The insurance industry is hundreds of years old and full of ingrained perceptions and antiquated processes, which continue to cause frustration among customers. Insurers know they need to innovate, but the question is – how? How can global insurers, which have been operating in and underwriting insurance the same way for hundreds of years, know which types of technology they need to meet consumer demand and remain competitive in a rapidly changing market? Insurance technology is the missing link. The insurtech market is growing rapidly, and players have to be prepared to adapt. There is little time to sit idle, because, if you can’t keep up with consumer demands today, there is a small chance you’ll keep up with them tomorrow. Whether it’s the need for small business cyber insurance or the necessity for pay-per-use homeshare insurance, insurance is moving away from the traditional model. The on-demand culture and sharing economy continue to disrupt industries across music, entertainment, transportation and payments. The wave of acceptance by consumers flags a fundamental shift in consumer behavior, where consumers can get what they want now, without delayed gratification. The insurance industry is the next in line, ripe for disruption. With the continued explosion of rideshare and homeshare applications, the traditional models for car and home insurance are not substantial enough to protect individuals using their personal property as a commercial asset. See also: Insuring a ‘Slice’ of the On-Demand Economy   While the battle of insurers vs. insurtechs continues, we firmly believe that both parties have equally valuable offerings to bring to the table. To truly drive the industry forward, an open-source cloud platform that allows insurers to quickly build, test and deploy their own on-demand insurance products will be the beginning of the insurance industry transformation in response to the sharing and gig economy. Legacy carriers have centuries of experience writing insurance policies and have the historic industry knowledge that insurtechs need to be able to grow – emerging industry players that don’t see that are missing a huge opportunity. On the flip side, technology is changing fast and, therefore, changing the way people work and live. It’s the new norm for consumers to get what they want, when they want it; and while insurers might have the industry knowledge needed to be competitive, what most don’t have is the ability to be agile to protect against emerging risks and meet increasingly demanding customer needs. Largely due to the lack of technology and resources available, our partners tell us there is much higher value in cooperation, as insurtechs have the technical resources insurers need to improve time to market. For both parties, it’s a win, win. Cloud platforms are allowing insurers to quickly ideate, experiment, test and deploy new, on-demand insurance products. Since making our Insurance Cloud Services platform publicly available in January 2018, we’ve experienced higher-than-anticipated demand, causing us to make a heightened focus on global expansion as insurers increasingly realize the need to adopt agile technology. AXA XL and the Co-operators both launched their first on-demand cyber and homeshare insurance products in the last two months. Through cooperation vs. combat, the two are now ahead of the curve, with AXA XL’s product being the first ever on-demand cyber insurance product in market, and Co-operators launching the first on-demand homeshare insurance solution in Canada, allowing the company both to reach and work with customers in a way that works for them vs. the other way around. See also: A New Way to Develop Products   The path forward for fully digital on-demand insurance is moving quickly, and, as the industry continues to experience disruption, it’s critical that insurers consider not only what type of technology they need to improve internal processes and compete in the market, but also the changing, increasingly in-demand needs of their customers. Insurtechs that are able to provide solutions for insurers that allow them to quickly ideate, experiment with and launch new products are set to lead the future of the insurance evolution.

Reference-based pricing, also called metric-based pricing, is an alternative to the traditional PPO model that offers substantial cost saving and benefits for self-funded employers by leveraging fair and transparent practices. If you aren’t familiar with reference-based pricing, it could seem disruptive to your operations to make a change. However, many self-funded employers are implementing this alternative and reaping the benefits. How does reference-based pricing compare with the PPO employers are currently offering to their employees? PPO: The most prevalent form of health insurance, where the annual cost for employers increases year-over-year and high deductibles are a challenge for patients. Members use a network of hospitals and doctors under a discount to take advantage of pre-negotiated costs. Oftentimes, these discounts vary widely inside the network and result in fluctuating costs. An independent study conducted by Castlight Health, a San Francisco-based healthcare price transparency company, shows PPO allowable amounts for common procedures swing as much as 500% in some regions. The variable discounts are calculated on variable billed charges from the hospitals’ chargemaster, prices that many times are inflated and fluctuate dramatically between hospitals for the same service. In one example, the California Public Employees’ Retirement System (CalPERS), which manages the largest public employee benefit fund in the U.S, found that facilities throughout the state charged vastly different rates — between $15,000 and $110,000 — for a hip or knee replacement. Referenced-based pricing: A modern solution for self-funded employers to manage healthcare costs for their business and employees. Under this model, reimbursements to providers are based on the actual cost to deliver service or Medicare reimbursements. This more level approach starts at the bottom and adds a fair profit margin. Working with a reputable solution provider, self-funded employers can save up to 30% in their first year after switching to reference-based pricing. See also: Myths on Reference-Based Pricing   It’s not uncommon for employers to question making the switch from a PPO to a reference-based model. Is it worthwhile to make a change? Will employees understand the change? Does it require a lot of work? Let’s explore six tips for a smooth transition to reference-based pricing without disruption. 1. Do a little homework: Start by finding an experienced provider Employers should only work with partners that are trusted and experienced with providing successful reference-based pricing solutions. Look for a provider that has more than five years of experience auditing claims in all 50 states, welcomes reference calls, shares case studies from successful partnerships and retains clients long-term. 2. Schedule face time: Vet your potential provider Request to see a provider’s operations in person to assess if the provider is financially secure, is equipped with resources and demonstrates a commitment to the success of their clients. Look for a partner that welcomes site visits and pay particular attention to the size of the customer service team. 3. Commitment counts: Co-fiduciaries are an important consideration Your reference-based pricing solution provider should be a partner that is 100% invested in your success. Look for a partner that is willing to sign on as a co-fiduciary because it may be asked to assist in managing the financial assets of your plan. 4. Knowledge is power: Employee education is paramount When you make a change to a benefits package, clear communication is important to ensure employees understand the new plan. Look for a partner that will educate, answer questions and serve as a continuing resource to your office for the duration of the partnership. 5. Relationships count: Employers and medical providers must work together Reference-based pricing is not a one-size-fits-all solution. Look for a partner that collaborates with health systems (especially solution providers with established partnerships), and demonstrates dedication toward fair provider reimbursement. See also: Innovation: ‘Where Do We Start?’   6. Measure the impact: Assess how your plan is working The partnership doesn’t stop after a plan is in place! Look for a partner that is results-driven and reports on your cost savings. A provider should also provide a dedicated support specialist and be a continuing, committed resource.

Recently, I did a Kiplinger interview about shopping for homeowners insurance focused, of course, on how to save money…as are virtually all consumer articles about insurance. I tried to make a point of how important it is to understand that you can’t compare prices in isolation. It is impossible to make a rational purchasing decision without considering what that price buys you in the form of coverage and exclusions. It would be like buying a car online based solely on the name of the manufacturer and a price. Then I got a link to an article by the Texas Department of Insurance that says: How to Shop Smart for Insurance 1.  Shop Around Yes, it’s that simple. Make sure to check prices for home and auto policies at least every three years. Insurers want your business, and you often get the best rates when you’re willing to switch companies. You can also get sample rates at www.HelpInsure.com. Sorry, but no, it’s NOT that simple. You would think a regulator charged with reviewing policy forms would know that. The advice does NOT help consumers “shop smart.” In fact, it makes it far more likely that they will choose poorly, thinking that price comparison is the only criterion for buying insurance. The first statement in this advice piece says, “We have a few tips to help you get the protection you need at the best price.” None of their tips necessarily get the consumer “the protection you need” because they don’t caution about the differences in protection provided within different quotes. I did a sample price quote at the link they provided and found premiums ranging from $250 to $2,500 for the same quote. There’s no way, for the factors used in the quote, that you could have that kind of premium differential. That tells me the quoting system is likely worthless and, worse, misleading and misrepresentative of the carriers’ programs. Who is being served by this kind of system? See also: Future of Insurance Looks Very Different   Recently, I made a blog post about the bad advice that permeates the internet and media on whether someone renting a car should buy the loss damage waiver (LDW), lamenting that much of the erroneous insurance advice comes from within the insurance industry itself in the form of advertising and well-intentioned information from insurance regulators and others. How can we expect mainstream media outlets to write accurately about the insurance industry when we don’t do it ourselves?

Consumer attitudes toward the insurance industry are changing faster than ever. Millennials make up the most populous generation today, and with many of them entering their mid- and late thirties, they are shopping for insurance in higher numbers. This tech-savvy generation expects personalized services and demands greater control over their experiences and decisions. Millennial consumers are calling the shots in almost every B2C industry – and insurance is no exception. The insurance industry traditionally relied on the fear of the unknown as its most powerful sales enabler, but with millennials making decisions based on brand experience, insurers need to turn to emerging technologies to transform and customize the way they reach customers. The status quo is simply unsustainable if they want growth. Forward-looking insurers know that the key to attracting and retaining clients is to leverage predictive technology and provide them with the seamless, smart, digital-first experience they need. But for this future to become a reality, companies need to implement and use predictive analytics in a way that truly enhances the customer experience. Here are the steps every insurer needs to know before embarking on that journey: Collect the Right – Not the Most – Data Knowing the ins and outs of customer needs and behaviors is essential in operating an insurance business, but it is not enough to know the general needs of a customer base. In fact, the majority of consumers are willing to share personal information in exchange for added benefits like enhanced risk protection, risk avoidance or bundled pricing. To deliver personalized service, insurers must collect data at the individual level – and quantity does not always mean quality. The accuracy of predictive analytics relies on the certainty and relevancy of the data those systems are fed. Before doing anything else, insurers must determine exactly what information drives business decisions and collect that data on both individual and grand scale as efficiently as possible. See also: 3 Ways to Optimize Predictive Analytics   This is where the Internet of Things (IoT) steps in. As one of the most ground-breaking technologies on the market today, IoT has only just begun to realize its potential in the insurance industry. IoT sensors attached to infrastructure, cars, homes and other insurable items, can feed real-time data back to providers with unprecedented accuracy. Not only does this live feed of data prevent emergencies by identifying potential problems before they arise, the highly precise information acts as a foundation for analytics at a customer-specific level in the next phase of the process. Get Personal With Predictions Once insurers are collecting relevant, accurate and individualized data, the next step on the road to customer satisfaction is applying machine learning and AI to that information. The outcomes of this analysis not only determine truths about the current status of an asset or situation but reveal patterns that enable insurance companies to predict what is in store down the road. For an insurer, this predictive knowledge means more accurately being able to evaluate, price and plan for risk – whether evaluating individual portfolios or aggregating data to foresee larger trends in the marketplace. But as predictive technology becomes more mainstream, the true value of digital foresight will be its ability to offer the millennial customers the deep personalization and hyper-relevance they crave and expect from all their services. By transforming the industry into a predictive and even preventative experience, insurance companies are changing the status quo of fear-based customer relationships and instead leverage technology to make insurance feel tailored and assuring. Engage With Emerging Technology The insurance industry is not and never will be based on static, one-time decisions. As risk is calculated on various constantly changing variables, it is essential to continue evolving customer predictions, recommendations and prices based on incoming information. Analyzing both existing and new data from IoT sensors allows companies to pivot strategies in the face of new predictions, enhance underwriting, reduce claim ratio and remain agile to meet the needs of their customers today and tomorrow. See also: What Comes After Predictive Analytics   Just as predictions do not stand still, neither should an insurance company’s methods for determining them. In an era of hyper customer relevance, with disruptive players like Uber, Venmo and Mint, millennials have come to expect services that are not only predictive but get deeply personalized in accuracy and usability overtime. The insurance industry has traditionally lagged behind other B2C industries in terms of adoption, however, due to its changing customer base it will have no other choice than to evolve rapidly over the next few years. Placing emerging technologies like AI, machine learning, automation and IoT at the core of business operations now will be key in setting insurance up for continued progression in the future. Appealing to the new generation of insurance customer is all about offering tailored experiences that cater to their needs and expectations. The insurance industry is in for an acceleration of change to accommodate their new millennial consumer – a change fueled by technology that creates bonds of loyalty and trust via personalization, not fear.

How a building is constructed and maintained and where it is located all have a massive impact on its potential to be damaged or destroyed. That knowledge is as old as insurance itself. So why do so many underwriters still suffer from lack of decent data about the buildings they insure? And when better data does get collected for U.S. properties, why does it seem to get lost as it crosses the Atlantic? London is an important marketplace for insuring U.S. risks. It provides over 10% of the capacity for specialty risks -- those that are hard, or impossible, to place in their home market through admitted carriers. Reinsurers of admitted carriers, insurers of homeowners and small businesses in the excess and surplus markets and facultative reinsurers of large corporate risks all need property data. The emergence and growth of a new type of property insurers in the U.S. such as Hippo and Swyfft has been driven by an expectation of having access to excellent data. They are geared up to perform fast analyses. They believe they can make accurate assessments and offer cheaper premiums. The level of funding for ambitious startups shows that investors are prepared to write large checks, tolerate years of losses and have the patience to wait in the expectation that their companies will displace less agile incumbents. If this works, it’s not just the traditional markets in the U.S. that will be under threat. The important backstop of the London market is also vulnerable. So what can established companies do to counter these new arrivals? Neither too hot nor too cold The challenge for any insurer is how to get the information it needs to accurately assess a risk, without scaring off the customer by asking too many questions. The new arrivals are bypassing the costly and often inaccurate approach of asking for data directly from their insureds, and instead are tapping into new sources of data. Some do this well, others less so. We’re already seeing this across many consumer applications. They lower the sales barrier by suggesting what you need, rather than asking you what you want. Netflix knows the films you like to watch, Amazon recommends the books you should read, and soon you’ll be told the insurance you need for your home. Health insurers such as Vitality are dramatically improving the relationship with their clients, and reducing loss costs, by rewarding people for sharing their exercise habits. Property insurers that make well-informed, granular decisions on how and what they are underwriting will grow their book of business and do so profitably. Those that do not will be undercharging for riskier business. Not a viable long-term strategy. Fixing the missing data problem would be a good place to start. We recently brought together 28 people from London Market insurers to talk about the challenges they have with getting decent quality data from their U.S. counterparts. We were joined by a handful of the leading companies providing data and platforms to the U.S. and U.K. markets. Before the meeting, we’d conducted a brief survey to check in on the trends. A number of themes emerged, but the two questions we kept coming back to were: 1) Why is the data that is turning up in London so poor, and 2) what can be done about it? This is not just a problem for London. If U.S. coverholders, carriers or brokers are unable to provide quality data to London, they will increasingly find their insurance and reinsurance getting more expensive, if they can get it at all. Regulators around the world are demanding higher standards of data collection. The shift toward insurers selling direct to consumer is gathering momentum. Those that are adding frictional costs and efficiencies will be squeezed out. This is not new. Rapid systemic changes have been happening since the start of the industrial revolution. In 1830, the first passenger rail service in the world opened between Liverpool and Manchester in the northwest of England. Within three months, over half of the 26 stagecoaches operating on that route had gone out of business. See also: Cognitive Computing: Taming Big Data   Is the data improving? Seventy percent of those surveyed believed that the data they are receiving from their U.S. partners has improved little, if at all, in the last five years. Yet the availability of information on properties had improved dramatically in the preceding 15 years. Why? Because of the widespread adoption of catastrophe models in that period. Models are created from large amounts of hazard and insurance loss data. Analyses of insured properties provide actionable insights and common views of risks beyond what can be achieved with conventional actuarial techniques. These analytics have become the currency of risk, shared across the market between insurers, brokers and reinsurers. The adoption of catastrophe models accelerated after Hurricane Andrew in 1992. Regulators and rating agencies demanded better ways to measure low-frequency, high-severity events. Insurers quickly realized that the models, and the reinsurers that used the models, penalized poor-quality data by charging higher prices. By the turn of the century, information on street address and construction type, two of the most significant determinants of a building’s vulnerability to wind and shake, was being provided for both residential and commercial properties being insured for catastrophic perils in the U.S. and Europe. With just two major model vendors, RMS and AIR Worldwide, the industry only had to deal with two formats. Exchanging data by email, FTP transfer or CD became the norm. Then little else changed for most of the 21st century. Information about a building’s fire resistance is still limited to surveys and then only for high-value buildings, usually buried deep in paper files. Valuation data on the cost of the rebuild, another major factor in determining the potential scale of loss and what is paid to the claimant, is at the discretion of the insured. It's often inaccurate and biased toward low values. If data and analytics are at the heart of insurtech, why does access to data appear to have stalled in the property market? How does the quality of data compare? We dug a bit deeper with our group to discover what types of problems they are seeing. In some locations, such as those close to the coast, information on construction has improved in the last decade, but elsewhere things are moving more slowly. Data formats for property are acceptable for standard, homogeneous property portfolios being reinsured because of the dominance of two catastrophe modeling companies. For non-admitted business entering the excess and surplus market, or high-value. complex locations there are still no widely adopted standards for insured properties coming into the London market, despite the efforts of industry bodies such as Acord. Data is still frequently re-keyed multiple times into different systems. Spreadsheets continue to be the preferred medium of exchange, and there is no consistency between coverholders. It is often more convenient for intermediaries to aggregate and simplify what may have once been detailed data as it moves between the multiple parties involved. At other times, agents simply don’t want to share their client’s information. Street addresses become zip codes, detailed construction descriptions default to simple descriptors such as "masonry." Such data chaos may be about to change. The huge inefficiency of multiple parties cleaning up and formatting the same data has been recognized for years. The London Market Group (LMG), a powerful, well-supported body representing Lloyd’s and the London company market has committed substantial funds to build a new Target Operating Model (TOM) for London. This year, the LMG commissioned London company Charles Taylor to provide a central service to standardize and centralize the cleaning up of the delegated authority data that moves across the market. Much of it is property data. Once the project is complete, around 60 Lloyd’s managing agents, 250 brokers and over 3,500 global coverholders are expected to finally have access to data in a standard format. This should eliminate the problem of multiple companies doing the same tasks to clean and re-enter data but still does nothing to fill in the gaps where critical information is missing. Valuation data is still the problem Information on property rebuilding cost that comes into London is considered “terrible” by 25% of those we spoke to and “poor quality” by 50%. Todd Rissel, the CEO of e2Value, was co-hosting our event. His company is the third-largest provider of valuation data in the U.S. Today, over 400 companies are using e2Value information to help their policy holders get accurate assessments of the replacement costs after a loss. Todd started the company 20 years ago, having begun his career as a building surveyor for Chubb. The lack of quality valuation data coming into London doesn’t surprise Todd. He’s proud of his company’s 98% success in accurately predicting rebuilding costs, but only a few states, such as California, impose standards on the valuation methods that are being used. Even where high-quality information is available, the motivation may not be there to use it. People choose their property insurance mostly on price. It’s not unknown for some insurers to recommend the lowest replacement value, not the most accurate, to reduce the premium, and the discrepancy gets worse over time. Have the losses of 2017 changed how data is being reported? Major catastrophes have a habit of exposing the properties where data is of poor quality or wrong. Companies insuring such properties tend to suffer disproportionately higher losses. No companies failed after the storms and wildfires of 2017, but more than one senior industry executive has felt the heat for unexpectedly high losses. Typically, after an event, the market "hardens" (rates get more expensive), and insurers and reinsurers are able to demand higher-quality data. 2017 saw the biggest insurance losses for a decade in the U.S. from storms and wildfire -- but rates haven't moved. Insurers and reinsurers have little influence in improving the data they receive. Over two-thirds of people felt that their coverholders, and in some cases insurers, don’t see the need to collect the necessary data. Even if they do understand the importance and value of the data, they are often unable to enter it into their underwriting systems and pipe it digitally direct to London. Straight-through processing, and the transfer of information from the agent’s desk to the underwriter in London with no manual intervention, is starting to happen, but only the largest or most enlightened coverholders are willing or able to integrate with the systems their carriers are using. We were joined at our event by Jake Hampton, CEO of Virtual MGA. Jake has been successful in hooking up a handful of companies in London with agents in the U.S. This is creating a far stronger and faster means to define underwriting rules, share data and assess key information such as valuation data. Users of Virtual MGA are able to review the e2Value data to get a second opinion on information submitted from the agent. If there is a discrepancy between the third party data that e2Value (or others) are providing and what their agent provides, the underwriter can either change the replacement value or accept what the agent has provided. A further benefit of the dynamic relationship between agent and underwriter is the removal of the pain of monthly reconciliation. Creating separate updated records of what has been written in the month, known as "bordereau," is no longer necessary. These can be automatically generated from the system. Even though e2Value is generating very high success rates for the accuracy of its valuation data, there are times when the underwriter may want to double-check the information with the original insured. In the past, this required a lengthy back and forth discussion over email between the agent and the insured. JMI Reports is one of the leading provider of surveys in the U.S. Tim McKendry, CEO of JMI, has partnered with e2Value to create an app that provides near-real-time answers to an underwriter’s questions. If there is a query, the homeowner can be contacted by the insurer directly and asked to photograph key details in his home to clarify construction details. This goes directly to the agent and underwriter enabling the accurate and fast assessment of rebuild value. What about insurtech? We’ve been hearing a lot in the last few years about how satellites and drones can improve the resolution of data that is available to insurers. But just how good is this data? If insurers in London are struggling to get data direct from their clients, can they, too, access independent sources of data directly? And does the price charged for this data reflect the value an insurer in London can get from it? Recent entrants, such as Cape Analytics, have also attracted significant amounts of funding. They are increasing the areas of the U.S. where they provide property information derived by satellite images. EagleView has been providing photographs taken from its own aircraft for almost 20 years. CEO Rishi Daga announced earlier this year that their photographs are now 16 times higher-resolution than the best previously available. If you want to know which of your clients has a Weber barbeque in the backyard, EagleView can tell you. Forbes McKenzie, from McKenzie Insurance Services, knows the London market well. He has been providing satellite data to Lloyd’s of London to assist in claims assessment for a couple of years. Forbes started his career in military intelligence. “The value of information is not just about how accurate it is, but how quickly it can get to the end user,” Forbes says. See also: How Insurtech Helps Build Trust   The challenges with data don’t just exist externally. For many insurance companies, the left hand of claims is often disconnected from the right hand of underwriting. Companies find it hard to reconcile the losses they have had with what they are being asked to insure. It’s the curse of inconsistent formats. Claims data lives in one system, underwriting data in another. It’s technically feasible to perform analyses to link the information through common factors such as the address of the location, but it’s rarely cost-effective or practical to do this across a whole book of business. One of the barriers for underwriters in London in accessing better data is that companies that supply the data, both new and old, don’t always understand how the London market works. Most underwriters are taking small shares of large volumes of individual properties. Each location is a tiny fraction of the total exposure and an even smaller fraction of the incoming premium. Buying data at a cost per location, similar to what a U.S. domestic insurer is doing, is not economically viable. Price must equal value Recently, the chief digital officer of a London syndicate traveled to InsureTech Connect in Las Vegas to meet the companies offering exposure data. He is running a POC against a set of standard criteria, looking for new ways to identify and price U.S. properties. He’s already seeing a wide range of approaches to charging. U.K.-based data providers, or U.S. vendors with local knowledge of how the information is being used, tend to be more accommodating to the needs of the London insurers. There is a large potential market for enhanced U.S. property data in London, but the cost needs to reflect the value. Todd Rissel may have started his career as a surveyor and now be running a long-established company, but he is not shy about working with the emerging companies and doesn’t see them as competition. He has partnerships with data providers such as drone company Betterview to complement and enhance the e2Value data. It is by creating distribution partnerships with some of the newest MGAs and insurers, including market leaders such as Slice and technology providers like Virtual MGA, that e2Value is able to deliver its valuation data to over a third of the companies writing U.S. business. Looking ahead It is widely recognized that the London market needs to find ways to meaningfully reduce the cost of doing business. The multiple organizations through which insurance passes, whether brokers, third-party administrators or others, increase the friction and hence cost. Nonetheless, once the risks do find their way to the underwriters, there is a strong desire to find a way to place the business. Short decision chains and a market traditionally characterized by underwriting innovation and entrepreneurial leaders means that London should continue to have a future as the market for specialty property insurance. It’s also a market that prefers to "buy" rather than "build." London insurers are often among the first to try new technology. The market welcomes partnerships. The coming generation of underwriters understands the value of data and analytics. The London market cannot, however, survive in a vacuum. Recent history has shown that those companies with a willingness to write property risks with poor data get hit by some nasty, occasionally fatal surprises after major losses. With the increasing focus by the regulator and Lloyd’s own requirements, casual approaches to risk management are no longer tolerated. Startups with large war chests from both U.S. and Asia see an opportunity to displace London. Despite the fears that data quality is not what it needs to be, our representatives from the London market are positive about the future. Many of them are looking for ways to create stronger links with coverholders in the U.S. Technology is recognized as the answer, and companies are willing to invest to support their partners and increase efficiency in the future. The awareness of new perils such as wildfire and the opening up of the market for flood insurance is creating opportunities. Our recent workshop was the first of what we expect to be more regular engagements between the underwriters and the providers of property information. If you are interested in learning more about how you can get involved, whether as an underwriter, MGA, provider data, broker or other interested party, let me know.

To be reminded of the power of insurance these days, I just have to step out the front door. I live about 80 miles south of the Camp Fire in northern California, and, even at this distance, the effect is obvious. The color of the air—not something I usually notice—sometimes reminds me of Mordor in the "Lord of the Rings" movies.

These fires, like every natural disaster, also serve as a reminder of how far we need to go as an industry, and not just to show people the value of insurance and narrow the "protection gap." We need to innovate to provide better, much cheaper policies that will be bought, not sold. We also need to find new business models, including ones based on helping people head off claims—if not from natural disasters, then at least from more controllable issues.

To that end, I encourage you to read a survey on innovation readiness that we did with The Institutes, which you can download for free here. The survey, led on our end by Guy Fraker and Paul Winston, shows that companies are making measurable progress but are still struggling, then provides a five-point checklist to overcome the common problems.

The Institutes will shortly unveil an insurance innovation curriculum, developed with Guy Fraker, that can help you build a culture of innovation and attack point #5 on that checklist: Encouraging employee participation. When the curriculum is ready for release, we will provide more details.

In the meantime, you might want to refer back to two detailed pieces from Guy that I've previously highlighted, on what's wrong and what's right with current innovation efforts. You can find them here and here.

As always, let me know if you have questions or if we can help.

In any case, let's all continue to hope and pray that the fires throughout California are contained as quickly as possible, with no more loss of life, and that all those affected can start to pull their lives together again as quickly as possible, assisted by the very best efforts of the insurance industry.

Have a safe week.

Paul Carroll
Editor-in-Chief

I start this article with listening, as that truly comes first. Learning and leading follow. Used together, these tools can make the construction site a much safer place indeed. Listening When I was on the farm, we broke the axle on a piece of equipment that cut grass to bale. Dad took me to the John Deere dealer, and the conversation went like this: "Max, my haybine is in the middle of the field on its belly. Broke most of the knives, so I need a dozen or two, and the main axle sheared right off." "Well, Robert, I never had an axle break on a haybine since I owned this place. But, let me get you one." (As an aside, dealer Max was no fan of my dad.) As Max left to grab the part, Dad whispered to me, "If they never break, why does he keep them in stock?" This was my early lesson on listening. In construction, we easily criticize the guy falling off a ladder. "Of course he fell, he was on the top step!" If we had asked the injured worker and listened to why he was on top, he likely would have replied, "That's the ladder they gave me." My firm works in semiconductor factories and manufacturing plants across the U.S. Today, we celebrated one full year without a recordable incident at our largest site. Most of our projects are routinely injury-free. At a recent site gathering of safety managers from other trades (and our client), the conversation centered on how some of the workers could just not "get it," and the thought was offered that stricter requirements or more scrutiny would turn them around. We offered that we had a similar project 20 miles away that many considered a safe, model site. No injuries, no drama and a happy workforce. We proposed a challenge to the group. (This is the "leading" part of our safety philosophy and why our firm is considered a leader in our field.) We told them (not suggested) that we would interview that model project's team and share what was working at their site with everyone. So we took the time to listen to our "model" team: John Wood and Steven Enright, our safety managers; Mario Gabriel, our project director; and Brian LaRosa, one of its foremen, who truly stands out. These guys were excited and happy that someone took the time to listen. Filming was simple: a cellphone on a stand in a break room and lighting supplied by a window. It was a big success, and the lamenting group, after watching our interviews, went on and interviewed 30 other folks in the field who know what works. That's how you lead. You may think it odd I included the names of our team, but we need to recognize success more often and spend less time publishing rates that highlight our misfortune. See also: Adopting New Standards of Safety   Summing up, take the time to listen to those doing the work. When there is an accident (remember the guy on the ladder?), interviews are the first thing we do to learn more about what went wrong. Consider the power of asking what he needed to be safe—before he fell. And then remember to thank the person who taught you. It is critical to let those who share their tips know how valuable they were to others. Before you move on to your next battle, thank the warriors from the last. Learning I love the idea of simplification. I do not like clutter. So when I spotted the practice of piling as many tools on a cart as we can to take into a clean room, I asked why? "Well, that's how we have always done it." That, of course, grabbed my attention. But, consider the fact that a pilot uses the same preflight checklist every time. If you ask him or her why, the reply may be: "We have always done it this way." Considering we have not had an air disaster in the U.S. in  years, we do need to listen and learn from the experts. However, remember, someone once suggested the idea of a checklist to a pilot. So, I reviewed the data for the last few years—had we ever had an incident or injury from a messy cart? No. Does the cluttered cart pose a hazard to anyone? Kinda. Have we ever had complaints from the customer on how we use and store these carts? Yes. Should we take the time to organize these carts to simplify? Yes—but with the users. To step in and organize a good worker's cart or toolbox would be like rooting around in my wife's pocketbook; something you never do. New to safety, I was once pointedly told by an upset ironworker in Philadelphia (as I searched through his gang box for unsafe things) that you need to ask the owner first and then look with him, my listening lesson. Back to learning and listening. When I asked a foreman why the cart was often messy, he replied that it was a real hassle to leave the work area (clean room), ungown, get the tool he needs, wipe down the tools, regown and return to the work area. That system was the contributor to clutter. I asked why he didn't install a simple shadow box rack on top to hang his tools; his answer: "They just give me the cart.…" I replied, "If we can cut down the time it takes for you to search through the clutter to find your level and make sure everything you could possibly need is on the cart, would that make the job easier and faster?" That's what we are figuring out, together, today. Great workers treasure their tools and are proud of how they are used. Any changes we recommended must answer his or her classic question: "What's in this for me?" The answer we are working toward is for those users to be part of something big (leading) and for them to want to share their knowledge (listening) and then share that outcome with the rest of our company, our clients and the industry (leading). Leading Reportedly there is a quote at West Point that goes something like, "Before you can lead, you need to learn to march." Over the course of my career, I have witnessed and worked for firms that are more than happy to just march. The interview approach we just discussed is a great example of stepping up in front of your clients and your competitors to lead. Leading is easier in safety, for we love to share everything we know and do not see another contractor's safety manager as a competitor. We are one of the few groups that strive to protect everyone—not just whom we work for. I call my safety team the "lifesavers" with pride, for that is what true safety professionals are. The tendency for many firms is to follow because it's easier. But as with a sled dog, unless you are the lead dog, the view ahead is never pretty. I once had the idea of a national database to share lessons learned among general contractors and our owners. The lessons would be filtered through a well-known safety school and made available to everyone. When I proposed the idea to my boss at the time, he told me, "TJ, it's not what you can do for the industry, it's what you can do for this firm." That's following. Organizations that are content with marching, not leading, will realize little improvement in their safety efforts. Rates will be static, and people will be unhappy. Many of us love to lead, and many of those doing the work with us want to be a part of that. When everyone is involved in leading, you are surrounded by leaders, not followers. See also: Connected Buildings and Workplace Safety   In one of my most satisfying efforts while working at Turner, I gathered 14 of my safety professionals, and we brainstormed in a basement break room for an hour. While I sat atop a stool wearing a wizard's outfit and cap, we had a focused and fun conversation on what the perfect scissor lift could look like. No suggestion was too wild. What resulted were some of the freshest ideas from some of the best people. We drove that list of suggestions to Canada and met with the largest scissor lift manufacturer in North America. Some of those ideas can now be seen on lifts today. That's leading. Conclusion As you plan your day, look for those exciting opportunities to lead, and give others the chance. It will bring a sense of professionalism to you and highlight your company, and, for those doing construction safety work each day, you will see excitement in the ranks and pride in their faces, and everyone will look forward to going to work. This article was first published on IRMI.com and is reproduced with permission. Copyright 2014, International Risk Management Institute, Inc.

Have you ever wondered why, when you buy software, you are provided a rather lengthy notice outlining its limited warranties and generally telling you what it will not do? As well, think back to when you bought that insurance policy for its investment purposes to resell it later in the market. You haven’t? Which are you more likely to do, sue an individual human being or sue a faceless conglomerate? "Commoditization" is a buzzword in the insurance industry: the marketing of insurance as if is a fungible good. Selling on price alone, trying to shape the industry into something that can successfully copy the success of Amazon. Close behind is blockchain, praised for its “open distribution ledger” in the transaction process. With it is its cousin, big data, trying to minimize the human touch and handle the entire insurance process by using data alone in its stead. There are elements that are likely to get in the way of a smooth run at these efforts by insurers. See also: Blockchain’s Future in Insurance   The legal definition of “commodity,” the root word for "commoditization," includes the word “good” – any article of movable or personal property. For the practicing attorney in the U.S., the Uniform Commercial Code (UCC) comes to mind with the talk of goods, specifically Article 2. Under the UCC, "goods" mean all things that are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. "Contract for sale" includes both a present sale of goods and a contract to sell goods at a future time. A quick note is that the U.S. courts have determined software to be a good/commodity. Explaining to the jury that an insurance policy being downloaded from the internet is not a good while software being downloaded from the internet is a good brings up the possibility that the “commoditized” insurance policy sold by the unaware insurer may find itself subject to a completely different branch of law than it is used to, the UCC and its rules and warranties. The UCC includes the warranty that the “good” (commodity) is fit for an ordinary or the specific purpose that may only be changed by amending it with a written exclusion or modification of the warranty. Now you know the answer to question one above. Software is a good/commodity that provides for the insurer having to give you a notice limiting or excluding the UCC warranty. At the present time, insurers do not provide you notice limiting or amending any UCC warranties, but that may change. Blockchain may provide a distinct advantage in the transactional process. However, the transactional process in insurance is rather short; there are not various payment networks generally involved. The seller sells, and the buyer buys, and for the most part the transaction is complete. Once the policy is bought, the buyer cannot then resell the commodity/good on the open market; insurance is not commercial paper. Commercial paper is a written instrument or document that manifests the pledge or duty of one person to pay money. One of the most significant aspects of commercial paper is that it is negotiable, which means that it can be freely transferred/assigned from one party to another, either through endorsement or delivery. The terms "commercial paper" and "negotiable instrument" can be used interchangeably. However, the insurance policy itself prohibits such commercial paper marketability and negotiability via internal contract prohibitions against its easy transfer/assignment to another (because of prohibitions against assignment of the policy without specific written consent.) The UCC identifies four basic kinds of commercial paper: promissory notes, drafts, checks and certificates of deposit. The most fundamental type of commercial paper is a promissory note, a written pledge to pay money. A promissory note is a two-party paper. The maker is the individual who promises to pay, while the payee or holder is the person to whom payment is promised. Insurance could be considered a conditional promissory note (conditioned on the happening of a covered peril causing damages to the insured property, whereby the insurer pledges to pay). Now you realize why you didn’t recall buying insurance as commercial paper for its investment purposes; you can’t. See also: Even in Big Data Era, Relationships Count  Big data is seen by some insurers as a fix to the “brain drain” caused by the retiring baby boomers that are skilled in the insurance “arts,” rather than actually training newer employees in what has been a successful historical model in insurance. Removing the personal touch in the equation may be a mistake. Walking into Walmart, you are often greeted with a friendly hello by the official greeter. Walmart brought greeters back after an unsuccessful cost-cutting experiment removing them resulted in an uptick in both lawsuits and shoplifting. As innocuous as the initial move sounds, the fact is that people do not sue or steal as often when it involves a human personality as when it only involves a faceless corporation. I write elsewhere, “Go ahead, insurers, cut out the personal touch, the plaintiff’s bar will be glad to step in to that spot when their client is now more likely to sue you.” The answer to question three is that, for most people, suing a faceless corporation is generally not an issue. Summarizing:

1. Commoditization may lead to application of the UCC against unsuspecting insurers.
2. The blockchain advantages in commercial paper/negotiable instruments/open transactions are lessened by the realities that the insurance policy prohibits ease of transferability and that insurance does not possess the attributes of Amazon, although insurers would like to emulate its marketing success.
3. Removing the personal touch in the insurance process may increase the likelihood of being sued.

“Karin, TRUST me. I would LOVE to delegate more of these decisions and loosen up the reins, but then I go out into the field and find all this junk. I just don’t think we have the critical thinking skills we need for success.” Have you ever said those words? Yeah, me too. Can you imagine the freedom in knowing that your team will use the same (or better) “common sense” as you when the going gets tough? I love this simple definition of critical thinking.

Critical thinking is not a matter of accumulating information. A person with a good memory and who knows a lot of facts is not necessarily good at critical thinking. A critical thinker is able to deduce consequences from what he knows, and he knows how to make use of information to solve problems, and to seek relevant sources of information to inform himself.

So how do you build THAT? 5 Ways to Build Your Team’s Capacity to Think Critical thinking is not a gene. Yes, it comes more naturally to some, but it is teachable (much of the time). Here are a few ways to get started. 1.  STOP being the hero. It’s hard. Who doesn’t love being superman? Particularly when you know EXACTLY what to do. It’s even harder if your boss is a superman, too, and you’re the go-to guy. There’s a certain rush from jumping in and doing what must be done at exactly the right time. And it can’t hurt, right? The worst you’re going to get after your superman intervention is a THANK YOU and a developmental discussion six months from now, saying you need to build a bench. But here’s what we hear offline. “She’s great. But she’s a do-er. I’d put her in my lifeboat any time. But her team is weak.” See also: How to Pick Your Insight Team  Great leaders don’t have weak teams. Great leaders take the time to slow down just enough even during times of crises, to bring others along and help them rise to the occasion. Great leaders aren’t heroes, they’re hero farmers.  2. Connect what to why (more often than you think is practical or necessary). Yes, you can overload your team with TMI (too much information), but the truth is I’ve NEVER heard a manager complain that the boss overexplained “why.”  It’s impossible to have great critical thinking if you’re not connected to the big picture (including key challenges).  If you want your team to exercise better judgment, give them a fighting chance with a bit more transparency. 3. Expose them to messy discussions. It’s tempting to think we must have it all figured out before wasting our team’s time. But if you’re really working to build leadership capacity, it’s also important to sometimes bring your folks in BEFORE you have a clue. Let them see you wrestle in the muck and talk out loud. “We could do this … but there’s that and that to consider … and also the other thing.” 4. Hold “Bring a Friend” staff meetings. An easy way to do #3 is through “Bring a Friend” staff meetings. Once in a while, invite your direct reports to bring one of their high-potential employees along to your staff meeting. Of course, avoid anything super-sensitive, but be as transparent as possible. Every time I’ve done this, we’ve had employees leaving the meeting saying, “I had no idea how complicated this is,” and “Wow, that sure gave me a different perspective.” See also: The Keys to Forming Effective Teams   5. Ask strategic questions (and encourage them to go research the answers).

• Why have your results improved so substantially?
• What was different in August (or whenever you saw a change in pattern)?
• What evidence do you have that this strategy is working?
• How does this compare with your competition?
• What’s changed since implementing this program?
• How do you know it’s working?
• What are the employees saying about the change, and how do you know?
• How do you know this is sustainable?
• What would a pilot teach us?

Your turn. What are your best practices for building critical thinking capacity?

The insurance industry was built on mutual trust. Insurance companies trusted their insureds to give truthful accounts of losses and the events that caused them, and insureds in turn trusted their insurance company to pay what was owed under the terms of the insurance contract. The ability to gather and parse massive amounts of data, however, has changed the way insurance companies and their customers regard the trust relationship, Wilds Ross at KPMG says. Available data can now help insurance companies create personalized coverage for each customer, but it can also raise doubts in customers’ minds as to how that information is protected and used. Here, we explore some of the biggest trust hurdles to arise in recent years and how insurtech is poised to address the twin issues of privacy and transparency to rebuild trust. A Crisis of Trust? Customers are pretty evenly split as to their trust in insurance companies, according to data journalist Paul Hiebert. Forty-seven percent of Americans say they trust insurers, and 43% say they do not. There’s a clear generational trend, as well, with a greater lack of trust in customers younger than 55. Further, only 42% of people agree that insurance companies act in the best interests of their customers. As a result, many people are choosing to go without insurance rather than work with an insurance company they don’t trust. For instance, 83% of California homes lack earthquake insurance, financial columnist Liz Pulliam Weston writes, in part because customers don’t trust that available earthquake policies will come close to addressing their needs after a catastrophe. See also: Insurtech Starts With ‘I’ but Needs ‘We’   Insurtech startups are sensitive to the atmosphere of mistrust and are capitalizing on it, say Jagdev Kenth and Grace Watts at Willis Towers Watson. For instance, German startup Friendsurance uses the trust built in a peer group to take a sharing economy approach to insurance. Meanwhile, Lemonade publishes its flat fee of 20% of premiums and its donation of unused money to charity each year. “We have been giving insurance a free pass for way too long,” says Sophie Grønbæk, co-founder and CEO of insurtech startup Undo. “The products are confusing, which means that customers are completely dependent on the insurance company.” The power to change this relationship — and the atmosphere of suspicion it has created — lies with insurance companies, and insurtechs are taking an early lead. “The insurtechs can use their cost efficiencies to provide bespoke policies that create an intimacy with a customer and that, in turn, builds trust,” says Etherisc co-founder Stephan Karpischek. Yet the use of technology for its own sake creates additional uncertainties, particularly when it comes to privacy. The Links Between Privacy, Transparency and Consumer Trust “Consumer trust in insurance has been badly hit by distrust of financial services following the banking crisis,” Fairer Finance’s Melissa Collett says. This mistrust sprang from countless stories of people losing their homes and life savings — a catastrophe that, in turn, sprang from a lack of privacy and transparency in the financial industry. The mistrust spillover carries with it the same concerns in customers’ minds. Can insurance companies be trusted to keep their information safe, particularly in a world where identity theft and digital compromise is rampant? What are insurers doing with their information — and their hard-earned premium dollars — anyway? While state and federal regulations set the bar for privacy in many ways, insurance companies that rely solely on regulations for guidance often find themselves at a loss, entrepreneur Jason T. Andrew says. Because lawmaking tends to lag behind the rise of the social problems it addresses, concerns about data breaches and identity theft are already common — and customers want to see every business, including insurers, taking an aggressive approach. Even insurance companies with a strong commitment to privacy, however, may not be able to build trust on that commitment alone, particularly if it is not communicated or demonstrated clearly. Customers want to know how, where, why and with whom their information is shared. Thus, the shift to a customer-focused model has started to encourage transparency among insurance companies, consultant David Cabral says. Transparency sells, which means customers are hungry for it. Yet when it comes to implementing transparency, many insurance companies find themselves with little regulatory guidance. “Consumer protection in most domains of financial regulation centers on transparency,” University of Minnesota Law School Professor Daniel Schwarcz wrote in a 2014 article for the UCLA Law Review. Insurance companies, however, are an anomaly: State regulations of insurers typically don’t address transparency at all. Where transparency regulations exist, they’re often misguided or poorly written, which can make consumer trust issues worse. Building transparency and the trust that comes with it, then, lies in the hands of insurance companies rather than in the regulatory power of the state. And as Risk Cooperative founder and CEO Dante Disparte writes, insurtech ventures are demonstrating technology’s myriad opportunities to build that transparency. Building Trust Through Technology Technology alone won’t solve the trust problem. Far from being neutral or disinterested, algorithms have been found to replicate societal biases in everything from job recruiting to evaluating parole requests, FiveThirtyEight’s Laura Hudson reports. Meanwhile, interactive voice tools like Google Duplex have been criticized for misleading customers who believe they’re talking to a human, reporter James Ball points out. Instead, insurance companies seeking to build trust with customers — and to rely on their own ability to trust those customers in turn — will need to apply technological solutions thoughtfully to their current processes to produce results consistent with their own visions, missions and goals. “Gathering data is only beneficial to insurance companies insofar as it raises the profit/policy ratio or increases the overall policies sold rate,” Sureify CEO Dustin Yoder writes, arguing in favor of a well-thought-out approach to customer privacy and transparency. See also: How Insurtechs Can Win Consumers’ Trust   Cake & Arrow’s Christina Goldschmidt suggests that to improve customer trust relationships, insurers could learn from the application of e-commerce tools in the retail sector. By using tech tools like a SaaS platform to establish consistent workflows, enable customization, build a more interactive marketing approach and protect customer information within a de-siloed company, insurers can make it easier to provide trustworthy service and to gather trustworthy data. Building trust with customers is a multi-step process that technology can facilitate, says Alex Schmelkin, also at Cake & Arrow. For instance, tech tools can make it easier to allow customers to interact with the company via their preferred channels; help insurance company staff stay on track with the company’s goals; and incorporate new products, services and tools to provide a better customer experience. The single best step may be to talk more about customers and less about tech. By focusing on words like tech and digital, companies are focusing on the tools, not the customers, says Zaid Al-Qassab, chief brand and marketing officer of telecommunications group BT. “Write a brief that’s about your customer and business results you hope to achieve,” Al-Qassab says. “Let’s talk about target audience and how to sell to them” — and how to leverage technology to do so in a trustworthy fashion.