, mostly in the Southern Hemisphere, have more young people than jobs; people want to be able to use things without necessarily owning them; concepts of work are changing; income equality and gender equality are major issues. While the concept of a Fourth Industrial Revolution is now widely discussed, I would like to describe the Fourth Insurance Revolution as I see it. Like the eras of the four industrial revolutions, there have been three previous periods in insurance industry history that are somewhat similar to the evolution of the industrial world. The first era, which I call Insurance 1.0, began logically enough in the parts of the world that were the cradles of civilization, the Middle East and Asia. See also: Industry 4.0: What It Means for Insurance   As far back as the second and third millennia BC, traveling Chinese merchants practiced an early form of risk management by distributing their wares among numerous ships and different trade routes, to minimize losses along the way. In Babylonia, merchants receiving a loan to ship goods paid the lender an additional fee that would cancel the loan if the goods were somehow lost – credit insurance. This form of coverage is even memorialized in the Code of Hammurabi. The Greeks and Romans introduced the origins of life and health insurance when they created guilds called benevolent societies, to pay family members for funeral expenses of deceased members. These are our industry’s beginnings. Insurance 2.0 as I see it was the introduction of the first actual insurance contracts. These were developed in Genoa, Italy, in the 14th century and related to marine insurance for goods in transit. This was a formalization of the earlier concepts employed in the Insurance 1.0 period. Our industry matured greatly in the 17th century, into what I deem Insurance 3.0, a major leap forward. Much of the accelerated formalization of insurance was stimulated by the Great Fire of London in 1666. This enormous conflagration destroyed nearly 70,000 of the city’s 80,000 residences, and gave rise to urgent risk management and insurance planning. Property and fire insurance as we know it was launched by Nicholas Barbon in London in 1681. Around the same time, French mathematicians Blaise Pascal and Henri de Fermat conducted loss probability studies that resulted in the first actuarial tables. Insurance became an empirically based enterprise, and became widely understood to be a prudent expenditure for businesses and families. With that brief history of the evolution of our industry, let’s now move on to insurance in the 21st century: Insurance 4.0 In my view, most of the change in the industry since Insurance 3.0 up until the present has been incremental. Broader product lines, more distribution channels and, recently, the first elements of digitization. But what’s happening now is fundamentally different. The basic function and processes of insurance are being disrupted at an accelerating pace. So let me now present some of the issues and implications of change in the industry, what Insurance 4.0 looks like. I’ll start by making some comments on the insurance industry of today. Of course much of the rapid change taking place now and defining Insurance 4.0 is related to technology. The insurance industry’s raw material is data. Data not only to make underwriting and loss reserving judgments, but increasingly to manage virtually every business process in the insurance value chain. Data is valuable. But how can insurers successfully plan and manage data when, as Science Daily magazine tells us, 90% of all the data in the world has been generated in the last two years?! How do we use this avalanche of data to make sound business decisions? More data does not inevitably lead to better decisions. One promising set of tools: Artificial intelligence and machine learning, which represent a quantum leap from the predictive modeling insurers have been using over the past decade. Moving rapidly from applications in high-frequency, low-severity lines like auto and home insurance, AI capabilities are now employed in more complex commercial lines, and already show evidence of having real underwriting and loss reserving value. Skeptical about whether this can work in complex cases? Let me give you an AI example. A few years ago, a computer beat the world chess champion. Well, some said, that’s fine, but it will be a long time before a computer can beat a top Go player. As many of you know, Go is a complex Asian game played on a 19-by-19 grid, with more possible configurations than the number of atoms in the known universe. Google’s Deep Mind Lab computer input all the Go games ever recorded, over a 1,000-plus year span. After playing 4.9 million games against itself in a three-day period to learn, the computer immediately beat the world’s best Go player in a live game. What’s more thought-provoking, though, is what happened next. Putting aside the input of historical game results, Google just uploaded the basic rules of the game – no experience data. This new program, AlphaGoZero, became expert simply from learning first principles alone, without any human knowledge or experience input. Does anyone still think sophisticated underwriting or loss reserving is beyond the capability of modern computers? I don’t. Entrepreneurs have expanded the way technology can influence the insurance value chain to create an ecosystem we call insurtech. Leveraging off fintech’s huge impact on the banking and payments world, insurtech companies, which now number more than 100,000, are innovating in every insurance company department. Investments in them have grown by leaps and bounds. Insurtech attracted about $140 million in funding in 2011, $275 million in 2013, $2.7 billion by 2015 and more than $4 billion last year. Insurtech products and services address product development, marketing, pricing, claims and distribution, especially reducing policy acquisition costs, and have been much more focused on nonlife insurance (especially personal lines) than life and health insurance to date. Up until now, insurtech ventures have tended not to displace the incumbent insurers, but have been invested in or acquired by them to enhance their existing operations. Much of the industry’s current expanded use of technology, including insurtech, is focused on customer interface and the customer experience. It has always been said that an industry can’t disrupt itself; that disruption always comes from the outside. Not surprisingly, then, insurance policyholders and potential customers have had their expectations of customer experience elevated by their interaction with other product and service providers. No longer do they measure their satisfaction against other insurance companies. They want the kind of experience they get from Apple, Alibaba, Amazon, Starbucks and the like. They want mobile, 24/7, personalized service. Most insurers today are simply not capable of delivering this. They lack both the innovation mindsets and the IT budgets to deliver a 21st century insurance customer experience, and they will lose share of market to those companies that do. Another element of change in today’s insurance business is the emergence of public/private partnerships. More sovereign and sub-sovereign governments have come to realize that they are effectively the insurers of last resort when catastrophes strike. Efforts are accelerating to narrow the protection gap between total economic losses and the portion covered by insurance. Because the governments often end up paying directly or indirectly for disasters, and their citizens feel their brunt in terms of higher taxes or reduced services, governments now increasingly seek to partner with insurers. This is a positive development for the industry, one that presents both an enormous growth opportunity and a benefit to society. Recent years have seen the launch of the African Risk Capacity, the Caribbean Catastrophe Risk Insurance Fund and the Pacific Catastrophe Risk Insurance Company. All are regional public/private partnerships, and all are enabled by technology-driven parametric triggers. Others are in the works, facilities designed to address a range of perils including flood pools, terrorism pools and the like, best managed by governments and industry working together. The “lower interest rates for longer” world we live in presents major challenges for investing the assets that support our policy liabilities. Insurers can no longer simply commit the bulk of their portfolios to investment grade corporate and government debt. Such a strategy just isn’t sufficient to pay claims and provide an adequate return on capital now. Insurers and the asset managers who serve them have responded by changing their asset mix, to increase allocations to higher-return, not-much-higher-risk securities (let's hope). More equities. Structured products and bundles of loans. Private equity funds. And recently, infrastructure debt, in both developed and emerging markets. Portfolio yields are rising, but only time will tell whether these new investment allocations provide an appropriate margin of safety in more turbulent market conditions. It’s really too soon to tell if the industry’s investments have become riskier, or if insurers have simply better understood the true risks of 21st century investing. A more subtle but truly profound change in Insurance 4.0 is the industry’s focus on talent. I’ve been in the insurance business more than 47 years, and I can say with complete confidence that insurers have never remotely spent as much time, money and thought on developing their future leadership as today. There has always been talk about this, but the action has never before matched the rhetoric. With approximately 25% of the industry’s top management retiring in the next five years, as Baby Boomers retire in large numbers, the urgency of talent development has finally dawned on CEOs and even boards. Competing for top young talent isn’t easy. The lure of technology firms, entertainment, investment banking and other seemingly more exciting career paths is undeniable. But insurers have to try to attract at least some of the best, because our industry’s role in society is so critical, and the talent gap is large and growing. For the first time in my career, CEOs bring up their programs for attracting, developing and retaining talent without me asking them first. More and more describe carefully thought-out programs that are so strategically important that they have high visibility with their boards. Believe me, this is a real change. These are the companies that will thrive over the long term. All of these initiatives, in technology, in the customer experience, in public/private partnerships, in new investment approaches as well as in talent development, exemplify Insurance 4.0. Not just doing what we have always done, hoping to be somewhat better, but developing new tools to address new challenges, new opportunities and new competitors from within and without the industry. This is because insurers are the financial first responders in this risky world. We rebuild communities and homes after disasters, we provide financial stability when families lose loved ones and we invest to build economies around the world, and in Insurance 4.0 we do it faster and better. As numerous and daunting as the changes of today are for the insurance industry, there will be more and greater challenges in the industry of tomorrow. The accelerating pace of change in our world not only demands new products, but presents entirely new forms of risk, as well. I referred earlier to the three generic kinds of disruption we are witnessing. Each of them carries new risk exposure the likes of which our industry has not dealt with before. Technology disruption, for example, presents a host of new risks related to our connected world. Insurers are struggling to find their place as autonomous vehicles loom large in our future. What does this mean for the motor insurance business, the industry’s largest line of coverage? Will auto manufacturers simply bypass the insurance industry and go directly to the capital markets for their enormous coverage needs? Will commercial drones inspecting property damage claims improve workflow and reduce reliance on human error? How will blockchain reduce expenses? The InsureWave project developed by EY, Maersk, Willis and GuardTime promises to slash marine insurance expense ratios by approximately 10 points! Other blockchain applications are in the works, and industry consortia like The Institutes’ Risk Block Alliance are finding new processes to save and make money every day now. Finally, cyber risk represents the world’s first truly global peril, including a cascading potential due to our connectedness. Clearly, there is premium growth potential in cyber, but the early promoters of long-term-care insurance might remind us that revenue growth potential does not necessarily portend long-term profit. Current cyber combined ratios are running around 60%. True loss experience, though, will take years or decades to be fully understood. Economic disruption also presents new challenges and opportunities for insurers going forward. Who will be the insureds of the future? How does a company insure Uber or AirBnB, let alone the people who use them and the facilities they work with? How does the collapse of traditional industry customers like retailers, coal companies and other industries that dominated the 20th century affect insurers? And by the way, is the industry prepared to cut 25% to 50% of its non-customer-facing jobs over the next decade as a “benefit” of AI and robotics? Some of the internal workforce can become part of the “hybrid system,” the human overlords who write and work alongside the smart systems to make their ultimate decisions, but not many. Social disruption is also a source of new risks. For nonlife insurers, reputation risk and privacy risk have enormous potential exposures, and little existing loss data to make rates. It’s much too soon to tell if providing coverage for these exposures will be viable or not. What are the insurance implications of the sharing economy, where more people want the ability to use things without owning them? Usage based insurance is gaining popularity, but also has the potential to significantly reduce premium volume. What about the “gig economy,” where many people hold several part-time jobs and no full-time job (meaning no benefits)? And how will life and health insurers cope with a rapidly aging developed world? Retirement savings is a looming crisis. And even if we manage to avoid pandemics (consider: If the Spanish Flu of 1918 occurred today, it could kill 400 million people), what are the implications of a hotter and more polluted planet for healthcare? Will wearable devices driving the Internet of Things provide a cornucopia of information to enable better health outcomes? See also: Insurance Service Rates Zero Stars   And what of the big issue: climate change? Both the World Economic Forum and Lloyd’s of London define climate change as a top socio-economic risk to our society. Climate risk is now considered a core strategic issue by governments, businesses, even the military. Certainly for the insurance industry, adaptation and mitigation, the need to make future provisions for inevitable damage, and send pricing signals to insureds of the true cost of risk, is a defining issue of our time. In a broad way, Insurance 4.0 means the industry is becoming part of an ecosystem of connected and communicating sectors that are symbiotic, not as “B to B,” business to business, or “B to C,” business to consumer, but “E to E”: everything to everybody, where the information exchange benefits all participants, but is not equally understood by all parties. The information flow is asymmetrical. We can all agree that reducing risk in our world is a good thing for society, but, if risk is materially reduced, will the size and relevance of our industry then shrink? A few words are also in order about the political capital the insurance industry possesses. I have written herein mostly about the risk management side of our business, and indeed it is the very reason we are in business. But even in a time of increasing public/private partnerships seeking to mitigate and remediate natural disasters, politicians and policy makers primarily ascribe our industry’s power and influence to our investment portfolios. Globally, the industry has over $35 trillion of invested assets. Assets that are invested in companies’ domiciliary countries’ government bond markets and are critical to those countries. Assets invested in their stock and corporate bond markets, as well. And now, insurers’ role, along with pension funds, as the only true long-term investors, means they are vital to infrastructure funding. Growth projects for the emerging world, and reconstruction financing for the developed world. This is what gets the attention of policymakers. And so this attribute is what we must nurture and promote to enhance our stature. Our most promising avenue to high esteem with policymakers is by securing their understanding of the vital role our investment portfolios play in helping them achieve their goals. And so, the world of Insurance 4.0 is not just one of new products covering new risks, but a whole new conception of what insurance can be and do. Some say that in the future, all companies will be technology companies. If that is even close to being true, then insurance companies, which run on information, must surely be technology companies to succeed. But can they all be? No. Some don’t have the innovation mindset to adapt. I know of many insurers that employ only slightly modernized versions of the same processes that have been around for well over 100, and have yet survived. They will continue to try to muddle along until forced. Capital providers to stock insurers are getting impatient about returns, and so merger and acquisition activity is increasing. Few small insurers can afford to become state-of-the-art technology providers, and many will have to seek stronger partners. Most mutual companies, which do not have those demanding investors to answer to, will just carry on, but lose share of market to faster-moving competitors. I believe Insurance 4.0 will feature an accelerating consolidation of the global industry, driven by the technology leaders taking over technology laggards. I also believe that more and better utilization of data by insurers will lead to better pricing and better loss reserving, reducing the amplitude of underwriting cycles. This, in turn, will result in the industry becoming less of a frequency business and more of a severity provider, a tail-risk provider. The greatest value of the industry to its customers will become having the ability to better forecast and the capacity to provide for extreme weather events and other large losses. Examples would include cyber, environmental and terrorism/civil unrest. This is yet another argument for industry consolidation around fewer, bigger, tech-savvy insurers, and for an even greater role for funding from the capital markets. Another rapidly emerging concept of Insurance 4.0 is the industry’s role in loss mitigation. I’m shocked to find that many people still think our industry exists solely to pay money to people after bad things happen. In fact, the industry’s role in mitigating and even preventing losses before they occur is the key reason for the rapid rise of public/private partnerships and invitations by governments to help them anticipate and reduce, not just pay for, losses. As an example, I participated in this year’s G20 meetings in Argentina , where, for the first time ever, a dedicated insurance summit was held. Industry and governments explored opportunities to work together better to reduce losses any way possible. It is becoming widely understood that every dollar spent on loss mitigation and prevention by governments saves five dollars of post-event spending. This gets to a basic disconnect that the industry must come to grips with: Insurers basically want to sell protection for when losses occur, which they have done for centuries now. Customers, on the other hand, now want to buy loss prevention and mitigation, in the form of broader advisory services. If real customer-centricity is to be achieved, making this fundamental shift in the business model of how the industry meets customer needs would truly mean we have reached Insurance 4.0!

Over the last few years, many insurance companies across the globe have started to integrate workplace automation tools such as robotic process automation (RPA) into their day-to-day business activities and processes. At this point, if you’re the highly competitive insurance industry, this technology is one of your most trusted tools for creating a competitive advantage. But while RPA is an extremely useful software solution that helps large-scale insurance companies run more smoothly and efficiently, saving them money in the long run, it does have its costs, some more salient than others. For starters, many RPA packages are very expensive, and implementation can sometimes take months. Deciding which specific processes to automate is another issue entirely; it’s almost as if insurance companies need an automated process just to sort out which tasks they should automate. It's crucial to take a top-down approach, to get a bird’s-eye view of all of processes, to be able to see which will benefit from RPA. This sort of Process Discovery approach can drastically accelerate implementation; we've seen companies cut their automation deployment time by as much as 80%. Comparing Process Discovery and Process Mining To understand what Process Discovery does and why that matters, it’s helpful to compare it to another technology that some companies have started using in conjunction with RPA: process mining. Both process mining and Process Discovery can be used to identify a company’s processes automatically, reliably and objectively – and they can both offer key insights to help the company decide which processes to automate and in which order. But the two solution types were developed for different reasons, and they gather data very differently. See also: 3 Keys to Success for Automation   Whereas process mining tools were created to help organizations get a better understanding of their processes more broadly, Process Discovery was created specifically to help enterprises get more benefit out of RPA and to do so with optimal speed and efficiency,. While some businesses rely on process mining to decide how to use RPA, the field of process mining was not created specifically to be used with RPA. Additionally, process mining tools gather data on a company’s processes based on system event logs created after a user has performed an action – an approach that can sometimes limit the technology’s impact on successful automation. First of all, extracting processes from logs is a time-consuming project, typically taking between one and four months, and it requires specially trained and qualified personnel. Second, system event logs cannot always measure work processes performed on certain software, such as Citrix and legacy systems. Third, even after a process has been identified and a company has decided to automate it, the company’s employees must still create an automation workflow from scratch before robots can start performing the process – a project that can be slow and time-consuming. In contrast, Process Discovery can gather data primarily through computer vision, which enables it to monitor a user’s activities in real time based on the information displayed on that user’s computer screen. This approach allows for a single business user to manage a company’s entire process of using Process Discovery, taking only one to three weeks from start to finish. And, because it does not require system event logs, Process Discovery can easily detect processes performed on any application – empowering a company to identify all its processes, regardless of platform. Perhaps most importantly, each time Process Discovery identifies a process, it can automatically a fully functional automation workflow for it. Then, employees have the option of fine-tuning the workflow before assigning robots to start performing it. This capability is a key factor in Process Discovery’s tendency to slash the time required to identify and automate a work process. Use Cases For RPA in Insurance RPA is already being implemented in the insurance industry, with the benefits spanning from the reduction of tedious processes and general costs, to overall reduction in human error. A few specific examples include:

1. Claims Processing — which involves a heavy amount of data and is very document-intensive, requiring people to collect a vast amount of information from various sources. Doing claims processing manually can be lengthy, creating issues for both customer service and operations. Process Discovery can help insurers easily find ways to automate their claims processing, while using RPA to quickly gather data from various sources to be used in centralized documents, allowing them to be processed much faster.
2. Regulatory Compliance — insurance companies rely on various compliance standards that include HIPAA privacy rules, PCI standards and tax laws, which all continue to change over time. To protect business operations, these compliance standards need to be followed, but often they are hard to keep up with for employees and clients. Through the implementation of Process Discovery, insurance companies can find ways to automate areas of certain compliance processes, to better regulate them with RPA.
3. Scalability — as the insurance industry only continues to become more competitive, quick and efficient, scalability is important for the success of any insurance company. RPA can be implemented to ease the experience of scaling up, allowing insurance companies to focus more on the company itself rather than the tedious day-to-day activities that take up employee time. Additionally, Process Discovery can find the daily tasks that can be automated, so that new employees can be onboarded faster and more efficiently, without getting bogged down by having to figure out which of their own processes they should automate.

Looking Forward RPA is becoming a popular solution among major companies across the insurance industry, and it is only going to continue to grow. How much benefit a company gets out of it depends largely on which tasks the company automates. And the more quickly and efficiently that company can choose the best processes to automate, the better it is prepared to maximize its RPA ROI. See also: Next Big Thing: Robotic Process Automation   Against this backdrop, Process Discovery does more than “automate the automation.” It gives insurance companies a head start on their competition by providing them with the greatest luxury of all: time. Specifically, Process Discovery empowers these companies to reliably choose the best tasks to automate, deploy RPA up to five times faster and save significant time and money as the insurance industry continues to grow and become more competitive. At the same time, it stands out for its ability to identify all work processes, regardless of their computer platform – maximizing the scalability of RPA. For insurance companies around the world, this is an exciting and promising time for RPA. By empowering these businesses to jumpstart their use of automation, Process Discovery helps to explore this technological landscape aggressively.

In North Carolina, a storm is brewing that highlights the healthcare industry’s influence and stranglehold over public dollars. An experienced civic-minded reformer with clout has emerged. Dale Folwell is a certified public accountant who served four terms as a Republican in the NC House of Representatives and was elected speaker pro tempore. Now state treasurer, he has responsibility for the State Employees’ Health Plan and its 727,000 employees, dependents and retirees (including my wife, a sign language interpreter in the Charlotte-Mecklenburg  school system). The plan spends $3.3 billion annually, making it the largest healthcare purchaser in the state. “Right now, the state health plan and members spend more on healthcare to employees and retirees than is appropriated for the entire university system or for public safety,” Folwell says. He has made it his mission to bring reason and stability to that program. Beginning Jan. 1, 2020, Folwell proposes to switch the health plan’s reimbursement method to reference-based pricing. The approach, around a decade and now gaining momentum with employers around the country, would in this case pay 177% of (or nearly double) Medicare reimbursement. The health plan’s program, called the Provider Reimbursement Initiative, would allow providers a reasonable margin but would cut an estimated $300 million annually from the plan costs and another $60 million from enrollees’ costs in the program’s first year. The health plan’s board of trustees unanimously supported the proposal. See also: 5 Health Insurance Tips for Small Business   In promoting his plan, Folwell has described some of the issues he’s faced. The most important is that, under longstanding arrangements with the state’s providers and the plan’s administrator, Blue Cross of North Carolina, the health plan can’t access pricing information on the services it's purchasing. “I know what I’m being charged, but I don’t know what I’m paying,” Folwell explained. “For years, the plan has paid medical claims after the fact without knowing the contracted fee. It is unacceptable, unsustainable and indefensible. We aim to change that.” “I said [to Blue Cross], I know what you are charging, but what am I supposed to pay? There is no transparency,” Folwell said. “Blue Cross would not tell me, and there are laws on the books that say they need to tell us. The healthcare system has worked long and hard to develop this broken system, and they’ve been completely successful.” Not surprisingly, the state’s healthcare lobby is gearing up to protect its turf.  State Rep. Josh Dobson, a McDowell county Republican, is expected to file a bill that would block Folwell from instituting the plan. Steve Lawler, president of the North Carolina Healthcare Association, one of a half dozen health industry associations with powerful lobbies, has claimed that Folwell has resisted discussion. But Lawler does not appear to have publicly addressed the transparency or excessive cost issues that are central to Folwell’s complaint. While the battle is shaping up to be a high-stakes, all-out fight, the healthcare lobby may not simply get its way this time. Robert Broome, executive director of the formidable State Employees Association of North Carolina, favors Folwell’s plan and said, “The state health plan board made a very sound financial and public policy decision that will save money for taxpayers and will save money for plan members, while bringing some common sense to how we pay for healthcare. It boggles my mind that folks could actually line up and be opposed to this.” The beauty of Folwell’s strategy is that it is grounded in doing the right thing, and he has made it very visible to the Carolina rank-and-file. When challenged, politicians and business leaders will likely have to openly support the public interest over the healthcare industry’s interest, especially an industry that has become wealthy by taking advantage whenever possible for decades. Folwell’s bold initiative takes its cue from a groundbreaking reference-based pricing initiative by the  Montana State Employees Health Plan, with about 30,000 enrollees. That program’s success has since led the Montana Association of Counties to implement a similar program. Here’s an introductory video on how that program works, and another one here explaining how the payment is calculated. As healthcare costs have relentlessly risen, much of it due to opaquely excessive care and unjustifiable unit pricing, federal, state and local government workers around the country have seen their benefits slashed and their contributions drastically increase. The initiatives in North Carolina and Montana may be the leading edge of a drive by purchasers exercising their newfound market leverage. There’s every reason to believe they can be replicated throughout the country by governmental and non-governmental purchasers, fundamentally moving our broken healthcare system in the right direction. See also: Avoiding Data Breaches in Healthcare   It’s also important to remember that reference-based pricing is just one of several dozen powerful quality- and cost-management arrows in a larger healthcare performance management quiver. Smart employers and unions around the country are finally beginning to go around their health plans and deploy high-performance solutions in drug management, musculoskeletal care, cardiometabolic care, imaging, allergies, claims review and many other opportunity areas for quality improvement and cost containment. Folwell may well be the champion we need at the moment, and it’s possible he could achieve something meaningful. If governmental and business leaders follow his lead in North Carolina and around the country, it would be a key first step to drastically changing our health system for the better.

The diabetes industry is far more sophisticated than the wellness industry when it comes to dramatically overstating outcomes and savings. Excluding vendors by the Validation Institute like It Starts with Me and US Preventive Medicine, wellness industry claims can easily be shown to be fraudulent. It’s equally easy to back that assertion with a $3 million reward, knowing that no wellness vendor or consultant or “guru” will ever try to claim it, even though I’ve made it ridiculously easy, accepting the burden of proof and only allowing myself to pick one of the five judges. By contrast, unlike the more transparently dishonest wellness industry, the diabetes industry’s “outcomes” can only be challenged, rather than simply invalidated on their face. And no way I’m offering a reward. (I’ll make an even-money bet, though – same rules.) There could be actual savings from these programs, but these five examples of biostatistical sleight-of-hand suggest that those actual savings, if any, are far more modest than claimed savings. 1. Conflating verb tenses Here is a claim by a diabetes prevention vendor showing ROI on its program. One would be excused for thinking that these results had actually been achieved and validated, given the choice of verb tense in the graphic: Looking harder at the language, note that the phrase is “recoup their investment,” not “were validated by the Validation Institute as having recouped their investment.” Yet the verb “saved” is in the past tense. And the heading says: “How quickly employers recoup,” whereas the only article cited in the footnote analyzed Medicare patients, whose chronic disease are far more advanced. Further, digging into the actual article (financed by the vendor) yields the following sentence [emphasis mine]: We used a Markov-based microsimulation model in which a person’s characteristics are used to predict health outcomes in the upcoming year. Elsewhere the article says: We applied 26-week weight loss results to simulate potential health and economic outcomes  Therefore, this entire claim is based on a predictive simulation model that somehow morphs into a clear statement showing precisely $1,338 “saved." Speeding up time As can be seen from that graphic, this particular vendor is claiming a huge ROI in two years for employees with pre-diabetes. However, the Centers for Disease Control and Prevention says: One in 3 adults in the United States has pre-diabetes (fasting blood glucose, 100–125 mg/dL); 15% to 30% of those adults will develop type 2 diabetes mellitus within 5 years. See also: Diabetes: Defining Moment of a Crisis   So only a small minority of pre-diabetics will develop diabetes in five years. And then, of course, it would take years for avoidable complications to develop even if no one “manages” the newly diabetic employees to avoid them. How, then can $1,338 of expenses per participant be claimed to be avoided by keeping these employees from getting sick in a measly two years when most of these employees aren’t going to be sick five years from now even without an intervention? Comparing participants to non-participants Speaking of “participants”… Let’s be very clear: Whenever you see the word “participants” in a study report, the claimed outcome is vastly overstated.  Participants will always outperform non-participants, regardless of the intervention. The National Bureau of Economic Research proved this using a randomized control trial. Further, on three other occasions, biased researchers trying hard to prove the opposite accidentally showed that 100% of their apparent “savings” were attributable to participation bias, meaning 0% to the program. (The bias won’t always account for 100% of the claimed savings, of course.) The best example of this bias? A Koop Award-winning wellness program accidentally revealed that participants hugely outperformed non-participants even when there was not a program to participate in. In this slide, note the X-axis. The groups were separated in 2004. The program was implemented in 2006. During the two years between separation and implementation, the participants “saved” almost 20% vs. the non-participants by doing nothing. This isn’t a secret. Participation bias is well-known to insiders in the diabetes industry. Yet every single diabetes vendor ignores this bias (or “matches” participants to some medical charts), while most also fail to disclose the dropout rate – and the fact that most employees who drop out of programs do so because they aren’t getting results. Projecting participants’(!) short-term weight loss into the future Essentially all of them do this, too. Very large-scale studies have shown that only the smallest percentage of people who lose weight keep it off. There is no reason to think that somehow a few diabetes vendors have unlocked the key to long-term weight loss that has eluded the rest of the world and all academic researchers, especially when the vendors don’t follow employees for the long term or count dropouts. Rhetorical and arithmetical sleight-of-hand This single set of claims from a diabetes vendor looks quite impressive at first glance: Now look at it again, paying special attention to the underlined words: Once again, there is that word “participants.” That is just the tip of the invalidity iceberg. Six variables were tracked…and yet 27% of active, motivated participants weren’t able to reduce any. Randomly, three should decline. And many of the other 73% of participants could reduce only one…and this is considered successful? Further, these statistics look like averages on first glance –but they are not. They are examples (“improvements such as”) of reductions that maybe a few participants achieved. I can guarantee that, absent statins, virtually nobody reduces triglycerides by 29%. Regression to the mean Diabetes vendors often split the population into high and low utilizers and claim credit for reductions in high utilizers (whom they manage) while counting the utilization increase in low utilizers toward their “savings” — as though last year’s high utilizers also would have increased had it not been for the program. In this case, there are two giveaways that the 59% decrease in admissions is totally or mostly regression to the mean. The first giveaway is observing which diagnostic categories account for the bulk of an employer’s admissions. This is the top 10 list, in descending order. (“Del” means “delivery.”) To begin with, the majority of admissions on this Top Ten list – and about a third of all employer-paid admissions — are birth events, not affected by a diabetes program. You don’t see diabetes on this Top Ten list. That’s because diabetes itself  in the last year for which complete data is available accounted for less than 1 admission per 1,000 commercially insured people (126,710 admissions in about 150 million privately insured people). Diabetes admissions don’t even crack the top 25. Because total employer-paid admission rates are about 50-60 per 1,000, eliminating every single diabetes event would decrease admissions by – get ready — about 2%. See also: Putting Digital Health to Work   Reducing admissions by 59% would require wiping out not just every diabetes admission but also almost every admission not related to childbirth. The vendors might argue that temporary weight loss and eating better reduce other admissions, too. However, the only non-childbirth events in the top 10 are septicemia, joint replacements and pneumonia. Good luck crash-dieting your way out of those. The other giveaway that this seemingly impressive “decrease” is regression to the mean is that the non-program-members (the vast majority of the population here) regressed upward to the mean. There is no reason to think that admissions in the average employee population are going to increase 4%. Over time, inpatient admissions in the commercially insured population are falling. Using a selection methodology that is partly dependent on having high claims in the baseline assures both this apocryphal 55% “decrease”– and the equally apocryphal 4% increase in non-member admissions. For instance, about a third of all heart attacks occur in people who did not have a pre-existing CAD diagnosis. Therefore, if you “manage” patients with diagnosed CAD, you will show a one-third reduction in heart attacks in that population, simply because you didn’t tally the heart attacks in the cohort you didn’t manage. Then you’ll separately tally the employees without a pre-existing document CAD diagnosis, note the increase and say: “See how fast heart attacks increased in the population we didn’t manage.” The right answer, of course, is to add the heart attacks in both cohorts back together. Naturally, you’ll find no reduction at all. Coming soon: What is the Solution? The next installment will cover how you should measure outcomes to avoid being taken advantage of and to see what really does happen in your population when you implement a diabetes prevention program.

In a more virtual world, socially efficient ecosystems will generate more customer loyalty than do bricks and mortar, big advertising budgets or legacy insurance brands.

The relentless conversion of analog to digital communications and information over the past 15 years, bolstered by the voracious appetites of consumers and an impressive array of AI technologies, has already fueled real industry transformation, spawning the connected insurance ecosystem. This connected network partnership of complementary services will begin to deliver levels of insurance customer experience excellence approaching those provided by established ecosystems such as Amazon's.

McKinsey predicts 12 distinctive and massive ecosystems will emerge around fundamental human and organizational needs, which will account for $60 trillion in revenues by 2025, or roughly a stunning 30% of all global revenues. These insurance ecosystems, powered by AI technologies across the entire enterprise, are quickly transforming the industry across the value chain.

Chatbots are taking policy servicing inquiries and triaging them expertly. First notices of loss are being self-reported by policyholders using smartphone cameras and in real time from connected vehicles, homes and businesses, investigated and documented by drones, evaluated and settled in days instead of weeks and subrogated electronically in a frictionless process.

Almost every one of these functions is supported by seamlessly connected third-party technology, software and databases. Insurance applications are automatically pre-filled after requiring little more than a few items of personal information. Life insurance policies are being bound simply and digitally and without the need for a medical exam. New hyper-personalized insurance products are being developed and brought to market with lightning speed.

Next Inflection Point: Real Loss Prevention

But the next major insurance industry inflection point will be its most impressive and game-changing. The power of networks has already become apparent, but in 2019 it will come of age in insurance. Driven by the torrents of information that will be transmitted by billons of connected things and turned into actionable insights and decisions through the application of artificial intelligence, claims will actually be prevented, turning carriers into risk managers in the truest sense.

See also: It’s Time to Act on Connected Insurance 

Extending this trend, advanced driver assistance systems and autonomous and connected vehicle safety programs will continue to reduce accident and claims frequency and transform personal auto insurance into manufacturer and software liability insurance.

Wearables will monitor the health and wellness of life and health insurance policyholders, broadcastings warnings of diabetes, high blood pressure and other conditions, likely avoiding medical claims and even more serious risks.

Connected home sensors will notify home owners and first responders of potential risks such as fires, water or gas leaks, thereby minimizing and even completely avoiding costly claims.

Consequences of Connected Insurance Ecosystems

However, the impressive benefits emanating from this new connected insurance ecosystem will come at a price – namely the erosion of personal privacy, the growing threat of cyber theft and the need for ethical oversight of the uses and applications of artificial intelligence. Related consumer protection regulations and standards will emerge and impose new requirements and limitations on the various custodians of this personal information.

Another consequence of the adoption of AI technology will be its impact on the nature of work. Automation will free knowledge workers from repetitive tasks, enabling them to focus on higher-value functions and augment human intelligence, enabling faster and better-informed decision making.

Significant change management, re-training and continuing education of workers will be critical for workers to operate and thrive in the new world of human/machine partnerships.

Strategic Partnerships Become Mandatory

The insurance ecosystem and the relevant data being generated is rapidly expanding and becoming connected. No single company, regardless of its size, has all the expertise, resources, relationships and necessary understandings of every co-dependent industry. Cross-industry partnerships and alliances will speed time-to-market, expand market reach for each participant and add more value to the products and solutions consumed by their common customers.

Insurance Evolves from Product to Services

As a result of these changes, the insurance business model will also change to reflect this new and different role of insurers as service providers whose “products,” delivered through ecosystem partners, will be priced on the basis of the economic value of their risk-avoidance potential. The products known today as “insurance” will evolve into the services known as “protection” as loss avoidance becomes the most valuable benefit and the need for loss reimbursement diminishes.

Insurers can also help protect customers from the increasing threat of cyber attacks, which are enabled by the exploding number of connected devices in their lives through which their information is exposed.

See also: Insurance: On the Cusp of Disruption 

In this more virtual, less physical world, trust will be gained digitally and socially efficient ecosystems (think Amazon) will generate more customer loyalty than do bricks and mortar, big advertising budgets or legacy insurance brands.

You can find the article originally published here.

I wrote a column nearly 10 years ago about people and organizations and their reluctance to change. The title was: "Innovation – Incubator or Graveyard?" The first two paragraphs of the article follow: "Dale Dauten in his Sunday column got me thinking with the closing statements: 'If you have an idea you want to nurture, don’t plant it with the forest of the status quo; place it in a fresh field, away from the old growth. Give it a new group or try it in an experimental store, surrounded by people who want it there, who want it to thrive,' and 'Which brings us to an IBP (important business principle) with a lovely Zen weightless heft: It’s easier to change people than to change people.' "Dale is right on both counts. My question is: 'Can you, your team and your company innovate?' Before you say yes, remember, Casual Friday is not innovation! Does your organizational culture embrace the new, innovation, or is the status quo your lover? To quote Davis Balestracci (Quality Digest Magazine), 'Quite simply, culture is created by what is tolerated.'" See also: Wisdom From Some Very Smart People   As I’ve aged (many of y’all know me too well for me to claim I’ve matured) I realize that transformational changes (giant steps) are very challenging. For this reason, I’m going to offer a simple process that might be worth considering as you want to facilitate incremental change (baby steps moving in a different direction than your status quo). Consider this an idea that is not too threatening nor too high risk as to invite pushback from your team but still worth pursuing as you try to move forward into tomorrow’s world. The greatest benefit from such simple initiatives is the opportunity for you and your team members to succeed in an easy challenge so you build confidence in the processes of innovation and planning. Think of this as basic training for bigger challenges. A few days ago, I opened up a magazine I was reading a month ago. I found six bullet points I had scribbled onto one page of the journal. I upgraded this list with four more ideas that I believe are workable on some strategy or innovation you may be considering for the future. I offer this “to do” list for your consideration:

1. Acknowledge that, “None of us are as smart as all of us (Ken Blanchard).” Get input from all members of your team.
2. Facilitate communication. Know that communication is the negotiation of meaning. When everyone understands and engages, your chance of success is much greater.
3. Create a pond or pool of new perspectives and ideas. Don’t assume what you’ve done in the past is the best way to do something in the future. Discuss, debate, innovate, etc. until the ideas shared start to build a constituency of believers. Listen for, “Hey, this really might work!”
4. “Fish” this pond of ideas for what’s right for the challenge and your culture as it exists today. Test the first idea that you hook or hooks you. If that doesn’t work, throw it back in and grab another.
5. Reality-check your plan and process. Tweak as needed. Go back to the drawing board – if necessary.
6. Now take action – JUST DO IT!
7. If it works, CELEBRATE.
8. If it bombs, PICK YOURSELF UP, DUST YOURSELF OFF AND START ALL OVER AGAIN.
9. Know that there is wisdom in scar tissue -- grow from the lessons learned. Count heads and fingers and toes. If no lives were lost and no serious damage was caused – commit to continued efforts at innovation and experimentation. Your future depends on this.
10. Believe there is GENIUS in creative efforts – successful or unsuccessful. Find it! Remember, “Curiosity killed the cat, but satisfaction brought it back.”

See also: A Contrarian Looks ‘Back to the Future’   In tomorrow’s world “the greatest risk is not taking one” (AIG annual report). Commit to change initiatives. Build your future on innovation, not bureaucracy. Understand the process of success is defined by some as, “Fall down seven times, stand up eight!” In tomorrow’s world of incremental change you must THINK NEW! Happy NEW Year!