“To be, or not to be, that is the question: Whether 'tis nobler in the mind to suffer The slings and arrows of outrageous fortune, Or to take arms against a sea of troubles And by opposing end them. To die—to sleep, No more; and by a sleep to say we end The heartache and the thousand natural shocks That flesh is heir to: 'tis a consummation Devoutly to be wish'd. To die, to sleep….” ~Hamlet I’m not going to paste the entire Hamlet speech here, but you can see that he was going through a very tough decision-making process about a form of death he wanted to pursue. Technology decisions being made in organizations should also be deemed as do-or-die if you want to continue to exist. I know: very drastic. But let’s face it, competition is fierce, startups are popping up ready to grab your market share and the organizations that survive look at expenditures from a strategic viewpoint. From an application development lens, questions include: Should we build, whether in-house or outsource, or should we buy and integrate? See also: How Insurtech Helps Build Trust   The ugly truth: Developers LOVE to build. The maker inside of us wants to create. Integration projects aren’t deemed as fun. I worked with an organization where the IT department predominantly built software solutions. Need a scheduling tool? “I can build this.” Need a workflow solution? “I got this.” Developers would make any excuse known to mankind to devalue other products in the marketplace. Another ugly truth. Build projects are EXPENSIVE and take forever even if you outsource them. Why would you build a scheduling tool? There are thousands of such tools. The same is true with workflow. You may be thinking: Such problems could never happen! Why would someone sign off on the project if such problems were ahead? If you don’t have the right leadership -- your technology reports to a non-technologist or you don’t have the right project oversight -- your organization might very well make this kind of mistake. Technology dollars are precious, so why spend your time, resources and capital on projects that don’t propel your organization forward. Why spend the money building a scheduling tool or workflow solution? Why not take the opportunity to integrate with someone who has already built the solution? Here is the challenge I would offer you if you sit in project prioritization or new initiatives sessions, regardless of your department and role: Has due diligence occurred to look at software solutions that may solve the need? If the answer is no, figure out a way to start the process, or you will be in the do-or-die situation. If the answer is yes, vet various solutions. This can’t be left to IT only. The vetting must be done by a mixture of IT and the business, with equal decision-making power. Vet the various solution providers and find out how you can integrate while building the other pieces. Ask yourself: As an organization, what is your mission? Are you in the business of developing software or using software to serve the mission? Why would a life insurance company want to develop its own workflow tool, its own policy admin systems or its own claims systems? There are vendors whose sole purpose is to make your organization run better. See also: When It’s Better to Build In-House   Use your brightest IT talent in innovation, not in building solutions that exist in the marketplace. Figure out how to transform your organization using best-in-class technology. Integrate with solution providers and startups. Build what others cannot do, and innovate on solutions to beat the competition. “To be, or not to be, that is the question….”

The rapid technological evolution of the insurance industry will require independent agents to turbocharge their adoption of digital tools in 2019. Consumers have become accustomed to the convenience afforded by artificial intelligence (AI) when it comes to completing day-to-day transactions. Voice assistants allow people to ditch the keyboard and conduct searches by talking to devices. Chatbots enable customers to have personalized interactions tailored to fit their needs. This is the world in which agents are operating, and, to grow, they will have to leap forward and implement more of these technologies into their current offerings. Here are five predictions that will have a big impact on agencies’ abilities to compete and grow in 2019: 1. Voice search will become more common for insurance. The rapid adoption of smart devices powered by manufacturers like Google and Amazon are compelling consumers to speak to robots about their needs from their homes and offices and on the go. Insurance is no exception. Predictions indicate half of all searches will be conducted through voice-assisted technology in the near future. As more carriers index their local agents to work with voice services like Alexa and Siri, agencies must ensure that their websites and digital assets respond to advances in voice search. Content strategies will expand beyond conventional keyword campaigns and target phrases to sentences that mimic natural language used between two humans in conversation. See also: Insurtech: Revolution, Evolution or Hype?   2. Insurance agent bots will be humanized to create authentic interactions. Insurance agencies must adopt technology solutions that move their client-focused insurance buying experiences to the online environment. With deep knowledge and expertise in developing personal connections with their customers, agents have the advantage over insurtechs that are limited to simple mono-line customer interactions. Through customizable communication enablers, including chatbots and smart forms driven by automation and artificial intelligence, agents will elevate the emotional intelligence of their websites, social media and emails to speak to the consumer authentically. 3. Google mobile first represents an important frontier for insurance products. Google mobile-first indexing was formally launched in March 2018 and reinforced in September, which means websites will be indexed and ranked based on the mobile version of their content. Although desktops historically led the way for consumers to research and find products and services that met their needs, it is more critical than ever that agents have mobile responsive sites to not only grow but also maintain the highly coveted search engine real estate that they have worked for years to establish. 4. Texting will increasingly be used to connect with customers. The rise of mobile users will have an effect on how agents communicate. Texting is a critical line of communication with millennials and will be the preferred method of contact for the next generation of insurance customers. For better effectiveness, texting tools are expected to be integrated with existing email and CRM systems, and innovations in rich communication services (RCS) promise to deliver better app integration, secure transactions and branding for businesses to text. 5. New micro-experiences will become the building blocks for digital expansion. Agencies are differentiated by the niche markets they sell to and service better than their competitors. Investments in digital content campaigns and user interfaces that cater to specialized prospect and customer segments will rise in 2019. These micro-experiences will enable agencies to have access to a market with carriers, as well as the ability to quote, bind and service insurance online. Micro-experiences will typically focus on commercial lines and specialty insurance for niche markets, such as programs for craft breweries, energy contractors, concrete pumping or marijuana dispensaries, to name a few, and they will offer new opportunities for agencies to expand quickly with digital building blocks that can be easily integrated into existing business and workflows. See also: Digital Survival Tools for Agents   2019 will be the year where agents take significant technological leaps – from responsive mobile websites and texting with customers to humanized chatbots and the ability to search for products using voice commands. Agents will look for solutions that allow for the sharing of customer data, requiring platforms to become more open and work together to better them. The New Year will be the start of the next era of independent agents characterized by openness to new digital tools and rapid adoption of the latest technologies

In today’s online insurance shopping environment, many lead sellers and buyers work well together toward the same goal of delivering a great customer experience. But, it hasn’t always been this way. For example, in the mid 1990s, when InsWeb sold the first data lead produced from an online insurance quote form, our industry was a lot less focused on customer experience and a lot more focused on selling as many leads as many times as possible to anyone that would buy them. As you might imagine, the self-interest of lead generators, lack of industry standards being adopted and increasingly complex privacy regulations meant the industry would struggle to survive. Many learned the hard way (consider the demise of Bankrate Insurance, outlined further in this article), while others developed technology and standards to drive a better customer experience and are thriving today. The Beginning of the Lead Seller-Lead Buyer Relationship The relationship between online lead sellers and lead buyers began as a very simple one, over 20 years ago. The lead seller was also the lead generator and dealt directly with the lead buyers. At the time, aggregators did not exist. In the early 2000s, small and medium-sized publishers realized they could make money by generating leads. They would sell these leads to the larger lead generators who had direct relationships with the lead buyers (the insurance brands). This was the start of lead aggregation. And it appeared to be a logical business decision that was good for all parties involved: the generator, aggregator and buyer. The problems began to emerge when buyers and sellers started to exchange leads without any central record of the activity. Without third-party certification, and no industry standards, some lead generators and aggregators were driven more by the incremental monetization opportunity than by win-win-win relationships where lead generators, lead buyers and consumers all benefited. What’s more, the ping-post process evolved to allow an unlimited number of sellers and buyers to come together. On the surface, this should have created an efficient market with a variety of options for the consumer. In reality, without any standards or third-party verification, consumer information began to travel to dozens of lead buyers, creating an overbearing, intrusive consumer experience rife with fraudulent transactions. This is when the wheels came off the bus. See also: Insurtech Ecosystem: Who Will Eat Whom?   The End of the Beginning By 2010, relationships between sellers and buyers became very strained. Rules were in place to protect all parties: the lead generator, aggregator, lead buyer and the consumer. Some examples included:

• no selling of leads beyond a certain number of buyers
• no manipulation of the consumer’s data (many times, manipulating data would lead to higher monetization)
• no recycling/remarketing of leads at a later date
• no fake leads
• no leads based on incentives
• no unauthorized sales to stated end buyers (i.e., no selling of the lead to a captive agent that already bought the lead)

Unfortunately, these rules were not always followed, and there was no way to effectively know who was compliant, let alone how to enforce them. As a result, many carriers and agents experienced a noticeable decline in lead quality. While some of the aggregators and generators played by the rules, a few meaningfully sized “bad actors” wreaked havoc, making it difficult for the honest providers to survive. The industry went through a period of contraction, with several acquisitions resulting in less transparency, less trust and more gaming of the rules to benefit bad actor sellers over the customer or the lead buyer. Insurance carriers (the lead buyers) lost control, and the situation became dire. The industry tried to self-regulate. Some lead sellers discussed sharing data about the origin and history of a lead, as well as proof of compliance. In other words, each lead seller was expected to follow a set of standards loosely agreed upon by multiple parties and documented by parties like the LeadsCouncil. There were a lot of good folks trying to create valuable customer experiences, but the bad behaviors by some were making it difficult for everyone. For example, bad actors were selling leads to multiple insurance providers or holding leads to sell again and again—in other words, recycling leads. Other sellers were aggregating leads and misrepresenting this fact, while others would acknowledge they were aggregating but would misrepresent the actual origin. Simply put, by 2010 our industry lacked transparency and accountability. Consequently, the inability to identify and eliminate old, recycled, dupe, fake and no-intent leads led to the deterioration of lead quality. We were witnessing the beginning of a downward spiral where carriers and agents were directly affected by the decline in quality. Many carriers reallocated budget to hedge on the lead generation channel, and thousands of agents discontinued buying leads altogether. Pushing the Reset Button By 2011, the industry realized that self-regulation would not work. A new solution was needed. With advances in technology coupled with the widespread belief that a third party was required to certify leads, the problem certainly seemed solvable. It was at this time that a concept called LeadiD (the company that is now Jornaya) led the effort to leverage technology and data to promote confidence, clarity and trust in the lead generation space. The concept was simple: Lead generators placed a simple script on each page of their lead funnel. Each time a consumer arrived on the website, a unique LeadiD token was created for the lead event, and key data about the lead event was captured in a privacy-friendly manner by an independent, third party. No consumer data and no proprietary lead generator data was at risk while independent third-party validation was provided to rebuild both the trust and transparency of lead generation across the industry. The LeadiD token served like a Vehicle Identification Number (VIN) for the lead event. When a lead was presented to a prospective buyer, the LeadiD token was also included. The buyer could thus query Jornaya, an independent, third party. Similar to using a VIN with CarFax, buyers were able to validate in real time the key attributes about the origin, history and proof of TCPA compliance associated with each lead. The factual data provided by an independent observer, Jornaya, allowed the buyer to validate the lead’s value and minimize TCPA risk. The process effectively cleansed the waters made toxic by bad actors, unenforceable standards and lack of third-party certification. Lead buyers began to buy more volume programmatically, with the trust baked into the transaction. Lead aggregators used the same LeadiD technology to ensure transparency with their affiliate lead sources. The good actors, such as All Web Leads jumped on board immediately, and many followed. For others, it took some convincing. While many eventually began creating and passing LeadiD tokens, there were a few large holdouts. Which raised the question from carriers, why hold out? Implementing LeadiD was free, and sharing LeadiD tokens was also free. With firms like All Web Leads, ReviMedia (now PX), Quinstreet, Apollo Interactive and Hometown Quotes working together to require and share LeadiDs, there was a clear movement underway. An industry course correction was beginning to happen. A Lead Generator “Verified” Solution Fails Spectacularly Not long after LeadiD tokens started flowing throughout the ecosystem, Bankrate Insurance, one of the largest sellers at the time, created its own “verified” solution—providing data elements such as lead age and consumer consent (for TCPA compliance purposes). For its larger lead buyer customers, the company would also provide “exclusive” access to other attributes of the lead event to make buying decisions. I’ll never forget a meeting with senior management at a large insurance carrier alongside Bankrate executives. The carrier was listening to Bankrate discuss why the carrier did not need a third party solution, because Bankrate’s approach would solve all the problems. The vice president at the carrier asked, “Why would we trust you instead of an independent third party?” What’s more, the executive stated unequivocally: “Even if you are trustworthy, it’s very clear it’s not working for each lead provider to be self-regulating. We support a single, industry solution, with independent certification, and we’re wondering why you wouldn’t support the same.” This executive understood that while the Bankrate Insurance “verified” solution may have been technically viable, a lead seller taking necessary steps internally to clean up and verify its own traffic was actually a terrible idea fraught with problems. This solution never gained traction and did not last very long. Here are five reasons why an in-house “verified” solution provided by a publicly traded lead generator did not work:

1. Buyers had no way to independently verify the accuracy of the origin and history data contributed by the seller. “Because I said so,” simply wasn’t good enough.
2. In considering a lead, buyers could not confirm consumer consent to their approved TCPA compliant language (and font size/contrast requirements) across hundreds of websites owned and operated by the seller and accessed by millions of consumers across multiple device types.
3. For TCPA complaints and lawsuits, no independent, objective verification of a consumer’s consent to be contacted existed. Simply put, defense amounted to relying on attorneys or the courts to believe the lead generators, once again, “because they said so.” In contrast, independent certification has proven successful in mitigating TCPA risk time and again.
4. Because they didn’t receive the “exclusive” access to certain data, smaller lead buyers were not playing on a level playing field. Exclusive data sounds good until others realize it’s not actually exclusive and that it's not possible to identify or stop this behavior. Already rejected leads often ended up back with the buyers because the leads are aggregated and sold to them by a different lead seller, without the buyer being able to know this is occurring.
5. The temptation to falsify the data was enormous in the face of revenue and profit margin guidance and expectations, and many cases of false data were identified with a third-party solution, but were very difficult to identify with self-regulation.

It quickly became apparent to lead buyers that the primary purpose of those unwilling to pass LeadiD tokens was to handicap the transparency process and increase their own revenue and profit margins. Buyers equated the approach to “the fox guarding the hen house.” Consequently, lead quality of these sellers continued to decline. Some sellers exited the business altogether, while others were acquired by companies willing to create and pass LeadiD tokens. An efficient market was starting to grow built on trust, standards and transparency. Like a stock market, the lead generation marketplace can, and should, thrive when buyers and sellers offer transparency and both sides use independent, standard and trusted insights to make data-driven and consumer privacy-friendly decisions. As a result, everyone can win. Well, everyone willing to embrace true third-party transparency and industry standards. Here is a checklist to help understand in-house “verified” solutions versus an independent, industry-wide, third-party solution. Where We Are Now Today, Jornaya witnesses the vast majority of insurance lead events. We are in this privileged position because of the forward-thinking lead generators and aggregators who have embraced Jornaya as the third-party certification source for the industry. Thousands of lead buyers (aggregators, carriers and local agents) rely on the independent transparency of lead origin and history that a LeadiD token enables. With that transparency comes trust, better lead seller/buyer relationships, stronger performance, TCPA compliance and a smarter and safer consumer experience. See also: How to Build an Innovation Ecosystem   It’s been a fascinating journey, and we reinforce this story often with our customers. Many have experienced this journey alongside us and have witnessed the trials and tribulations of the evolution. Our partners and customers across insurance, mortgage, banking, real estate, home services, automotive and education appreciate that LeadiD tokens flow freely throughout the ecosystem and have programmed their lead bidding and buying technologies accordingly, expecting a LeadiD token just like any car evaluation system would expect a VIN. The collective voice of lead buyers and like-minded, collaborative lead sellers will assure we maintain an ecosystem with trust and transparency. I don’t say that just as GM of insurance at Jornaya, I say it as someone who has cared deeply about improving the insurance consumer experience and insurance provider productivity since we all started creating and exchanging leads over 20 years ago. Frans van Hulle, CEO and co-founder of PX (formerly ReviMedia), sums it up nicely in his recent article: “If you have something to hide, you’ll fear transparency. If you don’t, you won’t.” Most lead sellers have benefited by participating in this journey with us, and many insurance carriers have helped us get to this point. We all gain by being able to transact leads using a single, trusted currency (LeadiD tokens) that ultimately creates valuable consumer experiences. As such, we also enjoy playing the role of connecting like-minded lead sellers and buyers because we know how beneficial it is for all involved.

Customer experience experts are in typical year-end prediction mode. But our crystal ball came up with a bit of a different take on what’s in store for next year. It’s that time again, when all the management gurus come out with their customer experience predictions for the coming year. So what customer experience trends do the gurus foresee in 2019?  What do they predict organizations will focus on?  Here’s a sampling of their ideas, culled from some recently released prediction lists:

• Companies will create more customer-centric cultures, using new recognition systems and training programs.
• Companies will use technology to digitally transform the customer experience.
• Companies will go the extra mile by empowering their employees to surprise and delight.
• Companies will use robotic process automation to speed customer transactions.
• Companies will leverage AI to automate customer interactions without making them feel mechanical.
• Companies will break down silos and align customer experience strategies across functional domains.
• Companies will use predictive analytics to create more personalized customer experience.
• Companies will overhaul their voice-of-the-customer programs, relying more on text analytics of unstructured content, such as survey comments, call center recordings, social media conversations and online chat sessions.

It all sounds like wishful thinking to me – or perhaps just some firms trying to promote their products and services under the guise of supposed customer experience predictions. See also: 3 Ways to Optimize Customer Experience   Call me a cynic, but here’s my bold customer experience prediction for most companies in the coming year: Not much will change.

• Most organizations will lumber along, spinning their wheels on this topic, discussing it endlessly, executing on minor improvements that amount to window dressing, just so someone can “check the box” on the next performance review.
• Most organizations will continue their navel-gazing, focusing inward on organizational changes, role shifts, political infighting and silo strife.
• Most organizations will lose whatever little momentum they may have gained around customer experience improvement, as top executives with organizational attention deficit disorder spot some shiny new object that becomes the next initiative du jour.

Forgive my pessimism, folks, but most organizations are unremarkable and are destined to stay that way. That’s precisely why, when a company actually does break from the pack and deliver a differentiated experience, it turns heads. So, rather than obsess over what everyone else will be doing (or what the gurus say everyone else will be doing), focus instead on what your company can do to avoid the fate of mediocrity. Think about how to send a clear, unmistakable signal to the marketplace — and your workplace — that something fundamental is changing. A signal that you’re no longer going to do it “like we’ve always done it.” A signal that you’re disrupting the status quo in your industry. A signal that you’re liberating consumers from long-simmering frustrations. See also: How to Use AI in Customer Service   A signal that you’re dispensing with the typical customer experience platitudes, in favor of very tangible and compelling changes that make a difference in the lives of your customers and the employees who serve them. If, at the end of 2019, you don’t want to be among the many companies that validate my bold prediction, well then…  go do something bold! You can find the article originally published here.

The debate on insurance innovation has been dominated recently by comments generated as a result of the State Farm TV ad where this insurance giant celebrates the superiority of its thousands of human insurance agents compared with the AI-based chatbots. Lemonade -- a smart U.S. insurtech startup -- has credited itself as the target of this ad, because its marketing story is that a chatbot is just as good – if not better – than any human insurance agent. It does appear that Lemonade's platform does need to learn a bit more about how insurance works, as AIs have regularly paid out more in claims than they’ve collected in premiums. Many comments on various social platforms have called the commercial, “the worst commercial I’ve seen,” creepy, freaky and hilarious. Many blame the insurance giant for releasing this “attack ad.” Even our friend Chunka Mui has written a well-articulated censure to this ad. However, we love this ad. We hope this discussion will encourage two calls to action for insurance companies:

1. Be proud of the way you do business
2. Master the art of communication.

Be Proud of Your Business Model Let us start with the first aspect. In the past years, technology arrogance and a sort of politically correct tech-speak have forced the storytelling of the largest insurers around the world to, on one side, shyly hide that real people generate the vast majority of their business and, on the other hand, celebrate any insurtech proof of concept as evidence of their innovation, even when it has an immaterial impact on profit. It seems insurance companies have felt embarrassed by their agents, brokers and other distribution partners. Most of their innovation efforts have been on solutions that in some way challenge their greatest asset, the human agent and broker. “The last agent is already born” is a slide title we have seen at industry conferences for the last 10 years, but as of today, all around the globe, the sale of P&C insurance continues to be dominated by agents and brokers (excluding a few exceptions like the retail auto business in the U.K.). See also: Digital Survival Tools for Agents   For life insurance, digital distribution accounts for less than 1% of global sales. It is great news to finally see a large insurer that is very proud of its agents. We love this communication because it is not hypocritical and gives a clear message both to customers and to agents: This is the way (through agents) we do business, and this is the reason why we do it this way. We are not celebrating or encouraging “old school” thinking. We are firm believers in insurance innovation – and agree with Chunka that chatbot, machine learning and AI use cases are among the technologies that will have the greatest impact on the future of the insurance sector. However, we are also pragmatic. We want to provide a view about insurtech that is different from the superficial mainstream. We think it is a pity to let the innovation cheerleaders – people raising their pom-poms at any PR released news but are not able to distinguish a loss ratio from a combined ratio – guide the debate about the future of the insurance sector. The mantra of our activities in the insurance sector around the world is “all the players in the insurance arena will be insurtech,” meaning organizations where technology will prevail as the critical enabler for the achievement of their strategic goals. So, we believe insurtech is much more than digital distribution. Our view is that insurtech is a superpower for insurers, a terrific enabler for performing the job of insurance in a better way: to assess, to manage and to transfer risks. The world is full of opportunities for reinventing each step of the insurance value chain through technology and data usage. Moreover, an insurance company has a key opportunity to share these superpowers with its agents, brokers and distribution partners. Many insurers already understand that not involving their distribution system in corporate innovation is a wasted opportunity, so these carriers have introduced technologies that can enhance the capabilities of their human intermediaries. Instead, we have seen only a few players communicating effectively and consistently to support their agents and brokers. Because of this, carrier innovations are frequently perceived as threats by agents and brokers. Insurance companies don’t need to create this kind of barrier. Maintaining this conflict only pleases the innovation cheerleaders who not like and want to get rid of intermediaries. Master the Art of Communication Let’s move to the second call to action. The insurance sector has always experienced bad press and has never excelled at storytelling. The new generation of insurtech startups are demonstrating the power of a consistent and modern communication strategy. The startup that has started the discussion about this ad is the best example of this communication ability. From our perspective, Lemonade's two years of case history must be studied in marketing courses at any university. There is a lot for the current industry to learn. The company has pretended to be the good guys who will be the remedy for a broken business. This home insurance startup has positioned itself as champions of trust. Everyone remembers the company for the fixed percentage of premium it charges – the iconic slice of pizza – while all the rest is used to ensure they will always pay claims, and whatever is left goes to charities. In today’s age of post-truth, only a few people go deeper, study and try to understand fully. Therefore, that slice of pizza celebrated by insurtech cheerleaders has flown tweet to tweet, article to article, conference to conference. Moreover, consistent and well-orchestrated communication has fed this mechanism. https://www.slideshare.net/matteocarbone/iot-insurance   What does “all the rest is used to ensure they will always pay claims” mean? In the long and wordy FAQs, the startup mentions the necessity to cover “internal reinsurance,” reinsurance costs and other expenses. Therefore, at the end, the maximum amount available for the charity giveback is 40% of premiums. The terrific 40% giveback happens only in the theoretical scenario where there are zero claims within the peer group. In a scenario with claims at 40% of the premiums (40% loss ratio) or above, the giveback is zero. This means there is a giveback only if the loss ratio is lower than 40%. See also: Important Perspective for Insurance Agents   Insurance is a contract where someone promises to indemnify another against loss or damage from an uncertain event as long as a premium is paid to obtain the coverage. On average, the U.S. home insurance business line had a loss ratio of 74% in 2017 (an exceptionally high year; 46% has been the lowest loss ratio in the past five years). This means that 74 cents have been used to indemnify the policyholders for each dollar collected as premium. In the age of post-truth, the Insurtech startup we talked about pretends to be the good guy that will fix a broken business model because it guarantees to pay – as claims or giveback – at least 40 cents for each dollar collected as premium within each peer group. It seems clear to us that the insurance incumbents have more arguments for claiming they are the good guys, but they have only to develop consistent and modern communication storytelling. Following are some suggestions on next steps that insurance companies can take:

• Be proud of and support your agents, brokers and distribution partners
• Encourage them to be part of your innovation initiatives
• Develop a frictionless process to help the people who distribute your products better engage with policyholders
• Learn how to tell a better story – about your company and your agents and brokers and distribution partners.

What ideas do you have for helping the industry to help agents and broker better protect their clients?

The past several months have seen increased activity and focus on the promising technology of blockchain and its potential in the insurance industry. Blockchain has also reemerged as an important issue in the European Union (EU) following the go-live date of the General Data Protection Regulation (GDPR) on May 25 of this year. As a side note to U.S. policymakers, including the California legislature, the GDPR was adopted two years before its effective date. There was a reason for that.

There will be a considerable amount of scrambling in Sacramento this year as efforts are made to clarify the scope and limit the unintended consequences of the hastily enacted California Consumer Protection Act 0f 2018 (CCPA). Virtually everyone in the insurance environment – including startup and established insurtechs – need to keep a very close eye on what emerges during this effort in 2019.

Regardless, it is important for all those dealing with technology to understand how the E.U. is dealing with issues such as blockchain. Businesses in California should be paying particularly close attention to how the E.U. is attempting to reconcile GDPR and emerging technologies while the CCPA is moving inexorably to its effective date of Jan. 1, 2020. Multinational companies are already dealing with GDPR compliance given its long extraterritorial reach. Inevitably, how the E.U. is dealing with privacy will serve as at least a partial template for how privacy issues will be dealt with in the U.S. E.U. commissioners are currently attempting to sort out the interaction between GDPR and blockchain technology. It is not a nice fit.

To foster a dialogue on this issue, the E.U. Blockchain Observatory and Forum was created as a European Parliament pilot project. Per its website, the observatory’s mission is to monitor blockchain initiatives in Europe, produce a comprehensive source of blockchain knowledge, create an attractive and transparent forum for sharing information and opinion and make recommendations on the role the E.U. could play in blockchain.

On Oct. 16 of this year, the E.U. Blockchain Observatory and Forum published a thematic report, “Blockchain and the GDPR.” As noted in the report regarding blockchain and GDPR compliance: “The issue of compliance of blockchain with GDPR is an important one. By specifying how personal data is to be protected, the GDPR will play a fundamental role in shaping digital markets in the Union. Considering its strong support of this nascent technology, the European Union clearly believes that blockchain technology has an equally important role in these markets, too, offering new paradigms for the ways we transact and interact with each other.” (Report, p.8)

See also: Blockchain’s Future in Insurance

What is not clear at this point in time is how blockchain can flourish while remaining compliant with GDPR. There are those who think the fundamental structure of blockchain is irreconcilable with GDPR. That opinion is not prevailing at this time.

As noted repeatedly in the report, GDPR compliance is not about the technology, it is about how the technology is used. There are clearly issues, even with private consortium blockchains, that need to be fully understood. The issue isn’t just where the data are housed, the issues also include who controls the data and, as the report repeatedly emphasizes, how that data are used.

The E.U. is ahead of the U.S. in efforts to balance the rights of natural persons regarding their own personal information and the improvements that can come from technological innovation. While various sectors of the economy, including insurance, seem to be gushing about the possibilities of blockchain, there is a singular silence about how this environment will comply with the host of state and federal requirements placed on all the participants in this distributed ledger technology.

This isn’t just about privacy in general and the CCPA in particular, although the CCPA could disrupt blockchain even in the commercial context if there is no further clarification during the 2019 California legislative session. The observatory’s report, however, serves as a reminder that the GDPR deals with personally identifiable information belonging to natural persons and not information that is shared with other business forms provided to businesses.

That is an important distinction but not entirely dispositive. In the world of commercial insurance, there are sole proprietors who must have not only liability coverage but also workers’ compensation insurance. These are “natural persons” who under GDPR and currently under the CCPA could ask their personal data to be removed from a database. This is not consistent with the blockchain’s promise of immutable records. (See: Civil Code Sec. 1798.105)

Earlier this year, industry giants Marsh and IBM, working with Acord, teamed up to develop a commercial blockchain for proof of insurance. Acord is the Association for Cooperative Operations Research and Development, an industry-supported organization that, among many other functions, makes many of the forms used in the property and casualty insurance industry for the transaction of insurance (applications, certificates, etc.). The pilot participant for this is ISN, a global contractor and supplier information management business.

Per Marsh’s announcement earlier this year, “A distributed ledger technology, blockchain is ideally suited to large networks of partners. It establishes a shared, immutable record of all the transactions that take place within a network and then enables permissioned parties access to trusted data in real-time.” IBM and Marsh also recently announced that they are working on making the proof of coverage blockchain accessible to Marsh clients through Salesforce. Recently, The Institutes, best known for its professional designation programs in the insurance industry, has launched its RiskBlock Alliance. Per its Sept. 23, 2018 announcement, “…a blockchain consortium representing 31 risk management and insurance companies, has launched Canopy, the industry’s first end-to-end reusable blockchain framework, using the Corda blockchain platform.”

One of the use cases currently being developed for Canopy is proof of insurance. In remarks on the National Association of Insurance Commissioners (NAIC) Innovation and Technology (EX) Task Force Oct. 15, 2018, conference call, Christopher McDaniel, president of RiskBlock Alliance, said, in response to an inquiry from Oregon Division of Financial Regulation Deputy Administrator TK Keen: “…if regulators have their own node on the blockchain, they could push a button and create a report, as long as the appropriate agreements were in place to share the information.” [NAIC Innovation and Technology (EX) Task Force conference call Oct. 15, 2018, draft minutes dated Oct. 26, 2018]

In a July 12, 2018, blog titled “Ultimate Guide to Blockchain in Insurance” from management consulting firm Accenture, it was noted that blockchain would facilitate “using shared loss histories to obtain data-driven insights on prospective customers for more sophisticated pricing.” I suspect that state insurance regulators would have a keen interest in how that would be accomplished.

Workers’ compensation rating organizations such as the National Council on Compensation Insurance, Inc. (NCCI) or the Workers’ Compensation Insurance Rating Bureau of California (WCIRB), operating under license from state insurance regulators and serving as a critical part of the active regulation of insurance required under the McCarran-Ferguson Act, would most likely have a few questions as well. In other words, while there has been much discussion about the promise of blockchain, that discussion needs to be fully integrated into the discussion of how all that data are going to be secured, shared, and stored within the context of existing and anticipated regulatory compliance requirements.

This goes beyond insurance regulation and, as is the case with the EU, directly implicates the emerging and complex privacy environment as evidenced by the CCPA. Take, for example, the issue of proof of coverage and the issuance of certificates of coverage within the workers’ compensation environment. These are two separate issues that require separate solutions. States maintain coverage verification portals for any person to verify workers’ compensation coverage. These are managed by rating organizations pursuant to statutory mandate and generally by self-insurance regulatory authorities. In some instances, such as with California’s Contractors State Licensing Board (CSLB), there are separate coverage disclosure requirements that are also accessible by the general public. This is not a testament to the accuracy of these systems, but rather only to their accessibility.

For blockchain to be effective in the workers’ compensation environment, therefore, it needs to have some degree of integration with public databases. That isn’t as easy as it may seem. For example, Labor Code Sec. 3715 states, “The nonexistence of a record of the employer’s insurance with the Workers’ Compensation Insurance Rating Bureau shall constitute in itself sufficient evidence for a prima facie case that the employer failed to secure the payment of compensation.”

Does this mean that rating organizations should have a node on the proof of coverage blockchain, as should the Division of Labor Standards Enforcement (DLSE) and the Department of Insurance (CDI)? If that is the case, then what does that mean for purposes of public records laws and whether the blocks in the blockchain are public records? In other words, if the blockchain is to serve a public purpose then it must take into account access issues that may not be present when the ledger is entirely for private transactions.

See also: How Insurance and Blockchain Fit

A certificate of insurance is issued, arguably, by either an agent or broker or an insurance company. For most transactions, this is currently done through a writable .pdf document or done manually. This process is an open invitation for fraud. The work Acord is doing with Marsh and The Institutes underscores a technology solution may help make the certification of insurance coverage – both as to existence and to limits (for liability lines of insurance) more reliable and transparent.

This is not an inconsequential matter, especially in California and considering the particular issue of whether some staffing companies are very much part of the problem. The latter issue regarding staffing firms is a critical one for California. Given the Golden State’s broad regulation of employment relationships, it is at best vexatiously ironic that when it comes to staffing agencies, with some very limited exceptions, there is virtually no regulatory framework to verify the legitimacy of staffing firms and the way they do business.

This is a problem – and a problem that needs to be resolved before applying a technology solution to the issue of bogus certificates of insurance. And that finally leads us back to what the observatory noted in its thematic report: “… start with the big picture: how is user value created, how is data used and do you really need blockchain?”

No single liability is quite as important to insurers as a best estimate of unpaid claims. It drives earnings reports, shapes financial statements and influences a host of other management decisions. But aberrations in data and model risk often cast a shadow over the reliability of reserve ranges from which this point is selected. Traditional development pattern benchmarks have provided some support in estimating these fundamental liabilities, but, even here, the process has long been a one-dimensional exercise, at least until now.

In determining a central or “best” estimate for property and casualty (P&C) reserves, the goal has never been to zero in on the exact final outcome for an insurer’s ultimate losses but to arrive at an estimate that is as likely to be high as it is to be low. Rather than trying to pinpoint one elusive number, the unpaid claim analysis process has focused on understanding or illustrating the variability around the estimate by identifying a range of reasonable estimates using different methods and assumptions.

By producing other reasonable estimates, actuaries moved somewhat closer to the goal of understanding the full breadth of the possible outcomes, but this approach still lacks specificity and provides little more certainty around an unpaid claim estimate. Commonly used “static” loss development pattern benchmarks that use industry data have been helpful in assessing some of the actuary’s assumptions but not all of them. The lack of specificity in these benchmarks has only marginally improved confidence in the selection of a range and central estimate.

The question is how do you overcome these challenges?

A recently developed dynamic benchmarking tool, which includes percentiles at all stages of development, allows for the calibration of a benchmark that better resembles individual portfolios. As such, this rigorously back-tested tool can provide actuaries an added level of confidence in the reasonableness of any entity’s reserve ranges. This next-generation benchmarking tool, known as claim variability guidelines (CVG), is derived from extensive testing that involved all long-tail Schedule P lines of business and more than 30,000 data triangle sets. Using such an extensive database both:

• • Provides for the development of a more extensive and reliable benchmark that is much more surgically focused than traditional industry averages.
  • Instills greater credibility in the loss development patterns derived for each line of business.

Four real-life scenarios The value of this new benchmarking tool stems from its ability to guide an actuary’s decision-making process by providing an interactive means of comparing the assumptions or estimates from a method or model based on real data and results against comparable alternative assumptions or estimates. To illustrate the potential impact of using such benchmarks, four representative data sets were used from randomly selected companies of four different sizes: A) small, B) regional, C) small national and D) large national. Minor changes were made to the data to protect the identities of each company. For all four companies, the commercial auto line was selected as a common denominator for contrasting the effect of the guidelines for different exposure sizes. To illustrate how useful the guidelines are in practice, a unique variety of lines of business was sampled for each carrier. The accident year earned premiums by line of business for each company are illustrated in Figure 1.

See also: Provocative View on Future of P&C Claims  

Figure 2, which shows the incremental and cumulative loss development patterns for commercial auto for Company A, provides an example of the type of CVG output that actuaries could use to guide their thought processes. In this case, the incremental loss development from the user’s model shows a pattern that initially might seem to be relatively smooth, but when compared with output from an industry average or the guidelines its irregularities become apparent. For this company, whose loss development pattern is somewhat volatile, using a benchmark pattern other than the average (shown in the “CVG Average Pattern” row) seems appropriate. But which one?

While the guidelines indicate that the 46th percentile (shown in the “Best Fit” row) is the best fit overall, the 46th percentile is less than ideal at different periods, where "best fits" vary from the 13th percentile in development periods 0 to 12 to the 99th percentile in development periods 72 to 108. In fact, there is considerable variability in the recommended fits—a situation that might be expected, considering the data limitations that a small company often encounters. But does the user’s calculated loss development pattern (shown as “User Input ATA Factors” in Figure 2) reflect the company’s uniqueness or contain random noise that could be smoothed by the benchmarks?

Using the cells in the CVG line, actuaries can select different assumptions and see the impact on their results. Is a dip or bulge in the User Input pattern due to noise, or does it reflect reality? Perhaps the company consistently pays claims faster than the industry average? How different is the mix of business compared with the industry average? Are the User Input Age-to-Age (ATA) factors from 72 to 120 months indicative of salvage and subrogation recoveries that should be included? At any point along the pattern, actuaries can adjust the pattern—using the User Input pattern, the selected guidelines pattern or an alternative—to reflect their understanding of a company’s data. This guided sensitivity testing provides actuaries a way of systematically exploring loss development patterns and deciding how much smoothing is necessary or which pattern is most appropriate.

As the exposures increase, the volatility of the calculated loss patterns decreases. For example, the commercial auto loss pattern for Company B in Figure 3 now meanders closer to the best-fit pattern, a situation that is reflected in the increased consistency among the best-fit percentiles (“Best Fit” row). In this case, the best fit is at the 71st percentile. As the patterns calculated from the user’s method and the guidelines move closer together, as is the case for this regional company, the justification for selecting a pattern other than the average increases. By comparing the development pattern graphs in Figures 2 and 5, the difference between the loss patterns calculated from the data and the guidelines merge ever closer for the small national company, as seen in Figure 4, and for the large national company the loss patterns nearly overlay the average, in Figure 5. This convergence of the loss development patterns on the average, interestingly enough, also illustrates how the static average-based benchmarks are most relevant for large national companies, how the various percentiles around the average become more valuable as the exposure size decreases and how both large and small companies benefit from the additional information available in a dynamic benchmark. Once an actuary decides on a loss pattern, a range of reasonable estimates can be established by, for example, using patterns 20 points on either side of the selected loss pattern, as illustrated in Figure 6 below (assuming our best fit is at the 46th percentile and the table sets' lower and upper benchmarks are at the 26th and 66th percentiles).

In each of these examples of this next-generation benchmarking process, the estimates for the “normal” weighted results (in Figures 7 and 8 below) were done mechanically using common methods and assumptions to prevent personal biases from masking the potential impact of this process. In practice, this step would be an interactive process, with the guidelines influencing the selection of assumptions and methods and vice versa. For the small company illustrated in Figure 7, the guidelines patterns from Figure 6 are used to estimate unpaid claims to be between 850 and 1,210. This result can be compared with the range and weighted average for the five methods used by the actuary, who now has a supplemental process for deciding on a best estimate. That process includes a new tool for deciding whether any of the estimates in the normal range are unreasonable, e.g., is the lowest estimate in the weighted range reasonable?

For even the most volatile lines, this process provides a guided method for inquiry and analysis that can lead to greater confidence in the end results. As each line of business is reviewed, they can also be added together to get a view of the overall range for the company, as illustrated in Figure 8.

See also: De-Siloing Data for P&C Insurers  

Determining a range of reasonable estimates and a best estimate are fundamental building blocks for assessing the financial health of a company, but they are only a small part of a claim variability process. From benchmarking unpaid claim distributions to setting risk-based capital requirements—topics of subsequent articles in this series—the next generation of benchmarks can help actuaries retool their methods of inquiry and build confidence in the numbers shared with management.

Given the ferment in the industry this past year, it's no surprise that the most-read of our blog posts concerned leading-edge innovators and some hard-won lessons from innovators. Lemonade, with its genius for stirring the pot, drew the most attention, especially after it called out State Farm for an ad that disparaged some high-tech offerings, including Lemonade's. The main blogs on Lemonade (focusing on the use of chatbots, with some intriguing comments appended) are here:

• State Farm and Lemonade Throw Down
• State Farm and Lemonade: the Great Debate
• State Farm and Lemonade: an Update

The most popular of the more instructive pieces, from some of us who have the scars to show for innovation efforts, included:

• Ten Signs You're Headed for Trouble in 2019

Among the nearly 600 articles we published at ITL this year, the most read on technology-driven innovation were these:

• Top 10 Claims Trends That Will Affect 2018
• The New Age of Insurance Aggregators
• 10 Insurtech Trends for 2018
• How Robotics Will Transform Claims
• Why 5G Will Rock the Insurance World

Because not all issues relate to innovation and not everything is driven by technology, there was, as always, huge readership for Mark Walls' and Kimberly George's scene-setter from last January on the issues that would drive workers' comp this year:

• 2018 Workers' Comp Issues to Watch

Check it out and see how they did—then get ready, because there will be another early in 2019.

At the risk of overloading you with articles, I am, as always, including links to my six favorite from the past week. And that'll do it for Six Things for this year. I'll continue a mostly regular publishing schedule at the ITL website, and we'll keep sending out alerts on social media, so keep an eye out for anything of interest. We'll then see you back here at Six Things in early January.

I wish you and yours a wonderful Christmas season and a healthy and happy New Year.

Paul Carroll
Editor-in-Chief

Have you ever heard yourself saying those words? “Why bother speaking up? It won’t do any good.” Or, “I’ve tried speaking up in the past, and no one cared.” Or, “Speaking up isn’t valued around here. I’ll just keep my head down and do my job.” I hear you. It’s easy to let past experiences jade us into losing our voice.  It’s tempting to let our assumptions take over and persuade us that we already know the response. After all, we’ve seen this movie before, and it doesn’t end well. So the troublesome issue continues, which validates our thinking: The other guy is a jerk who won’t listen. Trust erodes further. So we speak up even less, further convincing ourselves that it wouldn’t do any good. Overcoming FOSU (Fear of Speaking Up) I was facilitating a two-day training on conflict and collaboration with an interesting mix of scientists and administrators. About halfway through, Hope, an administrator who is also a woman of color, spoke up. “I hear you. And I believe all these techniques will work for someone like Peter (a white male scientist with credentials and position power whose large stature made him hard to ignore), but they would never work for me.” She’d ditched the diaper drama and apparently said exactly what everyone in the room had on their minds. We talked at length about her (and other participants') experiences–which were sad and compelling and real. Some of these stories had happened over a decade ago, with a peer or boss who was no longer around. And yet the fear of speaking up today was palpable. There was a whole lot of not speaking up going on, in a culture that desperately needed the truth. See also: How to Earn Consumers’ Trust   There’s no question in my mind that results suffered, projects took longer and the science was jeopardized due to this FOSU (fear of speaking up). Hope had spoken up to start a conversation. Game on. And then Peter raised his hand.

“I hear you. I really do. I’ve got two stories of my own to share. I also had been told several times by my boss to keep quiet, and not rock the boat. But I saw several errors that I knew would affect the timeline of our project once they were discovered. I took them to my boss who told me under no circumstance was I to say what was going on. When the project got in trouble several months later, the department head, Joe, got involved and asked why I didn’t say anything. I told him I had. He coached me and said that, at times like this, it’s so important to put the project ahead of self-protection. Joe reminded me of what was at stake.  And told me I can always come to him as needed. Which I do from time to time–only when absolutely necessary. I still respect the chain of command most of the time. My boss hates it when I go to Joe. But, I know have to do the right thing. Then one day we were in a meeting with Joe. He told us how frustrated he was that people don’t speak up. And then he said, ‘Peter’s the only one.’ When he asked why, everyone just looked at him without saying a word. Then my boss took me aside and said, ‘See, Joe wants you to stop speaking up! Now stop it!’ I was like, ‘What? Were we in the same meeting? And I insisted that we have a three- way conversation with Joe to check for understanding. Joe was unequivocal. ‘I want Peter and everyone on this team to speak up. That’s the only way we will know what’s ever going on.'”

Okay, I thought, we’re making real progress in this discussion. But, the truth is, it’s still easier for a guy like Peter to pull this off. And then he began his second story. “About a year ago, I had a peer come to me and tell me she thought I was a bully. I was shocked. I was hurt. I don’t see myself as a bully. I asked why. It came down to the fact that I was holding people accountable, and that was uncomfortable, and I knew I couldn’t change that. But I also knew that accountability is one thing, bullying is another. So I went to some of my other peers. And several of them said, ‘Oh yeah, you’re a bully sometimes.’ And I knew I needed to change. I dug deeper on how my behavior was being perceived. I started listening more. I entered rooms more gently. I watched my tone and manner. No work I’ve ever done on my leadership has made a bigger impact on my influence. I’m still holding people accountable, but I’m watching my style. It’s easier for all of us. Can you imagine if that woman had FOSU? I’d still be frustrating her and everyone else. She did all of us a favor by speaking up. I understand the culture we’re in, but I’ve got to tell you. People don’t speak up enough. We have to talk about this stuff for the culture to change. How can we do that better?'” See also: Voice of the Customer: They’re Not Happy   Your Turn: How Can We? And so I turn that question back to you. This is hard, no doubt. But how do we encourage more people to speak up and find their voices? I’d love to hear your stories of overcoming FOSU and the difference it made.

The insurance industry, started in the 17th century at Lloyd’s of London, has made significant progress since then, but it is only now that it is truly at the cusp of disruption. The traditional models of business development through intermediaries, pricing through actuarial models and underwriting on the basis of experience and data collected through physical inspection of risk and proposal forms are being challenged, as are the policy contract issuance and claims handling methods. The digital revolution has led to all types of information and data not only available in public domain, but easy to access and share at lightning speed. People are connected to each other on social media, devices are connected to the internet, homes and cars are becoming smarter through IoT and robotics and AI are increasingly prevalent in our everyday lives. Almost 150 years back, when the first self-propelled car came out and could drive at only 4mph, a person with a red flag would walk in front of the car to ensure road safety. Fast forward, and we are now looking at cars that can drive themselves. While insurance was slower to adapt than other industries, there has been a recent boom of insurtechs. This creates meaningful opportunities and one of the most exciting times in the insurance space. Today’s customer expects information to be available at her fingertips. Information is either a click away on search engines or through voice prompts on your smart phone or smart assistant. We also face changing risk scenarios and heightened unpredictability. Cyber is at the top of the list – and headlines. Increase in terrorism or “lone wolf events” – at places one would never imagine to be faced with such risks. Changing global weather patterns – the recent floods in Houston, hurricanes in Florida, wildfires and mudslides in California and the extreme winter freezes in the Northeast. And changing geopolitical and socioeconomic environments. See also: In Age of Disruption, What Is Insurance?   How do we cope with this rapidly changing risk profile and environment? Will traditional insurance be able to provide relevant protection and, more importantly, will it be delivered, serviced and provided in a manner to match customer expectations in today’s digital age? Insurers are responding to this challenge in two ways:

1. Digitizing the front-end user experience and user interface but still continuing to follow the traditional model of underwriting, pricing, risk selection and claims.
2. Disrupting the whole value chain from the front end of the business to the entire back end.

These responses are happening at both startups and established insurers. The winners will be companies that are willing to disrupt the entire value chain from front to back end. What does that mean? With the amount of internal and external data sources available today, we can get enough information on prospective customers and the risks they face so as to enable us to personalize their insurance and meet their specific needs. How will we do it? By harnessing big data, connected people and devices, smarter homes and cars and so on, and combining this with years of customer and claims data available with insurance companies. Insurers able to use this wealth of internal and external data in a manner to create distinct customer profiles will:

• Know the customer
• Anticipate the risks they are exposed to
• Find the gaps and where they may need insurance
• Give consumers a tailored solution to cover these gaps

As an example, and subject to compliance and other protected privacy considerations, let’s assume the IP address or phone number is linked as the unique identifier of a person. As soon as that person calls or logs in with her device, the insurer should be able to pull up all of her available information. Then, without the person answering all kinds of questions and forms, the insurer could automatically offer relevant insurance: “Welcome, Joan, for your two cars and home in Ohio, here are the coverages and premiums. Please select one.” As permissible, the same data can be used for underwriting, risk selection and pricing. Today, we as insurers have access to much more data and information on the risks and needs of our customers than ever before -- provided we are able to use the data effectively, a big challenge most incumbents face today. As with underwriting and risk selection, we can use data sources and technology such as sensors, AI and IoT at the time of claims. That includes the possible use of parametric insurance for natural catastrophes, and even smart contracts on a blockchain that self-execute the adjusting and settling of certain types of claims – the objective being to pay claims in a frictionless manner. Before we get there, we will need to work with regulators on data privacy laws that are fit for purpose for this digital age. See also: When Incumbents Downplay Disruption…   The other very important aspect of the new age insurer is to offer a full suite of “personal risk management services.” What that means is that, using the insights gathered over years of claims data, coupled with the availability of external data and AI, we should be able to:

• Predict – help insureds prevent a potential loss before it occurs. I believe people do not buy insurance to make a claim -- the real purpose is protection. What better protection is there than someone helping continuously monitor and help prevent bad things from happening?
• Assist – if even after efforts of prevention something unfortunate happens, insurers should be able to tap into their claims handling. Some companies have invested in risk management and loss mitigation units to actually assist the insureds through the time of need.
• Restore – and finally help the insureds to restore the loss or damage. This is the actual claim settlement, which is what most insurers do as the only activity at the time of claims.

In what I propose, the insurance (restoration or loss indemnification) is only one-third of what a new age insurer should be doing. And all of this needs to be seamless and digital with the use of available and developing technology. Time has come to disrupt the centuries-old insurance industry from what some would call a “necessary evil” to “a pleasant experience called insurance.”