“It is my view that this court could, and should, when such an ambiguous policy is before it, hold without equivocation that the provisions which are confusing and ambiguous as to the liability covered will be resolved in favor of the insured. If a few such forthright decisions were rendered by this court in this field it would not be long before insurance policies were more clearly and understandably written to express the true intent of the parties and there would be less litigation involving insurance policies.” — Geddes & Smith, Inc. v. St. Paul Mercury Indem. Co., 51 Cal. 2d 558, 47 Cal. Rptr. 564, 334 P.2d 881 (1959) [emphasis added] Needless to say, the findings of ambiguity in thousands of court cases since 1959 have not resulted in less litigation. This led me to write the following article for a recent edition of the CPCU CLEW newsletter that focused on issues related to successful litigation on the part of insurance consultants, expert witnesses and attorneys. However, unlike most of the other articles, mine focused on avoiding litigation altogether, a point I stress in my recently published book. See also: The ‘Moment of Truth’ for Claims   No one really wants to go to court to decide an insurance coverage issue. That is evidenced by the tiny fraction of insurance claims that are litigated to final judgment. Insureds don’t want to go to court because of the time, uncertainty and stress involved in what could take several years to resolve. Insurers don’t want to go to court because of the expense and, in the case of alleged ambiguities, the potential impact of adverse decisions on past and future claims. Policyholder attorneys may not be interested in low-value claims where the contingencies involved do not make good business sense. The best course of action for all involved is to equitably resolve claim disputes without litigation, at least beyond declaratory or summary judgment actions if absolutely necessary. In May 2018, I published a book titled, “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” As illustrated throughout the book, the best way to avoid coverage and claims disputes is to prevent them. This involves assisting the customer in exposure analysis to identify the likely causes of loss, selecting the right package of insurance products (or risk management techniques) to minimize the likelihood of an uncovered loss and discussing questionable policy provisions with the insured and, if necessary, the insurer. For example, consider this agent inquiry: “I have a coverage question about boat docks that has been answered inconsistently by several insurers even though the language is identical in their ISO commercial property policies. Included under Property Not Covered are ‘Bulkheads, pilings, piers, wharves or docks.’ We believe this to mean permanent, non-removable docks. However, in Minnesota, we have many portable docks that are removed in the winter. Some insurers consider these to be personal property, not real property, while others don’t. According to some insurers, the exclusion applies to buildings and structures, not personal property, but others say it doesn’t matter. Who is correct?” This is a case where we could argue, following a claim, a legal principle called noscitur a sociis that is discussed extensively in the book or apply other logic to determine whether the exclusionary language applies. But there’s no need to do that nor, if an alternative exists, should we wait until claim time to resolve a coverage issue. An Insurance Services Office, Inc. endorsement exists called Additional Property Coverage (ISO form CP 14 10) which says: “The following is withdrawn from Property Not Covered and added to Covered Property….” In other words, you define the class of property before a claim occurs and insure it so there is no need to resolve anything at claim time other than perhaps value. See also: Transforming Claims for the Digital Era   Another example is whether an auto rented by an employee in his or her own name on a business trip creates a Symbol 8 or Symbol 9 commercial auto exposure. The importance of this issue is that only Symbol 8 is normally used to cover physical damage to nonowned autos. The answer to this question lies in the ISO CA 20 54 – Employee Hired Auto form. This endorsement effectively establishes that this is a Symbol 8 exposure (making physical damage coverage available) and that coverage provided by the CA 00 01 Business Auto Coverage Form is primary (a good thing because the employee’s own personal auto policy might otherwise become involved in the claim). In this case, we’re using readily available (and FREE) endorsements to resolve a potential claim dispute under two different policies. So, how can you dramatically improve your litigation success? Easy…don’t litigate. Resolve the coverage issue before a claim arises.

It’s no secret. The future is all about automation, and that future is now. Every industry from automotive and financing to customer service and food service is turning to automated solutions to improve productivity and better serve customers. The market for automation is so large, in fact, that the robotic process automation (RPA) market is expected to reach a whopping $5 billion by 2020. While widespread industry adoption is common in many verticals, the insurance sector has lagged slightly. The automation wave, however, is surging, and insurance providers that have already caught that wave have found incredibly positive results. If you as an insurance provider don’t want to be left behind, it’s time to adapt and adopt an automation solution. While automation sounds like an appealing idea, there are, understandably, some barriers to entry. Automation can seem scary and sound hard to implement. For many reasons, change is difficult, but it could make all the difference. Automation Isn’t Scary Turning to an automated insurance agency document management system can be nerve-wracking to say the least. Adopting a new machine, as opposed to human-run solution, can bring some anxiety. Will the system be able to sort and store files in the correct manner? Is it worth the investment? What about security and compliance? These are all valid concerns, and, if they aren’t addressed, automation can certainly seem like a scary prospect. But automation doesn’t have to be scary, especially if you find the right solution. Here are some reasons you may be scared to implement an automated insurance agency document management system, along with why you shouldn’t be scared. Why Automation Sounds Scary, and Why You Shouldn’t Be Scared

1. It’s new
2. Security and compliance can be difficult
3. It seems like a big investment

It’s New Implementing a new insurance agency document management system can come with a lot of unknowns. While you may be excited at the prospect of lessening the amount of paperwork and menial tasks that consume so much of your daily time, you may feel slightly apprehensive or hesitant to try something new when it comes to insurance document management. After all, maybe you have a way of filing that already works well. You are used to your paper and filing cabinet system, and you’ve been doing it that way for years. If it isn’t broken, why fix it? While the way you manage insurance documents may not be broken, it could certainly be improved. And that improvement could save you or your staff several hours per week. Some have found, in fact, that insurance document management software has saved them as much as $72,000 per year and 80 hours of paid labor per week. See also: Why Risk Management Is a Leadership Issue Security and Compliance Some of the biggest concerns to you as an insurance agent are security and compliance. That’s understandable, as it’s likely that the insurance industry is one of the largest targets of data breach, falling close behind healthcare as one of the most targeted industries. Compliance is also a large concern. Document retention and governance regulations mean you need to be wary of how and how long you store documents. While your current way of storing and sorting documents may feel secure, it’s likely that automated insurance document management software will enhance security. Yes, a filing cabinet that is meticulously managed and organized can feel concrete and comforting, but there is a better way. The security that comes from a password-protected, cloud-based solution with encryption capability keeps documents secure and accessible only to those who are authorized. It Seems Like a Big Investment Adopting a whole new document management solution can certainly seem like a big investment of not only money but also time. After all, you are busy enough as it is. The idea of adopting a new solution can seem daunting. At the outset, you may have no idea how much it will cost or how many man hours it will take to implement. Switching to a new solution rarely comes without growing pains, and it’s hard to rally yourself to take the plunge. The great news is that an automated insurance document management system may be a lot more affordable than you think. For only hundreds of dollars each year, you could very realistically save thousands. And if you are worried about the time taken to implement the new solution, don’t be. Many document management solutions provide personalized service from product experts who can help you custom-tailor the solution to fit your unique needs. With the help of a seasoned implementation specialist, you’ll save time and money and have your system up and running in no time. Automation Isn’t Hard So many document management solutions promise the world and don’t deliver. Maybe you’ve been burned in the past when you tried to turn to an automated solution. And while many document management solutions have a lot of functionality, learning how to use those capabilities can seem difficult. Here are some worries that may be causing some anxiety when it comes to selecting an automated document management solution for insurance documents. Why Automation Sounds Hard, and Why It’s Easier Than You Think

1. It will take a long time to implement
2. There’s a steep learning curve
3. Importing existing documents to a new system sounds cumbersome

It Will Take a Long Time to Implement Shifting over to a new system often means a lot of learning and likely a change in the way some processes are run. You are busy enough as it is, and taking time to implement a new system may seem like it will slow you down. Implementing a new solution may be a lot easier than you think. Getting your new system up and running may take some time, but it’s likely that the time investment will be very minimal compared with the benefits of a new document management system. There’s a Steep Learning Curve Learning how to use a new system takes some time. You may feel that the investment of time learning how to handle documents in a new way will eat into your time and slow you down. Many document management systems are incredibly intuitive and user-friendly. Some come with advanced functionality that is as simple to implement as it is sophisticated. Some use templates that enable files to essentially “file themselves.” See also: Using Technology to Enhance Your Agency   Importing Existing Documents to a New System Sounds Cumbersome What are you going to do with all of your current file cabinets full of documents? How long will it take to convert them into a digital format and file them correctly within a new system? With many solutions, it doesn’t take long at all. Some are trained to recognize specific document types and sort them into specific predetermined files using templates. And those templates are also completely customizable. Automation Is the Future Whether you accept it or not, the world is shifting toward automation. Don’t be late to the party. The great news is that, within the insurance industry, there’s still time to get on board. While there may be a certain level of comfort in holding out and continuing to file documents the way you always have, embracing change and automation will bring relief and clarity. If you’re not ready to implement an automated solution, it’s best that you take some time to consider the negative consequences of not going automated. While you are stuck fumbling over loose documents and renting out extra space to hold filing cabinets full of papers, other agents are going fully automated. It’s time to jump on the wagon, or you’ll be left behind. It won’t take long before the entire insurance world is fully automated when it comes to document processing and storage. If you haven’t implemented it as an insurance agent yet, you may find that customers will take their business elsewhere and find another simpler solution at an insurance company where they have more personal access to their agent because they aren’t drowning in paperwork.

Our three U.S. venture-backed nsurtech carriers have mo' money, mo premiums' and mo' losses. Around the time their losses became notorious, there were some signs of improvement, but not enough to prove viable business models. It’s still early. No 2Pacalypse is imminent, as the startups have tons of cash. But forget about East Coast/West Coast feuds: It’s still insurtechs against the world.

1. Premiums and losses grow at venture-backed startups
2. Industry-backed startups stay focused on underwriting
3. Gross or net – which matters?
4. Correcting rookie mistakes, experimenting and still underpricing?
5. Can anyone beat Progressive and Geico?

Context This is the fourth installment of our review of U.S. insurtech startup financials. Here are the 2017 edition, the first quarter 2018 edition, which generated many social media discussions, and the second quarter 2018 edition. For more information on where our data come from and important disclaimers and limitations, see the 2017 edition. As we have said since the start, we think all three companies have solid management teams who will figure out a solid business, but it will take time. 1. Premium and losses grow at venture-backed startups As we have said before, it’s early days. Growth is rapid. But all three startup carriers are a long way from profitability and need to continue to raise prices substantially (and thus potentially churn customers), tighten underwriting (which could also materially affect growth) or improve operational aspects that drive losses such as claims performance. In insurance, product-market fit is only demonstrated when selling a product that makes money. Here is the summary of the 3Q18 details of the three venture-backed U.S. insurers that we’ve been tracking. The fourth venture-backed insurer, Next Insurance, did not write premium in 3Q18. On expenses, it is important to note that Lemonade received permission from New York State to hide some expenses in an affiliated entity effective at the start of this year, so Lemonade’s expenses aren’t comparable to the others. (Lemonade’s CEO told us that the State of New York requested the change.) Root has followed suit and will now start to hide expenses in an affiliated agency, effective Oct. 1, 2018. Unfortunately, with less transparency, it is harder to verify whether the overall business model actually adds up. Lemonade, for example, makes a big deal about the power of an insurer built on a “digital substrate.” We’re inclined to agree, and we hope they’re right, but we won’t know from their statutory results whether a better expense ratio is really possible. *** The third quarter’s “most improved” award goes to Lemonade, which grew premium by 57% over the prior quarter to $15.5 milliion (perhaps helped by seasonal effects in the rental market) AND turned in a 96% gross & LAE loss ratio, its best ever. The company's reserves developed slightly adversely in the quarter, with YTD unfavorable development standing at $254,000, modestly worse from $245,000 the prior quarter. Lemonade has a ways to go -- its reinsurers continue to subsidize the loss ratio (but now paying "only" $2.44 of losses per dollar of premium), the average net loss & LAE ratio is still well above the 40% at which charities receive a giveback, and the company is far from profitability. But re-underwriting and higher rates -- which we discussed in our last post -- may be paying off. There are other explanations, too -- shifting to cat-exposed risk, for example, lowers the loss ratio but raises the cost of capital. See also: Insurtech: Revolution, Evolution or Hype?   The company has written $33 million in the first nine months of 2018, which is well behind some exponential expectations published last year. Management also says that they will take out 60 loss ratio points: "A similar progression in the year ahead will get us to where we need to be." Good luck. (Despite the good quarter.) Taking out loss ratio points gets harder for every point you get closer to the industry average. The breeziness of management's comments makes us wonder how much focus will be placed on the hard spadework of loss ratio improvement vs. embarking on a glamorous European Grand Tour. Respected industry analyst V.J. Dowling, whose IBNR Weekly publication (subscription only) was cited in a Lemonade transparency blog supposedly praising Lemonade, recently published a tear-down of Lemonade's strategy. IBNR called the giveback “a joke,” the company's marketing "overly simplistic, constantly changing and borderline dishonest" and “B.S. On Lemonade’s 'Transparency' & Model." We have long taken issue with Lemonade’s definition of “transparency,” which (as with many startups) is transparent only insofar as the company wishes to tell a story, which is just another form of marketing. (We are working on a longer article about ways startups bend numbers and welcome your ideas). We also agree with IBNR that a giveback at 1.6% of premium seems cynical. Middle-class insurance agents are some of the biggest charitable donors and sponsors in many towns, and it’s hard to see the social benefit in Lemonade’s spending the advertising budget enriching amoral tech bros at GAFA rather than sponsoring the town's Little League uniforms as an agent might do. Even insurance veterans don’t seem to realize that all of Lemonade’s entities are for-profit. Don't be fooled: B-Corps are still for-profit corporations. And railing against gun violence is easy, but social consciousness is messy in reality. Metromile grew at a steady and respectable 21% from the prior quarter to $24.5 million of gross premium but ran a 98% gross loss & LAE ratio (not improved from 2017). Among the three players, it has been the ant: slower growth and rather steady results. After seven years in business, the company is barely generating an underwriting profit and is showing little improvement. The company has been taking rate, but not as much as the actuaries say is needed. The company’s latest California indication, for example, is rates up 38%, but the company only took 15 points of rate, effective July 1, 2018, which will work through its book over the next couple of months. Matteo recently published a discussion of why its PAYD (the pay-as-you-drive) approach confirms its niche nature. If Metromile is an ant, Root is a grasshopper. Root again grew extremely rapidly through its TBYB (Try-Before-You-Buy) mobile approach, as one probably would expect of a company with a $1 billion valuation (as we discussed in our previous article). Root doubled the volumes underwritten by Lemonade. But Root continues to struggle with rookie mistakes that drove losses -- discussed more below. Root grew premium by 120% vs. the prior quarter to $33 million for the third quarter but turned in 128% gross loss & LAE ratio - its worst of the year and the worst of the three U.S. insurtech carriers. ** With the three carriers resuming rapid growth after a slow 2Q, the 2Q slowdown that we observed in our prior article may have been seasonal or a one-time coincidental slowdown. 2. Industry-backed startups stay focused on underwriting We first pointed out in the prior quarter’s analysis that companies run/led by well-known underwriters were growing slowly but were far more profitable than those with venture capital backing. That hasn’t changed. Here are the four subsidiaries of big companies that are selling direct or have a claim on being an insurtech. These companies often depend on parents for reinsurance and infrastructure, so we show mainly the gross figures. 3. Gross or net - which matters? One well-regarded venture capitalist challenged us on why gross premiums and loss ratio matter when net is what actually sticks to current investors. The difference between gross and net is reinsured premium and loss. The gross loss ratio is provides an unbiased view of the profitability of the book of business, while the net loss ratio may benefit from savvy reinsurance buying, as in the case of Lemonade. See also: How Insurtech Helps Build Trust   What matters most is for startups probably the higher of the two loss ratios. If reinsurance reduces the loss ratio, this is only sustainable over time if reinsurers make an adequate return. Reinsurers, like all businesses, tend to demand higher prices when customers lose them money, which in time makes the net loss ratio look more like the gross. In the case of the two auto startups, they are paying reinsurers to take away their biggest losses, so this “cost of reinsurance” needs to be reflected, and the net numbers matter more. 4. Correcting rookie mistakes, experimenting and still underpricing? At the Nov. 30 plenary session of the U.S. IoT Insurance Observatory, Denese Ross of DRC Consulting shared an in-depth 50-page review of Root’s filings, which total over 130,000 pages. Our opinions, based on her factual/non-opinion analysis, is that Root is experimenting aggressively, correcting some rookie mistakes and still underpricing some business.

The following is Matteo & Adrian's interpretation and analysis:

• Raising rates, but is it enough? Root has begun correcting its early underpricing by raising rates substantially in several states, but not as much as the actuaries indicate is needed. The company has filed rate increases in seven of its 20 states since late summer, ranging from +5.5% to +34%. The highest is in Texas, where the filing is pending, and where Root now writes 1/3 of its premium (whereas Ohio was the largest state last year). The indication in Texas was +200%. An indication is the change to the overall rate “indicated” by an actuarial analysis to achieve a specified pricing target based on analysis and adjustments to historic trends. For many reasons, the rate level chosen could be less than the indication, but a big gap between rate taken and indication suggests management may still be oriented toward growth even if it is at a loss. Indeed, Root recently put up a blog post claiming to be up to 52% cheaper. Further, Root also added or changed discounts, which are not part of the headline rate. In other states, per-policy rate caps limit the actual amount of rate taken on renewal business, possibly to avoid churning existing customers, since the acquisition cost of a renewal customer acquired via a direct channel is quite small. These rate-making decisions illustrate the fine line a company like Root has to walk when balancing growth, profitability, retention and acquisition cost. Similarly, investors should be wary of individual numbers presented in isolation -- it can be good to churn underpriced customers.
• Technology that isn’t as predictive as expected: Root collects telematic data via a smartphone and scores a driver once he or she has tracked 500 miles, using features such as hard braking, acceleration, turning, time of day, mileage, consistency and distractions. The company started with a third party's telematics model that apparently gave excessive discounts to drivers in better tiers – see the steep blue curve below, which is from a Root filing. Root then developed its own model and is giving more modest discounts to better drivers (gray line). Telematics contributes information and allows more granular clustering, but the law of large numbers and class rating variables (e.g. demographics) still matters more than perhaps anyone would like. Good drivers get hit by uninsured bad drivers. Bad drivers can drive well for 500 miles when they’re being watched. Good drivers’ cars get stuck in hail storms and hurricanes. Nonetheless, Root is the first insurer around the world to acquire large numbers of customers through a TBYB (Try-Before-You-Buy) app, something many incumbents have tried in the past few years.

• Me-too is harder than it looks. Root has filed several modifications to its rates to correct mistakes, such as correcting household structure data, moving from ISO vehicle symbols to factors assigned directly by VIN and correcting for “double-discounting” and “double-surcharging.”
• Claims difficulties. Most startups lack a high-quality claims infrastructure, which is one of the hardest aspects of an insurer to build, but it appears that Root is now taking more claims activity in-house instead of using a third party claims administrator (TPA). To date, Root's customer claims experience hasn't been as easy as the company says. The 15 Better Business Bureau complaints are mostly claims-related, and only 1/3 of Clearsurance users were satisfied with the claims experience. On the same website, Progressive and Geico are around 80%, and Metromile is at 70% claims satisfaction. As one Clearsurance review of Root reads: "I was in an accident back in July, and it's now November, and my simple simple claim has not been paid on or closed out. It was originally with an adjuster at Crawford & Co. but without my knowledge that changed hands to some other adjuster actually within Root. The original adjuster back in September said that she would get back to me within the week....Months later and I'm still here with an open claim."

It will take time for the corrections Root has made to show through in results. And particularly on pricing, they may be too little. Thus, the question remains: Is Root’s growth simply the result of selling something far too cheaply, or is it quietly experimenting its way to becoming the next Progressive? 5. Can a startup compete with Progressive and Geico? The most common refrain of startups is that insurance is broken, and their solution will fix it. Oui, c'est vrai. But two companies have their act together more than almost any other insurers: Geico and Progressive, the #2 and #3 auto insurers in the U.S. Geico is famous for its lean expenses, while Progressive runs a loss ratio about six points below the industry average of 69%. It wasn’t always this way. Back in 1996, Progressive was #7, and Geico was #9. There are few other examples in insurance of companies so steadily and regularly gaining market share across decades. In our first article, we showed how startups historically have only won where incumbents leave the door open. Progressive and Geico are not leaving the door open, at least in personal auto as a stand-alone line. Progressive, in particular, has been quite experimental throughout its life, pioneering telematics in the U.S. and experimenting with various ways of paying for auto insurance and using telematics, as some startups are now doing, but with none of Progressive’s advantages. So why do startups try to compete with such well-run companies? We think there are several beliefs (or hopes):

• A belief that the startup can duplicate public filings to set rates. As noted above, it's harder than it looks. Even professional comparison rating websites have trouble estimating a person's actual premium, and, in a thin-margin business, small differences matter. This is not a new story – eSurance's first me-too nearly 20 years ago didn't work particularly well. Progressive, having outperformed the market for decades, knows that its filings are scrutinized. Like a game of cat and mouse, the company has become expert at fooling competitors that try to replicate filings, which run thousands of pages and are deliberately obscured and complicated. And rate filings are only one aspect of underwriting. Credit models, underwriting rules and marketing plans for attracting the best customers may not be public and may be difficult to replicate. The result is that unwary and inexperienced competitors may grow by unknowingly writing the risks that their competitors didn’t want. There is no CAC at which an underpriced customer is a desirable customer

See also: Insurtech’s Act 2: About to Start  

• A belief that there are profitable untapped segments that incumbents won’t cannibalize. Progressive and Geico are very intelligent companies with a long history of innovation and extremely detailed customer segmentations. It defies all logic to suggest that there is a large segment of customers in a fragmented and highly competitive market that are being greatly overcharged simply because these companies refuse to offer them good rates to avoid cannibalization.
• A belief that the startups can easily acquire customers through direct channels. Direct distribution is not new in U.S. auto – Geico and Progressive both spend billions of dollars a year in advertising and have extremely sophisticated digital marketing. To this end, one of Root’s interesting innovations is its referral program, which we showed in our last article to be quite powerful. (And we probably underestimated its power, because we didn’t account for multi-car policies.)
• A belief that the startups can be “good enough” at claims. Scale matters in handling claims, whether it is hiring and managing high-quality defense counsel, detecting fraud patterns or negotiating with vendors such as garages and roadside assistance services. Further, incentives for third party administrators must be carefully set to avoid excessive claims cost and customer dissatisfaction. For example, when a TPA is paid per open claim, speed of settlement may suffer, which can lead to regulatory fines or bad faith judgments – not to mention customer annoyance. In an industry where 96% is considered a best-in-class combined ratio, even a little bit of claims leakage can be quite hurtful. Metromile is exploring the reinvention of the claims process through the usage of telematics data. Considering the international best practices of doing this, the size of the portfolio might not allow the company to have enough claims yet to train an algorithm for a reliable crash kinematic reconstruction.
• A belief that “we only need 1% of a $220 billion market to be huge.” So 1999…

This analysis isn’t to suggest that it’s impossible for a startup to win in auto insurance, but that the moat around Geico and Progressive in personal auto is wide and deep. Conclusion The annual figures that are published in March contain a wealth of additional information. To be notified when these numbers are available, please follow the authors on LinkedIn.

When we say marketing 3.0, industry 4.0 and technology 5.0, we all get used to cool names ending with zero. I think no one is surprised that insurers fell a little bit behind. We all talk about these cool zeros, but there is something really zero in insurance: customer service. I’m not talking about a claim service or a specific customer relations problem. I mean the view of insurers’ whole customer service. Most insurance companies think that they should only serve for the customer who has a claim. Their favorite customers are the policy owners who haven’t had any claims for years. But the insurance industry's approach doesn't match with the fundamental dynamics of the service sector. As a service company, if you are getting a fee from customers, you should be happy while serving them and should want to make your customers happy, too. See also: Next Generation of Insurance Services   Insurance companies need to remember that they are in the service business. Serving only the unfortunate winners (claim owners) does not make you a services provider, but makes you a lottery company, at best. Lottery companies do not have problems because the majority of ticket owners know that the chance of winning a lottery is very low and don’t expect any special service from the lottery company. But people buy insurance against bad events that they think are likely to happen, and, if these events do not happen, they feel they do not get their money’s worth. Therefore, it is necessary for all insurance companies to provide service to all of their customers during the policy period, even if they have not made any claims. Think about the gym that you paid hundreds of dollars for a year and you have not visited for nine months. Probably, you are angry with the gym. After a year without any claims, an average policy owner has similar thoughts about the insurer. How can you handle this problem? Let’s go back to the gym you have not visited for months. What if it provides you another kind of service that you can use remotely, like healthy nutrition consultancy or a one-year free Netflix subscription? The Netflix subscription could completely eliminate the possibility of your gym use, of course. :) But, joking aside, what would you think about the gym? Surely, you would find it more sympathetic and might think your money is not wasted. Six years ago, when I was working at Cigna Turkey, we had created a concept called “living insurance” to make life insurance more desirable. We bundled lifestyle services with insurance products by means of different concepts like family, education and healthy life. Normally, no one wants to think about the possible return on their life insurance policy; it's an unpleasant topic. However, with the service we provided to our customers -- from carpet cleaning to skin care, car check-up to pedagogical consultancy -- our product became something more than just the consolation of bad luck. In this way, products became more attractive, and customers did not think that their money was wasted. They could benefit from services any time during the policy, even if they had no claims. Of course, it was easier said than done. Some conservative executives strictly stood against the strategy. Some raised questions like, “What is the relation between these services and our policies?" Now, when I look back, I can easily say we have been successful. These products sold hundreds of thousands in a few years, and some of them are still the best sellers. In addition to creating a new product category in the market, we opened a way for these lifestyle services, which are now an industry standard; today, almost all life insurance companies in the market provide these kinds of additional benefits. See also: How to Use AI in Customer Service   Insurance companies are obligated to serve their customers throughout the whole duration of the policy, whether it is home, car or life insurance. By giving names to our customers as “insured” or “insurant,” we forget that they are actually customers with needs and expectations. To catch up with industry 4.0 or technology 5.0, insurance companies should focus on holistic customer service development before the big infrastructure transformation development projects. In this way, an insurance service 1.0 that represents a customer service concept that meets customers' expectations may be possible.

In any given year, many private companies are evaluating the potential transition from private to public ownership. An initial public offering (IPO) comes with a myriad of financial and operational concerns, ranging from public disclosure requirements to additional regulatory/compliance infrastructure, to confidentiality and trade secret concerns. One potentially under-appreciated area for consideration, for those companies considering an IPO, is directors’ and officers’ liability insurance (D&O). Recent claims trends and the March 2018 U.S. Supreme Court’s decision in Cyan emphasize the need to approach the D&O insurance topic with great diligence, and to obtain maximum protection for a company and its key executives. In our experience at Aon, key D&O topics for careful review include the following: Beginning at the “all hands” initial kick-off meeting and through the road show, company executives are making decisions and representations that could create liability exposures. The private company D&O policy, which almost certainly excludes public securities claims, should not be so restrictive as to exclude pre-IPO preparatory and “road show” activity. Additionally, pre-IPO private company policies should contain carve-out language for “failure to launch” claims. The transition to a public company will also require clear policy language that determines how pre- and post-IPO allegations are addressed. Detailed negotiations of the “tail coverage” and “prior acts” coverage are critical to providing the appropriate protections for both the respective former private company and new public company boards and executives. IPO candidates should confirm that their current private company D&O program, with regard to terms, structure and limits, provides comprehensive pre-IPO coverage to provide a seamless transition to public company status. Coverage Terms Ensuring breadth of policy terms is perhaps the most critical component to a public company D&O insurance program placement. Maximizing coverage in the event of a claim is rooted in contract certainty and broadest and best-in-class terms and conditions. Unfortunately, inexperienced D&O practitioners can lead to debilitating coverage gaps and exclusions. It takes an IPO-experienced and detail-oriented brokerage tactician to obtain critical coverage enhancements. Coverage topics such as straddle claims, definition of loss and E&O exclusions can be the difference between maximizing policy proceeds and an outright claim denial. The D&O program coverage negotiations are multifaceted – the negotiations are not limited to the primary layer of insurance but, rather, involve numerous layers of negotiations with your excess insurers, including importantly your Side A insurers. IPO candidates should partner with detail-focused D&O professionals (which can include both brokers and outside counsel), to obtain maximum coverage. See also: Why Small Firms Need Cyber Coverage   Policy Structure Public company D&O insurance can be markedly different in structure than private company D&O insurance. Two very common examples include the separation of limits (i.e., the D&O is no longer tied to other management liability coverages, such as employment practices and crime) and the addition of dedicated Side A difference in conditions (“DIC”) insurance. Additional structural considerations, such as entity investigative coverage, the inclusion of DIC limits within the “A/B/C” tower and the decision to run-off prior coverage or maintain continuity of a program are all structural items of critical importance to review prior to an IPO. IPO candidates should weigh the pros/cons of each approach and select a program structure that aligns with their unique risk factors and corporate purchasing philosophy. Limits Limits selection is not a “one-size-fits-all” question and can be influenced by various factors, including: expected offering size/market cap, industry risk factors, historical claims activity, merger/acquisition exposure, bankruptcy risk, a company’s risk retention capacity, limits availability relative to budget and board directives. Aon has several proprietary tools to assist clients in making informed decisions around the appropriate limits to purchase at the time of your offering. Pricing Undoubtedly, many insureds experience sticker shock when contemplating the potential cost of a post-IPO D&O program. This is particularly true in the post-Cyan world as D&O insurers consider separate state court retentions and pricing commensurate with increased ’33 Act state court exposures. This environment has led to 2018 D&O pricing (for IPOs) that, in some cases, is more than twice comparable deals in 2018. IPO candidates should prepare senior management and the board to anticipate a meaningful change as compared with the private company program with regard to D&O premium. Candidates should also work closely with their broker to align strategies to maximize the return on this premium. These strategies can include meetings with key national decision-makers at leading D&O insurers, risk/retention analyses regarding potential retention levels and competition via access to national and international D&O insurers. Partnering with a broker that has a proven ability to “make a market” for competitive D&O pricing is crucial to maximizing the marketing opportunity and obtaining competitive pricing results. International While this topic is germane to both public and private companies, the IPO process can be a catalyst to review broad D&O topics, including the need for locally admitted policies. In many countries, non-admitted insurance is problematic and would not be permitted to respond in the event of a claim in such a country. Particularly for D&O insurance, which is intended to help protect individuals’ personal assets, the certainty of available coverage within problematic countries is critical. All companies, particularly IPO candidates, should consider their international exposures and implement locally admitted policies as needed. See also: The Fallacy About International Claims   An IPO is an exciting but challenging time, for corporate issuers and their leaders. Partnership with subject matter leaders across several disciplines, such as accounting, finance, legal and insurance, can help a company execute a successful transition to public equity. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy. If you have questions about your specific coverage, or are interested in obtaining coverage, please contact your broker.

Onboarding new groups remains an arduous, cumbersome part of the enrollment process for employee benefits insurers. While proposals are well-automated, and so is policy administration, between the two comes group onboarding. And that area has not been automated, leaving a gap that carriers fill with a hodgepodge of methods. Complexity lies in the fact that each product—group medical, dental, life, vision and disability—requires different data to be collected. But the data gathered during the rating and proposal process isn’t sufficient. The employee’s gender, date of birth, zip code and perhaps salary aren’t enough to issue policies and pay claims. Besides additional employee information, the insurer needs corporate information, such as affiliates, federal tax identification numbers and ERISA plan numbers. Many employers have multiple billing divisions that pay premiums separately. How to collect that information has plagued insurers for decades. See also: 4 Key Elements for Onboarding Producers   Two factors compound urgency. First, because about 80% of group plans renew on Jan. 1, insurers face a big crunch in the fall gathering data from paper forms, emails and the like. Additionally, employers—especially those sponsoring small and medium-sized groups—are changing insurers more often as they try to save every dollar on employee benefits. Groups of 50 to 200 lives often go out to bid annually. Thus, the costs of onboarding a new client can no longer be amortized over five years. Carriers need more automated, cost-effective ways to onboard groups. Some insurers have tried using CRM systems and other workarounds to improve efficiency. But those attempts have failed, and the process remains largely a manual one. Enrollment solutions that address onboarding are, however, being developed. Successful vendors will have to provide the following: Automated data capture. Manually entering information into the policy administration system results in missing data, errors and time-consuming back and forth. It can make onboarding a three-month process. Effective importing tools will allow onboarding software to import and map data to system variables for seamless integration and efficiency. Additionally, the solution should include a support portal where human resources administrators can log on and enter data right into the system or use the import function to upload the entire groups. Data integrity. Employee data must be correct and complete when entered. Built-in rules will enforce quality. For example, if a date of birth is missing or a year is entered incorrectly, the software will flag the error and require the user to fix it. This ensures data integrity and accurate rating. Security. By eliminating manual data collection and handling, and using portals to enter and store employee information, the onboarding system can provide increased data security. It must comply with privacy regulations regarding personally identifiable information (PII), thereby ensuring a secure way to gather and store employee information. Flexibility. Integrating onboarding closely with both proposal and policy systems is essential to efficient workflow. Tightly integrating it with your underwriting and proposal system will provide flexibility to easily navigate the sold-case process as changes in the group arise after the policy is sold but before the effective date. See also: How Insurance and Blockchain Fit   Onboarding software ultimately may help transform the entire policy lifecycle.

Will the future of driverless cars rhyme with the history of the Segway? The Segway personal transporter was also predicted to revolutionize transportation. Steve Jobs gushed that cities would be redesigned around the device. John Doerr said it would be bigger than the internet. The Segway worked technically but never lived up to its backers’ outsized hopes for market impact. Instead, the Segway was relegated to narrow market niches, like ferrying security guards, warehouse workers and sightseeing tours.

One could well imagine such a fate for driverless cars (a.k.a. AVs, for autonomous vehicles). The technology could work brilliantly and yet get relegated to narrow market niches, like predefined shuttle routes and slow-moving delivery drones.  Some narrow applications, like interstate highway portions of long-haul trucking, could be extremely valuable but nowhere near the atmospheric potential imagined by many—include me, as I described, for example, in “Google’s Driverless Car Is Worth Trillions.” For AVs to revolutionize transportation, they must reach a high level of industrialization and adoption. They must enable, as a first step, robust, relatively inexpensive Uber-like services in urban and suburban areas. (The industry is coalescing around calling these types of services “transportation as a service,” or TaaS.) In the longer term, AVs must be robust enough to allow for personal ownership and challenge the pervasiveness of personally owned, human-driven cars. See also: Where Are Driverless Cars Taking Industry?   This disruptive potential (and therefore enormous value) is motivating hundreds of companies around the world, including some of the biggest and wealthiest, such as Alphabet, Apple, General Motors, Ford, Toyota and SoftBank, to invest many billions of dollars into developing AVs. The work is progressing, with some companies (and regulators) believing that their AVs are “good enough” for pilot testing of commercial AV TaaS services with real customers on public roads in multiple markets, including Singapore, Phoenix and Quangzhou. Will AVs turn out to be revolutionary? What factors might cause them to go the way of the Segway—and derail the hopes (and enormous investments) of those chasing after the bigger prize? Getting AVs to work well enough is, of course, a non-negotiable prerequisite for future success. It is absolutely necessary but far from sufficient. In this three-part series, I look beyond the questions of technical feasibility to explore other significant hurdles to the industrialization of AVs. These hurdles fall into four categories: scaling, trust, market viability and secondary effects. Scaling. Building and proving an AV is a big first step. Scaling it into a fleet-based TaaS business operation is an even bigger step. Here are seven giant hurdles to industrialization related to scaling:

1. Mass production
2. Electric charging infrastructure
3. Mapping
4. Fleet management and operations
5. Customer service and experience
6. Security
7. Rapid localization

Trust. It is not enough for developers and manufacturers to believe their AVs are good enough for widespread use, they must convince others. To do so, they must overcome three huge hurdles.

8. Independent verification and validation
9. Standardization and regulation
10. Public acceptance

Market Viability. The next three hurdles deal with whether AV-enabled business models work in the short term and the long term, both in beating the competition and other opponents.

11. Business viability
12. Stakeholder resistance
13. Private ownership

See also: Suddenly, Driverless Cars Hit Bumps   Secondary Effects. We shape our AVs, and afterward our AVs reshape us, to paraphrase Winston Churchill. There will be much to love about the successful industrialization of driverless cars. But, as always is the case with large technology change, there could be huge negative secondary effects. Several possible negative consequences are already foreseeable and raising concern. They represent significant hurdles to industrialization unless successfully anticipated and ameliorated.

14. Congestion
15. Job loss

I’ll sketch out these hurdles in two more parts to come.

Nepal is famous for the Himalayas, Momos (Nepalese spiced dumplings), temples (did you know that Buddha was born in Nepal?) and dangerous roads. I recently was sitting in the front seat on travels from Kathmandu (the capital) to Hetuada (an industrial town). The distance is approximately 87 kilometers, or roughly 55 miles, and it was a five-hour journey due to many factors that I’ll discuss shortly. The drive made me think about the similarities to entrepreneurship and lessons from my three-year journey. The first start of the journey was smooth; the roads were wide and then, very quickly, the roads started getting narrow and curvier. Lesson #1: The initial glory days of starting a company can soon surprise you with curveballs. There are so many firsts during startup years, such as first hires, first social media campaign, first time giving a 60-second commercial. Keep your eye on the goal, and don’t let the narrow roads or curves take you off-guard. 80% of the journey from Kathmandu to Hetuada were on unpaved roads. Imagine driving on gravel roads for more than three hours. Lesson #2: There will be bumps on the road. Don’t complain. Prepare and plan for the journey. Get the right tools for the job (vehicle). Know that bumps will occur and will disappear with time (and experience). There were several places during our journey where roads were congested. Competition is fierce, and, even if you are first to market, you are at best six months before other startups start offering similar value propositions. Lesson #3: Having a strong sense of direction, strength and perseverance will allow you to navigate the congestion. Have the right people in place to handle difficult tasks (driver in our case). It may at times seem near impossible to get out of the congestion, but, with the right maneuvers, you can come out triumphant. There are no road systems, or like a DOT (Department of Transportation) in Nepal. and cars, motorbikes, buses, horse carts and other vehicles with wheels will sneak in and pass you. There are times where our car did the same, depending on the opportunity. At times, it may seem others are getting ahead and are succeeding. Lesson #4: Don’t get discouraged – if you are solving the right pain points, have a strong team and present a solution, when the right opportunity arises you will succeed and make a pass. When I started my entrepreneurship journey, my co-founder and I built a product that was a “vitamin,” not a pain-killer. It was when we met an individual in 2016 who shared with us the pain points within the life/annuity industry that he experienced while selling and servicing products in the life insurance sector. Both of us fell in love with the pain points and joined forces through a company called Benekiva. We found the right pain point, a strong team and our solution, which incorporates portion of our initial solution. See also: The Entrepreneur as Leader and Manager The drivers in Nepal are completely bold. One wrong turn, and you may not exist. Lesson #5: Be fearless. A startup is not like a trip in the Himalayas. Fail and fail fast. A failed startup does not kill you, it makes your stronger. Also, entrepreneurship is not for everyone. If you want a stable and normal life with steady work hours and pay, then it may not be a right fit. If you are a creator and have a fear of mediocrity, then you are in the right club. I recently read a fantastic blog – Fearing Mediocrity from Ryan Hanley, which summarizes my thoughts on being fearless. There was a place during our journey where we stopped to take a stretch and tea break. Lesson #6: Make sure you recharge. Lori Greiner, from Shark Tank, has a famous quote, “Entrepreneurs are willing to work 80 hours a week to avoid working 40 hours a week.” The statement is so true, and as entrepreneurs you don’t want to experience burnout. My break is this! I’m visiting my family and friends for three weeks, and my responsibilities for Benekiva are handled. I’ve delegated to my co-founder or my staff. I just have to be willing to check in. I love what I do, so it doesn’t feel like work even though some of my meetings are at 2:00 am or 3:00 am; it doesn’t bother me. See also: AI Still Needs Business Expertise   Though the travel is treacherous, and a short distance takes hours, the ride is gorgeous. Tall, beautiful mountains, breathtaking views and an amazing landscape. Lesson #7: Enjoy the journey. You will encounter amazing people, mentors, other like-minded individuals and people who make you think, “Where have you been all my life?" You will get to participate with leaders of industry, attend amazing conferences where knowledge is abundant and work with others to create ideas. Enjoy the journey, my friends. As Dr. Seuss says in "Oh, the Places You'll Go": “You're off to Great Places! "Today is your day! "Your mountain is waiting, "So... get on your way!” Thank you for reading this article!

Eighty years after Karen Blixen published her memoir, "Out of Africa," it may be time for the local insurance industry to start writing a sequel: "Into Africa."

That thought is prompted by a seminar that Africa Re hosted last week in Lagos, Nigeria, and that was put on by our chief innovation officer, Guy Fraker, and by our friend Grace Vandecruze, a veteran investment banker who is now the managing director of Grace Global Capital. Several dozen executives attended from the biggest insurers in Nigeria and Ghana, underscoring the interest in innovation among companies operating on a continent with almost unimaginable opportunity.

Grace said South Africa is the only country on the continent with any significant penetration by insurance products, and just 17% of households there own at least one insurance policy. In every other African country, she said, market penetration ranges from a fraction of a percent to a mere 4% of households. Meanwhile, the continent is home to more than 1.2 billion people and has six of the 10 fastest-growing economies in the world. 

Virtually everyone on the continent has a cellphone, so, while companies in the U.S. and Europe complain about having to adapt legacy distribution and customer service networks to the demands of digital customers, insurers in Africa can develop optimized, fully digital systems from the get-go. African countries may also be able to leapfrog more-developed economies and build telecommunications systems based on the next generation of wireless technology, which is known as 5G and which promises Wi-Fi-like capabilities everywhere (though the jury is still out on the actual capabilities of 5G).

When I covered the computer industry for the Wall Street Journal in the '80s and '90s, a common geek joke was: 

Q: "How did God manage to create the world in only six days?"
A: "He didn't have an installed base."

Ba-dum-bum. 

But the punchline applies here: Because Africa doesn't have an installed based in insurance or in many of the underlying technologies that are being deployed by the industry in other parts of the world, insurers there have a chance to do things right the first time and leapfrog the rest of the globe.

I'm not suggesting that hundreds of business development types from outside the continent immediately book flights to Lagos and other African business centers. There is considerable expertise already there among the major insurers, sometimes facilitated by our new friends at Africa Re. 

Insurance still needs to establish a trust factor among consumers in Africa, but the good news, Guy says, is that the low penetration of insurance means that companies have a unique opportunity to work together as a community for now, rather than as competitors. Basically, you have to have a pie before you start fighting over how to divvy it up.

So, let's all do all we can to help bake that pie. As we all know, broadly available insurance will provide stability that the people in Africa and their economies can build on. 

Have a great week.

Paul Carroll
Editor in Chief

It’s a remarkable time in the insurance industry. Looking around at other major industries — retail, banking, manufacturing — it’s easy to see the changes that disruptors and technology have brought about. Yet in many ways it hasn’t hit home for insurance carriers. The same established players dominate at the top, and thousands of smaller firms maintain loyal clients throughout the insurance ecosystem. “Get ready for change,” is a message that has been ringing out in the insurance market for a decade but finally seems to be getting through. Everyone from global consultancies to insurance leaders is predicting that, in the next five years, major insurance companies could fall, existing ways of doing business will become obsolete and disruptors big and small — from insurtech startups to Silicon Valley giants — will punish those clinging to the status quo. Here’s an illustrative example from PwC of how demand is outpacing market offerings: Among millennial small business owners, 75% would prefer purchasing commercial insurance online, yet only about 1% of policies are sold without any intermediaries. Other market segments are further ahead: 30% of personal auto policies are sold without intermediaries, for example. See also: Are You Tapping Your Innovation Energy?   It’s clear where carriers and the third-party administrators (TPAs) that serve them need to be moving. Now it’s just a question of how they get there, and specifically how to keep their legacy systems while operating with the efficiency and agility needed in today’s market. One way to do this is collaboration, by viewing tech-savvy innovators as potential partners in the race to gear up for the digital age. This is true across the value chain, from sales to risk management to claims intake and distribution. Carriers and TPAs are searching for solutions. And there are clear signs that the do-it-yourself mentality is giving way to a culture of collaboration. Capgemini found in 2017 that 53% of insurance executives around the world prefer partnering with insurtech firms to leverage digital technologies, as opposed to 36% who favor in-house development. These partners can increase agility and configurability everywhere from front-end services like applications and renewals to back-end services like claims processing. And because the technology has already been developed — and often has the support of a team of digital natives — set-up time is quick and requires minimal changes to the carrier’s infrastructure. Projected spending on artificial intelligence solutions among insurance companies illustrates the broad application of new technology. Deloitte predicts that insurers will increase their spending on AI by 48% in the next five years, boosting automation in everything from claims processing to fraud investigation, program advising and threat prevention. A new report by NetClaim spotlights what this shift means for claims intake and dissemination. At the moment, most insurers and TPAs continue to handle these functions in-house, but that looks likely to change soon. About a quarter of carriers and TPAs already outsource their intake and dissemination needs to vendors, and about a quarter said they are looking to shift from in-house to outsourcing. One of the drivers of this change is cost: Vendors have the expertise and economies of scale to do the job cheaper than it could be done in-house. But the days are gone when call centers could bring in business simply by being the cheapest option. See also: Innovation — or Just Innovative Thinking?   According to the NetClaim survey, almost as many carriers believe innovation is being driven by need for better quality control and fraud detection (64% of respondents) as efficiency and reduced prices (68%). Also, carriers and TPAs agreed on the need for innovation in the claims intake and distribution process. About 80% of carriers and 94% of TPAs saw a need for innovation in these functions. What carriers and TPAs need most are partners that can keep their organizations moving and adapting as quickly as the rapidly changing market evolves. Nimble vendors specializing in intake and built for change offer one way that organizations can add deeper innovation and better solutions than keeping those functions in-house.