This is the third in a series. The first two articles can be found here and here.  When catastrophes strike, you have no time. You’re under pressure to quickly understand the financial impact of an event and provide estimates to management. At the same time, you (and your team) are constantly tracking the event, processing hazard data, making sure exposure data is accurate, pulling reports and (let's hope) beginning outreach to insureds. The last item—customer outreach—may suffer, though, when the other to-dos consume your time and resources. Speed and quality of response following catastrophes can be an asset to your organization—and a key reason why your customers choose you over your competitors—but only if you can make your event response operations run like clockwork. This entails moving away from the status quo and integrating elements of automation into your event response processes. Let's take a look at some of the challenges you may face and how to implement a more proactive approach for minimal cost and disruption. Hurricanes, in particular, illustrate the problem of quickly deriving insight from data. For example, does the following scenario sound familiar? Imagine a hurricane strikes... ...and it’s affecting Texas, Florida or the Carolinas (probably not too hard to imagine, actually). Management is asking for the estimated financial impact of this event, and your stress levels are rising. It’s all hands on deck! 1) Get event data You go to the NOAA website, pull down wind datasets from the latest update and work to get them into a usable format. 2) Intersect with your portfolio Now, it’s time to intersect the footprint with your portfolio data, which may take another hour or so. 3) Update portfolio After you get everything set up, you realize your portfolio is six months old, which may over- or underestimate your actual exposure. Do you pull an updated snapshot of your exposures? Probably not, because there isn’t enough time! 4) Run financial model SQL scripts With a manual intersection process, you are likely unable to easily access the impact of policy terms and conditions, so you’ll need to run some financial model scripts to determine the actual exposure for this event. 5) Create and share reports You finally get some financial numbers ready and format them into a nice report for management. Then, you think about what you actually had on your to-do list for the day before the hurricane was in the picture...or, wait, maybe not...because just then you see that NOAA has published the next snapshot of the hurricane. Rinse and repeat. It’s going to be a long night. See also: How to Predict Atlantic Hurricanes   Let’s face it, if you can’t extract insight from data fast enough to mitigate damage or provide a timely course of action, your operational efficiency and downstream customer satisfaction go downhill fast. And just think, this was for a single data source. Realistically, you have to perform these same steps across multiple sources to gain a complete understanding of this event. (e.g. KatRisk, Impact Forecasting, JBA flood, NOAA probability surge). What makes the process so inefficient?

• You had to source the data yourself and operationalize it (i.e., get it into a usable format)
• You had to navigate the complexity of the data, which can be exceptionally time-consuming (depending on the source, resolution and other variables)
• You realized your portfolio data was out of date (this is a big problem because how can you determine actual financial impact against outdated information?)
• You had to manually run a financial model after determining the exposures that could be affected by the event
• And, of course, you had to manually pull the information together into a report for stakeholders

So what can you do? Application programming interface (API) integrations help to solve these challenges by ensuring you always have the latest hazard data and portfolio snapshot available. If you invest just a few hours to get your data configured with a data import API like SpatialKey offers, you’ll always have the latest view of your exposures ready to analyze—without ever lifting a finger. You’ll save countless hours by investing just a few up front. This also enables quicker and more accurate analyses downstream because you won’t be over- or understating your exposures (not to mention making errors by scrambling at the last minute to get a refreshed snapshot). Imagine another hurricane strikes...but this time you're set with automation Those couple hours that it took to get your portfolio data integrated and automation in place with a solution like SpatialKey are paying off (no deep breaths required). Within moments of NOAA publishing an update, you receive an email notifying you of the financial and insured impact. With the click of a button, you’re in a live dashboard, investigating the event, your affected exposures and more. You still have to get those numbers to management, but this time you can breathe easy knowing that your numbers are not only accurate, but that the whole process took a fraction of the time. Now when NOAA (or any other public or private data provider) pushes the next update, you’ll be set with a highly scalable infrastructure that enriches your data, calculates financial impact and produces a report within minutes. Why was this process much more efficient?

• Because you invested a couple hours up front to integrate API technology, your exposure data was up to date
• You had access to pre-processed, ready-to-use hazard footprints as they became available
• The event was monitored 24/7 so you didn’t have to constantly track it and pull reports to understand what changed
• Custom filters and thresholds ensured you were never inundated with notifications and only received metrics that you care about
• You saved a bundle of time because a financial report was auto-generated for you to pass along to upper management
• You were able to quickly share reports across teams so claims could get a head start on their customer outreach

Now, you’ll never be a bottleneck in the process of understanding and communicating the impact of an event to your stakeholders. And, with all the time you’ve saved, you can use advanced analytics solutions to contextualize the event and dive deeper into investigating it some more. Tick tock: It’s time to make your event response run like clockwork It’s clear there’s a better way to tackle the growing challenge of deriving insight from data and quickly understanding the impact of an event. If you lack the ability to operationalize and extract insight from time-critical data, you’re operating in status quo when your management team and customers expect to know more about an event, and sooner. Fortunately, automation doesn’t have to be a time-consuming or costly endeavor. There are simple ways to automate your manual processes, such as API integrations, that save time and steps along the way. “Automation” can carry with it preconceptions of disruption and heavy investment, but this is not true of a data enrichment and geospatial analytics solution like SpatialKey. Automating your event response operations can improve your customer retention and drive efficiencies now—not years from now.

Life insurance remains a foundation for transferring wealth to the next generation. But during recessions, life insurance companies could be under a threat of extinction as consumers may cut back on or downsize their plans and coverages, especially because life insurance might not be seen as a necessity to consumers. As 2019 shapes up to be a banner year for some insurance carriers, concerns are being raised about a potential economic slowdown, if not a full-fledged recession, in as early as 2020. In fact, Vanguard Group Chief Investment Officer Greg Davis recently warned in an interview that the probability for a recession by late 2020 is a 50-50 chance. Creating a consistent influx of commission-based transactions and keeping up with the market and competitors is crucial for life insurance carriers or an insurance agent. To survive the next recession, insurers are adopting new technologies and investing heavily in insurtech initiatives. According to a recent report by McKinsey, titled “Life insurance and annuities state of the industry 2018: The growth imperative,” insurtech drew $140 million of investments in 2011, surging to $3.5 billion in 2017. The average investment stemming from insurtech grew from $5 million in 2011 to $35 million in 2017. More than ever, carriers need to be prepared during a recession and maintain their growth momentum by adopting technology to streamline sales and distribution, adapt to the untapped millennial market and lower costs. See also: How to Resuscitate Life Insurance   Streamlining sales and distribution Deploying insurtech is enabling insurers to create and launch digital life and annuity products in months instead of years that leverage publicly available data such as electronic medical records and health claims data, enabling real-time decisions so carriers can automate the underwriting and policy application process. Additionally, instead of weeks, consumers’ applications only take minutes to complete, with instant approval notification, omni-channel payment options and policies issued directly from the electronic customer portal to the policyholder’s email inbox. Adapting to the millennial audience According to a report from LIMRA, there still are approximately 50 million households (about 40%) that recognize the need for life insurance. However, 37.5 million households remain uninsured. With the number of consumers who have attempted to purchase life insurance online tripling since 2011, combined with the preferences of the vastly untapped and underinsured millennial and mid-market consumers to purchase insurance online, the need for an efficient and profitable direct-to-consumer distribution channel has never been greater. Consumers are looking to purchase insurance faster as well as with the simplicity of a single click of the button, enhancing the insurance industry's need for an efficient and streamlined distribution channel. Along with changing the consumers’ views on the difficulty of obtaining life insurance, deploying a simplified technology solution can help insurance carriers reach an untapped, underinsured millennial market during low economic growth. Lowering operating costs In the report by McKinsey, the insurance industry has shown a disappointing track record of managing costs. A poll stated that senior executives from insurance firms estimated that the insurance industry needs to reduce its costs by 35% to sustain current expense levels. See also: Making Life Insurance Personal   Based on risks and opportunities, companies are encouraged to identify any cost savings. Companies are assessing revenue recognition and leasing accounting standards. Along with streamlining distribution method functions and adapting to the millennial audience, technologies like robotic process automation are being used to automate back office administrative tasks. Digitizing repetitive actions can allow insurers’ to focus on new business. In difficult economic times, it is important that insurance carriers not only bring in new business but maintain existing client relationships, as it is better to keep a client at a lower cost than lose the account (and income) entirely. Showing concern for a business’ clients during recessions goes a long way to keeping clients for life.

“Digital insurance” was an exciting concept for the insurers until a few years ago. It was believed that digital transformation would change the insurance industry forever. We can say that digital insurance was the "autonomous vehicle" of the insurance industry. Today, it seems that the digital insurance concept has lost most of its popularity. Insurers haven’t found what they expected from digitalization; now, they are dreaming of more disruptive technological transformations (like insurtech). So, why has digital insurance failed? The truth is insurance companies realized that digitalizing the traditional insurance process is not enough. At the beginning, they must have thought that, after transforming all offline processes to online, digitalization will be completed, and everyone will be happy with that. If you define digitalization as “transforming all offline processes to online,” insurance companies did their job completely, but ungrateful (!) consumers did not appreciate the change enough. Although most insurance companies have digitalized their sale process in the last five years, the share of online sales is still below 1%. However, if you define digitalization in the broader meaning as “being a part of the online ecosystem, to respond to changing and diversifying customer expectations,” insurance companies are going nowhere fast. This makes clear why digital insurance projects haven’t reached expectations. See also: Digital Insurance, Anyone?   There are reasons why the digital world is growing incredibly fast, regardless of industry. These are also motivators for stakeholders to be a part of the digital ecosystem:

• Low investment cost, easy entrance to the market and easy exit (means high competition)
• Low agency and services cost (low price)
• Easy-to-reach information (more comparison)
• Real user reviews (more trusted purchase)
• Product diversity (a tailor-made way to satisfy needs)
• Easy purchase and live support (better customer experience)

These six topics are the essentials of a well-built digital ecosystem. Let’s check how many of these features are available in the digital insurance ecosystem: Zero. So, we need to think about how we can bring the six fundamentals to insurance. Low Investment Cost, Easy Entrance and Exit The insurance business is strictly regulated in many respects, but, if we want to grow the digital insurance market, we have to make providing insurance easier. We need a new approach to insurance agency services, especially in digital platforms. Simple, fixed-price and easy-to-understand products should be sold by digital retailers or even individuals. Uber has transformed the individual transportation industry by providing a simple service. Low Agency and Services Cost Rule No. 1 about online shopping: Consumers want to have a significant price advantage while shopping online. Discount coupons, gift cards, limited time offers are necessary in online shopping. If you think that offering an off-season discount on health insurance is absurd, think again. Easy-to-Reach Information Insurance products are too complicated; we all know it. We also know they don’t have to be. We should simplify products and make them easier to understand. To sell a product online easily, you have to provide all key information in a few minutes. Why don't we replace boring policy documents with YouTube videos? Real User Reviews Creating a name in the digital world has never been easier--or harder. While a no-name startup can become a well-known brand with thousands of fans in a few months, giant brands can lose all of their prestige with a simple case. If you want to exist in the digital ecosystem, you must have a good reputation and always protect it. Blogs, forums, customer reviews have a huge impact on the consumer’s purchasing decision, even more than TV ads bought with millions of dollars. Product Diversity There is a word that doesn't exist in the digital ecosystem: "standard." Almost every product sold online has different color, size, function, power and quality options. For the consumers who are familiar with these opportunities, a one-size-fits-all approach will not be appreciated. Do you think that the couple who are going to the Maldives for their honeymoon and to Tanzania for a safari have typical needs and expectations for travel insurance? Easy Purchase and Live Support We are all busy. Digital consumers want to handle all their business as soon as possible, including insurance. If a consumer prefers buying insurance online instead of buying from a traditional agency, he would like to save time. Long phone calls, pages of application documents, lengthy procedures… have no chance in the digital world. People don’t even want to talk on the phone any more; do you have a Whatsapp number? See also: A Game Changer for Digital Innovation   Unfortunately, insurers emptied the concept of digitalization. There is a myth that everyone is doing something, but no one can make progress. We don’t have to wait for Amazon to change the rules of the game in digital insurance. The industry can catch the digital era with a well-defined and rational strategy, based on the requirements of a digital ecosystem. Even a collective transformation strategy that includes all stakeholders of the insurance ecosystem would be much more successful than what is happening now. Without a new strategy, digital insurance will be a cool idea to mention in an insurance company’s annual reports but nothing more.

On Dec. 4, 2018, the first insurtech IPO in the West happened. It wasn’t, however, in London, Berlin or New York. Instead, it took place in Frankfurt, Germany. Around the world, congratulations rolled in, wishing the company the best with its freshly raised money. Only 12 months earlier, hardly anyone in the international insurance or insurtech community would have been able to pick Deutsche Familienversicherung (DFV, or German Family Insurance) out of a lineup. It was not known outside the country. We changed that. How? A concise, well-planned, pre-IPO campaign pushed the company into the heart of the insurance community. To give back to the community, we are happy to share our lessons learned. Robin Kiera, founder of Digitalscouting: When I was contacted the first time by Lutz, to be honest, I was a little skeptical. A small insurer with quite a conservative name run by a 60-year-old insurance industry veteran was planning to conquer the world? Lutz Kiesewetter, head of corporate communications and investor relations at DFV: For a long time, I had followed Robin on social media. A first call confirmed that he shared a very similar digital vision of the insurance industry. Dr. Robin Kiera (left), founder of Digital Scouting, and Lutz Kiesewetter, head of IR and PR at DFV RK: Waiting for Lutz in the lobby, I saw heavy construction going on on the ground floor. There was free Wi-Fi everywhere, easy access for all. Actual investments were taking place, in contrast to so many other companies that talk a lot about modernization but lack any real action. Lutz was also a little younger than I expected, making it clear that young people had responsibility here, not only after serving 30 years. The conversation with the founder and CEO, Dr. Stefan Knoll, was also quite memorable. The fact that he was willing to share his crystal-clear analysis of the insurance industry was surprising. That he let me film and publish it was even more so. I was given the opportunity to look under the hood of the company, learning more about the impressive, homegrown, event-based IT system that allows end-to-end, real-time business processes. While the pure business numbers were way above industry average, I was even more impressed by the open minds and agile approach of the employees. Guided by a smart and dedicated CEO, this motivated team was thriving within their work culture, willing to go all in on new communication approaches to ultimately position the company for the IPO. See also: Insurtech Needs a Legislative Framework   Lesson #1: Go against all rules and go all in LK: The publicity for the first IPO of a European insurtech and fully digital insurer in the Western world could not be done with classic, conservative PR. Thankfully, being a little different is part of our DNA, It was, therefore, clear that attention hacking in social media via influencers would play an important role. This strategy led us to work with Robin and deploy his unusual “attention hacking,” which means using a flood of content on social media, vlogging and conference appearances to support our IPO mission. RK: For me, it was a go/no-go requirement that we would ignore most classic communication rules and go all in on social media, influencer marketing and content marketing. Lesson #2: Share your story RK: In a matter of weeks, we laid out our master plan and began to implement. We shot the first set of videos sharing the story of DFV, and we began to flood the internet with relevant, highly targeted content. I also made a lot of behind-the-scenes introductions to highly influential people within the international community. This was easy for me, because, first, I have known a lot of decision makers personally for years. Some are good friends. Second, the story of DFV was compelling: a seemingly conservative insurer with a long German name embracing modern technology, ripping apart its old IT system, creating innovative insurance products, investing heavily into team and technology and serving half a million clients already, making significant revenue and profit while a lot of other decision makers still were hesitant to invest in change and while a lot of startups presented vanity key performance indicators (KPIs) but not real sales numbers. The story was almost too good to be true. All around the world, insurance and insurtech experts were interested in hearing more. LK: The PR campaign kicked off with a DFV event series on April 26. DFV positioned itself as the only insurtech with a working insurance business model to the public, the insurance industry, journalists and the trade press. The live presentation covered features like the in-house event- and Java-based core system, the AI-based service that can settle a claim in 45 seconds, and the use of Alexa as a sales channel. The fact that DFV, with just 100 employees, not only covers the complete value chain of an insurance company but also works 100% digitally and is profitable, with hundreds of thousands of clients, while acting as a risk carrier for its products, was something that garnered attention. Lesson #3: Meet and serve the community RK: Sharing your story massively on social media is good. Meeting the decision makers of different ecosystems is even better. We decided to meet the movers and shakers in person by choosing to attend the most important conferences around the world. So, we went for example to Insuretech Connect in Las Vegas and DIA in Munich. We helped DFV share its fresh story backed by real KPIs on the most renowned stages in front of thousands of insurance professionals. Why? After speaking on stage, interested parties approach you; it’s not the other way around any more. Also, we produced social media content from the events that reached people around the world via the Digitalscouting channels. In addition to speaking at and breathing in the exciting atmosphere of these events, we met a lot of decision makers from my network. Many people welcomed DFV with open arms, keeping their fingers crossed for the IPO. Each time I saw this happen, it moved me personally, because it reminded me how many amazing people are working in this industry. LK: For the IPO and initial financial market communication, we implemented broad, multi-channel PR. The intention to go public was exclusively picked up by Wirtschaftswoche, one of the leading magazines in Germany. The story quickly spread throughout the world via Bloomberg and Reuters. Our 360-degree strategy included standard media and communication channels, as well as intensive attention hacking via social media and the visits to insurtech events such as DIA in Munich and ITC in Las Vegas. The first insurtech IPO in Europe received considerable attention within the community and also received from the financial and business media. See also: Insurtech Ingredients? We Just Want Cake   The last weeks, days and hours before the IPO were dramatic. The first IPO attempt needed to be called off because the order books were not full. For the second date, results looked a little better. But it was not clear until the morning of the day if the IPO would be successful. So, when the stock exchange employee announced the first stock price of 12.30 EUR, the relief for management was huge. With a ring of a bell, DFV raised 55 million USD. I, personally, was happy to be present and part of this insurtech success story. A small insurer from Frankfurt seized the moment, using tools and tactics that were against all traditional rules to prepare an IPO, helped across the finish line by a supportive community of international insurance and insurtech professionals. Now the company focuses on delivering on its promises.

A little-known part of my professional career was a four-year stint as an entrepreneurship professor at a private university. All my students fell into one of three buckets: those who wanted to actually learn and were always prepared; those who just didn’t care; and those (the majority) who wanted to know what they needed to do to get the desired grade. 

That's how we see insurance industry incumbents when it comes to their innovation strategies. Some want to excel. Some don’t seem to care as much. Most want to know what they need to do to get a good innovation assessment score from A.M. Best, as part of a general hope to remain relevant or maintain market share.   

As we have said repeatedly, we don’t see that treading water is a strategy for growing and gaining an innovation advantage. Yet too many companies are being tutored on their innovation education  by advisory firms that seem to support just checking the boxes for a passing grade from A.M. Best. 

We have read through paper after paper, release after release and promotion after promotion from advisories on how to score well on the A.M. Best Innovation Assessment. These advisories promise to help incumbents stockpile evidence about leadership on innovation, about culture shift, about resource commitment and allocation. These advisories will help incumbents show that they have a process in place and a structure to follow.

But do they support real, measurable results? Not so much. 

The insurance industry historically has been an amazingly innovative community when it comes to asset and investment management and financing the risks we know, measure and understand. How many industries could take hits like hurricanes Harvey, Irma and Maria and California’s wildfires—all in just the last couple of years—and come out intact? But the industry's innovative DNA does not extend to technology advancement and how to serve a customer base that historically were captive buyers—their only real choice was which company to buy from—but now has alternatives. 

So how should insurance industry incumbents think about innovation, if they want to do more than the minimum? How can insurers innovate and use technology to improve margins or to produce new, organic revenue growth, based on core premiums and, perhaps, on revenue not related to insurance? 

Obviously, it has to begin with a process that focuses on results, not checking boxes. Most of the advisory firms that have served the insurance industry for decades are very effective at enhancing the industry's "financially innovative" DNA. But too many have limited, if any, experience guiding incumbents through an innovation system designed, from the beginning, to produce measurable results within a short time. Many traditional advisories are fluent in financial innovation or perhaps core systems deployment but not in digital innovation. ITL has seen this issue up close, as we have been brought in after some advisory firms have finished innovation engagements.

Just like a student who wants to learn, companies must be willing to ask non-obvious questions and do more than simply follow the herd. 

Don’t misread what I am saying here. We believe that Best’s inclusion of an innovation assessment as part of its rating process is terrific and, based on what we know, will drive companies toward effective innovation.

But I challenge the industry (and the advisories that counsel insurers): Do not innovate for a passing Best assessment score. Do better than that.

Apply a little genetic engineering to your own innovative DNA. Stretch those innovation muscles, and move courageously into the future.

Here's a free bit of advice: As you think about building an innovative system, realize that, as surely as trust follows respect, culture follows success.

Wayne Allen
CEO
Insurance Thought Leadership

Having worked in fintech since 2005, I witnessed the fintech wave forming, cresting and eventually crashing into the financial ecosystem. If there is a fraternal twin to banking, it’s the insurance industry. Both industries are built on managing risk, capital, compliance and distribution. Not everything in fintech will apply to insurtech, but there’s a lot we can learn by assessing the impact of fintech on the banking system. The insurtech revolution will likely be more of an evolution--a more gradual shift and less of a big bang. The proof is the banking system. While it has clearly been affected by fintech, the tsunami of change has been less violent than what some predicted at the height of the craze. Technology Is an Arms Race Technology can be transformative, like the computer, the internet, the iPhone and many other examples. But, oftentimes, technology is iterative: One widget is replaced by a more efficient or lower-cost widget. Advantages are often short-lived. Look at small dollar lending within fintech. Putting the entire application process into a digital format and with instant funding was incredible, but this has become the industry standard. Billions of dollars have been pumped into that space. In just a few short years, the software was commoditized. Short of a truly defensible business model with unique intellectual property or network effects, most companies will find themselves in an arms race. No single technology will be the holy grail. Instead, a company’s ability to continually innovate rapidly will become the goal. A lot of variables dictate how well an institution innovates, but here are some common mistakes that I have seen in fintech and now within insurtech as a potential technology partner:

1. Carriers cannot always articulate what problems they are trying to solve and what success looks like
2. Decision makers aren’t involved enough or don’t provide enough support in the innovation process
3. Failing fast or testing concepts is cumbersome

Over the course of a year, innovation teams probably meet hundreds of startups. At Verikai, we have had the most success with innovation teams that are well-versed in the problems of the business. The challenge for startups is that we don’t know what we don’t know about your business. It’s difficult enough to sell a young technology but almost impossible to sell something to a client that can’t articulate its own problems well. It feels like some innovation teams are browsing instead of shopping; at Verikai, we believe that’s because there isn’t always alignment or support from the decision makers. By contrast, an innovation leader started off our meeting the other day by articulating all the problems he was responsible for solving and how solutions would help the business. He had me at hello. See also: FinTech: Epicenter of Disruption (Part 1)   Even if you create alignment, it’s incredibly difficult to push an insurance carrier into simple tests. There are a ton of valid reasons for why on-boarding is slow, but you have to find a way to cut through these barriers. Even the banks eventually found ways to re-engineer their internal processes to accommodate startups. Whether for contracts, audits, compliance, certifications or whatever, I would encourage carriers to find a way to “yes” rather than “no”. Half the battle is accelerating your discovery process. Obsession over the latest technology craze is understandable, but what teams should really focus on is creating structure, culture and process that allow a company to adopt all of the relevant technologies in the coming years. Sandboxes: Not Just for Kids More data has been created this past year than all the previous years combined. There’s no way that any regulator can keep up with the proliferation of data and technology. While fair lending may not exist within insurance, the concept of disparate impact is shared with the industry, as is the concern for safety and soundness. In banking, regulators began creating sandboxes and town halls to encourage dialogue and learning. In addition, the fintechs began pushing regulators and Congress to change regulations to accommodate new business models. As the insurtech movement matures, I’d expect to see a lot more interaction with regulators. It’s important that each carrier understands the shifting sands. Startups are more likely to lead with regulators, but it’s important that they not be the only voice at the table. Working with regulators is an incredibly important aspect of long-term planning for insurers. Direct-to-Consumer Is Difficult There are only so many people looking for financial products at any given time, and they’re not always in the digital channel. Fintech lenders, over time, became incredibly adept at customer acquisition through digital marketing. But even the digital market had an upper limit. The obvious place to then hunt for customers was through the banks themselves. At first, fintech was the sworn enemy of banks, but now they are often partners. Insurtech, like fintech, will find a pain point that big insurance companies cannot address efficiently. Insurtechs will exploit it for what it’s worth, but will need to broaden their distribution over time through partnership. Certainly, there are MGAs that already write on behalf of their carrier partners, but I suspect an even deeper partnership is possible in many cases. While digital channels are incredibly appealing, brokers/agents are still relevant to many people. The point is that the digital market is a growing pool, but that there’s still a much larger body of water to fish from. Don’t be surprised if competition moves to cooperation over time. Unbundle to Bundle Fintechs were incredibly strong at finding niche markets that could be easily exploited under the noses of the banks. The same will hold true within insurance, but the demands of investors and capital will drive insurtechs to go after an even greater share of the consumer wallet. All companies fear the Amazons and Apples entering the financial services market. However, it’s fintechs like SOFI, Marcus, Chime, Varo, Robinhood and countless others that are beginning to bundle multiple products to create modern, digital banks. The most expensive thing in fintech has been acquiring customers in high volumes. Naturally, companies can justify higher costs if they can increase customer lifetime values through cross-selling. And, there is a potential network effect for the winners. Whether insurtechs do the same thing or possibly some giant fintech player enters insurance, I suspect it’s a matter of time before someone will try to create the Amazon of the insurance space. See also: What Gig Economy Means for FinTech   The Early Days It’s certainly going to take a while for all of these predictions to play out, but it’s important to have a long view. So far, I’m not sensing any panic in the industry. But, at the height of the mortgage crisis in 2008, no one paid too much attention to the peer-to-peer lenders lurking in the background. Somewhere around 2015, the banks went into high alert. Depending on who you are and how you are positioned in insurance, the hindsight of fintech may be prescient for your company.

Smart technologies, artificial intelligence (AI) and machine learning are all on the agenda for insurers. But how intelligent are the systems really? Google, Amazon or Facebook have led the way, and data is the currency of the future. This is particularly true for insurers, because, if you know your customers' behavior and life situation, you can price risks more accurately, minimize fraud and better meet customer expectations. Because processes are data-intensive and driven by repetition, many customer inquiries, damage reports or data analyses could theoretically be standardized and automated -- ideal prerequisites for using intelligent machines. Nevertheless, the insurance industry is one of the few industries that has barely arrived in the 21st century. Paper-based processes and outdated IT systems with incompatible interfaces are the rule rather than the exception. For this reason, according to a study by the strategy consultancy Bain, companies have so far concentrated on using smart algorithms to make individual sales processes more efficient or to provide more targeted information. According to Bain, the greatest potential slumbers in downstream areas: The property and casualty (P&C) insurers alone could increase premium income by almost 25% and reduce costs by almost 30% through consistent digitalization. The greatest savings are possible in claims settlement and acquisition costs. See also: Strategist’s Guide to Artificial Intelligence When IBM's Deep Blue chess computer won against the then-reigning world champion Garri Kasparov more than 20 years ago, this was celebrated as historic. However, Deep Blue did not win through cognitive intelligence, but because it could calculate all conceivable moves. Today's AI methods, which go beyond just computing capacity and are based on algorithms that use large amounts of data to learn to carry out tasks without pre-defined rules, have so far largely failed in the insurance world. The reason: Very few insurers have an IT infrastructure that would allow customer data to be bundled over the entire contract term and all interfaces. The systems therefore do not have sufficient high-quality and correctly classified training data with which to learn the algorithms. Instead, most companies rely on systems that obey fixed rules. For example, some providers work with chatbots to process customer inquiries faster and more automatically. Digital language assistants, which process natural language and interact directly with the customer, point in a similar direction. Whether in writing or by telephone — the basic principle is the same: Employees are relieved of routine tasks so that they have more time for those questions where personal contact is really necessary. Nevertheless, experts agree that AI will revolutionize the insurance industry in the medium to long term. Smart algorithms will help identify insurance fraud faster and assess risks more accurately. This allows AI to be used to create personalized products. In combination with sensors and the "Internet of Things" (IoT), AI also helps to prevent fraud. See also: And the Winner Is…Artificial Intelligence!   Together, these many possibilities will lead to insurance products that are much more individual and fair for the collective. If insurers can refine the risk profiles of their customers on the basis of the customer's history and behavior, they can determine whether this customer is trustworthy. The subjective decisions of individual experts would then be opposed by objective, trained systems that could not be impressed by emotions or stress. Today, on the other hand, customers quickly end up in a drawer based on their profession or place of residence that does not correspond to their actual risk profile. Artificial intelligence could calculate trust on the basis of data and synthesize it, so to speak. Customers who are trustworthy can then benefit, for example, from lower prices or faster claims processing.

Netting of subrogation payments, the exchanging of payments between carriers at regular intervals instead of on a claim-by-claim basis, is a concept that has been around since the mid-1990s. It is once again back in the news with the announcement that State Farm is developing its own blockchain solution to net subrogation payments between itself and another unnamed carrier. Some say this is an innovative solution for the use of blockchain for the insurance vertical, but is it really nothing more than a hammer (blockchain) looking for an old nail (payment netting)? All will agree there is room for vast improvement in reducing friction of the subrogation workflow, including the exchanging of funds. Carriers send thousands of checks to each other on a monthly basis in the settlement of subrogation claims – the same process that has occurred since the beginning of time relative to the subrogation process. It’s expensive, involving the printing of checks, mailing costs and the labor to apply funds by the receiving company. Each payment needs to be broken down and applied in the claims system to the individual lines of coverage for the original claim payment and then balanced out in the accounting platform. In a "netting" scenario, the total value of what two companies owe each other is issued by one payment, but then still has to be reconciled on both an outbound and inbound basis, making sure to reconcile every claim that is affected. Remember, each side of the payment has premium ramifications. Many touchpoints, applications and processing. No wonder this has been an issue, but why does it still garner so much focus, with the advancement of financial technology and the reduction of check processing fees? Shouldn’t we now be focusing on a more holistic solution for the industry affecting more than just the payment? In the mid-1990s, banking costs drove the netting conversation as a way to reduce fees, but the industry wasn’t able to come together on how to solve the problem. Competitive pressures, internal constraints and the problem of how to reconcile the carriers' multiple platforms contributed to the futility of the conversation. Industry organizations even tried to solve the problem but with no success. 9/11 changed forever how the banking industry dealt with checks. The country was brought to a standstill for three days due to air traffic being halted (remember, checks were physically moved between the Federal Reserve branches on a daily basis via planes at that point). One of the outcomes of this national tragedy was the implementation of the Check 21 Act in 2004, allowing the image of the check to have the same "value" as the original check. Financial technology, better known as fintech, was developed to place the imaging process of the check into the hands of the business customer, allowing it to image the payment and send it to the bank. The banking industry gave the insurance carrier a digital scanner so the carrier could do the teller’s job of scanning the payment instead of the bank incurring that cost, but the insurance industry still had to manage the application of funds manually as it did before. Great move for the banks and yet carriers couldn’t figure out their now 10-year problem of netting even though technology existed to take that scanned copy of the payment and automatically apply it to the claim file via new insurance technology. No changes were required to claim platforms of the paying carrier or how the receiving company had to apply the funds – just a straight automation opportunity with a substantial labor savings. However, the major carriers still pursued the netting solution even though the problems they were originally trying to solve were no longer an issue. See also: Blockchain: Seizing the Opportunities   We are now 15 years removed from the introduction of fintech by the banking industry, and the netting conversation remains! Banks allow their business customers to image and deposit their checks through a scanner. Consumers manage their accounts through their mobile devices along with the ability to transfer money to each other through apps such as Venmo or Paypal. Moving money has become extremely inexpensive, with the result for all of us being the reduction in the processing fees. Then why does netting continue to be promoted as a problem that needs to be solved when the costs have dramatically decreased? One does have to wonder. The industry is working through various use-cases for blockchain, and, yes, you guessed it, the financial transaction of the netting of payments is still being pursued. The original problem of check processing costs is no longer an issue, while the same issues of allocating the information to both claim files remains. Participation remains problematic, but the level of concern increases if a blockchain is being managed by one of your competitors. Who has access to the data? Where is it stored? How can it be used? Does a netting solution created and managed by a carrier create a competitive advantage for that carrier? If we can get beyond these questions, the bigger issue remains as to why time, money and effort are being used to address a 20-plus-year-old issue that can be handled via existing technologies rather than complicating the process with the additional friction of netting being added to the industry’s expense? Maybe the alternative is to use blockchain to digitally transform the subrogation workflow affecting LAE in dollars rather than cents while also maximizing recoveries. Our industry will continue to evolve and build on new technologies. Let’s be sure to swing our hammers at nails supporting the future building blocks rather than those 20-year-old rusted out nails.

After the 2009 global economic crisis, the U.S. economy has risen to strength once again. Yet certain economic indicators — both in the U.S. and abroad — indicate that prosperous times may be ending. “The end is near for the near-decade-long burst of global economic growth. The U.S. outlook has declined, and moreover the outlook is even worse in many other parts of the world,” says John Graham, a finance professor at Duke University. Economic downturns mean less spending, but they don’t mean fewer property and casualty risks. As a result, insurance companies that take steps to address coming economic slowdowns find themselves in a stronger position to weather a downturn or recession. The Economic Outlook for 2020 In a recent Bloomberg survey, most economists agreed that the chance of a recession is high. “In fact, more than three-quarters of corporate chief financial officers expect one by the end of 2020,” say Scott Lanman and Katia Dmitrieva at Bloomberg. Meanwhile, some economists are looking at the unemployment rate, which has been a consistently reliable indicator of a coming recession since 1948, adds Joseph LaVorgna, Natixis chief economist. LaVorgna says that the U.S. economy has entered a recession whenever the unemployment rate increased 50 basis points, or 0.50 of a percentage point, over its trailing cyclical low. While unemployment is currently only 30 basis points over its low, it rose to 4% in January from a low of 3.7% in November. A rise to just 4.2% could indicate the start of another recession. Many economic experts believe that business leaders are wise to expect a recession. “All of the ingredients are in place: a waning expansion that began in June 2009 — almost a decade ago — heightened market volatility, the impact of growth-reducing protectionism and the ominous flattening of the yield curve, which has predicted recessions accurately over the past 50 years,” says Campbell Harvey [subscription required], a business professor at Duke University. See also: The Great Recession And My Business   Research on the housing market also has some experts speaking in terms of recession. In January 2019, BuildFax CEO Holly Tachovsky noted a decline in single-family housing authorizations, which can be used to track economic decline. “While this is only the second consecutive month of declining indicators, this shift is in stark contrast to the white-hot housing market that the U.S. has experienced since 2013,” Tachovsky says. Not all experts agree that a recession is coming. For example, Anthony Chan, chief economist at JPMorgan Chase, has predicted 2% economic growth for 2019, based on his own examination of housing debt and housing growth. While Chan says the economy may slow in the next couple of years, he places the odds of a recession in 2019 or 2020 at about 15%. What Insurance Companies Need to Consider Among insurance companies, concerns about a coming recession are high. In the most recent Goldman Sachs Asset Management insurance survey, 41% of insurers said they believe a recession will occur in 2020 or in 2021, James Comtois at Pensions & Investments reports. Insurance companies are also forecasting fewer opportunities for investment in the coming years. “Insurers predict a U.S. recession is coming, just not this year. As a result, they are continuing to commit capital but are more selective in the risks they are taking,” Michael Siegel at Goldman Sachs explains. For insurance companies that often invest in bonds, concerns about rising interest rates or companies defaulting on debts tend to top the list of items to watch as the economy fluctuates. For insurers that want to weather an economic downturn, however, a broader view is essential. For example, consumer confidence plays a significant role in economic health, but it’s a factor that many insurance companies tend to overlook. Consumer sentiments about the state of the economy have a profound effect on their spending behavior, which makes consumer confidence a key indicator of future economic behavior, says Jeffrey Gundlach, founder and CEO of DoubleLine Capital LP. Currently, Gundlach notes a gap between consumer sentiment and future expectations. Small businesses also seem to be losing confidence in the economy, which could not only predict a coming recession but help to fuel it. Certain political decisions could also hasten the economy’s momentum into a downward turn. In January 2019, government consultant and fiscal policy researcher Dan White testified before the Maryland state senate’s budget and taxation committee that an extended government shutdown could cause a U.S. recession. The implementation of tariffs could also expedite the arrival of a recession, Paul R. La Monica of CNN adds. How to Prepare for a Recession Businesses in every industry feel the effects of a recession, particularly when the downturn is severe or long-lasting. Fortunately, insurance companies can take steps now to preserve their strengths, shore up weaknesses and perform more effectively during periods of consumer and economic uncertainty. The companies that fare best during a recession share several behaviors, say researchers Martin Reeves, Kevin Whitaker and Christian Ketels in Harvard Business Review. They take steps to prepare, consider long-term implications and focus on maintaining growth through a recession — albeit at a slower pace. “The most effective way to prepare for a recession is to strengthen the way your business operates today,” says Sarah Meusburger, human resources director at Banner Associates, Inc. Meusburger recommends adopting a culture of continuous improvement that incorporates the same behavior Reeves, Whitaker and Ketels discovered in their research: a long-term approach to business growth and stability. The Importance of Customer Relationships During Lean Times Customer relationships remain one of the most important assets for companies that seek to weather a recession. To thrive in any economic climate, it’s important to identify your most loyal and highest-margin customers and to protect your company’s relationships with them, says Michael Evans, managing director of Newport Board Group. “In the event of a dip in business, rather than cutting costs across the board, be ready to shift resources to retain these high-margin customers,” Evans says. See also: The Great Millennial Shift   One way to strengthen customer relationships now is to focus on aligning internal culture with external branding, says Denise Lee Yohn, brand leadership expert and author of What Great Brands Do. “To offset eventual price comparisons between your and competitive offerings, you should increase the perceived value of your brand now so that you can draw upon that brand equity in the downturn,” Yohn says. Aligning brand identity and internal culture builds value, differentiates an insurer’s brand and encourages customers to choose your brand and remain loyal. You can find the article originally published here.

Every so often, an innovation emerges that forever changes the way people perform an everyday action and paves the way for future innovations. In the world of insurance software — especially customer-facing apps — a game changer today is low-code and no-code software development. Low-code and no-code development enables people without extensive programming experience to design and create apps through a software platform’s configurability features and graphical user interfaces. That is a simple technical definition of low-code and no-code. In lay person’s terms, low-code and no-code is an innovation that makes digital transformation easier for businesses to execute, and that offers numerous advantages. In the era of smartphones, we take for granted the ability to make a phone call that connects us to another person on the other side of the world, nearly instantly. A century ago, however, that was only a dream. The first commercially viable trans-Atlantic telephone call occurred in 1927, connecting executives in New York and London. Walter S. Gifford, president of the American Telephone & Telegraph Co. (some may have forgotten this was the original name of a company we recognize by the initials AT&T), said during that call: “Today is the result of many years of research and experimentation. We open a telephonic path of speech between New York and London... That the people of these great cities will be brought within speaking distance to exchange views and facts as if they were face to face…no one can foresee the ultimate significance of this latest achievement of science and organization.” See also: Digital Innovation: Down to Business   Fast-forward to 2019, and conversations bridging even greater distances occur many times a day in the global insurance industry, serving as a foundation for developing new coverages and accelerating business processes. As with that first telephone call, one day we’ll look back on low-code and no-code development as enabling an era of innovation in insurance. Advantages of low-code/no-code Insurance organizations embracing low-code and no-code development stand to gain several advantages, including:

• Speed to market. The ability to introduce new products and services quickly has always been helpful in a competitive marketplace. For that reason, insurers have long relied on excess and surplus lines as a way to swiftly launch specialty products and grow market share. First movers have an advantage in insurance, and new products energize the distribution channel. Low-code and no-code offer ways to tailor and support new products, in admitted and non-admitted lines.
• Brand differentiation. In the era of digital transformation, customers expect brands to offer memorable digital experiences. Who offers the best experience, from quoting to claims? Which insurance industry companies make it easy to do business? These are important considerations for customers who have become conditioned to using apps from top consumer brands. Low-code and no-code enhance insurance organizations’ ability to deliver digital experiences and set themselves apart from their competitors.
• Operational efficiency. Insurers have already captured much of the low-hanging fruit in reducing expenses, which is why their expense ratios generally have not shrunk significantly in a long time. Low-code and no-code could change that by making internal software innovation faster and cheaper at every level of an organization. From a digital perspective, low-code and no-code development is like a force multiplier. It can accelerate the response to business opportunities, not just in the IT department but in every department.
• Ease of implementation. Getting employees to do something new, in insurance or any other industry, can take a lot of time and training. The low-code/no-code movement simplifies standards and user interfaces, which makes it easy to learn, build, and implement. In a short time, insurance organizations can shift from thinking about apps to creating them.

Empowered businesspeople The low-code/no-code movement offers an elegant solution to several operational problems that insurance organizations encounter regularly. For example, enhancing the digital experience is often an exercise in “Where do we even begin?” In addition, time for skilled IT staff to perform traditional coding for new products and digital apps, or to integrate changes and updates, is scarce. Limited development resources inevitably mean backlogs for the IT department, meaning that great ideas for new apps tend to remain just that, until programmers can turn them into usable tools. See also: Digital Innovation in Life Insurance Low-code/no-code empowers the people who are closest to the core business and its customers to design and create innovative apps, using cloud-based visual tools. A terrific idea to engage customers and make it easier to do business with the insurance organization no longer has to wait for traditional programming expertise. Instead, a "citizen developer" inside the business can make it a reality, and quickly. The low-code/no-code movement is a game changer in highly competitive and time-critical functions such as risk assessment, quoting and underwriting. There is much more to low-code/no-code than just saving time and money, however. Most, if not all, productivity investments that insurance organizations make are intended to free staff to better serve the customer. Perhaps the most significant advantage of low-code/no-code is it lets all employees take a bigger role in that effort.