Incumbent insurers face both challenges and opportunities from concurrent forces. Dramatically changing customer expectations and low investment returns threaten both property and casualty and life insurers. Declining participation rates and indifference from millennial consumers restrict growth in life companies. Technologies such as driverless cars and sensors (Internet of Things) promise to shrink revenue in P&C. To evolve their business and technology models, insurers are diversifying their approach to automation. Historically, in most insurance technology initiatives, the projects were fairly well-understood and had likely been implemented before. Policy, claims, and billing administration replacement efforts were typical of these automation investments. In contrast, emerging digital approaches are uncertain and require new service models, products and capabilities. The continued rise in insurance-related technology startup funding reflects the changes that are underway in insurance IT. Insurers need advanced skills in emerging technologies. Technology startups need industry and regulatory compliance knowledge. The result has been an increasing number of partnerships between insurers and startups that go beyond a supplier-buyer relationship. See also: Startups Take a Seat at the Table   However, there are significant barriers to success on both the insurer and the startup sides of this equation. Insurers must address risk-averse behaviors and increase decision speed. Startups need to scale (gain customers), understand the regulatory environment and navigate opaque insurance products. Left unmanaged, partnerships do not work as well as expected. The report titled Insurer-Startup Partnerships: Key Success Factors presents the feedback of 89 insurers and 78 insurance-focused startups from online surveys regarding best practices in partnership management. The major finding is that the two groups are generally aligned in terms of the importance of insurance innovation, but that there are key challenges related to initiative definition and accommodation of different cultural norms that must be addressed. It will take time to work out the best ways to accomplish this new partnership model, but the barriers faced by both sides will force each to adjust. An analysis of survey results indicates that success will be improved by recognizing the following:

• Cultural alignment and a shared vision are key.
• Startups perceive that they are being more disruptive than they actually are.
• Leaders of innovation initiatives must seek and implement bridging activities that join the two worlds.

See also: Engaging Employees: Key to Success   Success will come to those insurers and startups that can make the necessary adjustments to their own preferences, cultures and working models to create meaningful partnerships.

In 1997, a colleague and I sat in the office of Sears CEO Arthur Martinez and tried to convince him of two ideas. First, he needed to rethink his business because of the advent of e-commerce. Second, he had a major opportunity to position Sears as what today we would call the Airbnb for home repairs—just set up a sort of digital market that would act as a middleman between repair technicians and homeowners and renters, the vast majority of whom were Sears customers to some degree. Martinez demurred. He said Sears would thrive for the foreseeable future.

He was right if "foreseeable" meant five or six years, but Sears was already struggling when financier Eddie Lampert bought it in 2004, and, after a long, slow-motion train wreck,   Sears filed for bankruptcy protection  this week.

The Martinez story isn't just a what-might-have-been for Sears. It sheds light on what's happening in insurance, where the threats and opportunities at least rhyme with what Martinez faced in 1997. I'd draw three main lessons:

--Bill Gates is right. (He isn't always right, but he sure is right a lot.) As he said to me (and others) right around the time of the Martinez meeting, people tend to overestimate the effects of digital technology in the short run but underestimate the effects in the long run. The overestimation has happened in many ways with insurtech, such as in the belief years ago that Amazon or some other big tech would soon move into insurance and take over. But we can't let any complacency seep in. Just because some big tech hasn't eaten our lunch by now doesn't mean it won't, or that some other threat won't emerge. Sears didn't lose to some startup in 1998, but it still lost. The forces of transformation have been unleashed in insurance, and they won't stop. We all have to be careful to not underestimate their long-term effects.

--Many executive teams and boards have personal timing that is out of sync with the pace of change in the industry. They know they need to set up their businesses for the future, but they also can feel in their bones that they might make it safely to retirement before the really disruptive changes come. Why launch major initiatives now, with all the complication that will be introduced and with all the money that will need to be invested (and diverted from the bonus pool)? I'm not saying that anyone deliberately starves the future, just that it's hard not to make personal calculations. Martinez retired in 2000 and is listed on his Wikipedia page as "the person who saved Sears," mostly because he increased sales among women through a campaign about "the lighter side of Sears." I'd recommend that boards and CEOs have explicit discussions about timing issues and that all have a significant part of their compensation tied to how their businesses look a decade from now. 

--You can't always tell where the threat or opportunity will emerge—yet you'd better get it right. As Chunka Mui and I wrote in "Billion Dollar Lessons" 10 years ago, Sears set itself up for failure in the early 1980s when it bought Coldwell Banker and Dean Witter based on an odd theory sometimes referred to as "socks and stocks." The idea was that people would go to Sears stores and buy some inexpensive clothing, then want to make an investment. They'd buy their financial tools along with their power tools. Coldwell Banker and Dean Witter weren't disasters as investments, but their integration into Sears took a huge amount of management time and distracted the company from the real issue: Walmart. While Sears focused on dreams of synergy, Walmart staked out a lead in hyperefficient, low-cost retailing that it never relinquished. Once e-commerce kicked in, then Lampert made a series of decisions driven by financial engineering rather than long-term strategy, well, we saw the results this week. As it happens, the bankruptcy filing comes just as Sears' e-commerce nemesis, Amazon, is expanding in physical stores, including   opening of a cashierless store in Sears' longtime hometown of Chicago and as Amazon's market value has flirted with $1 trillion.

There are ways to test the market with innovations to see where those threats and opportunities are, but that's a longer story for another day. In the meantime, let us know if we can help.

Have a great week. 

Paul Carroll
Editor-in-Chief

It is of course much easier to look back and second-guess regulatory actions. It is far more difficult to propose a way forward and to do so in light of the emerging hot-button issues, including data and the digitization of the industry, insurtech (and regtech), emerging and growing risks, cyber, the Internet of Things (IoT), natural catastrophes, longevity and growing protectionism. The way forward requires consideration of the primary goals of insurance regulation and raises critical questions regarding how regulators prioritize their work and how they interact with one another, with the global industry and with consumers. We offer below some thoughts and suggestions on these important questions and on how regulation might best move forward over the next 10 years. Establish a reasonable construct for regulatory relationships. Relationships matter, and it is imperative for there to be careful consideration of how regulators organize their interactions and reliance on each other. We have some examples in the form of the Solvency II equivalence assessment process, the NAIC’s Qualified Jurisdiction assessment process (under the U.S. credit for reinsurance laws), the NAIC’s accreditation process for the states of the U.S., the U.S.-E.U. Covered Agreement, ComFrame, the IAIS and NAIC’s memorandum of ynderstanding and the IMF financial sector assessment program (FSAP). Each of these provide varying degrees of assessment and regulatory cooperation/reliance. These processes and protocols, however, have largely emerged on an ad hoc, unilateral basis and in some cases have had a whiff of imperial judgment about them that may not be justified – and certainly is off-putting to counterparties. We would urge regulators to give careful consideration to the goals, guiding principles and the process for achieving greater levels of cooperation and reliance among global regulators. We hope these efforts would include an appreciation that different approaches/systems can achieve similar results that no jurisdiction has a monopoly on good solvency regulation. There must also be respect for and recognition of local laws and a recognition that regulatory cooperation and accommodation will benefit regulators, the industry and consumers. Most importantly, regulators need to work together to develop confidence and trust in one another. The IAIS first coined the phrase “supervisory recognition” in 2009. In March of that year, the IAIS released an “issues paper on group-wide solvency assessment and supervision.” That paper stated that: “To the extent there is not convergence of supervisory standards and practices, supervisors can pursue processes of ‘supervisory recognition’ in an effort to enhance the effectiveness and efficiency of supervision. Supervisory recognition refers to supervisors choosing to recognize and rely on the work of other supervisors, based on an assessment of the counterpart jurisdiction’s regulatory regime.” See also: Global Trend Map No. 14: Regulation   The paper noted the tremendous benefits that can flow from choosing such a path: “An effective system of supervisory recognition could reduce duplication of effort by the supervisors involved, thereby reducing compliance costs for the insurance industry and enhancing market efficiency. It would also facilitate information sharing and cooperation among those supervisors.” This is powerful. We urge global insurance regulators to take a step back and consider how they can enhance regulatory effectiveness and efficiency by taking reasonable and prudential steps to recognize effective regulatory regimens − even where these systems are based on different (perhaps significantly different) rules and principles, but which have a demonstrated track record of effectiveness. As noted above, we have seen some efforts at supervisory recognition. These include Solvency II’s equivalence assessment process, the NAIC’s accreditation process for other U.S. states, the NAIC “Qualified Jurisdictions” provisions for identifying jurisdictions that U.S. regulators will rely on for purposes of lowering collateral requirements on foreign reinsurers, the E.U.-U.S. Covered Agreement and the IAIS’s Memorandum on Mutual Understanding. Some of these processes are more prescriptive than others and have the danger of demanding that regulatory standards be virtually identical to be recognized. This should be avoided. One size for all is not the way to go. The alternative approach to recognition of different, but equally effective systems is the pursuit of a harmonized, single set of regulatory standards for global insurers. This approach is much in vogue among some regulators, who assert the “need for a common language” or for “a level playing field” or to avoid “regulatory arbitrage.” Some regulators also argue that common standards will lead to regulatory nirvana, where one set of rules will apply to all global insurers, which will then be able to trade seamlessly throughout all markets. There are, however, a variety of solvency and capital systems that have proven their effectiveness. These systems are not identical, and indeed they have some profoundly different regulatory structures, accounting rules and other standards such as the systems deployed in the E.U. (even pre-Solvency II), the U.S., Canada, Japan, Bermuda, Australia, Switzerland and others. Attempting to assert a signal system or standard ignores commercial, regulatory, legal, cultural and political realities. Moreover, we question some of the rationale for pursuing uniform standards, including the need for a common language. We suggest that what is really needed is for regulators to continue to work together, to discuss their respective regulatory regimes and to develop a deep, sophisticated knowledge of how their regimes work. From this, trust will develop, and from that a more effective and efficient system of regulation is possible. The engagement and trust building can happen within supervisory colleges. We have seen it emerge in the context of the E.U.-U.S. regulatory dialogue. We saw it in the context of the E.U.-U.S. Covered Agreement. No one, however, has made a compelling case for why one regulatory language is necessary to establish a close, effective working relationship among regulators. Similarly, the call for a level playing field sounds good, but it is an amorphous, ambiguous term that is rarely, if ever, defined. Does the “playing field” include just regulatory capital requirements? If so, how about tax, employment rules, social charges? How about 50 subnational regulators versus one national regulator? Guarantee funds? Seeking a level playing field can also be code for, “My system of regulation is heavier, more expensive than yours, so I need to put a regulatory thumb on the scales to make sure you have equally burdensome regulations.” This argument was made for decades in the debate surrounding the U.S. reinsurance collateral rules. We hear it now regarding the burdens of Solvency II. It must be asked, however, whether it is the responsibility of prudential regulators to be leveling playing fields, or should their focus be solely on prudent regulatory standards for their markets. Finally, the dark specter of regulatory arbitrage is often asserted as a reason to pursue a single regulatory standard, such as the development of the ICS by the IAIS. But one must ask if there is really a danger of regulatory arbitrage today among global, internationally active insures? Yes, a vigilant eye needs to kept for a weak link in the regulatory system, something the IMF FSAP system has sought to do, supervisory colleges can do and the IAIS is well-equipped to do. But using regulatory arbitrage as an argument to drive the establishment of the same standards for all insurers does not seem compelling. Proportionality is required. Often, regulators roll out new regulatory initiatives with the phrase that the new rules will be “proportionate” to the targeted insurers. Too often, it seems there is just lip service to this principle. Rarely is it defined – but it is tossed out in an attempt to say, “Do not worry, the new rules will not be excessive.” Greater debate and greater commitment to this principle is needed. Clearly a key component of it must be a careful cost/benefit analysis of any proposed new standard, with a clear articulation of the perceived danger to be addressed – including the likelihoods and severity of impact and then a credible calculation of the attendant costs – economic and otherwise to industry and to regulators. In October 2017, the U.K. Treasury Select Committee published a report criticizing the PRA for its excessively strict interpretation of Solvency II and its negative effect on the competitiveness of U.K. insurers. The report concluded that the PRA had enhanced policyholder protection at the expense of increasing the cost of capital for U.K. insurers, which hurt their ability to provide long-term investments and annuities. Although the PRA emphasized its mandate of prudential regulation and policy holder protection, the Treasury Committee reiterated its concern with how the PRA interpreted the principle of proportionality. Simplicity rather than complexity. Over the past 10 years, there has been a staggering increase in proposed and enacted regulatory requirements, many of which are catalogued above. There is a danger, however, that increasingly complex regulatory tools can create their own regulatory blind spots and that overly complex regulations can create a regulatory “fog of war.” Andrew Haldane, executive director at the Bank of England, in August 2012 delivered a paper at a Federal Reserve Bank of Kansas City’s economic policy symposium, titled “The Dog and the Frisbee.” He graphically laid out when less is really more by talking about two ways of catching a Frisbee: One can “weigh a complex array of physical and atmospheric factors, among them wind speed and Frisbee rotation” − or one can simply catch the Frisbee, the way a dog does. Complex rules, Haldane said, may cause people to manage to the rules for fear of falling in conflict with them. The complexity of the rules may induce people to act defensively and focus on the small print at the expense of the bigger picture. Focusing on the complexity of the banking world, Haldane compared the 20 pages of the Glass-Steagall Act to the 848 pages of Dodd-Frank together with its 30,000 pages of rulemaking, and compared the 18 pages of Basel 1 to the more than 1,000 pages of Basel III. The fundamental question is whether that additional detail and complexity really adds greater safety to the financial system or has just the opposite effect and significantly increases the cost. Haldane’s analysis provides compelling evidence that increasing the complexity of financial regulation is a recipe for continuing crisis. Accordingly, Haldane calls for a different direction for supervisors with “…fewer (perhaps far fewer), and more (ideally much more) experienced supervisors, operating to a smaller, less detailed rule book.” Although Haldane’s analysis and discussion focuses on the banking system, his assessment and recommendations should be considered carefully by global insurance regulators. The sheer volume and complexity of rules, models and reports that flood into regulatory bodies raise the real question of who reviews this information, who really understands it and, worst of all, does a mountain of detailed information create a false confidence that regulators have good visibility into the risks – particular the emerging risks – that insurers are facing? A real danger exists of not seeing the forest for the trees. See also: To Predict the Future, Try Creating It   Regulation should promote competitiveness rather than protectionism. At a time when competition has been growing not only from within the established companies but also more importantly from outside the traditional companies, protectionism will only inhibit growth and stifle better understanding of risk in a rapidly changing business environment. The goal must be to make the industry more competitive and to encourage transfer of innovation and create better ways to address risk, distribution of products and climate changes. Protectionism will only limit the potential of growth of the industry and is both short-sighted and self-defeating. Recognition of the importance of positive disruption through insurtech, fintech and innovation. The consensus is that the insurance industry is ripe for disruption because it has been slow (but is now working hard) to modernize in view of an array of innovative and technological advancements. Equally, regulators are trying to catch up with the rapid changes and are trying to understand the impacts through sandbox experiments and running separate regulatory models. The pace is fast and presents challenges for the regulators. Solvency and policyholder protection remain paramount, but cybersecurity, data protection, artificial intelligence and the digital revolution make advancements every day. Where this will lead is not clear. But changes are happening and regulators must work to understand the impact and need to calibrate regulatory rules to keep up with the industry and encourage innovation. Regulation must be transparent. Too often, regulation is drafted in times of crisis or behind closed doors by regulators believing they know better how to protect policy holders and how to prevent abuse of the system. As we have said, getting it right matters. A strong and healthy industry is the best way to protect consumers and policy holders. Industry engagement is essential and acknowledging and actually incorporating industry’s views is critical. This is particularly true given the dramatic changes in the insurance sector and the need to adopt regulation to new economics, business practices and consumer needs and expectations This is an excerpt from a report, the full text of which is available here.

“Somehow we have created a monster, and it's time to turn it on its head for our customers and think about providing some certainty of protection." - Inga Beale, CEO, Lloyds of London In an early-morning plenary session at this year’s InsureTech Connect in Las Vegas, Rick Chavez, partner and head of digital strategy acceleration at Oliver Wyman, described the disruption landscape in insurance succinctly: while the first phase of disruption was about digitization, the next phase will be about people. In his words, “digitization has shifted the balance of power to people,” forcing the insurance industry to radically reorient itself away from solving its own problems toward solving the problems of its customer. It’s about time. For the 6,000-plus attendees at InsureTech Connect 2018, disruption in insurance has long been described in terms of technology. Chavez rightly urged the audience to expand its definition of disruption and instead conceive of disruption not just as a shift in technology but as a “collision of megatrends”–technological, behavioral and societal–that is reordering the world in which we live, work and operate as businesses. In this new world order, businesses and whole industries are being refashioned in ways that look entirely unfamiliar, insurance included. This kind of disruption requires that insurance undergo far more than modernization, but a true metamorphosis, not simply shedding its skin of bureaucracy, paper applications and legacy systems but being reborn as an entirely new animal, focused on customers and digitally enabled by continuing technological transformation. In the new age of disruption … 1. Insurance is data “Soon each one of us will be generating millions of data sets every day - insurance can be the biggest beneficiary of that” - Vishal Gondal, GOQUii While Amazon disrupted the way we shop, and Netflix disrupted the way we watch movies, at the end of the day (as Andy G. Simpson pointed out in his Insurance Journal recap of the conference) movies are still movies, and the dish soap, vinyl records and dog food we buy maintain their inherent properties, whether we buy them on Amazon or elsewhere. Insurance, not simply as an industry but as a product, on the other hand is being fundamentally altered by big data. At its core, “insurance is about using statistics to price risk, which is why data, properly collected and used, can transform the core of the product,” said Daniel Schreiber, CEO of Lemonade, during his plenary session on day 2 of the conference. As copious amounts of data about each and every one of us become ever more available, insurance at the product level– at the dish soap/dog food level–is changing. While the auto insurance industry has been ahead of the curve in its use of IoT-generated data to underwrite auto policies, some of the most exciting change happening today is in life insurance, as life products are being reconceived by a boon of health data generated by FitBits, genetic testing data, epigenetics, health gamification and other fitness apps. In a panel discussion titled "On the Bleeding Edge: At the Intersection of Life & Health," JJ Carroll of Swiss RE discussed the imperative of figuring out how to integrate new data sources into underwriting and how doing so will lead to a paradigm shift in how life insurance is bought and sold. “Right now, we underwrite at a single point in time and treat everyone equally going forward,” she explained. With new data sources influencing underwriting, life insurance has the potential to become a dynamic product that uses health and behavior data to adjust premiums over time, personalize products and service offerings and expand coverage to traditionally riskier populations. Vishal Gandal of GOQuii, a “personalized wellness engine” that is partnering with Max Bupa Insurance and Swiss Re to offer health coaching and health-management tools to customers, believes that integrating data like that generated by GOQuii will “open up new risk pools and provide products to people who couldn’t be covered before.” While some express concern that access to more data, especially epigenetic and genetic data, may exclude people from coverage, Carroll remains confident that it is not insurers who will benefit the most from data sharing, but customers themselves. See also: Is Insurance Really Ripe for Disruption?   2. Insurance is in the background “In the future, insurance will buy itself automatically” - Jay Bergman Some of the most standout sessions of this year’s InsureTech Connect were not from insurance companies at all, but from businesses either partnering with insurance companies or using insurance-related data to educate their customers about or sell insurance to their customers as a means of delivering more value. Before unveiling a new car insurance portal that allows customers to monitor their car-related records and access a quote with little to no data entry, Credit Karma CEO Ken Lin began his talk with a conversation around how Credit Karma is “more than just free credit scores,” elucidating all of the additional services they have layered on top of their core product to deliver more value to their customers. Beyond simply announcing a product launch, Lin’s talk was gospel to insurance carriers, demonstrating how a company with a fairly basic core offering (free credit scores) can build a service layer on top to deepen engagement with customers. It’s a concept that touches on what was surely one of the most profound themes of the conference–that, like free credit scores, insurance only need be a small piece of a company’s larger offering. This may mean embedding insurance into the purchase of other products or services (i.e., how travel insurance is often sold) or it may mean doing what Credit Karma has done and layering on a service offering to deepen engagement with customers and make products stickier. Assaf Wand, CEO of the home insurance company Hippo, spoke to both of these models in his discussion with David Weschler of Comcast about how their two companies are partnering to make insurance smarter and smart homes safer. When asked about what the future of insurance looks like, Wand put it plainly when he said: “Home insurance won’t be sold as insurance. It will be an embedded feature of the smart home.” Jillian Slyfield, who heads the digital economy practice at Aon, a company that is already partnering with companies like Uber and Clutch to insure the next generation of drivers, agrees: “We are embedding insurance into these products today.” Until this vision is fully realized, companies like Hippo are doing their part to make their insurance products fade into the background as the companies offer additional services for homeowners, “Can I bring you value that you really care about?” Wand asked, “Wintering your home, raking leaves, these are the kinds of things that matter to homeowners.” 3. Insurance is first and foremost a customer experience “The insurance industry has to redefine our processes… go in reverse, starting with the customer and re-streamlining our processes around them” - Koichi Nagasaki, Sompo To many outside the insurance industry, the idea of good customer experience may seem unremarkable, but for an industry that has for so long been enamored by the ever-increasing complexity of its own products, redefining processes around customers is like learning a foreign language as a middle-aged adult. It’s hard, and it takes a long time, and a lot of people aren’t up to the task. The insurance industry has been talking about the need for customer-centricity for a while now, but many companies continue to drag their feet. But customer-centricity is and remains more than a differentiator. It’s now table stakes. How this plays out for the industry will look different for different companies. Some will turn to partnerships with insurtechs and other startups to embed their products into what are already customer-centric experiences and companies. Chavez of Oliver Wyman would rather see the industry “disrupt itself,” as he believes it’s critical that companies maintain the customer relationship. In his plenary sessions, he cited the German energy company Enercity as a company that disrupted itself. Operating in a similarly regulated industry, rather than becoming just a supplier of energy, the company invested heavily in its own digital strategy to become a thought leader in the energy space, to be a trusted adviser to its customer and to deliver an exceptional digital experience that, among other things, leverages blockchain technology to accept bitcoin payments from customers. For Chavez, insurtech is already a bubble, and, “If you want to succeed and thrive in a bubble, make yourself indispensable.” The only way to do this, he believes, is to maintain ownership over the customer experience, because, in today’s digital economy, the customer experience is the product. But to own the customer experience and succeed will require insurance companies to completely reorient their business practices and processes - to start with the customer and the experience and work backward toward capabilities. In the words of Han Wang of Paladin Cyber, who spoke on a panel about moving from selling products to selling services, “It’s always a questions of what does the customer want? How do they define the problem? And what is the solution?” 4. Insurance is trust “The world runs on trust. When we live in a society where we have lots of trust, everyone benefits. When this trust goes away, everyone loses.” - Dan Ariely, Lemonade During a faceoff between incumbents and insurtechs during one conference session, Dylan Bourguignon, CEO of so-sure cinched the debate with a single comment, calling out large insurance carriers: “You want to engage with customers, yet you don’t have their trust. And it’s not like you haven’t had time to earn it.” This, Bourguignon believes, is ultimately why insurtechs will beat the incumbents. Indeed, the insurtech Lemonade spent a fair amount of stage time preaching the gospel of trust. Dan Ariely, behavioral economist and chief behavior officer at Lemonade, delivered a plenary session entirely devoted to the topic of trust. He spoke about trust from a behavioral standpoint, explaining how trust creates equilibrium in society and how, when trust is violated, the equilibrium is thrown off. Case in point: insurance. Insurance, he explained, has violated consumer trust and has thrown off the equilibrium–the industry doesn’t trust consumers, and consumers don’t trust the industry, a vulnerability that has left the insurance industry open to the kind of disruption a company like Lemonade poses. As an industry, insurance has incentives not to do the thing it has promised to do, which is to pay out your claims. And while trust is scarcely more important in any industry as it is in insurance, save in an industry like healthcare, the insurance industry is notoriously plagued by two-way distrust. What makes Lemonade stand out is that it has devised a system that removes the conflict of interest germane to most insurance companies – as a company, it has no incentives to not pay out customer claims. In theory, profits are entirely derived by taking a percentage of the premium; anything left over that does not go to pay out a claim is then donated to charity. The result: If customers are cheating, they aren’t cheating a company, they are cheating a charity. Ariely described several instances where customer even tried to return their claims payments after finding misplaced items they thought had been stolen. “How often does this happen in your companies?” he asked the audience. Silence. And it’s not just new business models that will remedy the trust issues plaguing insurance. It’s new technology, too. In a panel titled "Blockchain: Building Trust in Insurance," executives from IBM, Salesforce, Marsh and AAIS discussed how blockchain technology has the capacity to deepen trust across the industry, among customers, carriers, solutions providers and underwriters by providing what Jeff To of Salesforce calls an “immutable source of truth that is trusted among all parties.” Being able to easily access and trust data will have a trickle down effect that will affect everyone, including customers, employees and the larger business as a whole–reducing inefficiencies, increasing application and quote-to-bind speed, eliminating all the hours and money that go into data reconciliation and ultimately making it easier for carriers to deliver a quality customer experience to their customers. See also: Disruption of Rate-Modeling Process   While the progress in blockchain has been incremental, the conference panel demoed some promising use cases in which blockchain is already delivering results for customers, one example being acquiring proof of insurance for small businesses or contractors through Marsh’s platform. With blockchain, a process that used to span several days has been reduced to less than a minute. Experiences like these–simple, seamless and instantaneous – are laying the groundwork for carriers to begin the long road to earning back customer trust. Blockchain will likely play an integral role this process. 5. Insurance is a social good “We need insurance. It is one of the most important products for financial security.” - Dan Ariely, Lemonade For all of the the naysaying regarding state of the industry that took place at InsureTech Connect, there were plenty of opportunities for the industry to remind itself that it's not all bad, and its core insurance is something that is incredibly important to the stability of people across the globe. Lemonade’s Schreiber called it a social good, while Ariely told his audience, “We need insurance. It is one of the most important products for financial security.” Similar sentiments were expressed across stages throughout the conference. In fact, in today’s society, income disparity is at one of the highest points in recent history, stagnating wages are plaguing and diminishing the middle class, more people in the U.S. are living in poverty now than at any point since the Great Depression, the social safety net is shrinking by the minute and more than 40% of Americans don’t have enough money in savings to cover a $400 emergency, so insurance is more important than ever. For Inga Beale, CEO of Lloyds of London, insurance has a critical role to play in society, “It goes beyond insurance–it’s about giving people money and financial independence,” she said during a fireside chat. She went on to describe findings from recent research conducted by Lloyds, which determined that, by the end of their lives, men in the U.K. are six times better off financially than women. When designed as a tool to provide financial independence and equality for everyone, insurance can play an important role in addressing this disparity. While this has been a focus in emerging markets, financial stability and independence is often assumed in more developed markets, like the U.S. and Europe. In reality, it is a problem facing all markets, and increasingly so. Ace Callwood, CEO of Painless1099, a bank account for freelancers that helps them save money for taxes, agrees that insurance has an important role to play. “It’s our job to get people to a place where they can afford to buy the products we are trying to sell,” he said. You can find the article originally published here.

Automation is transforming claims processing in myriad ways. Damage appraisals that are completed in only a few hours are becoming the norm―shaving days off cycle time and making the claims process easier than ever before. Insurance customers are getting comfortable with snapping a few photos of their damaged vehicle and sending them to their insurer via a simple mobile claim app. Drones are often dispatched to inspect storm damage on a home, allowing property adjusters to complete virtual damage inspections. Data delivered electronically early in the claims process is revolutionizing the claims workflow, simplifying claim reporting and providing a wealth of actionable data to expedite claim settlements. What do customers think about the advent of claims automation? How can insurers leverage today’s technology and real time data to wow their customers? These are just a sample of the questions we wanted to answer with our Future of Claims panel of experts at the LexisNexis Customer Advisory Meeting on Sept. 11, 2018, in Scottsdale, AZ. This session, which I moderated, included experts Dave Pieffer (P&C practice lead with J. D. Power & Associates), Jimmy Spears (AVP auto experience with USAA) and Lily Wray (VP emerging technology operationalization with Liberty Mutual). See also: 3 Techs to Personalize Claims Processing   Data from the 2018 J. D. Power Claims Customer Service Survey, presented by Dave Pieffer, informed our discussion around the following four themes (with the customer perspective for the themes shown in quotes):

• Show Empathy―“Listen to Me”
• Streamline Customer Communications―“Simplify for Me”
• Improve Service Speed―“Prioritize Me”
• Optimize and Balance Self-Service Options―“Empower Me”

Show Empathy The survey found that showing empathy (“Listen to Me”) ―expressed as “ensuring the customer feels more at ease”―scores low, with an industry average of 66%. Pieffer shared that the only empathy category scoring lower was “taking the loss report in 15 minutes or less”―with an average of 59%. The panel explained the importance of listening to customers as a first priority and improving FNOL scripts to be more natural and conversational versus impersonal (such as simply providing a list of questions). Jimmy Spears emphasized the importance of adopting a user-friendly self-service claims reporting process. He introduced the term “digital hug”―an immediate digital response to a customer’s electronic claim report or message. Spears shared that often customers who report electronically will immediately also call to ask, “Did you get my report?” Providing a digital hug gives customers the assurance that they have been heard and action is underway. The panel audience participated in the session by answering real time electronic polling questions from their phones, and in this case responded that simplifying the FNOL process with fewer questions was the most important way to increase customer empathy. Streamline Customer Communications On the topic of streamlining customer communications (“Simplify for Me”), Spears explained that “pro-active communication is the key to success.” Pieffer shared statistics showing that customers are most satisfied when the insurer updates them with claim status information. The survey results supported this information through scores indicating deteriorating satisfaction when customers find themselves having to call their insurer or repair facility. The panel agreed that getting the claim to the right person quickly and avoiding multiple handoffs was critical to improving customer communications. This was confirmed by survey data that showed consumer ratings drop by 133 points when customers are asked to repeat information during the claims process. The audience’s real-time polling indicated that typically at least three claims employees touch even the simplest claims. Improve Service Speed Customers expect their insurance company to make them a priority (“Prioritize Me”) when they have a claim. While we often think this means fast claims service, Pieffer explained that the survey results indicated that setting an accurate customer expectation at loss report was equally important to processing speed. In fact, meeting customer expectations on time-to-settle increases customer satisfaction scores even more than simply providing a fast claim experience. Spears explained how his company has completely redesigned the total loss claims experience by simplifying not only claims processing but also the car purchasing process via USAA Bank services and the USAA car buying service, which allows customers to be in their next car within a few days versus a few weeks (the industry average). Audience polling revealed that the optimal time to pay a simple claim should be within three days. Pieffer noted that the survey indicated today’s industry average is about six days. Optimize and Balance Self-Service Options Our final discussion topic (“Empower Me”) focused on the use of self-service technology. Pieffer shared data showing that Gen X and Gen Y customers (younger than age 50) were most comfortable with submitting damage photos via a mobile app and receiving electronic claims updates. While this was not a surprise, it was interesting to learn that satisfaction with digital FNOL was low for all age groups. The panel spoke about the need to simplify the FNOL process to minimize the clicks it takes to complete a digital FNOL. This was validated by audience polling, which overwhelmingly supported simplifying FNOL apps and minimizing clicks. I shared the value of bringing real-time data into FNOL and self-service applications to electronically verify first-party information to minimize additional inquiry. Furthermore, I noted that real-time FNOL data also allows third-party information to be collected immediately and accurately to simplify the FNOL process and make self-service reporting much easier for customers, which should greatly increase customer adoption. See also: The Missing Piece for Customer Experience   The panel discussion and audience poll answers confirm that delighting customers at time of claim is all about listening to, simplifying for, prioritizing and empowering them. As the P&C insurance industry continues to advance in claims automation, these four customer expectations should be front and center to ensure greater customer satisfaction and retention.

Artificial intelligence (AI) combines ability with autonomy. It is more than the product of its programming, as it evolves in real time—as it learns at an exponential rate—until it almost anticipates the needs of its users. It is proof of the existence of a greater good within the machine; that intelligence has many forms, and forms many languages; that what it says is indeed intelligible, provided we ourselves can speak its native tongue. What, then, does AI have to say about the insurance industry? In so many words: a lot. How we interpret and apply this language, how we convert so many ones and zeros into words of actions, how we honor our words with actions—these things depend on business expertise. By business expertise, I refer to those advisers who can decode the language of a computer code. I refer to those men and women who analyze data, whose analysis informs insurers of new markets and reveals subtle but significant changes in the market; whose guidance is less a matter of intuition and more an issue of intelligence both artificial and actual, as well as wisdom. See also: How to Use AI, Starting With Distribution   According to Nick Chini of Bainbridge, AI is as revolutionary to the insurance industry as actuarial science. It advances accuracy by dissecting the anatomy, so to speak, of policies, benefits and premiums. It atomizes the body of a business, so insurers can see what conventional technology cannot expose: the structure and strength of a particular client. It answers previously unanswerable questions about the health of a multitude of clients. It shows how tensile or tenuous the bond is between a business and its balance sheet, how profound or precarious its profits may be, how robust or ragged its sales will be. The legitimacy of the answers reflects the fluency of the adviser, whose skill determines the clarity of each message; whose scrutiny deciphers the importance of each missive; whose worth is contingent on his conclusions about each communiqué. What that adviser recommends, based on the materials AI allows him to read, promises to be more predictive than any model and more precise than any formula. The recommendation itself is the result of the union between science and sound advice, where guesswork yields to the hard work of substantiating what others claim but cannot prove. The proof is in the success of the insurance industry in general and the growth of individual insurers in particular. See also: 3 Steps to Demystify Artificial Intelligence   To sustain this momentum is to recognize the power of intelligence and the invaluable nature of wisdom. Put another way, a smart mind is no match for a strategic thinker. The latter gives voice to the former: It is a voice that humanizes a theory, because the narrator is a fellow human being. He is a voice of comfort—she is an adviser, whose voice inspires confidence—so insurers have the wherewithal to do and the wealth of resources to see their deeds to completion. So begins a new chapter in the history of the insurance industry.

For a small business owner, offering competitive employee benefits is a crucial way to attract and retain strong talent. Whether you currently provide them and are planning next year’s renewal, or you are thinking of offering them for the first time, here are five things you should consider before your employees enter the open enrollment period for next year on Nov. 1: Small Businesses Don't Have to Wait While your employees won't be able to enroll in health insurance plans until November comes along, small business owners don't have to wait at all to secure health insurance for their employees. The sooner you act, the better, to guarantee that you and your employees are protected. According to recent studies, healthier employees are happier employees and, as a result, will contribute to a more productive workplace. A more positive and constructive work environment is better for you, your employees and your business as a whole. Health Literacy Is Important Whether you’ve provided health insurance to your employees before, or you’re looking into doing so for the first time, it is always worthwhile to prioritize health insurance literacy. There is a host of terminology and acronyms, not to mention rules and regulations that can be overwhelming to wrap your head around. The internet is full of relevant information, ranging from articles to explainer videos, that should have you up to speed in no time. Having a good understanding of insurance concepts such as essential health benefits, employer contributions, out-of-pocket maximums, coinsurance, provider networks, co-pays, premiums and deductibles is a necessary step to being better-equipped to view and compare health plan options side-by-side. A thorough familiarization with health insurance practices and terms will allow you to make the most knowledgeable decisions for your employees and your business. Offering Health Insurance Increases Employee Retention Employees want to feel like their health is a priority and are more likely to join a company and stay for longer if their healthcare needs are being met. A current survey shows that 56% of Americans whose employers were sponsoring their healthcare considered whether or not they were happy with their benefits to be a significant factor in choosing to stay with a particular job. The Employee Benefit Research Institute released a survey in 2016 that showed a powerful connection between decent workplace health benefits and overall employee happiness and team spirit. 59% of employees who were pleased with their benefits were also pleased with their jobs. And only 8% of employees who were dissatisfied with their benefits were satisfied with their jobs. Alleviate Health Insurance Costs High insurance costs can be an obstacle for small business owners. A new survey suggests that 53% of American small business owners stress over the costs of providing healthcare to their employees. The 2017 eHealth report reveals that nearly 80% of small business owners are concerned about health insurance costs, and 62% would consider a 15% increase in premiums to make small group health insurance impossible to afford. However, there are resources in place to help reduce these costs. One helpful way to cut down on health insurance costs is to take advantage of potential tax breaks available to small business owners. All of the financial contributions that employers make to their employees' premiums are tax-deductible, and employees’ financial contributions are made pre-tax, which will decrease a small business’ payroll taxes. Additionally, if your small business consists of fewer than 25 employees, you may be eligible for tax credits if the average yearly income for your employees is below $53,000. For small business owners, the biggest driver on insurance cost will be the type of plan chosen in addition to the average age of your employees. Your employees’ health is not a factor. Use Digital Resources You don't have to be an insurance industry expert to shop for medical plans. There are resources and tools available that make buying medical plans as easy as purchasing a plane ticket or buying a pair of shoes online. Insurance is a very complex industry that can easily be simplified with the use of the advanced technology and design of online marketplaces. These platforms are great tools for small business owners to compare prices and benefits of different plans side-by-side. Be confident while shopping for insurance because all of the information is laid out on the table. Technological solutions such as digital marketplaces serve as useful tools to modernize the insurance shopping process and ensure that you and your team are covered without going over your budget.

During Aon’s Analytics Insights Conference, we focused on the variety of analytics software and solutions touching our industry. The conference was themed: "blending old and new: data and analytics in the modern era." It will come as no surprise that terms such as blockchain, AI and machine learning might appear to be the holy grail of our industry. But there are other keys to making good data-driven decisions. Blackjack happens to be the perfect Petri dish to remind ourselves about making better decisions. Data is easy to get, and systems never change. At this year’s conference, Jeffrey Ma, former VP of analytics and data science at Twitter and kingpin of the famous MIT blackjack team, shared his thoughts on the future of some of the new capabilities in analytics, arguing that “the biggest misconception is that AI is like magic and solves everything. In reality, it’s only going to be as good as the problems you point out and the data set that’s available to you.” Tracy Hatlestad, chief operating officer - analytics within Aon’s reinsurance solutions business, sat down with Jeffrey to find out more. Q:  In an industry like insurance where success with data and analytics is a clear differentiator, what are a few key things you think people need to remember about making data-driven decisions? A: Quite a few things come to mind, but here are some that seem pertinent to the crowd today. The first is omission bias, or the idea of favoring inaction over action. In blackjack, there’s static math that helps override these biases that is harder to discern in insurance, but the logic still applies. The second is the fallacy of the gut result, or the idea that you can be a better predictor than science or math. The third, and potentially the most dangerous for  the financial industry, is the idea of right decision vs. right outcome. In blackjack, an incorrect decision can still lead to one-off wins, and, in those scenarios, undue credence can be given to those decisions or decision makers in the future. See also: 3-Step Approach to Big Data Analytics   Q: You talked about three levels of analytics – data, analysis and implementation. What are a few keys to success with those levels? With level one A: It’s imperative to remember that data is the building block for any analytical framework and any advantage that you can create. The adage, "garbage in, garbage out," still applies. In many industries, there are a number of barriers that stand in the way of quality data, such as:

• Data curation problems, often driven by legacy systems
• Lack of commitment to data quality
• Input by non-analytics professionals
• The gathering of data well in advance of the ability to use it for strategic advantage

With level two I really think of it more like science than analysis. The real skill is the ability to hypothesize. In fact, this has led me to hire people with advanced skillsets in economics, social sciences and physics. Simple data science is a commodity, and companies should be looking for people with the ability to ask questions, not just look for big patterns in data. With level three This is when you get to implementation. It separates successful companies from the rest. You’re moving into experimentation and always measuring the impact to see the outcome. It’s important to remember that you need the buy-in from everyone – sales, marketing, underwriting, etc. Without that, the ability to implement data-driven decisions gets lost. But when you find successes, you have the ability to operationalize those results with machine learning or artificial intelligence. Q: Building on your comments about artificial intelligence, what’s a misconception about the power of artificial intelligence or machine learning? A: The biggest misconception is that it’s magic and solves everything. In reality, machine learning or artificial intelligence is only going to be as good as the problems you point out and the data set that’s available. Artificial intelligence does not have the ability to explore outside the dataset. It can learn from that dataset, but, if it is not given the right questions or a skewed set of data, you can easily become misinformed. Q:  That makes sense, and yet it still seems like something people might overlook. Are there other mistakes you see companies making in the artificial intelligence space? A: Lately, I’ve heard a few companies talk about separating data science from machine learning and artificial intelligence. They believe that data science is closer to the data and analytics field or business applications while machine learning is more around computers and programming, infrastructure, etc. The reality is they need to act in concert because the data scientists are going to be the ones who come up with the heuristics that help inform an artificial intelligence or machine learning model. The best case is when business leaders are working collaboratively with data scientists to develop a hypothesis that can be tested. Without that, you’re not going to get the best return on your investment in terms of your talent and what they are doing. Q:  What advice would you give senior leaders in insurance on implementing artificial intelligence or machine learning into their organization? A: In any evolving field, it’s important to remember that the candidates that might have the best outcome can come from diverse backgrounds. There isn’t a typical hire when finding the best resources in these fields. Unlike long-time industry practitioners who can help you solve problems and create solutions with current methods, there’s going to be people who see the problem differently and really understand the possibilities. It’s also important for leaders to recognize that these people are likely some of the smartest in the building, but they need the business context to end up with the right results. You can’t treat them like the back-office number crunchers. See also: Predictive Analytics: Now You See It….   Q:  We touched on it a bit earlier, but let’s get back to why insurance is more difficult than blackjack? A: There are a lot of things in this world that will test your belief in analytics. Belief in analytics for blackjack is a little easier because it’s already solved and understood. The rules and data don’t change, and there are known outcomes. I talked about a situation where I lost $100,000 through mathematically correct decisions, and it would be hard to stick with the decisions if you did not fully understand the game. That’s even more difficult when you introduce additional variability and unconditional probabilities in areas like insurance where data is not stationary. In these cases, when you have negative results in a short-term sample, it can be even harder to trust the process or model. The fascinating thing is that, because it’s more difficult, there are many more opportunities to differentiate and win on a bigger scale.

A new measure of fitness and health, called Personal Activity Intelligence (PAI), has important implications for both life insurers and their policyholders. It’s now possible to predict, using new technology, the chances that consumers of all ages will develop heart disease. Even better, if the data from the new technology shows improvement, there is also an opportunity to reduce the potential health risk. Digital technology applications offer life insurers the chance to engage customers with personalized health data that is both easy to provide and simple to understand. And, of course, this is a win for life insurers, too – customers with personalized health data receive more value from the relationship. After all, enabling healthier, longer lives means a longer lifetime value to the benefit of the policyholder and the insurer. The secret to personalized health data There is a secret to this personalized health data, and it is based on cardiorespiratory fitness (CRF). CRF is one of the best predictors of health and mortality, with a direct correlation between cardiorespiratory fitness and lifestyle diseases. Until now, CRF has been the missing link to quantify the level of physical activity required to reduce the risk of lifestyle diseases. In England, healthcare costs related to physical inactivity are five times more than smoking, and in the U.S. $117 billion health care expenditures per year were associated with inadequate levels of physical activity. Health data analytic companies, such as PAI Health, offer solutions to make CRF data accessible and relevant to insurers and consumers alike. Customers’ activity levels and CRF data are tracked using a personalized baseline risk assessment. Dynamic, real-time risk monitoring improves customer engagement and reduces risk. Insurers are therefore able to determine the level of risk and understand the health profile for individual customers. Shifting the conversation from payer to partner Think of how providers currently handle the customer relationship. Once a customer purchases an insurance policy, the communications typically become almost entirely transaction-based, focused on renewals and claims. What if an insurer had access to data insights that assess customers’ health and risk levels dynamically over time? This now opens the door to a personalized health dialogue. See also: Making Life Insurance Personal   One of the largest life insurance companies saw this opportunity when it just entered into an agreement to provide its policyholders with wearable digital devices and gain their customers’ health and fitness data. The insurer will offer rate discounts and other incentives to its policyholders, creating a conversation between the company and its customers about fitness and health. By using CRF metrics and personalized health data, software tools present complicated data in a comprehensible format for the first time. Here is exactly why tracking this valuable CRF data is not only the best approach for insurers, but also is extremely important in the future of health:

1. It takes the guesswork out of health: Innovations in biometric algorithms help make big data simple enough for anyone to understand. The data that comes from these algorithms is also personalized for anyone of any health level. It offers the chance to meet people where they are, in a more open and understanding environment, to get them started on the path to a longer, healthier life.
2. It’s educational and accessible: For most customers, the idea of changing their lifestyle can be daunting. CRF metrics can be a conversation starter opening the door to educational content that naturally supports the transition to a healthier lifestyle, making the entire process less intimidating for customers. What’s more – it’s extremely accessible and convenient, because all a customer needs to do is take a minute out of the day and get started via smartphone.
3. It’s universal and trusted: Health isn’t one size fits all, but the beauty in CRF metrics such as the Personalized Activity Intelligence (PAI) is that they work for customers at any health level and with whatever type of exercise they prefer. And what many customers don’t realize is that they are becoming healthier through daily habits, such as mowing the lawn, washing the car or doing housework. By using an activity metric underpinned by CRF, you are providing customers with data that is trusted by the AHA, NHS and sports science experts as a proven measure of health.
4. It fits real life: CRF activity metrics take a holistic look at improving activity, rather than looking day by day. This means if a customer misses a day or needs a break, it isn’t the end of the world. The activity prescription provided to the person readjusts and the risk models update, so the person can stay motivated on the journey to his or her best self. Improving CRF is a physiological adaptation that requires continual work, which is exactly what the data molds to.
5. It doubles as a measure of health: As an insurer, it’s important to know the health levels of individual customers. A simple score tells the insurer and its customers exactly where they are, to achieve optimal health. The information might be incorporated into rates and underwriting.

The time is now to start engaging customers in a dialogue using personalized health metrics that can lower risk and costs, while adding more to the relationship. See also: This Is Not Your Father’s Life Insurance   Through this data, insurers and policyholders alike have a new opportunity to advance the way we monitor and act on health, to help customers enjoy happier, longer lives.

It’s nice having a vacation home to escape to, especially when the summer rolls around. But because you probably spend more time at your primary home, keeping bad guys away from your cabin in the woods or your beachfront property can be tricky. Read on to learn more about steps you can take to protect your second home.

Bulk up security

According to recent statistics, about 30% of household burglaries in the U.S. happen when a thief enters a home through an unlocked door or window. Installing deadbolt locks and burglar alarms are some of the best ways to prevent theft. Buying a system that lets you monitor what’s happening is another way to keep people from breaking into your vacation home.

You can install cameras that send real-time video footage straight to your smartphone or tablet. We recommend putting one camera outdoors and another one in a strategic spot inside of your home. You can monitor the feeds yourself or opt for someone else to do it. Cameras can potentially keep burglars from attempting to enter your home.

You may also want to consider buying other smart devices, like leak detectors, smart lights and locks that can be controlled remotely no matter where you are.

Make connections in the community

Your vacation home may be a place you visit occasionally. But it’s important to make friends with your neighbors. If you find someone who lives in the community throughout the year, you could rely on them for information. If something happens to your vacation home, that person could be your point of contact.

Close-knit communities like to look out for each other and you don’t want to feel like you’re the odd one out. You might be surprised. A trusted friend or observant neighbor may know a lot about what happens when you’re not around. Let the person know when you’ll be in town and, more importantly, when you’ll be away. The person can keep an eye out for strange activity. Give the person your phone number and a spare set of keys so he or she can act quickly if something goes wrong.

See also: Smart Home = Smart Insurer! 

In some areas around the country, you can also register for a house check. A police officer or registered volunteer can walk around the perimeter of your vacation home when you’re not in the area. Just keep in mind that, in some places, house checks can only be done for a period of up to 30 days per calendar year.

Bonus tip: You’ll also want to make your home look lived-in, even if you’re only there a few times a year. Thieves often look for easy targets like a home that’s unoccupied for weeks throughout the year.

Make sure you have enough insurance

If you plan to rent your vacation home to others, you may want to meet with an insurance professional. There are different risks associated with having a second home, and your standard homeowners policy may not cover damages that occur when someone is renting your home.

According to the Insurance Information Institute, you may need to purchase additional coverage. Letting family members or other guests spend a day or two in your vacation home may not be a big deal. But you should consider getting a business policy if you plan to regularly rent your home for a week or more at a time. For long-term rentals (meaning that someone is spending time in your vacation home for six months or more), you’ll need a landlord or rental dwelling policy.

Landlord policies cover physical damage to the structure of a second home, personal property and liability if someone gets hurt. In most cases, landlord policies also provide financial support if you can’t rent your property or make money while it’s being repaired after a covered loss. Just note that landlord policies generally cost about 25% more than the typical homeowners policy.

See also: When It’s Better to Build In-House 

Before you go

Protecting your vacation home is important. Because you aren’t around as often, it’s best to buy security cameras, ask others to check up on your home and make sure you have enough insurance coverage. Before you leave the premises, double-check and make sure you’ve locked up all of your valuables. You don’t want to wait until it’s too late to make an effort to keep your second home safe.