Point 1 – Realize that the claims process is a customer experience. Have you ever gone through the claims process for a life insurance policy? As a former adviser, I have helped people navigate the claims process for many companies, and none was a great customer experience. Most of the time, we were having to send in documents multiple times and hold multiple phone conversations to get clarification of what is needed. There seemed to be a constant “ping pong” approach to the entire communication process. For beneficiaries, this is frustrating, to say the least. Confidence in the carrier decreases, and the adviser in many cases is stuck in the middle, apologizing for the terrible process while trying to save or increase the confidence level about the carrier. Have you ever tried to offer that same carrier’s products and services to the beneficiary as part of a new financial plan? That’s a whole different discussion. However, I can say the lousy process puts the adviser in a tough spot. The beneficiary will ask, “Why are you offering me a product for my plan from a carrier that has a terrible process? I don’t want my beneficiary to go through a process like that.” This is a fair question…. Point 2 – Put yourself in the claimant’s shoes. Think about it. The claimant is going through your process during a time of grief, hardship and huge loss. Your process should not add to the stress. Your process should be easy. It should work to deliver a little happiness for them during this time. You want your beneficiaries to tell stories to their friends, family or other loved ones about how seamless your process was. Ask your marketing folks how valuable that is for your brand…. See also: 3 Techs to Personalize Claims Processing   Point 3 – Ask a group of newer employees for feedback on your process. We get the opportunity to speak at events across the country about innovation and digital transformation within the insurance industry and about how our company, Benekiva, has accomplished this. We often get asked, “How can a carrier be more innovative?” My response is usually a question: Who is on your innovative team today? Having an employee work at a company for many years is a double-edged sword. Don’t get me wrong, these long-term employees offer extreme value to your organization. However, some get stuck in the “that’s the way we have always done it” mentality. I would challenge companies to have some of their newer employees be part of the company’s innovation initiatives. Better yet, allow some folks on this team that don’t have any experience in your industry! You might be amazed at the innovation that can occur when people from outside the industry are allowed to give constructive feedback. Point 3.5 – Meet your customers where they are. This is an easy one. You need to have a claims process that can be completed from a person’s smart phone, tablet or computer. And give customers all of the options, not just the ones YOU like… There shouldn’t be anything within your process that requires a person to have the thought, “really, why can’t I do this process from my phone?” See also: How IOT Will Change Claims Process   Here is a challenge – Have you ever experienced your company's claims process? This would be a great exercise for many executives. The trick is to NOT stage this experience. Be completely anonymous, and go through your company's process. Go through the process on multiple devices. Have a millennial go through the process. Be completely honest with yourself and ask those you send through this exercise to ask themselves – does this process suck? If the answer is yes at any point in your process, you need a better process….

Large organizations have long understood the intrinsic value of customer data. Using it to formulate and execute on key business decisions, enterprises can better meet customer demand, anticipate a buyer’s propensity to purchase and stay ahead of savvy competitors. Because of the substantial amounts of resources required to successfully leverage customer data, and considering its highly confidential nature, large companies have also traditionally led the pack in implementing cyber insurance to protect this crucial business asset. Despite having fewer human and monetary resources, small and medium-sized businesses (SMBs) have started joining in on the data-driven movement, leveraging their existing customer data to deliver superior customer experiences and, in some cases, successfully compete with large organizations. Protecting that invaluable intelligence, however, has historically been overlooked. Many SMBs assume they aren’t as much of a target as large companies are, or they simply aren’t aware that cybersecurity tools are available to them. Plus, complex buying processes and exorbitant pricing often prohibit even the most knowledgeable SMBs from adequately protecting their assets. New and Improved SMB Habits Thankfully, times are changing. As SMBs continue to take advantage of the business benefits that leveraging customer data can provide, they’ve caught on to the merits of defending their customer data with cybersecurity measures such as cyber insurance. In fact, it’s fair to say SMBs will drive the next wave of cyber insurance adoption. See also: Cyber: Black Hole or Huge Opportunity?   According to recent research conducted by my company, demand for cyber insurance has skyrocketed among the SMB market as of late, with the highest quarterly growth being 150% and averaging approximately 69% per quarter. In Q2 of 2018 alone, 30% of our commercial insurance shoppers purchased cyber coverage, up from 12% a year ago. First-time cyber insurance shoppers are also on the rise among SMBs, having experienced a quarterly growth of 34% over the last year. Key Factors Contributing to Cyber Insurance Growth There are a variety of reasons for SMBs’ increasing enthusiasm for cyber insurance, such as a rise in SMB-targeted cyberattacks and widespread, difficult-to-detect network vulnerabilities. However, after analyzing our digital proprietary data collected from Q1 2017 to Q3 2018, we found the following three factors equally critical in driving SMB cyber insurance adoption: 1. Compliance Requirements Compliance requirements such as HIPAA, PCI and DCI have contributed significantly to the growth of the SMB cyber insurance marketplace. Recent data privacy regulation rulings such as GDPR and the California Consumer Privacy Act may also be pushing adoption, as the percentage of our shoppers who stated compliance requirements as a motivating factor increased 39% quarter-over-quarter. 2. Contractual Components In the past, mandating cyber insurance for SMBs was difficult, due to the lack of affordability and accessibility. Today, digital-first insurance providers have drastically reduced distribution costs, allowing organizations to enforce cyber insurance as an essential component of third-party vendor contracts. According to our data, nearly half (46%) of SMBs buying cyber insurance are purchasing due to contractual requirements. 3. Affordable Policies The price of SMB cyber insurance has declined substantially over the past year, primarily due to carriers’ ability to provide tailored policies designed to meet SMB-specific needs. In April 2017, our data shows the average monthly premium cost for a $1 million cyber insurance policy was $270. By June 2018, however, the average monthly premium cost for a $1 million cyber insurance policy dropped to just $77. The Future of Cyber Insurance Adoption Compounding factors will continue to drive the SMB cyber insurance market. From a business perspective, state and federal regulations will likely make cyber insurance a mainstream business priority, and enterprise-level contractual requirements will make cyber insurance a must-have for third-party vendors. On the consumer side, customers will continue to take an increasingly active role in their personal cybersecurity, demanding SMBs effectively secure their personal data through security solutions, including cyber insurance. See also: How to Create Resilient Cybersecurity Model   Though our data is still maturing, the steady increase in SMB shopper awareness and overall market readiness indicate that 2018 serves as an inflection point for the mainstream adoption of cyber insurance. Furthermore, with the SMB population in the U.S. expected to exceed 34 million by 2025, cyber insurance will be an essential factor in securing our collective digital world, and we can expect any business with assets to secure, and long-term viability to protect, to make cyber insurance a critical element of their comprehensive cybersecurity plan.

Most employers, both large and small, consider workers’ compensation “the cost of doing business.” The vast majority of employers that are not covered under federal regulations such as the Longshore and Harbors Workers Act are 100%-controlled by individual state laws, court systems and dispute resolution procedures. The history dates back to over 100 years ago as the “exclusive remedy” for injuries and illnesses “arising out of, and in, the course of employment.” It was also designed as a “no-fault system.” On paper, it is a simple system to understand. In reality, a simple claim can be a potential landmine and can be lost in a myriad of bureaucratic red tape, attorney involvement and litigation through state court systems.

Although workers’ comp costs are typically viewed as strictly a risk management or safety responsibility, the only way for an employer to truly contain both direct and indirect costs is to take a comprehensive approach and view workers’ comp programs in the context of their overall human resource programs. This requires an integrated, pre-planned, post-injury program design along with clearly defined policies and procedures using tools available under both state workers' comp laws and federal disability laws. This includes the Americans with Disabilities Act (ADA), Family Medical Leave Act (FMLA), Occupational Safety and Health Administration (OSHA) recordkeeping regulations and other potentially specific federal rules and regulations such as medical exams covered under the Department of Transportation (DOT).

See also: The State of Workers’ Compensation  

Two of the most common cost drivers for employers is late reporting of injuries, known as lag time, and poorly designed return-to-work programs. Although both issues involve the core of workers’ comp cost management, neither is really dictated by state workers’ comp law. In fact, state workers’ comp laws and the treating providers working under those laws can be severely detrimental in efforts to improve prompt reporting and return-to-work programs.

Although workers’ comp benefits and systems are strictly governed by state law, the injury or illness is also covered by several federal laws. One of the biggest paradigm shifts in the workers’ comp industry was the result of the Equal Employment Opportunities Commission (EEOC) ruling in 2014 that the Americans with Disabilities Act (ADA) “applies all the time whenever a medical condition has the potential to significantly disrupt an employee’s work participation.” (See ITL article "Is EEOC an Unlikely Friend on Work Comp," March 25, 2015)

This EEOC ruling took the workers’ comp industry by surprise. Work-related injuries and illnesses are now clearly governed under federal law under the ADA “as soon as notified,” “all the time” and the process is “continuous.” The EEOC stated the only relevant question is, “whether the disability is now, or is perceived as potentially having an impact on someone’s ability to perform their job, bring home a paycheck and stay employed.” Further, the EEOC stated that the ADA applies, “when a medical condition has the potential to significantly disrupt an employee’s work participation.” What workers’ comp claim does not have the potential to disrupt work participation?

The EEOC went much further and stated that the cause of injury is “irrelevant” and that everyone, treating providers, TPAs and employers, should keep that in mind. Further, the EEOC indicated the employer is 100% responsible for the continuing interactive process regarding potential job accommodations and return-to-work policies under the federal ADA law. The following EEOC comment was the knockout punch: “Physicians and TPAs may be putting employers at risk, even if not properly passed along, and would be especially troublesome if the treating physician was selected by the employer.” This means that under the ADA the employer is 100% responsible for job accommodations for the employee “who can perform the essential functions of their job with a reasonable accommodation.”

A truly integrated disability approach and interactive process is required because all medical-related absences, both occupational and non-occupational, are covered under the ADA. Remember, the injury and return-to-work process are covered under the ADA, but the benefits associated with an occupational injury are still covered 100% under state workers' comp law. Workers' comp remains the exclusive remedy for claimant medical and lost-wage benefits but is not the exclusive remedy for an employer to gather relevant information such as accident witness information or medical reports regarding cause of injury, comorbidities and pre-existing conditions that can be extremely relevant in the adjudication of a workers' comp claim down the road.

Jay Peichel, a principal at Keystone Risk Partners in Media, PA, was intrigued by the various ITL articles on ADA, DOT and OSHA and the federal laws’ relation to the workers' compensation process and how it may relate to the various barriers that can affect workers' compensation outcomes such as significant claim reporting lag, limited investigation, poor return to work process and ineffective med-legal determinations. Keystone designed a workers' comp survey and resultant proprietary scorecard as an assessment tool to quantify how current policies and procedures (including safety rules, accident reporting, supervisor training, medical management, use of provider networks, use of independent medical exams (IMEs) and medical second opinions and return-to-work programs) are integrated to take full advantage of state-specific workers' comp rules and regulation in coordination with federal disability laws such as the ADA, FMLA, DOT exams, when applicable, and OSHA recordkeeping regulations.

See also: How Should Workers’ Compensation Evolve?  

Keystone saw this tool as a natural fit in their risk mitigation and analytics service platform and also their core platform of captive consulting, captive management and risk placement. Jay Peichel, who specializes in workers' comp claim analytics and benchmarking for his employer clients, said this new survey was “designed to help isolate hidden cost drivers in HR and workers' compensation programs. It also provides us the road map to provide recommendations and intervention points not in isolation but rather within an integrated process utilizing best practices in both workers' comp and disability cost management. Strategically, it links to our analytics platform and our ability to quantify the changes in outcomes and total cost of risk.”

The survey and scorecard are provided for a nominal charge by Keystone Risk Partners. For more information, contact Jay at jpeichel@keystonerisk.com.

About 50% of U.S. adults are married today. While this number has stayed fairly steady over the past five years, it represents the bottom edge of a downward trend that has continued for decades, according to Kim Parker and Renee Stepler at the Pew Research Center. Marriage rates have dropped 9% from 1998, and 22% from 1960. So, what’s causing the change in marriage rates? Financial security is a top consideration for many young adults, says Benjamin Gurrentz, a survey statistician at the U.S. Census Bureau. Higher marriage rates are correlated with full-time employment, median annual wages and home ownership. The financial security associated with marital status has long played a role in determining property and casualty insurance rates. For decades, insurance companies have relied on studies and data indicating that married adults file fewer claims and present a lower risk than unmarried adults. As U.S. adults delay or skip marriage, here’s how the landscape changes for P&C insurers. The Changing Landscape of U.S. Marriage Many adults are simply postponing marriage rather than skipping it altogether. The U.S. Census Bureau found that the median age for a first marriage rose about seven years between 1960 and 2016. In the 1960s, women generally got married around age 20 and men around age 23; today, those ages are closer to 27 for women and 30 for men. This doesn’t mean that younger adults in the U.S. are all living the single life. The number of adults who were cohabiting increased 29% from 2007 to 2016, according to Christina Cauterucci at Slate. About half of these adults were younger than 35, and nearly half this group doesn’t see marriage as a priority, either for themselves as individuals or for society as a whole. “The share of never-married adults under age 65 has risen dramatically — from 26% in 1990 to 36% in 2016 — which has directly contributed to the declining share of currently married younger adults,” says Wendy Wang, director of research at the Institute for Family Studies. Yet when younger adults get married, they tend to stay that way: The U.S. divorce rate dropped 18% between 2008 and 2016, with more younger couples staying married than in previous generations, says Philip Cohen, a professor at the University of Maryland. When adults in the U.S. do marry, financial stability ranks among the top six reasons, according to Abigail Geiger and Gretchen Livingston at the Pew Research Center. Making a lifelong commitment and creating a stable relationship in which to raise children also made the top six list, indicating that the declining marriage rate may be related to a rising sense of instability. See also: Even in Big Data Era, Relationships Count   The overall result is that fewer auto and home insurance customers are married overall, and the trend is particularly striking among younger customers, who also don’t see financial benefits like lower insurance rates as a compelling reason to marry. Marriage and Consumer Insurance Marriage brings certain benefits for property and casualty insurance consumers, Penny Gusner explains at Insure.com. For instance, auto insurance rates may decrease by 5% to 15% for married couples. Newlyweds who combine households may also qualify for multi-vehicle or multi-policy discounts. The insurance industry factors in marital status when setting P&C insurance rates because the statistics tell them to. “Individuals who are married tend to expose insurers less to overall claim costs,” explains Robert Hartwig, who works at the Center for Risk and Uncertainty Management at the University of South Carolina. The use of credit scores as a factor in determining property and casualty insurance rates can also change the calculation, says Karn Saroya at Cover. While spouses don’t share one another’s pre-marriage credit history, joint accounts do appear on both credit reports. Rates may be calculated differently on any purchase the spouses make together, such as a multi-car policy or an auto and homeowner insurance package deal, says Lance Cothern at Credit Karma. A married couple seeking homeowners insurance, for instance, can see their rates increase or decrease based on their jointly considered credit scores, Les Masterson writes at Insurance.com. Even unmarried couples living under the same roof must choose one of the pair to apply for homeowners insurance. Often, this will be the partner with the better credit, leading to lower rates from the insurance company. The problem? These rates may not accurately reflect the risk involved of insuring the couple as a family living under the same roof. “Sure, married people tend to get (financial) breaks, with their taxes and elsewhere,” says William F. Harris, an independent insurance agent based in Los Angeles. “It just happens to be the same when it comes to a homeowners policy.” Growing Families and Insurance U.S. demographic statistics indicate that while couples may be choosing not to marry, many are still choosing to have children. As these children mature, their presence can affect auto insurance rates, as well. For instance, Raltin’s Ishan Mukhopadhyay says that families with young drivers tend to pay more for auto insurance than other households. While this makes sense from a risk perspective, it also indicates a new calculation for both households and insurers: the teen driver whose parents, unmarried, have separate auto insurance policies and separately calculated risk. Younger adults are citing financial stress as a reason not to marry, but when they do marry they tend to be more financially secure, to share a commitment to the relationship and to stay married for longer than previous generations. As a result, P&C insurers must reconsider the value of marriage as a method of calculating risk — particularly in an era that offers unprecedented access to personalized data analysis for individual customers. How P&C Insurers Can Respond to Decreasing Marriage Rates As data becomes easier than ever to collect and analyze, some insurance companies are recalculating the value of lowering premiums for married customers. Several studies in the late 1990s and early 2000s did demonstrate a lower risk among married drivers. For example, a 2004 study in injury prevention became the basis for a number of insurance industry decisions to factor marriage into insurance premium rates. However, many of these studies have since been questioned for their relatively small sample sizes, and all of them are out of date. In the digital era, insurers have access to the quantity and quality of data they need to make more accurate, personalized decisions about the specific customer populations they serve. See also: Making Life Insurance Personal   Personalizing the Calculation of Risk A renewed focus on driving behaviors in the age of telematics has made calculations more accurate. Specifically, insurance companies can hone their focus on auto premiums that accurately reflect real-world driving risks, says Ed Leefeldt at CBS News. Calculations based on mileage, road congestion and driving behaviors like hard braking can help insurers focus on the risks individual drivers pose. This can be a more effective way to understand each customer’s risk, beyond looking at marital status. Staying in Touch: Examining Life Changes as a Way to Calculate Risk Some insurance companies are also considering life changes when they calculate risk. “Effectively capturing changes that may warrant up-charges or require the application or removal of a discount is best achieved at renewal,” says Jennifer Graham at Verisk. Checking in at renewal can help insurers keep better track of the changing patterns of customers’ families and living situations, even when these aren’t marked by official events like marriage. Recalculating for individual customers can also take into account changing patterns in household income related to evolving marriage patterns. For instance, median household income for homes with two adults is $86,000. For singles, it’s just $61,000, says Meera Jagannathan at Moneyish. She says that 42% of adults consider themselves not only unmarried but “unpartnered,” as well. As relationships have adapted to suit modern lifestyles, insurance companies are also adapting to better understand and quantify risk in the context of these relationships.

Heavy rains are forecast for Northern California this week, which may finally extinguish the vicious and deadly Camp Fire, but our friends in SoCal may not find relief just yet, and those caught up in the fire about 80 miles north of me still have to deal with unprecedented devastation. The latest grim numbers just from the NorCal fire: 77 confirmed dead, nearly 1,000 unaccounted for and almost 13,000 structures destroyed as 150,000 acres burned.

What to do?

Can we somehow mitigate these wildfires, or are we doomed to endure them?

There is plenty of reason for pessimism, a bit for optimism and a lot more for hope because of the intelligence that can be provided by the disciplines of risk management and insurance.

The pessimism comes because there's no end in sight for climate change. California, and other states and countries, will continue to dry out, providing more and more tinder for massive fires. Changing weather patterns may also mean that, as in California this year, rain comes too late in the season to damp the danger of fires and that the winds that arrive with winter can fan the flames to fatal degrees.

The optimism starts because we're learning about what causes massive fires. We're no longer trying to so hard to stop all fires, understanding that limited, localized fires can prevent out-of-control fires later. This doesn't mean raking the floor of California's 30 million acres of forest, as our president oddly suggested, but forest management can be done better, and it seems that it will be. 

The optimism continues because of the role that risk management and insurance can play. The recent California fires didn't occur somewhere in the deep, dark forest. They started in areas where civilization and forest converge, where people have chosen to build despite the possibility of wildfires. Better identification and pricing of those fire risks, updated for our understanding of the growing effects of climate change, will help homeowners see a more accurate cost of risk reflected in their insurance premiums and incent them to take steps to minimize the hazard or choose to live elsewhere. Better risk analysis will also help governmental authorities see where they need to improve evacuation plans and perhaps take other actions that would mitigate catastrophic losses.

Better risk management and higher premiums isn't a panacea. I've been to Paradise, the town that was engulfed in the Camp Fire, and it was such a lovely little place set in hills in the forest that it never would have lent itself to a mass, efficient evacuation. But we can do an awful lot better if we send the right economic signals, and that's something that risk management and insurance professionals are exactly the right people to send.

Have a great Thanksgiving—and please keep those affected by the fires in your thoughts and prayers.

Paul Carroll
Editor-in-Chief 

When Chloe steps out the door of her apartment on her way to work in the morning, her vehicle automatically unlocks its doors while the navigation system maps out the best route based on the latest weather and traffic conditions. Simultaneously, her home’s thermostat resets, and her security system arms. During her commute, Chloe decides to stop at a name-brand franchise for a cup of coffee. In a moment of weakness, Chloe – a diabetic – elects to consume a fresh-baked pastry along with her java. Fortunately, Chloe’s smart glucose monitoring system sends her an alert quantifying the size of the impending spike, and she responds appropriately to avert any issues. At her destination, Chloe’s car locks and arms when she walks away from it. As she makes her way indoors, Chloe’s workspace is simultaneously adjusting to her established lighting, temperature and activity levels. During the morning hours, Chloe elects to override two of the standing periods she’s selected for her daily routine. In the afternoon, Chloe’s home heating system detects a part is on the verge of failure. It generates a signal that triggers an automated process and orders the needed part, contacts a service provider and schedules the repair. Moments later, Chloe receives a notification of the impending breakdown as well as the day and time of the repair appointment, which she quickly confirms – via an app on her phone – and, using the same app, books a florist visit during the repair time frame to get some expert advice on an issue with her house plants. In the evening, as she arrives home from work, Chloe’s proximity disarms the household alarm and adjusts HVAC accordingly. After a healthful meal and her nightly yoga routine, Chloe sits down to finish reviewing several mortgage offers for the home she’s buying. Working on the mortgage causes Chloe to think about other ways to protect her family, so she clicks on a banner ad for a customized life insurance product. After staying up beyond her usual time, Chloe retires for the night. The Insurance IoT Imperative Today, most of us are familiar with basic forms of the electronic connectedness known as the Internet of Things (IoT). We obtain driving directions from our smartphone assistant, order pizza via smart speakers and control smart home devices with an app. But Chloe’s game-changing level of automated, integrated and connected IoT will arrive sooner than many people realize. As numerous consulting firms have discussed, businesses are becoming interdependent within and across categories. This will dissolve traditional industry boundaries and replace them with a set of distinctive and massive ecosystems clustered around fundamental human and business needs. In this article, we’ll review the current state of the Insurance IoT, explore what’s needed for future success and provide an executive-level overview of the technology considerations required for gaining favorable outcomes in a connected world. At the Starting Line Although IoT is most common among insurtechs, industry-wide efforts to harness insurance IoT are in their infancy. Many insurers are still focused on modernizing their core systems. Most are still struggling with defining what it means to transform into a “digital insurer” to meet escalating user experience expectations. As the accompanying overview graphic “Market Maturity” suggests, the majority of early insurance IoT initiatives have concentrated on one type of IoT, telematics, in personal and commercial auto lines. In the U.S., adoption is still minimal, with many initiatives having yet to realize a positive ROI. However, insurers have clearly grasped the larger potential as the traction and evaluation of new entrants, like Root, have captured the market’s attention and raised the sense of urgency. We’ve also seen some property insurance IoT efforts around residential and commercial structures. There, the focus has been assessing the impacts of mitigating various risks. By and large, even the most advanced initiatives are in the piloting or developmental phases, as insurers conduct research on sensor types, analytics tools, management systems, human interaction layers and adoption barriers. Progress among health insurers is similar to property. Early efforts range from offering fitness trackers to arming chronic obstructive pulmonary disease (COPD) inhalers with sensors for automatic tracking of medication use. Again, initiatives are in early phases, with real-world outcomes and profitability impacts yet unknown. See also: Insurance and the Internet of Things   Understanding the Real Value Proposition Moving forward, there’s little doubt the insurance industry will accelerate its embrace of insurance IoT. The true winners will be those who understand the real value proposition of insurance IoT, which are the opportunities for value creation and sharing that ultimately boost an insurer’s bottom line. To visualize how insurance IoT improves bottom lines, compared with traditional approaches, see the graphic portraying the respected “Insurance IoT Value Creation Framework.” This waterfall framework was created by the IoT Insurance Observatory, a think tank representing over 50 North American and European enterprises, including ValueMomentum. The Observatory also includes six of the top U.S. P&C insurance groups and four of the top seven global reinsurers. Let’s review some examples drawn from Chloe’s life, which illustrate the framework’s building blocks and how insurers benefit. First, Chloe’s renter’s insurance is a smart policy, offering more than monetary reimbursement when something bad has happened. Her insurer sold her a safety and security service for a monthly fee. Moreover, the insurer connected its systems to her smart home infrastructure and even added some water leakage sensors that were not previously present. The insurer created and manages the automated process that gets triggered by the signal from the heating system, enabling the insurer to intervene. Further, Chloe’s insurer receives revenue from its preferred service providers, like the repair technician and the florist, who pay the insurer a fee for automatic access to fulfilling Chloe’s needs. Although the policy Chloe selected permits her health insurer to raise her deductible for chronically engaging in risk-elevation activities, such as the contra-indicated pastries, reduced standing periods and sleep deprivation, Chloe chose this product because her transgressions are infrequent. As for the health insurer, it gains a self-selected, lower-risk policyholder. Chloe’s health insurer is also involved in her hyper-connected day, providing the glucose monitoring system together with an app that supplies Chloe with 24/7 access to a network of nutritionists. Chloe also receives a preferred rate for the monitoring and coaching, which reduces the insurer’s claims costs. Some of Chloe’s other activities also reduce risks and create value. These include automatically securing her home against intrusion and keeping indoor spaces the proper temperature to avoid infrastructure incidents and damage from frozen pipes, not to mention wearing her glucose monitoring system. Chloe’s insurers benefit from the reduced probability of Chloe submitting a claim. As for Chloe’s morning stop, she obtained her coffee for free by redeeming a QR code from her auto insurer sent as a reward for driving a certain number of miles at low risk (no hard braking, speeding, phone distractions, etc.). Previously, Chloe’s auto insurer had negotiated a very favorable rate on the coffee because the chain would benefit from cross- and up-sells, like Chloe’s impulse purchase. Chloe’s insurer reduces the risks to its book of business with this inexpensive behavior-change mechanism. In the evening, when working on her mortgage prompted Chloe to shop for life insurance, she opted in to permit the life insurer to obtain her health records, wellness activities from her mobile phone and the current contents of her refrigerator. In real time, the insurer calculated Chloe’s life score and created an exceptionally accurate quotation. Next, the insurer presented Chloe with a competitive quote based on her age, lifestyle and health history. Due to all of the positives, Chloe now loves her insurers. However, before her life was hyper-connected, she felt insurance was more of a necessary expense than a beneficial experience. Not only was her risk exposure greater, but she never received any rewards from her insurers. What’s more, Chloe’s insurance premiums were over 20% higher. By leveraging IoT data, Chloe’s insurers have created bottom-line value, a portion of which they share with her via discounted prices and other incentives. This value creation/value sharing model embodies insurance IoT’s transformational potential. What’s Required to Get There Once you’ve fully appreciated the business value embedded in the dozens of IoT data points your policyholders create every minute of every day, you can begin to acquire the appropriate technology capabilities for gathering, analyzing and acting on the IoT data in real time. Although this journey will involve numerous steps, a good starting point is understanding the seven primary technology layers required for insurance IoT and the key considerations for assembling them into a complete solution. For a visualization of these layers, consider the graphic “Insurance IoT Architecture” framed by the IoT Insurance Observatory. Technology Layer 1 - Sensors Devices that collect IoT data can range from simple, purpose-built solutions, such as a water flow detector, to complex devices that incorporate multiple types of sensors, like a smartphone. Although there’s no single “correct” type of sensor to use for any given application, it’s vital to consider both what data a given sensor is, or is not, gathering and how the sensor is collecting the data as each significantly affects analytics abilities and outcomes. Technology Layer 2 - IoT Data Collection and Data Sources Management Upon collection, data must be transferred for storage to a location where it, and other collected information, can be properly processed, managed and accounted for. In the early days of telematics, industry-specific solutions handled this layer. Now, as insurance IoT scales up to require data gathering from millions of policyholders, who are each generating thousands of different types of data points every nanosecond, this layer is quickly moving to mega-vendor platforms, like Microsoft Azure. Such platforms are purpose-built for fast transfer and management of vast amounts of information, plus they provide other services like device management, data security, resiliency, load balancing and ease of integration with other systems. All of these capabilities are vital to real-time insurance IoT. Technology Layer 3 - Insurance-Specific Data Analysis and Preparation From this layer forward, success depends on partnering with experienced solution providers that demonstrate a granular understanding of insurance nuances, ranging from rating requirements to loss specifics. Whether you’re developing a proprietary technology layer or adopting a purpose-built solution, partnering with experienced consultants and integrators is the most effective means to achieve your goals. Within Layer 3, collected data from all real-time, non-real time, internal and external sources gets normalized, interpreted and prepared for insurance-related purposes. A simple homeowners’ example is a combination of real-time data from smart sensors, both real-time and historical climate data from external providers and policyholder data such as contact information and preferences. The most advanced solutions for this layer now included advance algorithms and machine learning capabilities, speeding the normalization, interpretation and preparation chores. See also: Global Trend Map No. 7: Internet of Things   Technology Layer 4 - Advanced Insurance Analytics In this off-line layer, advanced analytics are performed on the data from the Layer 3 to create proprietary algorithms and models that are applied in subsequent two layers. A workers’ comp example is the probability of injury based on historical claims data combined with various external data sources. Or, in an automotive scenario, risk indicators that would predict a loss cost for a particular type of accident based on a particular type of vehicle on a specific type of roadway under a specific type of climatic conditions. Technology Layer 5 - Smart Insurance Actions Arguably, it’s within Layer 5, and its close cousin Layer 6, where the real-time “magic” of insurance IoT occurs. In other words, these layers translate the data and information from the forgoing layers into activities insurers can use for differentiating themselves and taking advantage of new opportunities to stay competitive. The technologies in both Layer 5 and Layer 6 can be made up of internal systems, cloud-based solutions or a hybrid. Specifically, Layer 5 rapidly applies algorithms and data from the previous layers to result in smart actions related to traditional insurance activities such as underwriting decisions, pricing calculations, claims management and cross-selling. Technology Layer 6 - Connected Insurance Ecosystems This layer can be thought of as a neighbor to Layer 5, rather than a vertical step up. This layer contains the partnering services and all of the connections required for the use of those services, as illustrated by Chloe’s story. However, the possibilities go far beyond those we’ve presented, making innovative thinking key to competitive success. Technology Layer 7 – User Experience Naturally, any successful insurance IoT deployment will involve integrating all of the forgoing back-end processes and systems with the front-end experience presented to policyholders and prospects. Such experiences should be designed as a mixture of digital and physical interactions, as insurance IoT is characterized by combining automated processes, triggered by data, with human engagement. Note that positive user experiences depend not only on the appropriateness of each interaction but also on appropriate timing. This ensures policyholders and prospects receive what they need and when they need it, rather than alienating users with distracting interactions that cause confusion or create interference. *** Regardless of which of the scenarios we’ve presented apply to your business, or where on the connectivity spectrum your enterprise is today, it’s clear the opportunities inherent in the insurance IoT offer vast possibilities for improving your bottom line and becoming beloved by your policyholders. Given the rapid paradigm shifts already underway, the greatest risk to insurers is delay. In short, the time to start building and executing your insurance IoT strategy is now. This article was first published on Carrier Management.

Bermuda pays tribute to the Fates. It would, however, be tragic for insurance companies based in Bermuda to surrender themselves to the forces of whimsy and chance. It does not serve the interests of this island nation, of this remnant of the British Empire, to be true to the literal meaning of its motto, "Quo Fata Ferunt," which means "Whither the Fates Carry Us." Not when Bermuda is so attractive to so many insurers. Not when the symbols of this territory represent what most appeals to the insurance industry as a whole. The long continuity of laws, language, literature, history and tradition—all of these things, and more, belong to Bermuda. They come together under the Red Ensign: one flag for two countries, combining the Union Jack with Bermuda’s coat of arms. Promoting that flag as an emblem of security, as a haven of economic stability amid a sea (or a triangle) of physical tumult in which storms strike and hurricanes gather strength—in which the pastels of island homes turn pale beneath a wrathful sky—that that flag is still there is the modern-day story of Bermuda. See also: Awareness: The Best Insurance Policy   To see the Union Jack is to see a terrestrial body with celestial power. It is to see an icon of permanence from a flag without stars. It is to see a light of safety, alerting captains to steer clear of the rocks and reefs that threaten passengers and crew: a warning painted on a shield—of a wrecked ship tossed by a tempest—where the red lion of Britannia is the pride of Bermuda and the protector of the innocent and true. According to Janil Jeal, director of overseas operations for LogoDesign.net: “Few symbols are as potent as a flag. It can unify a people, just as it can be a universal badge of freedom. It can inspire citizens and companies to do their best.” Put another way, insurers based in Bermuda should fly the flag. They should do more to explain why the island is the ideal locale for their industry. They should do so to report—and reinforce—what no amount of marketing can match and no barrage of advertising can equal: that the flag signifies what insurers crave and consumers want, that it sends the right signal about reducing risk, that it stands as its own reward. To get to that point requires repetition. Such is the best insurance policy for the insurance industry: to condense—and to convey—the economic benefits of Bermuda into something tangible, a flag (or the image of a flag), that flies outside all manner of buildings, that flies highest in the island’s capital city, that flies atop institutions of financial capital. Fly the flag—but do not forsake its importance. See also: 3 Reasons Millennials Should Join Industry   Do not dilute its presence by making it ever-present. Do not render it tacky. Do not ruin it by relegating to the realm of some tinhorn dictator Recognize, instead, why it is sacred. Recognize that it is a flag worthy of respect, whose worth accrues to insurers willing to preserve, protect and defend its existence. May it continue to endure.

Yet another hurricane season has left a broad swath of America’s coast in recovery mode following a once-in-a-generation storm, and wildfires are devastating California. The disasters remind the rest of us how fortunate we are to be safe. They remind government agencies about the importance of preparedness. And they remind employers about the importance of risk managers. Disaster response is part of the job description for risk managers, of course, but that doesn’t make it any easier to suddenly be the most important person at the company in the exact moment that the situation is at its least predictable and most frenetic. Lives are in danger, homes are being inundated or burned, entire communities are scrambling for safety -- and you’re the person who is supposed to have answers and a plan. The situation is one that insurance companies can understand. People may not fully appreciate their role when things are going well, but, when things go wrong, clients expect an immediate and efficient response. It may seem that the work of a risk manager or insurance company begins after a crisis, but those working in either field know that it’s the careful work of preparing that makes a successful response possible. Some of the most effective risk managers are also realizing that tools and capabilities that allow for efficient insurance claims intake and processing can serve businesses and risk managers before a crisis. Consider Tropical Storm Harvey as it lined up on the U.S. Gulf Coast a year ago, making landfall near Corpus Christi on Aug. 25 and careening inland toward San Antonio before reversing back to the Gulf of Mexico and crashing into Houston, where it did even more damage. Even the most dramatic satellite images or simulations were never going to prepare people on the ground for what was coming. That sort of work needs to be done on a personalized level, through systems that tell people about their specific risk levels, what to expect in their neighborhood, when to expect it and what to do about it. And then what to do if those initial warnings weren’t heeded. See also: Natural Disasters and Risk Management   It’s the sort of work that third-party administrators (TPAs) for insurance carriers were preparing for as Texas braced for the most damaging storm to strike the continental U.S. since 2005. As risk managers for companies in the U.S. Gulf Coast reviewed their widely distributed workforce and facilities in the storm’s path, they, too, realized that they would soon be managing overwhelmed phone lines and routing calls to keep thousands of employees informed and as safe as possible through the storm. The very same processes that an insurance company or its TPA uses to manage the wave of claims that follow a catastrophe are extremely well-suited to help the companies threatened by a disaster to be operationally resilient throughout. Just as importantly, a well-planned disaster response starts days before the crisis hits. In the social media age, it takes rigorous planning and agile systems to stay ahead of the myriad information channels employees are plugged into. A disaster is overwhelming even for the biggest companies with well-resourced risk management teams. It can be a knock-out punch for smaller firms. About 25% of businesses don’t reopen after a disaster has passed, according to Insurance Information Institute estimates. More than a third of small businesses have no emergency plans for severe weather or natural disasters, according to a report from the U.S. Chamber of Commerce and Met Life in May. With the power and frequency of storms and other natural disasters on the rise, companies are searching for solutions. A San Antonio-based construction and engineering company with dozens of offices and thousands of employees through Texas, Louisiana and the rest of the Gulf Coast saw the crisis coming. Its insurance needs would come soon enough, but, more immediately, it needed to communicate with its employees to keep them safe and informed about operations. The company had never expected to have to equip so many employees for the magnitude of disruption that Harvey represented, and realized with only days to spare that its ability to survive the storm depended on being better prepared for it. The company needed a way to communicate with its employees in the storm’s dangerous and dynamic environment. Most importantly, this would help their employees and families survive the storm, but it would also put the company in a position to spring back faster and outcompete others who took longer to get back on their feet. Taking advantage of today's technological capabilities, it found a service already experienced in rapidly standing up the type of infrastructure the company needed – a hotline, trained operators, automated routing of issues – and reached out to an intake specialist on a Friday evening to build a crisis response system by Monday morning. Practically overnight, the company gave its human resources department a tool for employees to check in and get information about the company’s response and what their own next steps should be. As the storm continued to batter the region, the company was able to swiftly respond to facility concerns, reorganize employees to where they were needed and direct employees to the resources they needed to start rebuilding their lives. In the worst-hit areas, the company made sure that employees were out of harm's way and being given reliable updates, as opposed to relying on digital media and social sharing, which can become a default information source in the absence of a company system that can scale and configure fast. Those outside sources of information can quickly move into the vacuum left by a company’s inability to take and react to information and can become a new crisis in and of themselves, spawning rumors and unchallenged facts. When the storm waters started to recede, this Gulf region firm was still strong. Because the risk management and human resources teams did not try to ride out the storm with legacy systems supporting their work, instead finding more sophisticated solutions, they maintained the trust of their workforce and the integrity of their business. There are critical lessons that can be learned from this kind of quick intake system start and the attempt to build a resilient system:

• A strong contact center team is key, but not sufficient. The technology is available to make sure that the human interactions at the center of disaster response are more accurate, efficient and effective.
• Advanced dissemination and escalation engines are indispensable. Bad information spread over social media can exacerbate the crisis, and the only way to counter it is to make sure the right messages are reaching people faster.
• Intake systems need to start fast and then keep up with a rush of information. You have to prepare for the unexpected. Companies can’t always know what’s coming their way, so they need systems that can set up overnight.
• You have to be ready to adapt at a moment’s notice. Dynamic, rules-based intake scripts are not only essential at the outset, they allow for an intake process capable of adjusting to changing circumstances.

In a crisis, unexpected events are impossible to avoid, and a technology-driven system employing smart automation will take the unique business rules that every risk manager has and make their complexity manageable for intake specialists, minimizing disruptions. See also: 5 Techniques for Managing a Disaster   A consistent concern among risk managers is that no matter how well one forecasts threats, develops detailed plans and runs drills against them, the speed and scale with which crisis can hit seems to be increasing. Preparation can start to seem impossible, but it isn’t. It just calls for new tools. With this year's hurricanes and the harrowing fire season, risk managers are once again reviewing their ability to respond, and a close, detailed look at lessons learned from previous events like Harvey, and putting into place the countermeasures necessary to prevent unwanted surprises, can keep risk managers operating efficiently in the next crisis.

As artificial intelligence (AI)-based solutions are introduced to the insurance industry and a new wave of insurtech companies rise up, it can be difficult to see the forest for the trees. AI-based products are designed to do a great number of things today: solve complex problems associated with care and claims in a fraction of the time; automate operations and improve efficiency; and enable greater, more personalized customer service — just to name a few potential benefits. Every solution a vendor tries to sell you can sound compelling on the surface. But the million-dollar question is whether there is tangible value for your organization. Although it can be tempting to gravitate toward a bright, shiny object, there needs to be a legitimate business reason for adoption other than “everyone is doing it.” I recommend taking the following inventory as you delve into AI to ensure you maximize your investment. Know what specific problem you are solving. Is the problem you are solving a priority? One of the biggest challenges lies in identifying how and why AI fits into the big picture of your organization. Many executives hear a persuasive use case for a new technology and get very excited about how AI can be applied within their own company. This is logical; it’s human nature and fits with how we learn about and discover things in an age when everyone is overcommitted to tasks that are perceived as a higher priority. This approach should be avoided, however. See also: How to Use AI in Customer Service   AI makes it possible to capture so much more data than we’ve ever been able to get our hands on before, but, unless this data pertains to an issue you need to address, it may be deprioritized … data for data’s sake. McKinsey suggests that the process of determining uses for AI that drive value “will require exploring hypothesis-driven scenarios in order to understand and highlight where and when disruption might occur — and what it means for certain business lines.” I recommend starting with a problem, one that is causing real pain to your employees, customers or partners or affecting your bottom line. Then work backward to determine how AI and machine learning could be used to develop something better than the status quo. Now, do a little research. Consult with analysts. Engage with vendors. Try out products and determine how they might work at scale, consult with references and have users test them. Those products now exist or are rapidly coming to market, but, if you don’t have a handle on your needs or know what you are looking for, you risk choosing a solution that fails to live up to the high expectations for AI. Evaluate for simplicity This may be stating the obvious, but that doesn’t make it any less essential. Any AI-based product, service or application must be easy to use. This point is non-negotiable. Your people are probably long-entrenched in certain processes and ways of doing things. There could be some resistance to change, and, if a solution isn’t simple and intuitive, teams won’t adopt it. As a result, even if a system or application yields the best data and insights on earth, your company will never derive maximum value from it. The consumerization of IT has ensured that people of all demographics expect and demand easy-to-use software. Therefore, you have to build or buy something that everyone feels comfortable with and wants to adopt. If they can see how it makes their day-to-day job more rewarding, all the better. Have a plan to embed it in your processes and measure ROI You have great data, and people suddenly have access to information they never had before. Now, what do you actually do with that information? What is the next step? You must consider how it enters into your processes. Knowing exactly how the product will be used will not only help you make the implementation painless, but also will define what product functionality is critical for your business. Take your existing workflow, and plan to integrate your AI application into it so that you’re not creating more work, nor are you making the transition for others harder than it needs to be. To accomplish this effectively, you need to make sure to involve at least one team member with deep operational experience, who knows processes and workflows, and can educate and collaborate with data scientists and technologists to ensure all of the organization’s needs are met. This team will work together to develop the best processes and practices for leveraging new levels of intelligence. If your new application doesn’t drive ROI, then it’s nothing more than a shiny new gadget. Create a plan to track and measure performance before you implement anything new. And integrate as much measurement as you can into your existing processes. See also: AI Still Needs Business Expertise   Over the next decade, we will see huge advances in how the insurance industry conducts business. The formula for success is knitting each of these pieces together: deep data science with a purpose, accessible through consumer-grade software that is guided by operational expertise. To ascertain the actual value of these components, track how people use AI-based tools as well as what the results are over the short and long term. Strive toward “better than before” rather than perfection — and continue iterating. AI is poised to profoundly change the industry, but implementation of these exciting new technologies is not a one-and-done thing — it’s a journey. If all goes according to plan, and AI lives up to potential, your organization will reap tremendous rewards. As first published in DATAVERSITY.

Risk management activities of insurance companies are mainly based on three risk types: whole portfolio, supplementary and others. In “others,” two risk types -- operational risk and credit risk -- stand out with their financial impacts and frequencies. Credit risk is defined as “the potential that insurance company’s borrowers or counterparties will fail to meet their obligations in accordance with agreed terms.” The main goal in credit risk management is maximizing insurance company’s risk-adjusted rate of return by maintaining credit-risk exposure within acceptable parameters. Credit risk has six sub-types:

1. Credit default risk
2. Concentration risk,
3. Counterparty risk,
4. Country risk,
5. Sovereign risk and
6. Settlement risk.

Furthermore, traditional credit risk management is based on manual or semi-manual assessment of these domains:

• Detailed assessment of counterparties,
• Financial strength,
• Industry position,
• Qualitative factors and
• Underlying credit exposures.

The first trigger of change in credit risk management was Solvency II. After implementation of the capital regime in Euro Zone, insurance and reinsurance companies integrated further credit risk assessment tools into their internal models, because the credit risk management approach was found very weak in standard model of EIOPA. The second evolution in credit risk management comes not with another capital regime but with technology: insurtech. Insurtech is converting credit risk management into a new form like many other components in insurance business. See also: A ‘Credit Score’ for Your Cyber Risk?   For bringing into the complex structure of risk management with basic inputs, we can classify the insurtech effect on credit risk management mainly on two points. The first point defines the philosophy behind risk management activities, and the second point defines actions:

1. Maximizing a company’s risk-adjusted rate of return by maintaining correct credit risk exposure within the risk appetite of the company and maintaining sufficient risk-return discipline in credit risk management process.
2. Covering all insurance/reinsurance transactions and identification, measurement and monitoring of transactions with embedded credit risk.

The risk-adjusted return is generally defined as a concept that measures real value of risk and enables a company to make comparisons between risk taking and risk aversion. This variable shows real value of business and aims at maximizing efficiency on capital management. In business today, correct allocation of limited capital should be the main object behind all activities of a company, and risk-adjusted rate of return is the pointer that makes this objective visible. Insurtech also converts the calculation methodology of risk-adjusted return. With a more sophisticated methodology, risk managers can cover thousands of variables and calculate a value very close to real, risk-adjusted return exposure. The second point, covering all transactions where credit risk arises, is the inception point of actions. The definition covers not just financial transactions but also all insurance/reinsurance transactions performed during daily business cycles. Furthermore, because of the complex structure of finance, not just loans, the most obvious source of credit risk, but also other structured financial instruments, like trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, etc., should be assessed in an effective credit risk management function. Naturally, the variety of sources brings a huge amount of data, which could not be managed manually, especially by a function like risk management, which should be always preventive and pioneer. One of insurtech's dimensions, big data management, helps risk management professionals especially on this point. With the organization, administration and governance functions of big data management, not just structured data but also unstructured data coming out from mentioned transactions will be measured, analyzed, grouped and monitored according to their likelihood and magnitude within seconds. See also: How to Adapt to the Growing ‘Risk Shift’   Credit risk management is a crucial tool among other risk management functions. Effective credit risk management and efficient capital management make companies ready and solid for their next step on investment, acquisitions and every step they take for their existence.