In December, NASA’s spacecraft OSIRIS-Rex landed on the surface of Bennu 101955, a large asteroid. Scientists believe that it could one day strike the Earth, should gravitational interaction between the two bodies, during a close approach in 2060, cause it to change its trajectory. The energy released by the impact would be 80 times more powerful than Hiroshima. Is there a parallel, perhaps, to the independent London wholesale market (i.e. excluding business placed into London by the in-house placement teams of the large international brokers), hurtling inexorably to its doom, due to the pull of gravitational forces beyond its control? To answer that question, we perhaps first need to start with some definitions. Historically, the London wholesale insurance market has played a valuable role in matching brokers from (mostly) overseas looking to place large, complex or unusual risks into the London market capacity, in particular Lloyd’s. North America has long been by far the largest source of business into the London wholesale market. Reflecting the size of this market, brokers operating within North American typically access the London market either directly via a London market wholesaler, or indirectly via a U.S. wholesaler intermediary, who will themselves place the risk with a London market wholesaler. The process is, perhaps unsurprisingly for something that involves the words “London” and “insurance,” woefully inefficient, not to mention expensive. Imagine a U.S. corporate, approaching a local broker, who then goes to a U.S. wholesaler, who involves a London wholesaler, who then places the risk into a Lloyd’s syndicate (potentially via an MGA?), with each stage of the chain putting its snout in the fee trough. The process brings to mind the ancient symbol of the Ouroboros – a dragon, eating its own tail. Yet, the London wholesale market has been, and continues to be, very successful. The U.S. surplus lines market, for example, has been growing at 9% per annum, well above the growth rates seen in the normal insurance market in the developed economies. Within that, the Lloyd’s share has grown even more strongly, at around 12%. London is still the largest writer of excess and surplus lines and still the largest delegated authority business in the world. There are several reasons for this strong growth, but prime among them may be the London market’s proven ability to spot trends and emerging opportunities, innovate solutions and then mobilize quickly to write them first. When the market is at its best is when wholesalers are working in close partnership with their producing brokers to develop creative ways of managing not just existing risks but also new and emerging risks, attracting premium to the market that would otherwise have gone elsewhere or perhaps not have been spent at all. This is worth paying for, although that shouldn't disguise the fact that a lot of the sector's income is renewal business that requires little incremental effort. Wholesaling is typically a high-margin business, partly because it remains stubbornly commission-based but also because it benefits from high operational leverage, with a relatively small number of relationships with a relatively small number of placing brokers potentially giving access to a large flow of referred business. The market has also proved very stable, with business flows and retention rates not moving for years, underpinned by strong relationships that are difficult to dislodge once established. And the market - particularly at the larger end - has proved remarkably adept at boosting commission income affected by the soft market conditions, through the use of facilities, captive MGAs, facultative reinsurance and other non-placement services such as advisory or data services. So adept, in fact, that the FCA has launched a market study, concerned that the level of competition and innovation, the barriers to new entrants and the risk of conflicts may leave something to be desired . See also: Top Emerging Risks for Insurers   On the face of it, therefore, the overall health of the London wholesale insurance market would seem quite robust. As Mark Twain might have said, “rumors of its demise have been much exaggerated.” And yet I would argue that six long-term gravitational forces are likely to combine to tip the independent London wholesale insurance market into a different orbit. An orbit that while perhaps not threatening Bennu 101955's fiery end, will inevitably result in the market being much smaller and much changed from today. 1. Broker consolidation strangling supply The critical North American market continues to be consolidated aggressively by the large international brokers (in particular Marsh, Aon and Willis). This inevitably leads to risks that were previously wholesaled being placed directly into the London (and other – see below) markets by these large brokers’ in-house placement teams. With no end in sight to the North American consolidation trend, the amount of premium available to the "indepdendent" London wholesale market will inevitably come under increasing pressure. 2. U.S. wholesalers increasing their buying power  The U.S. wholesale market has essentially consolidated over the past few years into three main entities: AmWINS, Ryan Turner and CRC, each of them controlling around $6 billion to $7 billion of premiums. This has given them vastly improved buying power and the ability to demand better commercial terms. This has been facilitated (some might say accelerated) by moving to preferred supplier lists, to improve their operational efficiency by dealing with fewer counterparties. While ostensibly good news for those who come out on the right side of any supplier selection exercise, from an overall market perspective this inevitably raises the risk of premiums being funneled into the hands of a smaller number of independent London market wholesalers on worse terms than before, shrinking the available profit pool and leaving the “losers” high and dry. 3. U.S. wholesalers vertically integrating  Faced with long-term weak economic growth and soft market conditions, other parts of the insurance market have increasingly sought to vertically integrate to capture margin and drive efficiency. Examples abound but would include Berkshire Hathaway establishing a primary carrier, brokers setting up captive MGAs and insurers and re-insurers (e.g. Axa and Munich Re) investing heavily in insurtech in the hope of developing their direct channels and (presumably?!) circumnavigating brokers in some lines. How long, therefore, until U.S. wholesalers establish or buy a London market wholesaler and place their own business into the market through their own entity, to maximize efficiency and minimize leakage? Indeed, AmWINS has arguably already taken the first step, buying THB in 2012. While to be fair, AmWINS has so far resisted the urge to bring all the business in-house, logic and precedent suggest that at some stage there is a risk this will happen. Once the first move is made, will the rest of the market be able to resist following, potentially marooning the independent London market wholesalers who rely on this huge source of business? 4. Growing local market sophistication and depth The traditional insurance cycle has for years driven an ebb and flow of business between the domestic U.S. markets and London. Typically, the London wholesale market does particularly well in a hard market, when local brokers struggle to find sufficient capacity and risk appetite. However, the relentless pressure of the soft market conditions that the market has been laboring under for the last 15 years has shifted the dynamic. Local U.S. underwriters have been forced to adapt their risk appetite and invest in their own capabilities to write business that would previously have traveled to London, to keep their top and bottom lines moving in the right direction. While a future hard market could favor the London market once again, these type of skills and investment are not easily unlearned or undone. Further, the last few years have seen the establishment of an increasing number of local MGAs – essentially specialized capacity backed by Lloyd’s paper, as the Lloyd’s market has sought to drive its own growth by investing in developing its own on-the-ground distribution muscle. Why involve a London market wholesaler or broker, if you can access Lloyd’s directly in the form of an MGA? The hypothesis must therefore be that if the market hardens and the tide comes back in, it will not go anyway near as far up the beach as it would have previously. Further, I have argued previously that fundamental changes to long-term market trends mean that the traditional concept of a market cycle may well be obsolete and we may have now entered a new paradigm characterized by longer cycles and low volatility. On this basis, local markets will continue to eat away at premiums placed in the London wholesale market over the long term, with no hope of a respite. 5. Emerging centers of capital The emergence of new centers of capital in places such as Miami, Dubai and Singapore has significantly increased the number of markets able and willing to write risks that previously might have had no choice but to go to London. While no one could pretend that these new centers of capital have London’s depth of knowledge or range of skills today, they are a lot cheaper to operate in, as London remains challenged from a cost perspective. Over time these new centers will surely become far more viable alternatives and compete far more effectively for the North American (and other markets’) premium pool, putting further pressure on London’s share. 6. Improving data analytics and placement technology The London market remains resolutely analog. This in part reflects the relationship-based nature of the industry and the importance of face-to-face conversations in developing and maintaining client relationships and understanding and placing the risk. But it is also partly a defense mechanism – it is hard to disintermediate paper. The suspicion, however, must be that a significant proportion of the premium that currently comes through the London wholesale market could be placed electronically. Bronek Masojada, CEO of Hiscox, has been quoted in the FT as saying that 80% of what is done at Lloyd’s could be done entirely electronically -- there would seem little reason to think that the wholesale market was any different. And once the Pandora’s box of electronic placement is opened, how long before U.S. brokers or wholesalers look to place directly into Lloyd’s or other London based markets, circumventing the wholesale market entirely? Further, could analytical capability become decisive in winning and retaining accounts -- in other words, will the bonds of historic relationships become increasingly strained if these are not supported by leading edge analytics and insight, which many wholesale brokers do not have the resources or capabilities to build? None of this is to underestimate the London market’s ability to shoot itself in the foot when it comes to technology. But things are improving, the direction of travel is clear and the disruptive impact of enhanced analytics and placement technology could in time lead to significant parts of today’s wholesale market being placed direct, with Lloyd's brokers reduced to the status of electronic post-boxes. These gravitational forces suggest a number of important long-term implications for the London wholesale market: The market will shrink as changes in supply, market structure and competition reduce the amount of premium available to the market. While recently the market has been able (to its considerable credit) to more than counteract this through driving innovation to win market share, over time, the trends listed above will gain in momentum, and gravity will make itself felt. Arguably, JLT (by merging its Lloyd & Partners business with its specialty division) and Willis (by selling its wholesale business to Millers), to name but two, concluded several years ago that the best days of the London wholesale market were firmly behind them (although in JLT's case the decision was a perhaps unavoidable consequence of establishing itself as a U.S. retailer -- you can't wholesale where you retail, at least not without considerable difficulty.) In the short term, as players fight over a smaller pie, this will almost certainly put pressure on commission rates and margins that have historically rarely moved. The market will consolidate further and faster. Faced with the pressures outlined above, the market will consolidate to drive efficiencies and grow market share and mitigate the commission/margin pressure. Witness, for example, Besso coming together with Ed. This trend is further being accelerated by the growing cost of regulation and technology, which is squeezing the smaller end of the market and fueling M&A. Managing FX risk has also become increasingly important given Sterling’s recent volatility, something that is only typically affordable by larger brokers. It is also increasingly hard to grow by hiring talent, which for many years has been the preferred way of acquiring business and growing share – the market has wised up significantly in the last few years, and non-competes and other restrictive covenants are far more prevalent and effective than they used to be. Further, as the U.S. wholesale market has professionalized and moved to more of a preferred supplier model, so some of the larger U.S. relationships have become more institutionalized, and the opportunity of hiring one person in the hope that they will be able to shift an entire book of business, far riskier. For shareholders of smaller wholesale brokers, this should be good news as competition for assets and a race to the top drives multiples up. Anecdotally, I have heard of something of a demographic “cliff” in the market, in any case, with many wholesale brokers set up in the '80s and '90s and their owners now looking for an exit. In that sense, there may well be no losers from these changes – even those not equipped to compete effectively should be able to sell out at a good price, although inevitably the drive for deal synergies will mean that, unfortunately, not everyone will survive the cut. However, caveat emptor! -- scale is not growth, and the forces alluded to elsewhere in this article suggest that buyers may well end up saddled with all the cost and far less of the revenue than they thought they were buying over the longer term. The market will become more international. While there is significant pressure on premium flow from the North American market, the overwhelming bulk of global economic growth over the next 50 years will be in the emerging markets, in particular Asia. The depth and sophistication of underwriters in these markets is improving but remains far below that seen in more developed markets. This suggests a real opportunity for wholesalers able to establish more of a global footprint, partner with local brokers, reduce their historic reliance on North America, take a longer-term view and ride the emerging market growth wave, although, as in the U.S., they will find themselves competing against large international brokers who have invested in their local retail operations, channeling premiums back through their internal placement teams. Further, as outlined above, some of these local markets are themselves developing new centers of capital. The client proposition of a broker not just able to access London but also these emerging centers of capital to get a better outcome, should be significantly enhanced. Clearly, though, only the larger brokers will have the resources to pursue such a strategy, further bolstering the consolidation story. See also: ‘Organic Insurance’: Back to Basics   The placement chain will collapse. The cost and complexity of the current placement process is unsustainable, and it will collapse faster than most expect or understand, driven by rating and margin pressures. Even beyond the threat of the U.S. wholesale market going direct, how long before the global firms look to remove their own London offices from the placement process of their international business, accessing London insurers directly from source? Where is the logic in Lloyd’s underwriters writing U.S. or Australian MGA business through a Lloyd’s broker? Why would a client not wish to contract directly with the facultative reinsurance market that currently pays 15% commission to a broker that is in all likelihood owned by the same firm providing both retail and wholesale services (Marsh/Bowring Marsh/Guy Carpenter for example)? What has worked for the last however many years simply won't fly anymore. The market leaders will need to have clear specialization and edge. The pressures on the market mean that those that do emerge as market leaders, with sufficient scale and attractive growth momentum, will have succeeded by outcompeting and winning share, rather than from any growth tailwind. I am reminded of the joke about the two people who come across a tiger in a clearing. When one of them carefully reaches into his backpack for a pair of trainers and starts lacing them up, his friend asks him what he is doing, as there is no way he can possible outrun the snarling beast. “I don’t need to,” comes the reply. “I just need to outrun you!” The reality is that the market leaders will inevitably all be competing for the same talent, the same acquisition targets and the same supplier deals with the large U.S. wholesalers. At the risk of stating the obvious, therefore, the winners will be those who have deep pockets (probably PE backed), clear areas of specialization and a distinctive cultural edge, that they can articulate in a compelling way. Wholesale broking remains a people business. The best wholesale brokers, perhaps more than any other type of broker in the market, save perhaps for some reinsurance brokers, are often able to move millions of dollars’ worth of business through their personal relationships. Winning the PR game and positioning yourself as a winner will become even more important to win the war for talent and emerge as the destination of choice. I suspect there is room here for a new entrant, able to attract talent and backing and drive to scale quickly with a non-legacy platform. All of the above needs to be set against the potential findings of the FCA review into the sector, with the publication of its initial findings now expected during Q1 of 2019. The aim of the study is to “explore how competition is currently working and whether it could work better in the interests of clients.” Their work is covering how brokers compete, whether they use their bargaining power to get clients a good deal, what conflicts of interest there are and how these are managed and how they might affect competition and client outcomes. A specific concern is the growing use of facilities and captive MGAs by larger firms, in particular, placing smaller firms at something of a disadvantage and potentially raising conflict issues. It is hard to know what the findings will be and whether it is the wholesale activities of the large international brokers, as opposed to the independent wholesale players, that are particularly in the FCA's cross-hairs. Potentially the remedies could be seismic, turning much of what I have said above into something of a sectoral footnote. Certainly the tone of the FCA's communications so far would suggest that the sector will find itself caught between the "rock" of scale and consolidation on one side and the "hard place" of the regulatory concerns that such scale raises on the other. The good news in all of this is that NASA doesn’t think that Bennu 101955 will hit us, if at all, until 2175 and 2199 at the earliest. Who knows, by then we may well be living on Mars anyway! But for those working in and around the London wholesale market, the challenges, while far less dramatic, are much more immediate, and those convinced of the longevity of the London market wholesaler its current guise, are at best naive, at worst complacent. You would hope that the various players are alive to all these factors and have a plan. Although I can't help but be reminded of what Mike Tyson once said: "Everyone has a plan. Until they get punched in the mouth."

Insurers have caught religion about innovation enough that they're trying to develop an innovation culture. That's the good news. The bad news is that many are going about it wrong. They focus on the ephemeral aspects of culture and hope that innovation will eventually bubble to the service. In fact, as odd as it may sound, the innovation generally needs to come first. Only then will the innovation culture follow. 

Let me explain.

Many companies engage in what I think of as "innovation tourism." They go to Silicon Valley and have some meetings, then hope some of the magic will stay with them as they go back home. Maybe they change some things about their office structure, putting in a ping pong table, a fancy espresso machine or something else that's supposed to symbolize innovation and free people to think outside the box. Maybe companies even go so far as to hold some sort of brainstorming session that lets people toss out innovative ideas (though generally without having a clear idea of what to do after all those ideas are collected). Companies often then talk publicly about their innovation efforts, in the hope that everyone will be a little sharper, that processes will move a little faster, that innovations will arise. In any case, the HR department and senior leadership can check a box that shows they've worked to be more innovative.

But inertia is hard to overcome. People will enjoy the brainstorming, and maybe the ping pong table, but they don't have a clear mandate for how to change their behavior, and they haven't entirely bought in—they've never seen the new approach work. For a book project that eventually fell through, I once spent days in a room with some of the best change management people in the world (certainly, some of the highest-paid) and watched them try to specify how to make a culture more innovative. They eventually decided that they couldn't make a culture innovative in a quantifiable way. They could just mandate changes in behavior that, over time, would change the culture.

My experience consulting and writing on innovation suggests even a narrower approach. If you're trying to change the culture of an organization of any size, that's going to be an expensive undertaking and will take years. But success begets success. An innovative product gets people excited and more inclined to try to do even better next time. Seeing the leaders of an innovative project win bonuses and promotions really gets the saliva flowing. Once you have a string of three or four innovation successes, you've gone a long way to changing the culture. Certainly, people will listen when you talk to them about the benefits of innovation and tell them they need to change behaviors. 

So, I recommend starting small. Pull together a small team of your sharpest people and get a product into the market that could be a game changer for you. You'll quickly see the benefits of focusing on innovation, while laying the groundwork for a long-term change in culture. 

But keep the ping pong table, if you've bought one. I whiled away much of my youth playing ping pong. I recommend it highly.

Have a great week.

Paul Carroll
Editor-in-Chief

When was the last time you bought a new car? If it has been in the last few years, according to industry sources, the process probably went a little bit like this. 

• There is an almost 90% likelihood that you started your research online. 
• When just starting your research, there is a six-in-10 likelihood you were open to multiple options. Makes. Models. New vs. used. 
• When researching, by far, the most common sources you used were third-party sites (seeing them as the most useful, unbiased sources of information).
• The intent of your research was likely to answer the following questions:  
  • What make/model/features do I want?  
  • What price should I pay?  
  • How much is my current car worth?  
  • How should I pay for the car, cash or finance (if finance, what terms are available)? 
  • Where is the car available that I want to buy?  

After doing all this online research, chances are, your initial point of contact with the dealership was to go there in person.   If this describes your last car buying experience, you are like almost every other car buyer. By the time buyers show up at the dealership, they know exactly what they want to buy, how much they want to pay and what terms they expect. In fact, they are so sure of what they are going to buy that almost 40% only visit one dealership, and more than half only test drive one car.  The car is bought/sold before the buyer ever shows up at the dealership.  Stepping on to the lot  After doing all of the research, you finally decided it was time to see this car in person. You pulled into the dealership you knew had your car (based on research). As you got out of your soon-to-be-old car and spotted your soon-to-be-new car, your excitement started to build.   Yet, what words came out of your mouth when you were approached by the salesperson, asking, “What can I help you with today?”  Chances are you pulled back a bit and said, “Oh, I’m good. I just came in to browse.”  Liar, liar, pants on fire  No, you didn’t! You spent hours online researching this very car. You have sold yourself on this purchase a dozen times over. Not only are you not browsing, you are an active freakin’ buyer!   Your response is just a natural, gut reaction. But, even as an active buyer, you don’t want to feel ANY pressure. You may be there to buy, but you don’t want to feel as though you are being sold.  See also: Insurtechs: 10 Super Agents, Power Brokers You and your prospects have a lot in common  How often have you heard from a prospect, “We’re really happy with our current broker”?  This, despite the fact that you have tracked traffic on your website, and that you know the prospect read all of your blogs. The person downloads all of your content. She has attended all of your webinars/seminars. She even returned your call and set an appointment with you.  But, when faced with the reality of the impending buying decision, it doesn’t stop the person from saying, “We’re happy with our current broker.” Don’t panic. Just remind yourself, this is the insurance equivalent of “just browsing.”  It’s not you, it’s them  Whether it’s buying a car or buying your advisory services, today’s buyers go through the same basic buying journey. And the early stages of those journeys have a common trailhead: They all start online and continue online until it’s time to step on the lot to take a test drive.  While there may be subtly nuanced differences in the buyer’s journeys, all go through three phases:  1. Awareness — This is when your future prospects come to the realization that they need something better than they currently have. They may figure this out on their own or as a result of new information provided to them.  2. Consideration — During this stage, their problem is demanding attention, and they are looking for a solution.  3. Decision — At this point, they are simply deciding which solution is best.  If you don’t understand this journey for your own buyers, chances are you are going to come across as too sales-y and push too hard. Just like with that car salesman, knowing the amount of research the browsing guests have done before getting to the lot should cause you to approach potential buyers way differently than in the past.  If you understand that the guests wouldn’t be there if they hadn’t largely sold themselves online already, then you know you don’t have to sell them anything. You just have to make sure the remaining path of the buyer’s journey is clear.  Sounds WAY easier, doesn’t it?  I mean, how cool is it that you don’t have to do the heavy lifting of selling like you used to?! How cool is it that buyers are doing the research, identifying the problem, evaluating solutions and showing up ready to buy?!  Hold on, cowboy.   That can be your reality, but it doesn’t come without hard work. Sure, it’s different hard work than you’ve committed to in the past, but it’s also no less challenging. Instead of the sale happening face-to-face between you and your prospects, most of the buyer’s journey is happening between the prospect and your online presence.  If they can’t find you online, you don’t exist  You can sit there and convince yourself that buying a car is WAY different than buying advising services, but you’d only be fooling yourself. Don’t get hung up on the differences in the products being bought. Instead, understand that all buyers are looking to solve a problem. And all buyers share the journey to solving a problem.  More than ever, marketing has to be a critical, daily function of how you run your business. If you aren’t present at each leg of the buyer’s journey, speaking to the progressive decisions/goals of buyers, then, from their perspective, you don’t exist.  What do the three phases of the buyer’s journey mean to you?  You need to think about how you fit into each phase of the journey and create content that speaks to the needs the buyer is experiencing in each.  1. Awareness — Think about all the ways in which you can help a business. Clearly, you can help with the insurance needs. But you are also able to help with bigger HR/benefits issues. You help with compliance, technology solutions, employee communications, attraction/retention, etc. On a regular basis, be writing about these issues as a part of your marketing strategy and plan. And don’t write about the products you offer in each area, write about the problems you can help solve. Prospects will see themselves in those problems and start to move to the next phase.  2. Consideration — Start to talk about, in general terms, solutions that are available. Share case studies of how you have helped clients overcome problems and the improved results they now enjoy. Help your audience to see the cost of inaction and find a sense of urgency to fix a problem.  3. Decision — This is an adviser’s equivalent of a test drive. Just know that by the time prospects meet with you, they are aware of a problem, they have a general understanding of solutions available and they’re simply trying to figure out if you are the best fit. Your job is no longer to sell them (your marketing efforts have already done this heavy lifting), it’s simply to clear the remainder of the buyer’s journey path.  See also: Integrated Marketing Strategy for Agents   It’s different hard work  Speaking to the needs of today’s buyer is different than before. The hardest work takes place way earlier than it has in the past. Sure, this shifts the focus to your marketing presence, and that may seem daunting. I get it. But, think about this – when you create that powerful presence at every step of the buyer’s journey, that is a salesforce working for you 24/7 and ensures you are there when your buyers need you to be speaking about what is top-of-mind for them.  Look in the mirror  If you are maybe still questioning the validity of this approach, look in the mirror. You just read our insights and perspective on the importance of marketing. Maybe you have just become AWARE that this may be a problem for you. Maybe this is going to start moving you down your own buyer’s journey on a path to a more effective marketing solution. You can find the article originally published here. 

Insurance companies are only beginning to harness the potential of artificial intelligence (AI) and robotic process automation (RPA). AI refers to computer systems that can mimic human capabilities by learning and solving problems. RPA is an emerging form of business process automation technology based on using software robots or AI “workers.” Here is a look at the top five AI/RPA trends in the insurance industry: 1. Machine Learning for Fraud Detection and Risk Assessment Humans learn from experience and thus can predict outcomes. Insurers are beginning to use AI algorithms with big (and small) data to accurately predict outcomes. Machine learning, or AI, is being used to improve customer service, guide the development of products, detect risks and cross-promote products. It is helping insurance companies to improve their efficiency by facilitating damage assessment, identifying billing anomalies, boosting fraud detection and identifying lapsed policies. 2. Chatbots Offer Personalized Customer Care Chatbots use AI to work as autonomous, internal customer-service agents that respond to customer queries. They keep a log of most frequently asked customer questions. Chatbots can efficiently handle many routine requests, such as changing the policyholder’s address or adding a beneficiary. By handling grunt work, they can free skilled human advisers to offer the kind of guidance they do best. See also: Next Big Thing: Robotic Process Automation But there’s more. Using AI, chatbots can talk with customers to identify their needs and recommend the most appropriate coverages to them. They can even cross-promote products based on the customer’s needs. Then, the customer is turned over to a human adviser to answer any questions and complete enrollment. 3. AI Uses Data to Better Predict and Mitigate Risk Insurers depend on their ability to predict and manage risk. The more information they have access to, the better their ability to assess risk. AI enables the collection of both structured and unstructured data. Besides the insurer’s own data on insureds, structured data includes information collected through sensors in wearable devices and other IoT devices. Unstructured data is collected from public spheres such as social media pages and search engines. This data can then be used to create insights that not only help insurance companies protect their bottom lines but also give them a true competitive edge. Employee benefits is a particularly promising area. AI is now being applied to streamline pre-approval workflow. For instance, before an insurance-company employee replies to a customer, the response can be passed through a smart compliance system that reviews it and makes any necessary adjustments before it goes out. 4. Automating Routine Processes Other processes that are now being automated using RPA include copying and pasting data to spreadsheets, logging into applications, transferring data from one database to another and opening emails and processing them. See also: How to Automate Your Automation   5. Claim Processing AI and RPA are now being used to automate claim processing, especially in property-casualty insurance and employee benefits insurance. The system assigns adjusters, integrates the disparate claim information and facilitates claims payments. For instance, ClearPay is an insurtech product that insurance companies, agents and brokers can use to integrate the settlement process and monitor claim payments in real time. AI and RPA are only beginning to transform how business is done in the insurance industry. We can expect to see burgeoning usage in operations, customer service, risk assessment and mitigation and regulatory compliance.

Mobile applications or mobile apps or just plain apps are software programs designed and developed to run on a mobile device. Mobile apps can be downloaded and accessed directly by users using their smartphone; tablet; mobile phone; PDA; etc., and they can be downloaded by one or more of the following ways:

• Via the mobile operating system owner’s online app store or the internet (e.g. the Apple Store);
• Preloaded by your internet provider.

Some apps are “free” – meaning they are not purchased with real money by the user but funded by advertisers (whose ads dominate and sometimes interfere with the use of the app), while other apps must be purchased with real money by the user According to Ericsson, as of March 2018 there were 7.9 billion mobile device subscriptions worldwide. There were 98 million new subscriptions during the first quarter of 2018. Mobile application subscriptions associated with smartphones now account for 68% of all mobile phone subscriptions. That number exceeds the population in many countries. It is estimated that by 2020 almost 75% of the global population will be connected by mobile. Much of this growth will come from Asia, and in particular China, which will account for almost half of app users in 2020 (source: Ericsson.com – Mobility Report, June 2018). This rise in mobile use, and the ever-increasing departure by marketers from traditional marketing to selling brands and products through mobile applications, has led to developments in technology that will continue to transform how the world communicates. So, if you use a smartphone or other mobile device to access the nternet, chances are you have downloaded, or your mobile device came with pre-loaded, mobile apps that you are accessing and using for many of your online activities instead of just an internet browser. There are hundreds of thousands of apps available. They are easy to download and extremely convenient. These mobile apps allow users to:

• Access and read the news/books
• Play games
• Stream music
• Take photos
• Watch videos
• Monitor their heart rate
• Work out with a fitness regime
• Get directions and maps
• Find a nearby restaurant
• Get the weather report
• Pay for purchases on the spot
• And a whole bunch more

Awesome, yes. But... Along with the exciting capabilities mobile apps offer, it is prudent to keep in mind that with the expanding functionality that mobile apps provide when integrated into mobile devices, the online worldwide privacy risks and the concern of how to protect the user’s (your) privacy increases. Why? Because mobile apps can collect all sorts of data and transmit it to:

• The app developer;
• The app store;
• The internet provider;
• The platform owner of the mobile device operating system; and
• Third-party advertisers or an ad network

Some apps access only the data they need to function; others access data that’s not related to the purpose of the app. The bottom line is: This data being collected from you, including your personal and private information, may then be shared or sold by these entities in their sole discretion to other companies or entities around the world and oftentimes without the user’s (your) permission or knowledge. A case in point: In FTC (Federal Trade Commission) vs. Frostwire LLC), the FTC sued the developer of a peer-to-peer file sharing mobile app. The complaint alleged that the app’s default settings were configured so that, immediately on a user’s installing and setting up the app on a mobile device, it would publicly share files stored on that device. According to the FTC complaint, the default settings were likely to cause users to unwittingly disclose personal files stored on their mobile devices. Among other things, the settlement:

• Bars the company from using default settings that share users’ files.
• Requires the app to provide clear and prominent disclosures about file sharing and how to disable it.

The question then inevitably becomes: How private and secure is your private and personal information when accessing and using a mobile application that is now integrated within your mobile device(s)? This article is intended to explore and answer this question from the perspective of the risks to your (the user’s) private and personal information in the access and use of mobile apps, as well as recommendations on how to manage these risks. Onward! See also: Do Health Apps Threaten Privacy?   Using Mobile Apps When you directly download and install an app, or your internet service provider pre-downloads and installs an app or applications you decide to activate on your mobile device, you are instantly allowing that app or applications to access data stored on your smartphone or other mobile device. The app’s access to your data could be limited, or it could be an app capable of accessing large amounts of information, including:

• Your personal and private information
• Information on and of your friends and associates
• Family photos and videos
• Your phone and email contacts
• Call logs
• Internet data
• Calendar data
• Health data
• Data about the device’s location
• The device’s unique IDs
• Information about how you use the app itself
• Your web browsing history, etc. that is stored on your mobile device

So before you download an app or use a pre-loaded app it may be wise to understand at a minimum:

• What of your data the app is going to collect
• How it stores your data
• Where and what other devices or entities is your data going to be shared with

To get the answers is easy, right? You just go to the app’s privacy policy. Yet, the reality is that it is foolish to assume that any data is private in the mobile app world, or that the mobile app world has taken the responsibility to protect a user’s right of privacy seriously, because almost all mobile apps do not have privacy policies. Are you shocked to learn such a fact? I certainly was! So why don’t the majority of apps have privacy policies? Because:

• Most developers think it is technically too complicated and time-consuming as they rush to develop apps; or
• Some developers are focused on getting new products to market to meet a deadline at the behest of an organization, and adequate consideration of privacy and security is not a priority, if at all; and
• There is a belief among some developers and organizations that no one, (e.g. the user or the FTC or the courts), is really enforcing the laws governing privacy in the mobile world.

At this point, I believe it is worth noting again: These apps collect and store a tremendous amount of information. Even apps that appear to ask for permissions during installation can become a back door to your mobile devices and your private and personal information, along with that of your friends and family. So, what does this mean for organizations (as well as the developers) of the apps they offer? Well, first and foremost, for organizations (and developers) to dismiss the safeguarding of a user’s privacy whether technically, legally or morally in the interest of following the money, suggests a failure of transparency to the user in how those organizations collect, use and share personal and private information. So what can be done to address this concern? As a start, certain attorneys general and legislators in certain states in the U.S. have started to advocate and support new laws as well as to enforce current laws governing privacy in the mobile world. So let’s take a moment to discuss some states' actions: California has long been a leader in privacy legislation to ensure that cutting-edge innovations, inclusive of mobile apps, are developed responsibly to protect users’ private and personal information. To that end, In 2004, California enacted the California Online Privacy Protection Act (CalOPPA) requiring commercial operators of websites and online services, inside and outside of California, to conspicuously post clear, detailed privacy policies to promote transparency, be reasonably accessible to consumers of the online service and enable consumers to understand how companies collect, use and share personal information and those third parties with which they share that information. One of the principles agreed on is to make mobile apps’ privacy policies available to users on the app platform before they download the app. This will give them the opportunity to either opt-in or opt-out before they download or activate the app, as opposed to having no real choice after the fact. If developers and companies do not comply within 30 days after being notified of noncompliance, they can be prosecuted under California’s Unfair Competition Law or False Advertising Law. For example: The attorney general considered any service available over the internet or that connects to the internet, including mobile apps, to be an “online service.” Based on this interpretation, letters were sent to up to 100 non-compliant apps at the time, starting with those available for mobile users that were the most popular. The companies were given 30 days to conspicuously post a privacy policy within their app that informed users of what personally identifiable information about them was being collected and what would be done with that private information. Delta Airlines was among the recipients of this letter. In December 2012, the attorney general of California, Kamala D. Harris, announced the first legal action under California’s online privacy law against Delta Airlines, for failing to comply with the 30-day notice letter to conspicuously post a privacy policy within the mobile app “Fly Delta.” The suit sought to enjoin Delta from distributing its app without a privacy policy and penalties of up to $2,500 for each violation. The suit was filed in the San Francisco Superior Court. It is no secret that California is currently unique in applying its privacy law to mobile apps, and many states look to California as a leader in this area. It is anticipated that more dedicated state laws will be forthcoming based on these actions. But it is not just states in the U.S. that are concerned about mobile app privacy. This concern reaches across the pond. It is, therefore, important to note the actions of other countries, as well. See also: Blockchain, Privacy and Regulation   The European Union The ePrivacy directive (2002/58/EC, as revised by 2009/136/EC) sets specific standards for all parties worldwide that wish to access and store information already stored in the mobile devices of users located in the European Economic Area. The most important of the standards in regard to developing for mobile platforms is article 5(3) stating that the storing of information, or the gaining of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned has given his or her consent. This consent needs to be based on the user, having been provided with clear and comprehensive information by the mobile platform, in accordance with Directive 95/46/EC. For example: a clear explanation of the purposes for which the mobile platform is processing and storing the user’s information. So the bottom line is this: It is important for organizations and app developers to know that these directives are imperative laws in that the individual’s rights are non-transferable and not subject to contractual waiver. This means that the applicability of European privacy law cannot be excluded by a unilateral declaration or contractual agreement. As a result, the mobile app developer or organization must: Provide a readable, understandable and easily accessible privacy policy, which at a minimum informs users about:

• Who they are (identity and contact details)
• What precise categories of personal data the app wants to collect and process
• Why the data processing is necessary (for what precise purposes)
• Whether data will be disclosed to third parties (not just a generic but a specific description to whom the data will be disclosed)
• What rights users have, in terms of withdrawal of consent and deletion of data

Note: Similar laws exist in other countries as well with slight modifications. It may be of interest to you to read in their entirety such similar laws, particularly your own country’s law. Multiplying the Risks The online worldwide privacy risks associated with the use of mobile devices increases with the use of mobile applications, not only because of the lack of privacy policies and transparency associated with the applications, but because mobile apps have their own unique set of challenges for the user who cares about mobile privacy, such as:

• Mobile devices hold personal information for a long time by design. In other words, nothing is ever erased. This information is provided and accessed by the developer as he/she designs the mobile app and then disseminates it to the world. For example: If an organization requests or pays for a developer to develop an app, the organization provides the developer access to the user information stored on the mobile device or devices to which the app will be downloaded. That information is then stored in the new app for dissemination to the world.
• Encrypting information is not foolproof to protect privacy, as encryption on both the Android and iPhone can be broken with minimal effort. In addition, it is not that difficult to extract data from a passcode-protected device. In other words: Never underestimate a hacker.
• Mobile app developers rely on and use hardware device identifiers (hardware IDs) to track users and to enable:
  • Their apps’ functionality
  • Content
  • Advertising providers to track users across many mobile apps

It’s important to understand the key difference between hardware IDs and identifiers associated with social media platforms’ browser cookies. The key difference between hardware IDs and identifiers associated with website browser cookies is that hardware IDs are permanently associated with the device. By deleting cookies and local shared objects, an end user can typically prevent a certain amount of tracking and retain some degree of anonymity from third parties. Each time the third party's servers connect with the end user, the third party must set new, different, unique identifiers. However, in the mobile app context, even if a user deletes the app, clears all web content, wipes all storage and restores factory defaults, the hardware ID remains unchanged. Third parties that have tracked the end user's network traffic and stored that information can still associate it with the end user's device. In other words, hardware IDs are unique and permanent identification numbers, or character strings, associated with a device, and they can practically not be deleted or reset by a user. As a result, even if a user deletes the app, clears all web content, wipes all storage and restores factory defaults on their browser, the hardware ID remains intact. Third parties that have tracked the user’s network traffic and stored that information can still associate it with the user’s device and identify that mobile device for the life of the device. This has prompted objections from privacy advocates regarding the use of hardware IDs for tracking purposes. Types of hardware IDs include:

• Cell phone radio (mobile equipment identifier (MEID))
• International mobile station equipment identity (IMEI)
• Wi-Fi radio (media access control (MAC)) address
• Bluetooth radio identifier
• Platform-specific identifiers (e.g. Apple’s unique device Identifier (UDID). Note: although Apple prohibits its developers from accessing UDID, in an analysis conducted by Appthority in 2013, 5.5% of the tested iOS apps were accessing it anyway.
• Integration of apps with social media platforms, giving them even more of a user’s private and personal information. For example: Facebook, in response to the pressure from its stakeholders to make more revenue via mobile advertising, is streaming advertisers’ ads via mobile applications that also allow them to leverage the Facebook Connect feature, which invites users to sign into numerous apps and websites using their Facebook identity. This provides Facebook and its advertisers with the ability to monitor the actions that users take in all such apps, which in turn has potentially many monetarily satisfying commercial opportunities for Facebook, its partners and advertisers. These mobile ads are getting more and more aggressive, such as accessing and transmitting personal information and changing phone settings without user consent (reference: Lookout-a mobile security firm). Even if a developer is cognizant of the importance in providing users with a privacy policy that actually protects their private and personal information and does so, such a policy is often long and difficult to read on devices with smaller screens. (Try reading the Apple Store privacy policy on your mobile device).

Other Risks Wow! After that litany of unique risks, it may seem difficult for some of our readers to believe there are other risks a user needs to be aware of – but there are. For instance: children and mobile applications.

• The apps collect personal information
• The apps let children spend real money even if the app was free.  For example: The game Robolox is free. It also allows the user to enhance one’s character in the game by “purchasing” various add-ons by using points earned during the game (i.e.: swords, helmets, the Phoenix, etc.). However, if you do not have enough points, you can use real money (usually from mom or dad’s credit card) to buy the points you are lacking to purchase the coveted add-ons.
• Apps include ads (which is extremely annoying to most children – and – raises the question: Is there any violation of the Children’s Online Privacy Protection Act (COPPA) as amended effective July 2013 to include the mobile app space).
• Apps link children to social media web services without the parental notice and consent COPPA requires. (reference: see Children’s Online Privacy and Apps section of COPPA 16 C.F.R Part 312), and
• Surprise of surprises, the apps most likely will not tell you they are transferring data (how can they when most of them choose not to be transparent with the user?)

The point is: Mobile applications can pose significant privacy risks for organizations, their customers/clients and individuals worldwide if they are not made aware of how their personal and private data is used. So how can you, as the user of these apps that organizations provide you to download or you buy directly from developers (such as Rovio, which is the developer of Angry Birds) manage the risks threatening your mobile app privacy? Well, the truth of the matter is: There is no easy way to know what data a specific app will access or how it will be used. However, if possible: Before you download or access and activate a pre-loaded app, find out who created the app and for what purpose; look at screen shots; read the description, content rating and any users’ reviews. . In other words: Do your due diligence, and only access and use apps from trusted sources. Managing the risks of how an app stores your data (as an individual or an organization) For mobile apps, as well as social media platforms, user data can be stored remotely on servers on the web. However: In the social media platform or website context, most user data stored locally is stored centrally in browser files, while in the mobile app environment it is stored locally by each app. Therefore, your information stored in a mobile app is not centrally located but is splintered and app-specific, making it more difficult if not impossible for users to know how much of their data is stored in each app and disseminated externally to third parties. Additionally, mobile apps generally do not provide tools to the user to:

• Access local storage to review what the app has stored of the user’s information; or
• Manage the content of the information stored

The foregoing is another way of reinforcing that, as a rule, realistically and practically users do not have any control or access to their data that is stored on a mobile app, This lack of control includes access to manage the use of their personal and private data or any other part of their data for that matter. Don't provide your credit/ATM card information Some mobile payment acceptance applications that are marketed and sold to retailers, airports, etc. for processing of credit/debit card information will store such information on the user’s mobile device if there is no internet connection available at the time and then send it when a network connection can be made. The point? Any time data lingers on a device, even if encrypted, there is a higher risk of that data being compromised (need we say “Target”?). Currently, a user has no means to manage this risk except to not provide this information. See also: Wearable Tech Raises Privacy Concerns   On the other hand: To manage your risk for those mobile payment acceptance applications you have on your own mobile device, check to see if your payment acceptance application has a "store and forward" feature, and, if it does, turn it off.

• Location information. Many apps track your location There are location-based mobile application services like Yelp and Foursquare that need your location to function properly. However, there are also apps (such as a simple flashlight) that do not need your location to function and yet still track it.
• Some apps provide location data to ad networks, which may combine it with other information in their database to target ads based on your interest and your location
• Once an app has your permission to access your location data, it can do so until you change the settings on your phone
• However, if you don’t want to share your location, you can turn off location services in your phone’s setting. The downside is even if you turn off location services it may not be possible to completely stop the app from broadcasting your location data.

Bottom line: Now that you have the information, use it wisely in making your decision to download or activate a pre-loaded app that will provide specific location data Managing where and what other devices or entities your data is going to be shared with Users should not assume any of their data is private in the mobile app world or that the mobile app world has taken the responsibility to protect your right of privacy seriously. For instance: Many apps send users data via unencrypted connections that potentially expose users’ personal and private data to everyone on a worldwide network without the user’s knowledge or permission. The lesson, therefore, in how to manage the risk of a mobile application violating the privacy rights of an organization as well as its customers/clients and the individual user is to understand that currently there is little or no privacy protection for users of mobile applications, and based on that understanding, as well as doing your due diligence, make your decision as to whether to access and use an app accordingly. Follow (or I will be writing about them, as well) the developments of:

• The Federal Trade Commission’s increasing focus on the subject of mobile app privacy or lack of same to determine FTC’s regulation and enforcement.
• The multi-stakeholder process facilitated by the National Telecommunications and Information Administration to develop an enforceable code of conduct on mobile app transparency.
• The implementation of the recommendations of Kamala Harris in her white paper “Privacy on the Go,” describing an approach for developers and other players (like the mainstream social media platforms, which provide the user information to the developers) in the mobile app world to consider when designing the app.
• State/country legislative and enforcement actions to achieve privacy controls that allow users to make, review and change their privacy choices based on widely accepted fair information practice principles (FIPPs) that form the basis for many privacy codes and laws in different parts of the world.

Takeaway Users care about mobile privacy, and, yes, they do find value in mobile apps. They are also eager to try them as they are released (as opposed to waiting for several versions to have been tested first). However, as Harris said: “Losing your personal privacy should not be the cost of using mobile apps, but all too often it is. Users of those apps deserve to know [and have the ability to control] what is being done with their personal information.” I would submit to you that It should now be clear that the risks to one’s personal information is substantial when using mobile apps and that these risks are good enough reasons as to why a developer or the organization that engages the developer as well as other stakeholders in the world of mobile apps should first and foremost begin with the mindset of worldwide privacy and security of a users’ personal data in the initial design of any mobile app.

Forty-six percent of insurers expect to begin using blockchain within the next two years, and 84% say the technology will change the way they do business, says Jim Struntz at Accenture Insurance. It’s clear that blockchain offers a number of exciting possibilities for P&C insurers, but its implementation comes with both risks and challenges. Here’s where blockchain stands today — plus how to understand the inherent risks and opportunities of using this exciting technology in insurance.

How Blockchain Technology Works

Blockchain technology has become a buzzword in dozens of industries, where the technology promises to revolutionize processes across the board. A blockchain is a distributed ledger, with entries stored across the entire network on which it operates, says Michael Mainelli, executive chairman at technology company Z/Yen. Participants in a blockchain can add to the entries in the chain, but cannot delete or modify previous entries. Consensus is reached when everyone’s version of the ledger matches; anomalous entries are instantly recognizable as improper, incomplete or suspect.

Blockchain technology got its start as a driver of digital currencies because it solved a logistical problem: the need for a third party, such as a bank, to guarantee a record of money transfer between two parties. Funds can’t be spent twice because their existence depends on the transactions that record them, says Michael Taggart, president of Cryptonomex. Instead of values being copied, the ledger is continuously updated with a series of transactions, detailing who has what at all times.

See also: Blockchain, Privacy and Regulation

The same model can be applied to other types of sensitive transactions, says Brian Kelley, founder and managing director of Quincy Analytics. For instance, it can allow sensitive data to be shared directly between parties, reducing or eliminating the chance of it being altered or falling into unauthorized hands. Blockchain can also reduce the amount of time required for certain transactions.

The “blockchain’s immutable properties make it a natural partner for insurance, where settlements and reconciliation between multiple parties across the insurance and reinsurance chain can be painful and protracted,” says Helen Beckett at Raconteur. The existence of a single record that no one party can control can end many disputes before they even begin.

How the Blockchain Benefits the Insurance Industry

Insurers can imagine myriad uses for a system that verifies its own accuracy, isn’t siloed in any one company or server, and can automatically perform certain tasks when particular conditions are fulfilled. A blockchain’s opportunities in insurance have only begun to be explored.

Transparency Since blockchain technology is distributed and participatory, it offers new opportunities for transparency in the insurance field. This is something the current industry sorely needs, says Adrian Clarke, founder of the blockchain-based platform Evident Proof. Greater transparency would help customers better understand why and how their claims are handled, for example. This can help reduce the cost of litigation due to misunderstandings, says Clarke, making the claims process more efficient.

Better Security Through BYOID

The blockchain can also streamline customer-insurer transactions by implementing a bring your own ID (BYOID) system, says Abbey Gallegos at Zeguro. Early versions of BYOID already exist, and they’re powered by application program interfaces, or APIs. They’re a common sight: Options to log in with Google or use your Facebook ID make use of APIs, allowing individuals to use one set of login credentials for a wide range of tasks. With the blockchain, identification credentials don’t belong to any one company or server. Instead, users maintain their identification on their own device and choose whether and with whom to share it.

Eliminating stored usernames and passwords speeds transaction time and reduces the number of data points available for exploitation by hackers, while improving assurances that the person logging into their account is who they say they are, says Armin Ebrahimi, founder and CEO at ShoCard. Nationwide has begun testing a blockchain-based proof-of-insurance tool and a BYOID model, says Abizer Rangwala at Accenture. The tool, called RiskBlock, is intended to help insurers, regulators and law enforcement officials verify auto insurance details in real time, without the need for paper insurance cards.

Improved Claims Handling via Smart Contracts

Smart contracts monitor when each party has fulfilled certain obligations or taken specified steps. When the right conditions are met, the smart contract automatically executes actions contingent on those conditions being fulfilled.

“A life insurance smart contract could immediately release funds to a beneficiary upon the death of a policyholder through electronic checking of death certificates,” says James Maudslay at Equinix. Smart contracts monitor themselves without the need for a third party to verify condition fulfillment. This feature allows insurance companies to further digitize routine processes, says Mike de Waal at Global IQx. By eliminating the need for a human to check every routine claim, smart contracts can resolve claims more quickly and free up staff resources for more complex claims.

Smart contracts can also make claim management more effective, says Rajesh Shirsagar at DZone. For instance, a smart contract could automatically record claims and substantiate certain details, releasing payment only when specific conditions are met. Smart contracts could also be used to track the number or type of claims from certain customers and automatically trigger an investigation in pre-set conditions.

New Verticals and Future Preparation The use of tools like BYOID and smart contracts can not only allow for quicker claims handling, but also for expansion into insurance products that were previously too labor-intensive to benefit either customers or insurers.

For instance, several companies have begun using smart contracts to offer flight delay insurance, says Olek Shestakov at Livegenic. Customers put in their flight data and choose a delay time, and if the flight is delayed longer than the time chosen, the smart contract automatically pays the customer. Because the transaction is simple and is based on a single data point, blockchain technology can handle the task without intervention from adjusters (except in unusual circumstances).

Blockchain technology may be particularly well-suited to address other emerging transformations in insurance, says Magda Ramada Sarasola at Willis Towers Watson. For instance, a blockchain’s adaptability enables organizations to respond more nimbly to rapid changes in technology, risk and customer expectations.

See also: Blockchain’s Future in Insurance 

Obstacles to Blockchain Technology

As with any new technology, a blockchain present certain growing pains to insurance companies. Security is a continuing concern as blockchain-based companies find their offerings exploited, either by illegal means or by individuals using the code legally to execute tasks that have unintended consequences, says David Roe at CMSWire.

For instance, in 2016 hackers used a flaw in the code in an Ethereum decentralized autonomous organization, or DAO, to siphon out digital currency. $70 million was stolen before the hacker chose to stop, says Samuel Falkon of COTI.

Blockchain technology itself is also going through a growth phase, challenged by its own inefficiency. The more data is included in each addition to the ledger, the more energy and time each transaction takes, slowing down the process, says Alexander Lielacher, founder of Bitcoin Africa. These inefficiencies also limit the scalability of blockchain projects.

Blockchain systems will need to strip out these inefficiencies to provide on their promise of faster transactions for insurance companies and customers. Energy consumption in blockchain technology is a rising concern, as well. In 2018, Bitcoin consumed about 0.2% of the world’s total energy consumption — more than that used by the entire nation of Bulgaria in a year, says Tam Hunt at Green Tech Media. If these trends continue, blockchain applications could consume more energy than every other human endeavor combined by 2020, says Eric Holthaus at Grist.

Finally, insurance companies face the same risk with blockchain as with other new technologies: In the rush to stay relevant, they may end up embracing a tool that isn’t effective for their approach to business, says Neeraj Sabharwal at Forbes. While blockchain may promise a way forward for insurance companies, its implementation in the face of each company’s unique challenges will determine its effectiveness for the insurer and their customers.

To insure is to choose whom to cover, and what not to cover. About the latter: Whenever the choice is between the consequential versus the cosmetic, whenever insurers deem a product or procedure to be inconsequential, and therefore cosmetic, they choose to deny coverage to the insured. That decision may be a matter of economics, but it is not economical in the long run; because when the cosmetic is consequential—when a small investment in a good or service can yield substantial returns, regarding quality of life and success on behalf of a person’s livelihood—it is better for insurers to allow what they would otherwise refuse to even consider covering. It is better not only for insurers but the economy as a whole, when the cosmetic can end stigmas and empower people to live—and work and socialize—with fervor. It is the best way for insurers to earn the trust and goodwill of the insured. To enjoy that trust, insurers need to review the word "cosmetic." They need to rethink how they use this catchall to reject coverage, because the word is easy to apply but too ambiguous to define. They need to respect the needs of an insured patient whose medical condition is chronic but not terminal, whose physical condition causes psychological pain, whose condition can improve with the right product. They need, specifically, to listen to people of a certain age. Among the aged, for example, there is a condition known as “aging odor.” The condition is real, the evidence irrefutable, the solution indisputable. And yet, the condition is purportedly cosmetic—despite the fact that, according to Mirai Clinical, insurers do nothing to stop consumers from spending money on soaps and perfumes that worsen this condition, when one soap can eliminate this condition. If insurers want to show their goodwill, they should subsidize goods that will help the people they insure. If they want to save money, and spare the insured from wasting money, they should re-evaluate everything they deem cosmetic. See also: ‘Organic Insurance’: Back to Basics   Does that mean insurers should approve every facelift, hair transplant, skin cream, spa appointment and teeth whitening session? No. On the other hand, the insured should not have to absorb every out-of-pocket expense. Not when insurers have the freedom to choose—and the financial freedom to do—almost anything they want. In the case of the aged, it costs insurers more not to help them than it does to provide a modicum of assistance. The cost of doing nothing is costly, indeed, as it promotes distrust, propagates disharmony and perpetuates discord among the insured and uninsured alike. Avoiding these costs requires insurers to classify the cosmetic as consequential. By elevating the cosmetic, insurers elevate the reputation of the insurance industry. They show sympathy—they may have empathy, too—for people whose needs are serious. They show us how to help the needy. They show us how to choose responsibly, and honor our responsibilities, so we can help the old, the young; so we shall help all Americans.

What insurers face now, digital giants like Amazon and Netflix faced when they moved to operate exclusively in the digital marketplace: transactions increasingly shifting to digital, and operations affected by an unprecedented wave of automation. Let’s explore the lessons these companies learned as they confronted the challenges that insurers face as they adapt to the digital marketplace. One critical change for Amazon and Netflix was making a fundamental shift in the way their core systems and architecture were developed: they evolved – out of necessity – to migrate to a more flexible and responsive architecture by incorporating microservices. The factors that led to this shift sound strikingly similar to those affecting the insurance world. Here are five key factors for insurance companies to consider when planning their future technology directions, with examples of how Amazon and Netflix addressed similar issues.

• Availability is a fundamental need when designing a digital user experience. Streamlining customer journeys depends on having technology and data at the point of the transaction. Netflix’s big availability issue was with its video library – which is a key selling point of the service. From a customer perspective, being able to watch thousands of movies and other content is less attractive if the customer can’t access the catalog any time. Netflix brought microservices to bear on this challenge, isolating the library functionality and running it independently from the rest of the user experience. This provided the capability to continually and frequently upgrade the catalog. For insurers, intermittent outages – especially on nights and weekends, when consumers and small business owners shop for insurance and digital agents are still working – are equally unacceptable.
• Scalability and availability go hand in hand. When the volume of transactions goes up, processing power must be able to scale up, too. Monolithic tech stacks struggle here, especially because the points of failure can be so small – as insurers well know! Amazon’s shopping cart functionality had plenty of capacity for regular traffic but was challenged when required to scale up for the incredible volume of purchases on Black Friday and Cyber Monday. Inventory control is critical because you have to understand what products are in shoppers’ carts, what inventory can still be offered and when to cut off the sale of a specific item. Amazon decoupled the cart functionality from its monolithic tech stack and deployed a microservice that ran alongside the rest of their tech environment. The shopping cart microservice had the much simpler task of checking the inventory and maintaining customers’ carts. It could access additional processing power as the volume went up without relying on the same servers running the rest of the Amazon architectural stack. And because the shopping cart service was decoupled from the main system software, it could be continually updated and enhanced.
• Speed is critical for scalability, and microservices have a lot to offer here. Both Netflix’s library and Amazon’s shopping cart experience are changing rapidly, with requests coming from thousands of users at a time from different front ends. Digital giants are known for providing a responsive user experience that is highly scalable without the need for serial data processing. Using microservices to support multi-threaded requests have given both companies an edge. For insurers, the support of an increasingly complex maze of distribution outlets requires rating capabilities that can consistently deliver sub-second responses. The ability to decouple this from core processes while dynamically scaling based on the needs of the front end is critical, regardless of line of business.
• Maintainability and upgradability are significant areas of consideration for all insurers, based on the current state of their technology environments. As we look to the policy, billing and claims systems or the front-end user experiences, etc., insurers need the ability to increase the speed of software upgrades to be a more continuous, less disruptive and therefore higher-value undertaking. As we look at the dynamically changing user experiences needed in today’s digital world, the ability to upgrade these components and reuse discrete services at a greater frequency than back-end functionality is becoming a critical capability.

This is where microservices really shine. Each isolated process supports a small, discrete function. Therefore, it is easier to focus on a very specific capability with an update. There is flexibility gained in adapting to new integration points and integrating new services. The magnitude of the testing effort decreases significantly. See also: What if Amazon Entered Insurance? These are game changers for insurers that have been struggling with a monolithic architecture where everything affects everything else. And microservices give insurers the ability to ease pain points in their current technology environments and add capabilities without going through a full rip and replace. We have much to learn from other industries’ successes and failures within the digital marketplace. But, let’s not reinvent the wheel. Let’s look at the lessons learned by the leaders in other markets and apply the knowledge they have gained.

Many insurance companies suffer from slow and inefficient claims processes, which are notoriously lengthy and cumbersome for both the insurance companies and their customers. From long and difficult back and forth to messy, complicated paperwork, claim cycles can be a real pain for all involved. Long claim cycle times increase administrative costs, reduce claims department employee productivity and hurt relationships with providers and policyholders. For the claimants, long wait times for time-sensitive financial decisions lead to poor net promoter scores (NPS) for the brands. The delays in the adjudication of a claim are due to the laborious process of collecting and coordinating a variety of information. Insurance companies typically deploy claims personnel to interact with claimants through the traditional modes of email and phone calls. When customers have to speak to agents in person or through email, it takes an average of six attempts to converse and collect all of the claims data needed, eating up the claims department’s time as well as that of the claimants. Insurance companies are urgently looking for a novel approach to reduce the costly back and forth of processing a claim, into simple, automated engagements. What if there was a better way? Leading insurance companies are now beginning to use new technologies to drastically reduce claim cycle times – chatbots. These chatbots support customers through the life of their claim, just as a customer support specialist would. But now, insurance agent chatbots are available 24/7—and instantly—to answer any question for the claimant or to collect information from the claimant using automated, two-way, texting conversations. See also: How to Innovate With Microservices (Part 1)   Also known as “operator texting” or “agent texting,” these bots are being used for all sorts of use cases, including:

• Confirmation of claim information received
• Confirmation of claim adjudication
• Payroll requests
• Reminders to send pay stubs
• Collection of information
• Gathering information on last day worked

One effective solution for automating the often arduous and costly engagements between businesses and consumers is the concept of “micro-engagements,” which combines robotic process automation with a conversational automation platform. Bolstered by emerging technologies such as machine learning and artificial intelligence (AI), micro-engagements eliminate the friction that exists in interactions with customers, employees and partners. More importantly, micro-engagements, coupled with an AI system, accelerates workflow and fixes the endless wait times and frustration experienced when calling an insurance company. It’s chatbots 2.0! Insurance companies that have implemented micro-engagements have saved significant time and resources, enabling such provisions as keeping the customer better-informed, improving customer engagement and adjudicating claims as quickly as possible. These companies have also seen significantly improved efficiency when it comes to claims processing, with a greater than 30% reduction in call volume and over 30% improvement in NPS scores while reducing costs over 60%. See also: How Agencies Must Embrace Tech in 2019   Finally, insurance companies are finding relief with effective new technology solutions that greatly improve time, efficiency and afford for seamless customer engagements.

Major storms, including accompanying winds and floods, threaten lives, destroy property and damage critical infrastructure. Power outages, broken communication lines and disruption to road, rail, sea and air transport are common in the aftermath of major storms. Among the damages from September’s Hurricane Florence, for example, was the closure of 200 roads in South Carolina, including a section of Interstate 95 – a major highway connecting the U.S.’s East Coast. South Carolina officials estimated that the storm caused more than $300 million in infrastructure damage.

On the other side of the globe, Typhoon Jebi caused widespread damage throughout Japan, and flooding closed an airport. As storms and rising sea levels increase flood risk, governments around the world are looking for ways to better protect people and communities. In addition to devastating societies, over the past few decades floods have led to $550 billion in global economic impact.

While we cannot fully protect ourselves from flood, working across industries is critical to build resilient communities and protect critical infrastructure. With many of the world’s busiest airports at a low elevation – and many more built near water on reclaimed land – these hubs are prime examples of infrastructure in need of protection. Not surprisingly, airport operators are rising to the challenge.

In Depth

September’s Typhoon Jebi shut down Kansai International Airport in Japan’s Osaka Bay. The airport, built on a manmade island and handling almost 30 million passengers a year, suffered considerable damage. A storm surge breached a seawall and flooded a runway and terminal building, leaving thousands of passengers and staff stranded. Kansai, a major international hub that serves several cities (including Kobe, Kyoto and Osaka), was closed for 10 days; and it took a further week to restore regular operations. Complicating the situation was the fact that critical facilities, such as the disaster response center and an electrical substation, were located in a terminal basement and flooded.

See also: Flood Risk: Question Is Where, Not When

Airports are critical elements of our infrastructure and, consequently, their resilience is essential. As the Airports Council International (ACI) noted in a September policy brief focused on airports’ resilience and their adaptation to climate change, “As an essential service provider to a wide range of stakeholders and users, the airport infrastructure and operations must have high levels of availability, reliability and resilience.”

Reclaimed Land, Rising Seas, Sinking Airports

Kansai is not the only major airport built on reclaimed land. Australia’s Brisbane Airport is on coastal reclaimed land, and San Francisco International Airport’s reclaimed site is gradually sinking. Other airports are at risk simply because their low elevation puts them at risk of a storm surge. A recent report from the U.S. National Climate Assessment identified 13 of the country’s 47 busiest airports as having at least one runway within 12 feet of current sea levels.

If sea levels continue to rise, these hubs will face increased exposure to storm surge risk. In general, the hydrological importance of airports: runways, halls and other facilities create large areas of impermeable surface with zero infiltration capacity. During extremely intensive rainfalls, which are increasing in strength due to climate change, airports can become extremely prone to pluvial, or flash, flooding. This can add to the pressure on airport management to revisit how effective their flood protection really is, especially as some structures are decades old.

Addressing the Risks and Protecting Critical Assets 

As structures face risks posed by severe weather and other potential shocks, protecting infrastructure means developing resilience. Greg Lowe, global head, sustainability and resilience, at Aon, underscores the importance of properly safeguarding these critical assets – especially in the context of climate-related risk. Looking at infrastructure long-term, he states, is crucial, and “cities are asking whether their infrastructure is fit for purpose over decades.”

In the case of airports, the ACI’s September 2018 policy brief warned that more extreme weather “may lead to fundamental transformation of the socio-economic system.” For airports, “the risks of flooding, flight disruptions and cancellations become more likely.”

“Airports need to understand the risks and initiate adaptation measures for both existing and new infrastructure, as well as managing critical operations to become more resilient to the changing climate,” according to the ACI brief. The ACI brief also encourages airport operators to examine all the potential impacts of extreme weather on their facilities so they can prioritize and respond to the risks.

“Only comprehensive climate-change risk-management strategies will ensure the continuity of operation, profitability and asset value,” the brief said.

Gary Moran, head of aviation Asia at Aon, echoes the ACI’s advice and thinks many airport operators are taking it to heart. “We are seeing more consideration to protect against flood damage and planning around storm drains around airports so that they are fit for purpose.”

How Airports Are Increasing Resilience

As the exposures worsen, various airports are addressing their flood risks. San Francisco airport officials have installed seawalls and are looking to take other steps to protect the airport, including a potential $383 million project that would include measures to help the facility defend itself against further rises in sea level by 2025.

See also: Top Emerging Risks for Insurers  

Boston’s Logan International Airport has set a goal of becoming a national model for resilience planning and implementation among port authorities. Risk mitigation steps undertaken so far include purchasing temporary flood barriers, raising electrical and mechanical equipment above forecasted flood levels, sealing and waterproofing openings and conduits, installing water sensors and pumps and installing systems to anchor temporary flood fences and flood barriers in emergencies.

Meanwhile, Changi Airport in Singapore has resurfaced its runways to provide better drainage and is building a terminal at a higher level to protect against flooding as sea levels rise. Brisbane Airport officials also are building higher, with a new runway built a meter higher than originally planned. Meanwhile a higher seawall and better drainage to address higher sea levels are also being planned.

Building Storm Resilience

Airports are a critical part of our modern infrastructure, essential to linking people and businesses around the world. Events that disrupt activities at a major airport can have a significant economic impact. As low-lying airports recognize the risks associated with climate change and rising sea levels, it is critical that they begin to build resilience to storm surges and flooding. As they do so, they may well provide lessons to officials elsewhere who are looking to protect other forms of vital infrastructure from storms and other natural perils.

This article originally appeared on Aon’s The One Brief.