Common things we hear these days: “If you really want to reach me, text me.” “Send that file to me via Slack.” “I live on Facebook, so send me a message on Facebook Messenger.”

We also observe that many people never answer voicemail, virtually ignore emails and throw away mail without even looking at it.

These are samplings of the communication patterns that are evolving in our society today. Meanwhile, how do we in the insurance industry communicate with our policyholders, agents, claimants and others? Email, phone calls and documents in the mail predominate. Web portals are also common. Some of the newer options for interaction are not on the radar of most insurers. Now, there are certainly individuals who still want to receive information in the traditional ways, and there will continue to be a need for these options, but the tide is turning.

See also: The Missing Piece for Customer Experience  

SMA has been investigating some new communication options and their implications for insurers. Our new research report, Advanced Customer Communications in the Digital Age: New Options for Insurers, explores how communications have evolved, how the insurance industry is using these options (or not), example use cases and what it all means in the context of an omni-channel environment.

Some of the new(er) forms of communication that have been gaining adoption and setting new expectations for customers include:

• SMS texting and online chat: Although it is difficult to classify these as “new,” the insurance industry still has very little use of the technologies outside of the enterprise.
• Messaging and collaboration platforms: These have been proliferating over the past decade or so, with tools like Skype, Facebook Messenger, Slack, Zoom and many others gaining large followings.
• Voice assistants and chatbots: As voice and AI technologies have leapt forward, the opportunities to leverage AI-driven chatbots and voice assistants has increased dramatically. Much experimentation is underway in insurance.
• Smart documents: Documents in many forms will continue to play a major role in communicating information to prospects, producers and policyholders. Rethinking those documents from a customer perspective and making them interactive and parametric provide great opportunities for the industry.
• Augmented/virtual reality: Although a bit further out in terms of adoption and implications for insurance, there are already pilots and projects underway in the industry.

See also: How Customers Buy… and Why They Don’t  

The way the world communicates is rapidly changing, and everyone has their favorite options. Insurers would be wise to consider these in their customer journey and omni-channel strategies and plans.

Greetings from Las Vegas, where we've gathered for the third InsureTech Connect with 6,000 or so of our closest friends. That's about twice as many attendees as last year, which was twice as many as the first year. Exponential growth is good, right? And the group now represents what a venture capitalist might call a "full stack" -- all types of companies, investors, startups, technologies, countries, you-name-it are represented here.

It's exciting to see companies bring to life the sorts of dreams that many of us have been describing for years now. For example, I met with Cover Genius, which takes an API-based (as in, application programming interface) view of the world that enables a model I've described as "Do you want fries with that?" The startup offers digital versions of insurance products that e-commerce companies can bundle into their offerings, generating savings on costs of sales that can be shared with customers. The first big success has been with rental-car insurance that travel sites can offer when someone makes a booking. The price from Cover Genius is much lower than what you'd be quoted at the rental car counter. And I believe that Cover Genius is just scratching the surface. As insurance products become APIs that can fit into any digital product or service and any sales process, the lower prices and ease of purchase will have customers ordering lots of "meal deals."

I was also struck by the work at Parsyl, which is just coming out of stealth mode with an ingenious application of the Internet of Things that reifies another of my big themes: that insurance should increasingly be about preventing the bad stuff from happening in the first place. Parsyl, which has formed a partnership with AXA XL, has developed sophisticated, reusable sensors that can be placed in shipments to make sure they stay within certain important ranges, such as temperature in the case of a load of fish. The sensors don't just trigger an insurance payment if there is a problem, as current, simple sensors can, but can signal when an indicator is heading out of range, so that someone might be able to intervene. In any case, the sensors record when and where a problem occurred, so responsibility can be assigned quickly and accurately and so steps can be taken to prevent a recurrence. 

I found reason to be optimistic because of a workshop that our own Guy Fraker, ITL's chief innovation officer, ran for some 60 executives from incumbents that are trying to figure out how to set up innovation programs. He took the group through some exercises that showed them that they could quickly generate lots of hypotheses for potentially important innovations and assured them, "You only need four or five people to drive innovation. You don't need 100. This is not Big Pharma R&D."

The cherry on top was that a representative from a major auto maker told the group that he was looking to break out the insurance piece that goes into the monthly price for his vehicle subscription program  -- people who "subscribe" are basically leasing a car but for an indefinite period longer than 30 days and can pick and choose among a certain set of vehicles, such as a sports car line. These subscription programs are growing fast at any number of auto makers, so why wouldn't others be interested in breaking out the insurance piece, offloading the risk and making the monthly price for the car at least look lower? Why couldn't some enterprising company come along with a white label product, expressed as an API that could fit into the processes of all these car makers? You could almost hear the wheels turning in people's heads as they thought through the possibilities. 

Maybe someone will announce such a product at next year's ITC. Or, why wait until then? 

Have a thought-provoking week. 

Paul Carroll
Editor-in-Chief

After three decades working in this competitive industry, I have come to understand the very significant role that employee engagement plays in the success of any insurance company. No matter the size of your company or the lines you deal in, having an engaged team makes all the difference.

I have seen this in action, first-hand, as the CEO of IAT Insurance Group. When I joined the company four years ago, IAT’s underwriting results were underperforming. For the last three years, however, we have turned an underwriting profit.

What changed? In part, this came about by refocusing the company on underwriting discipline and restructuring key operations. I firmly believe, however, that it is also due in large part to a renewed emphasis we have placed, company-wide, on fostering employee engagement. We could not have achieved such an immediate turnaround in results without the input of our employees.

A focused program of specific, concrete actions key to employee engagement

Employees are savvy. They know when management is all talk. This is especially true when it comes to employee engagement. Insurance companies must take concrete actions that are more than just motivational poster slogans to foster a positive — and profitable — working environment.

See also: Employee Wellness Plans’ Code of Conduct  

This is why we have engaged in a focused program over the past four years with specific tactics to foster an employee culture that creates productivity and growth. This includes:

• Getting everyone on the same team. IAT has grown through a series of mergers and acquisitions, with many business units operating under their original names and branding. That led to a fracturing of IAT’s internal identity as one company. One of our first initiatives when I joined IAT was to bring all the units together under one IAT umbrella. That put everyone on the same team, pulling together in one direction.
• Establishing a unified internal “brand.” It was one thing to unify IAT’s disparate business units under one umbrella on paper. It’s quite another to have employees actually feel like one. To help build culture, we established an internal brand that we call “A Family of Answers” to help all employees, at every level, identify as one company with one mission. At IAT we provide answers to each other, our customers and the community. This core identity reflects our company values and unites us.
• Investing in technology that connects employees. IAT has offices throughout the U.S., which makes operating as a unified team difficult. To foster connections, we have invested heavily in technology that effortlessly links our employees together. We make extensive use of videoconferencing, for example, and for more than just big meetings. Instead of picking up the phone to talk to a colleague from another office, we turn on our desktop video cameras to have that conversation. The company also launched a state-of-the-art Sharepoint-powered intranet, called IAT Connect, that lets all employees access the latest corporate information as well as collaborate on projects.
• Fostering real openness and transparency. Companies make better decisions when more people weigh in, and engaged employees are more likely to share feedback and ask questions. To encourage more people to contribute, we hold quarterly all-employee webcasts to provide an update on the company and key projects. More importantly, however, we solicit and answer employee questions. We give employees the option to ask their question live during the meeting or submit it anonymously. We make sure every question is answered. If we run out of time during the meeting, we answer remaining questions on IAT Connect. The company benefits from the thoughtful inquiries and insight of our employees, and, at the same time, we are building transparency and trust.
• Acting on employee feedback. Encouraging employee feedback is one thing, but it will not help engagement if nothing changes in light of that feedback. We make a point of listening to employees — and then acting. For example, during one of our quarterly webcasts, an employee asked if a year-end performance bonus could be distributed before Black Friday instead of in December so employees could take advantage of sales. The executive team discussed it, and the change was made.
• Encouraging community engagement. Giving back to the community is the right thing to do. It also aligns with our core values and goes a long way toward building a culture of engagement. We provide a company match for employees’ contributions to charities, paid time off for volunteering and a companywide week focused on community service and charity called Giving Week.
• Investing in training and career development. Investing in our employees’ success is a win/win. We launched IAT University last year to provide free access to an array of courses, from technical skills training to leadership development.
• Formalizing employee recognition programs. We introduced two programs to provide more opportunities for employees to be recognized and financially rewarded for outstanding customer service and performance.
• Moving to a pay-for-performance system. Money is not the only motivating factor for employees — but it is an important one. IAT always had a generous bonus program, but all employees were largely treated the same, despite their performance, and a majority of staff found this de-motivating. Based on employee feedback, we moved to a pay-for-performance compensation system that encourages productive employees who contribute to the company and its profitability. The system works and is very generous. In 2017, based on the company’s success, 94% of IAT employees earned a bonus, and the total bonus pool was up more than 14% over the year before.

Measure and benchmark to ensure employee engagement goals are met

Even with concrete actions, no program to increase employee engagement could be considered a success without hard data to back it up. Yes, IAT began turning an underwriting profit three years ago and has continued to do so, but we wanted more direct proof our initiatives were having an impact on the work culture at our company. So, for the last three years we have commissioned well-known corporate leadership consultant Kevin Kruse to conduct an employee engagement survey. Each year’s results have shown marked improvement.

The 2018 findings are particularly noteworthy:

• An 87% participation rate
• Overall engagement score of 4.13 out of 5 (up from 3.87 in 2017)
• Engaged-to-disengaged ratio of 26:1 (an improvement over 12:1 in 2017). The ratio puts IAT in the top 10% of companies surveyed by Kruse

The metrics are gratifying proof that our collective hard work and the company’s investment of time and money into employee engagement have paid real dividends.

See also: 4 Good Ways to Welcome Employees  

Invest in your employees, and they will pay it back, with interest

Peter Kellogg, our owner, has always said, “Take care of your people, and they will take care of the business.” Any company wanting an edge in today’s competitive marketplace would be wise to take a good, hard look at what it does around employee engagement, and make any and all necessary changes accordingly.

Car insurance is, to borrow the title of a book by Ralph Nader, unsafe at any speed. It is a gruesome fact, indeed, as the annual number of automotive fatalities is too large to be an abstraction and too sizable to be a purely academic matter. Maybe the reform the insurance industry needs—and the safety every driver deserves—comes from without rather than within; maybe those who advocate safety, and agitate (peacefully) for change, are the very advocates who do this for a living; lawyers who specialize in representing car accident victims. Where there is no room for doubt—where there is no roadway for leeway and no acceptance of maybe as an answer—concerns the status quo. The current system is economically unsustainable and morally unforgivable, a pileup of a disaster that requires cleanup from insurers and better clarity from most lawyers. That is, if we want to lower costs and lessen risk, we must inform drivers of their rights and, pardon the series of automotive metaphors, dissuade insurers from making yet another wrong turn. According to John K. Zaid, a Houston-based lawyer, companies should invite attorneys to speak to their respective workers about car and road safety. Insurers should join this conversation, too, because it is in their interest to make personal safety a professional priority. See also: The Sharing Economy and Auto Insurance   Far from being an adversarial process, these seminars can unite lawyers and insurers. The two share most of, if not all, the same goals—including an emphasis on education, so drivers can be more aware of the dangers they face and automobile manufacturers can produce less dangerous cars, so everyone can profit from fewer risks and more benefits. Lawyers can give voice to these issues—they already do, when entering a courtroom or issuing opening and closing remarks to a jury. They can be, and are, a voice of reason. They nonetheless need insurers to convert these voices into a chorus of rhythm and harmony; in which safety is a universal mission; in which life is too precious a commodity for talk about compromise; in which product liability compromises the health of many and the lives—and livelihoods—of millions; in which the way some corporations do business is an increasingly surefire way for companies to go out of business. Let this chorus be as diverse as possible, resonating in every city, county and state. Let it echo in the corridors of power and reverberate among the powerful. Let it be a call to action by lawyers and insurers alike, because we cannot afford to read more statistics without seeing the faces behind the numbers: young and old, rich and poor, parents and grandparents, friends and neighbors. See also: Beginning of the End for Car Insurance?   We cannot afford a policy of indifference, whose premiums we can neither permit nor attempt to pay. We can, however, save lives through a partnership of protection. We can do so—we must do so—before car accidents become too commonplace to be cause for concern. The consequences are too important to look or feel inconsequential.

One of the bigger issues at InsureTech Connect this year, I expect, is a result of advances in globalization and technology: How can providers more efficiently address multilingual needs without, say, a lot of Rosetta Stone? The challenges aren’t confined to insurers operating internationally; increasingly, geographic diversity presents this challenge within nations. For example, what happens when an American customer traveling in Spain needs help urgently, but will be routed to the nearest call center--in Germany? And that office doesn’t have a translator? Perhaps the matriarch of a small family business, run by non-English speakers in the Midwest, needs to purchase a policy? How can you upsell? Google Translate alone won’t work in such a complex situation; we need technology that quickly understands tone, slang and cultural context in addition to intent. Even Facebook is just now getting into language-barrier solutions. How we communicate with potential customers affects the way they receive the information--and that can go well, or not. This need extends to the point people for customer acquisitions: brokers. But after underwriting, it is the provider--not the broker--that does all the serving. If brokers aren’t adopting strong translation technology programs, those customers are lost. (Which is why we’re seeing insurance companies providing their brokers with materials in different languages.) Luckily, advances in automation, machine learning and artificial intelligence have shown to cut costs, boost efficiency and improve capabilities at scale, across industries. For insurers, technology can now provide multi-language support through an automated customer service system, a capability we didn’t have just five years ago. See also: 26 Most Important Words in Business   In legacy automated customer service systems, the program looks for individual keywords within an interaction. But today, technology can absorb 100 paragraphs--a library of text that reflects a displeased customer. Agents can even, for example, see whether the customer hung up mid-call, or used profanity. Simply put, each of those 100 paragraphs is assigned a numerical number--some as long as 100 digits, each with a label that reflects those human details that can get lost in automated service--anger, happiness or anxiety. It’s a sentient technology. Codifying language using a binary library speeds up processing time by making it easier to find complex combinations of words, as opposed to the previous method of searching for keywords. Another weakness with the traditional keyword search is that it can throw off algorithms. If a customer declares, “I’m red in the face with your service!” the program will not be able to interpret it for what it is--especially when translating across languages. Insurers can no longer keep up with the old model of staffing a few well-versed interpreters now that people opt for digital platforms, like text. That’s largely because consumers are opting for text-based communications, like email or messaging apps, over call centers. Translation needs have shifted to digital text, which demands an entirely new solution. Artificial Intelligence can digest a call in one language, translate it and transcribe it as a ticket--even assigning a score to each conversation. This score is important, because it determines the routing and triage process. If Company X decided to challenge itself and escalate any conversation that scored under 80%, the company can do that--and it can all be automated. For the past few years, Microsoft has been on the forefront of this sector, but still has drawbacks: Users must train the system over time, because the program is industry-agnostic in its application. When this same cutting-edge technology is built exclusively for the insurance industry, it becomes far more powerful. Over the last three years, we’ve seen that 90% of customer questions will be the same, with only 10% unique to the system’s “brain.” That promises better accuracy and a smoother move across the pipeline. See also: Language and Mental Health Because this is a translation issue, it’s no surprise that we are seeing a lot more demand for multilingual support in the travel industry, particularly with EU carriers, which serve a diverse range of demographics. A close second is demand we’ve seen in small business property and casualty insurers. Research has show that Russian is an important language to accommodate, as the population is traveling more. The value of investing in advanced translation technology is transparent. Policies are sold in a process that involves around eight touchpoints--the referral from a friend, the initial phone call, the in-person visit, the medical exam, follow-up calls, to name some. Customer experience determines wins and retention. When a broker is selling a life insurance policy to someone--and can deftly communicate in their language---it makes sense that customer affinity (and thus their sales) would go up. Add in the ability to do all of this across platforms--messaging apps, email, chatbots, Alexa or social media--and it will make a difference in the bottom line.

You own a house. It burns down. Your insurer only pays out 15% of the loss. That’s a serious case of under-insurance. You’d wonder why you bothered with insurance in the first place. In reality, massive under-insurance is very rare for conventional property fire losses. But what about cyber insurance? In 2017, the total global economic loss from cyber attacks was $1.5 trillion, according to Cambridge University Centre for Risk Studies. But only 15% of that was insured. I chaired a panel on cyber at the Insurtech Rising conference in September. Sarah Stephens from JLT and Eelco Ouwerkerk from Aon represented the brokers. Andrew Martin from Dyanrisk and Sidd Gavirneni from Zeguro, the two cyber startups. I asked them why we are seeing such a shortfall. Are companies not interested in buying or is the insurance market failing to deliver the necessary protection for cyber today? And is this an opportunity for insurtech start-ups to step in? High demand, but not the highest priority We’ll hit $4 billion in cyber insurance premium by the end of this year. Allianz has predicted $20 billion by 2025. And most industry commentators believe 30% to 40% annual growth will continue for the next few years. A line of business growing at more than 30% per year, with combined ratios around 60%, at a time when insurers are struggling to find new sources of income is not to be sniffed at. But the risks are getting bigger. My panelists had no problem in rattling off new threats to be concerned with as we look ahead to 2019. Crypto currency hacks, increasing use of cloud, ransomware, GDPR, greater connectivity through sensors, driverless cars, even blockchain itself could be vulnerable. Each technical innovation represents a new threat vector. Cyber insurance is growing, but so is the gap between the economic and insured loss. The demand is there, but there are a lot of competing priorities. Today’s premiums represent less than 0.1% of the $4.8 trillion global property/casualty market. Let’s try to put that in context. If the ratio of premium between cyber and all other insurance was the same as the ratio of time spent thinking about cyber and other types of risk, how long would a risk manager allocate to cyber risk? Even someone thinking about insurance all day, every day for a full working year would spend less than seven minutes a month on cyber. It’s not because we are unaware of the risks. Cyber is one of the few classes of insurance that can affect everyone. The NotPetya virus attack, launched in June 2017, caused $2.7 billion of insured loss by May 2018, according to PCS, and losses continues to rise. That makes it the sixth largest catastrophe loss in 2017, a year with major hurricanes and wildfires. Yet the NotPetya event is rarely mentioned as an insurance catastrophe and appears to have had no impact on availability of cover or terms. Rates are even reported to be declining significantly this year. See also: How Insurtech Boosts Cyber Risk   Large corporates are motivated buyers. They have an appetite for far greater coverage than limits that cap out at $500 million. Less than 40% of SMEs in the U.S. and U.K. had cyber insurance at the end of 2017, but that is far greater penetration than five years ago. The insurance market has an excess of capital to deploy. As the tools evolve, insurance limits will increase. Greater limits mean more premium, which in turn create more revenue to justify higher fees for licensing new cyber tools. Everyone wins. Maybe. Growing cyber insurance coverage is core to the strategy of many of the largest insurers. Cyber risk has been available since at least 2004. Some of the major insurers have had an appetite for providing cyber cover for a decade or more. AIG is the largest writer, with more than 20% of the market. Chubb, Axis, XL Catlin and Lloyd’s insurer Beazley entered the market early and continue to increase their exposure to cyber insurance. Munich Re has declared that it wants to write 10% of the cyber insurance market by 2020 (when it estimates premium will be $8 billion to $10 billion). All of these companies are partnering with established experts in cyber risk, and start-ups, buying third party analytics and data. Some, such as Munich Re, also offer underwriting capacity to MGAs specializing in cyber. The major brokers are building up their own skills, too. Aon acquired Stroz Friedberg in 2016. Both Guy Carpenter and JLT announced relationships earlier this year with cyber modeling company and Symantec spin off CyberCube. Not every major insurer is a cyber enthusiast. Swiss Re CEO Christian Mumenthaler declared that the company would stay underweight in its cyber coverage. But most insurers are realizing they need to be active in this market. According to Fitch, 75 insurers wrote more than $1 million each of annual cyber premiums last year. But are the analytics keeping up? Despite the existence of cyber analytic tools, part of the problem is that demand for insurance is constrained by the extent to which even the most credible tools can measure and manage the risk. Insurers are rightly cautious, and some skeptical, as to the extent to which data and analytics can be used to price cyber insurance. The inherent uncertainties of any model are compounded by a risk that is rapidly evolving, driven by motivated “threat actors” continually probing for weaknesses. The biggest barrier to growth is the ability to confidently diversify cyber insurance exposures. Most insurers, and all reinsurers, can offer conventional insurance at scale because they expect losses to come from only a small part of their portfolio. Notwithstanding the occasional wildfire, fire risks tend to be spread out in time and geography, and losses are largely predicable year to year. Natural catastrophes such as hurricanes or floods can create unpredictable and large local concentrations of loss but are limited to well-known regions. Major losses can be offset with reinsurance. Cyber crosses all boundaries. In today’s highly connected world, corporate and country boundaries offer few barriers to a determined and malicious assailant. The largest cyber writers understand the risk for potential contagion across their books. They are among the biggest supporters of the new tools and analytics that help understand and manage their cyber risk accumulation. What about insurtech? Insurer, investor or startup - everyone today is looking for the products that have the potential to achieve breakout growth. Established insurers want new solutions to new problems; investment funds are under pressure to deploy their capital. A handful of new companies are emerging, either to offer insurers cyber analytics or to sell cyber insurance themselves. Some want to do both. But is this sufficient? The SME sector is becoming fertile ground for MGAs and brokers starting up or refocusing their offerings. But with such a huge, untapped market (85% of loss not insured), why aren’t cyber startups dominating the insurtech scene by now? The number of insurtech companies offering credible analytics for cyber seems disproportionately small relative to the opportunity and growth potential. Do we really need another startup offering insurance for flight cancellation, bicycle insurance or mobile phone damage? While the opportunity for insurtech startups is clear, this is a tough area to succeed in. Building an industrial-strength cyber model is hard. Convincing an insurer to make multimillion-dollar bets on the basis of what the model says is even more difficult. Not everyone is going to be a winner. Some of the companies emerging in this space are already struggling to make sustainable commercial progress. Cyber risk modeler Cyence roared out from stealth mode fueled by $40 million of VC funding in September 2016 and was acquired by Guidewire a year later for $265 million. Today, the company appears to be struggling to deliver on its early promises, with rumors of clients returning the product and changes in key personnel. The silent threat The market for cyber is not just growing vertically. There is the potential for major horizontal growth, too. Cyber risks affect the mainstream insurance markets, and this gives another source of threat, but also opportunity. Most of the focus on cyber insurance has been on the affirmative cover – situations where cyber is explicitly written, often as a result of being excluded from conventional contracts. Losses can also come from ” silent cyber,” the damage to physical assets triggered by an attack that would be covered under a conventional policy where cyber exclusions are not explicit. Silent cyber losses could be massive. In 2015, the Cambridge Risk Centre worked with Lloyd’s to model a power shutdown of the U.S. Northeast caused by an attack on power generators. The center estimated a minimum of $243 billion economic loss and $24 billion in insured loss. In the current market conditions, cyber can be difficult to exclude from more traditional coverage such as property fire policies, or may just be overlooked. So far, there have been only a handful of small reported losses attributed to silent cyber. But now regulators are starting to ask companies to account for how they manage their silent cyber exposures. It’s on the future list of product features for some of the existing models. Helping companies address regulatory demands is an area worth exploring for startups in any industry. See also: Breaking Down Silos on Cyber Risk   Ultimately, we don’t yet care enough We all know cyber risk exists. Intuitively, we understand an attack on our technology could be bad for us. Yet, despite the level of reported losses, few of us have personally, or professionally, experienced a disabling attack. The well-publicized attacks on large, familiar corporations, including, most recently, British Airways, have mostly affected only single companies. Data breach has been by far the most common type of loss. No one company has yet been completely locked out of its computer systems. WannaCry and NotPetya were unusual in targeting multiple organizations, with far more aggressive attacks that disabled systems, but on a very localized basis. So, most of us underestimate both the risk (how likely), and the severity (how bad) of a cyber attack in our own lives. We are not as diligent as we should be in managing our passwords or implementing basic cyber hygiene. We, too, spend less than seven minutes a month thinking about our cyber risk. This lack of deep fear about the cyber threat (some may call it complacency) goes further than increasing our own vulnerabilities. It also the reason we have more startups offering new ways to underwrite bicycles than we do companies with credible analytics for cyber. Rationally, we know the risk exists and could be debilitating. Emotionally, our lack of personal experience means that cyber remains “interesting” but not “compelling” either as an investment or startup choice. Getting involved So, let’s not beat up the incumbents again. Insurance has a slow pulse rate. Change is geared around an annual cycle of renewals. It evolves, but slowly. Insurers want to write more cyber risk, but not blindly. The growth of the market relies on the tools to measure and manage the risk. The emergence of a new breed of technology companies, such as CyberCube, that combine deep domain knowledge in cyber analytics with an understanding of insurance and catastrophe modeling, is setting the standard for new entrants. Managing cyber risk will become an increasingly important part of our lives. It’s not easy, and there are few shortcuts, but there are still plenty of opportunities to get involved helping to manage, measure and insure the risk. When (not if) a true cyber mega-catastrophe does happen, attitudes will change rapidly. Those already in the market, whether as investors, startups or forward thinking insurers, will be best-positioned to meet the urgent need for increased risk mitigation and insurance.

New technologies offer insurers the opportunity to build more engaged relationships with their customers. Fitness-linked insurance programs, for example, are attractive to active people who have access to technology and a desire to use it. While wearables and apps are most closely associated with promoting physical fitness, technology is increasingly being put to use in lifestyle monitoring of the elderly and others in need of care. Technology that is simple to understand and use works best. Some older people find the latest gadgets baffling. Even after a device has been set up and explained, they often have little confidence and remain skeptical of the benefits. Health problems make some devices hard to operate, while the cost and lack of access to technology is another barrier. Despite the challenges, the percentage of people using technology in later life is rising fast. U.K. figures show that 75% of people 65-74 years old now have access to the internet and that more than one-third own a smartphone. Among the individuals over 75, one-quarter use tablets, and 41% have a social media account. Three-quarters of smartphone-owning older Americans use the internet several times a day or more. These numbers are all pretty close to those seen in much younger age groups. It’s no surprise the baby-boomer generation is digitally engaged, but new technologies can also provide interventions for much older adults, and many of them are eager adopters. Aging populations create opportunities for products and services. The U.K. government has committed to invest in innovation to meet the needs that result from this demographic change. See also: Insurance 2025: Smart Contracts   Telecare and telehealth are technological interventions to deliver services at a distance from the provider. Smart homes, assistive robots, technology-based wellness and therapeutics can all promote an independent lifestyle for older people, not only providing for their physical and cognitive fitness but also entertainment, leisure and wellbeing. There are reasons other than cost-saving for technological solutions to help older people remain independent, including assistance with everyday tasks compensating for lost physical or cognitive function. In Japan, where 25% of the population are senior, the predicted shortfall of caregivers by 2025 is likely to be met by nursing-care robots currently being developed with government backing. Caregivers also enjoy positive outcomes by experiencing less worry. For example, tracking how a person with dementia interacts with a virtual assistant device - the questions they ask it and how often, the tone and cadence of the voice - could help spot cognitive changes, as could analysis of onscreen scrolling and mouse movement. Phones and tablets provide isolated people information and links to social networks for friendship, help and support. Technology sends reminders about medication. Sensors monitor sleep, kitchen activity and walking speed, and raise the alarm if a person has a fall. Behavioral data from self-learning intelligent software allows caregivers to analyze patterns of behavior, spot negative trends and intervene quickly. Before insurers embark on building more digital engagement programs, it is important to know how they can appeal to the wide range of customers. It is important to maximize the potential for understanding how older adults perceive technology, and providing help with setup and support. In the Netherlands, several insurers now reimburse users employing home sensors, and others are experimenting with reimbursements on wearables. More will surely follow because technology might prevent hospitalization or worse. See also: Solving Insurtech’s People Challenge   Concerns remain over potential security and privacy risks that these technologies pose. Monitoring must be structured in an ethical way that is compliant with data laws, and there must be a person-centered approach ensuring tangible benefit for the person concerned. The pressure on health services is increasing as the numbers of elderly people continue to rise, and developed technologies that address these concerns can help reduce the overall costs of prevention and monitoring.

While more than half of individuals surveyed by Pew Research express worry over the trend toward autonomous vehicles, and only 11% are very enthusiastic about a future of self-driving cars, lack of positive consumer sentiment hasn’t stopped several industries from steering into the auto pilot lane.

The general sentiment of proponents, such as Tesla and Volvo, is that consumers will flock toward driverless transportation once they understand the associated safety and time-saving benefits. Because of the self-driving trend, KPMG currently predicts that the auto insurance market will shrink 60% by the year 2050 and an additional 10% over the following decade.

What this means for P&C insurers is change in the years ahead. A decline in individual drivers would directly correlate to a reduction in demand for the industry’s largest segment of coverage. How insurers survive will depend on several factors, including steps they take now to meet consumer expectations and needs.

The Rise of Autonomous Vehicles

Google’s Lexus RX450h SUV, as well as 34 other prototype vehicles, had driven more than 2.3 million autonomous miles as of November 2016, the last time the company published its once monthly report on the activity of its driverless car program. Based on this success and others from companies such as Tesla, public transportation now seems poised to jump into the autonomous lane.

Waymo -- the Google self-driving car project -- recently announced a partnership with Valley Metro to help residents in Phoenix, AZ, connect more efficiently to existing light rail, trains and buses by providing driverless rides to stations. This follows closely on the heels of another Waymo pilot program that put self-driving trucks on Atlanta area streets to transport goods to Google’s data centers.

In the world of personal driving, Tesla’s Auto Pilot system was one of the first to take over navigational functions, though it still required drivers to have a hand on the wheel. In 2017, Cadillac released the first truly hands-free automobile with its Super Cruise-enabled CT6, allowing drivers to drive without touching the wheel for as long as they traveled in their selected lane.

Cadillac’s level two system of semiautonomous driving is expected to be quickly upstaged by Audi’s A8. Equipped with Traffic Jam Pilot, the system allows drivers to take hands off the vehicle and eyes off the road as long as the car is on a limited-access divided highway with a vehicle directly in front of it. While in Traffic Jam mode, drivers will be free to engage with the vehicle’s entertainment system, view text messages or even look at a passenger in the seat next to them, as long as they remain in the driver’s seat with body facing forward.

While the Cadillacs were originally set to roll off the assembly line and onto dealer lots as early as spring of 2018, lack of consumer training as well as federal regulations have encouraged the auto manufacturer to delay release in the U.S. Meanwhile, Volvo has met with similar constraints as it navigates toward releasing fully autonomous vehicles to 100 people by 2021. The manufacturer is now taking a more measured approach, one that includes training for drivers starting with level-two semi-autonomous assistance systems before eventually scaling up to fully autonomous vehicles.

“On the journey, some of the questions that we thought were really difficult to answer have been answered much faster than we expected. And in some areas, we are finding that there were more issues to dig into and solve than we expected,” said Marcus Rothoff, Volvo’s autonomous driving program director, in a statement to Automotive News Europe.

Despite the roadblocks, auto makers’ enthusiasm for the fully autonomous movement hasn’t waned. Tesla’s Elon Musk touts safer, more secure roadways when cars are in control, a vision that is being embraced by others in high positions, such as Elaine Chao, U.S. Secretary of Transportation.

“Automated or self-driving vehicles are about to change the way we travel and connect with one another,” Chao said to participants of the Detroit Auto Show in January 2018. “This technology has tremendous potential to enhance safety.”

See also: The Evolution in Self-Driving Vehicles

We’ve already seen what sensors can do to promote safer driving. In a recent study conducted by the International Institute for Highway Safety, rear parking sensors bundled with automatic braking systems and rearview cameras were responsible for a 75% reduction in backing up crashes. According to Tesla’s website, all of its Model S and Model X cars are equipped with 12 ultrasonic sensors capable of detecting both hard and soft objects, as well as with cameras and radar that send feedback to the car.

Caution, Autonomous Adoption Ahead

The road to fully autonomous vehicles is expected to be taken in a series of increasing steps. We have largely entered the first phase, where drivers are still in charge, aided by various safety systems that intervene in the case of driver error. As we move closer to full autonomy, drivers will assume less control of the vehicle and begin acting as a failsafe for errant systems or by taking over under conditions where the system is not designed to navigate. We currently see this level of autonomous driving with Audi Traffic Jam Pilot, where drivers are prompted to take control if the vehicle departs from the pre-established roadway parameters. In the final phase of autonomous driving, the driver is removed from controlling the vehicle and is absolved of roadway responsibility, putting all trust and control in the vehicle.

KPMG predicts wide-scale adoption of this level of autonomous driving to begin taking place in 2025, as drivers realize the time-saving and safety benefits of self-driving vehicles. During this time frame, all new vehicles will be fully self-driving, and older cars will be retrofitted to conform to a road system of autonomous vehicles.

Past the advent of the autonomous trend in 2025, self-driving cars will become the norm, with information flowing between vehicles and across a network of related infrastructure sensors. KPMG expects full adoption of the autonomous trend by the year 2035, five years earlier than it first reported in 2015.

Despite straightforward predictions like these, it’s likely that drivers will adopt self-driving cars at varying rates, with some geographies moving faster toward driverless roadways than others. There will be points in the future where a major metropolis may have moved fully to a self-driving norm, mandating that drivers either purchase and use fully autonomous vehicles or adopt autonomous public transportation, while outlying areas will still be in a phase where traditional vehicles dominate or are in the process of being retrofitted.

“The point at which we see autonomy appear will not be the point at which there is a massive societal impact on people,” said Elon Musk, Tesla CEO, at the World Government Summit in Dubai in 2017. “Because it will take a lot of time to make enough autonomous vehicles to disrupt, so that disruption will take place over about 20 years.”

Will Self-Driving Cars Force a Decline in Traditional Auto Coverage?

At present, data from the National Highway Traffic Safety Administration indicates that 94% of automobile accidents are the result of human error. Taking humans largely out of the equation makes many autonomous vehicle proponents predict safer roadways in our future, but it also raises an interesting question. Who is at fault when a vehicle driving in autonomous mode is involved in a crash?

Many experts agree that accident liability will be taken away from the driver and put into the hands of the automobile manufacturers. In fact, precedents are already being set. In 2015, Volvo announced plans to accept fault when one of its autonomous cars is involved in an accident.

“It is really not that strange,” Anders Karrberg, vice president of government affairs at Volvo, told a House subcommittee recently. “Carmakers should take liability for any system in the car. So we have declared that if there is a malfunction to the [autonomous driving] system when operating autonomously, we would take the product liability.”

In the future, as automobile manufacturers take on liability for vehicle accidents, consumers may see a chance to save on their auto premiums by only carrying state-mandated minimums. Some states may even be inclined to repeal laws requiring drivers to carry traditional liability coverage on self-driving vehicles or substantially alter the coverage an individual must secure.

Despite the forward thinking of manufacturers such as Volvo, for the present, accident liability for autonomous cars is still a gray area. Following the death of a pedestrian hit by an Uber vehicle operating in self-driving mode in Arizona, questions were raised over liability.

Bryant Walker Smith, a law professor at the University of South Carolina with expertise in self-driving cars, indicated that most states require drivers to exercise care to avoid pedestrians on roadways, laying liability at the feet of the driver. But in the case of a car operating in self-driving mode, determining liability could hinge on whether there was a design defect in the autonomous system. In this case, both the auto and self-driving system manufacturers and even the software developers could be on the hook for damages, particularly in the event a lawsuit is filed.

Finding Opportunity in the Self-Driving Trend

Accenture, in conjunction with Stevens Institute of Technology, predicts that 23 million self-driving vehicles will be coursing across U.S. highways by 2035. As a result, insurers could realize an $81 billion opportunity as autonomous vehicles open new areas of coverage in hardware and software liability, cybersecurity and public infrastructure insurance by 2025, the same year that KPMG predicts the autonomous trend will begin to rapidly accelerate.

Simultaneously, Accenture predicts that personal auto premiums, which will begin falling in 2024, will hit a steeper decline before leveling out around 2050 at an all-time low. Most of the personal premium decline is due to an assumption that the majority of self-driving cars will not be owned by individuals, but by original equipment manufacturers, OTT players and other service providers such as ride-sharing companies.

It may seem like a logical conclusion if America’s love affair with the automobile wasn’t so well-defined. Following falling gas prices in 2016, Americans logged a record-breaking 3.22 trillion miles behind the wheel. Even millennials, the age group once assumed to have given up on driving, are showing increased interest in piloting their own vehicles as the economy improves.

According to the National Household Travel Survey conducted by the Federal Highway Administration, millennials increased their average number of miles driven 20% from 2009 to 2017. Despite falling new car sales, the University of Michigan Transportation Research Institute shows that car ownership is actually on the rise. Eighteen percent of Americans purchase a new car every two to three years, while the majority (39%) make a new car bargain every four to six years.

Americans have many reasons for loving their vehicles. Forty percent say it’s because they enjoy driving and being in their cars, according to a survey conducted by Cars.com. ReportLinker reveals that 83% of people drive daily and that half are passionate about the behind-the-wheel experience of taking on the open road. Another survey conducted by Gold Eagle determined that people even have dream cars, vehicles that they feel convey a sporty, luxurious or efficient image.

Ownership of autonomous vehicles would bring at least some liability back to the owner-occupant. For instance, owing to security concerns, all sensing and decision-making hardware related to the Audi Traffic Jam Pilot system is held onboard. With no over-air connections, software updates must be made manually through a dealer. In situations like these, what happens if an autonomous vehicle crash is tied to the driver’s failure to ensure that software was promptly updated?

Auto maintenance will also take on a new level of importance as sensitive self-driving systems will need to be maintained and adjusted to ensure proper performance. If an accident occurs due to improper vehicle maintenance, once again, the owner could be held liable.

As the U.S. moves toward autonomous car adoption, one thing becomes clear. Insurers will need to expand their product lines to include both commercial and personal lines of coverage if they are going to take part in the multibillion-dollar opportunity.

Preparing for the Autonomous Future of Insurance

Because the autonomous trend will be adopted at an uneven pace depending upon geography, socioeconomic conditions and even age groups, Deloitte predicts that the insurers that will thrive through the autonomous disruption are those with a “flexible business model and diverse product mix.” To meet consumer expectations and maintain a critical focus on customer acquisition and retention, insurers will need a multitude of products designed to protect drivers across the autonomous adoption cycle, as well as new products designed to cover the shift of liability from driver to vehicle.

Even traditional auto policies designed to protect car owners from liability will need to be redefined to cover autonomous parameters. Currently, only 25% of companies have a business model that is easily adaptable to rapid change, such as the autonomous trend.

In insurance, this lack of readiness is all the more crucial, considering the digital transformation already underway across the industry. According to PwC, 85% of insurance CEOs are concerned about the speed of technological change. Worries over how to handle legacy systems in the face of digital adoption, as well as the need to accelerate automation and prepare for the next wave of transitions, such as autonomous vehicles, are behind these concerns.

As insurers look toward the complicated future of insuring a society of self-driving automobiles, we believe that focusing on four main areas will prepare them to respond to the autonomous trend with greater speed and agility.

Make better use of data

Consumers are looking for insurers to partner on risk mitigation. To meet these expectations, insurers will need to start making better use of data stores, as well as third-party sources, to help customers identify and reduce threats to life and property. Sixty-four percent want their insurer to provide real-time notifications about roadway safety, while, on the home front, 68% would like to receive mobile alerts on the potential of fire, smoke or carbon dioxide hazards.

“Technology is changing the insurer’s role to one of a partner who can address the customer’s real goals – well beyond traditional insurance,” said Cindy De Armond, managing director, Accenture P&C core platforms lead for North America, in a blog.

Armond believes that as insurers focus more on the customer’s prevention and recovery needs, they can become the everyday insurer, integrated into the lives of their customers rather than acting only as a crisis partner. This type of relationship makes insurer-insured relationships more certain and extends longevity. For insurers and their insureds, the future is likely to be more about predicting and mitigating risk than about handling claims, so improving data capture and analytics capabilities is essential to agile operations that can easily adapt to new trends.

See also: Autonomous Vehicles: ‘The Trolley Problem’

Focus on digital Consumers want to engage with their insurer in the moment. Whether that means shopping online for coverage while watching a child’s soccer game or making a phone call to ask questions about a policy, they expect to be able to engage on their time and through their channel of choice. Insurers that develop fluid omni-channel engagement now are future-proofing their operations, preparing to survive the evolution to self-driving, when the reams of data gathered from autonomous vehicles can be used to enable on-demand auto coverage.

Vehicle occupants will one day purchase coverage on the fly, depending on the roadway conditions they encounter and whether they are traveling in autonomous mode. Forrester analyst Ellen Carney sees a fluid orchestration of data and digital technologies combining to deliver this type of experience, putting much of the power in the hands of the customer.

“On your way home, you’re going to get a quote for auto insurance,” she says. “And because your driving data could basically now be portable, you could do a reverse auction and say, ‘Okay, insurance companies, how much do you want to bid for my drive home?’” To facilitate the speed and immediacy required for these transactions, insurers will need to digitally quote, bind and issue coverage.

Seek automation

In the U.K., accident liability clearly shifts from the driver to the vehicle for level four and five autonomous automobiles. As driverless vehicles become the norm, the U.S. is likely to adopt similar legislation, requiring a fundamental shift in how risk is assessed and insurance policies are underwritten. Instead of assessing a policy on the driver’s claims history and age, insurers will need to rate risk by variables related to the software that runs the vehicle and how likely owners are to maintain autonomous cars and sensitive self-driving systems. The more complicated underwriting becomes, the more important automation in underwriting will be.

Consumers who can get into a car that drives itself will have little patience for insurers that require extensive manual work to assess their risk and return bound policy documents. Even businesses will come to expect a much faster turnaround on policies related to self-driving vehicles despite the complexity of the various coverages that will be required. In addition, on-demand coverage will require automated underwriting to respond to customer requests.

According to Lexis Nexis, only 20% of commercial carriers have automated the quoting process, and less than half are investing in underwriting automation.

Invest in platform ecosystems

McKinsey defines a platform business model as one that allows multiple participants to “connect, interact and create and exchange value,” while an ecosystem is a set of connected services that fulfill multiple needs of the user in “one integrated experience.” By definition, an insurance platform ecosystem in the age of autonomous vehicles would be a place where consumers and businesses could research and purchase the coverage they need while also picking up related ancillary services, such as apps or entertainment to make the autonomous ride more enjoyable.

Consumers are in search of ecosystem values today. According to Bain’s customer behavior and loyalty study, consumers are willing to pay higher premiums to insurers that offer ancillary services, such as home security monitoring or an automotive services app, and they are even willing to switch insurers to get time-saving benefits like these.

More important to insurers is the ability to partner with other carriers on coverage. Using a commission-based system, insurers offer policies from other carriers to consumers when they don’t have an appetite for the risk or don’t offer the coverage in house. This arrangement allows an insurer to maintain a customer relationship, while providing for their needs and price points.

See also: Autonomous Vehicles: Truly Imminent?

As the autonomous trend reaches fruition, insurers will need to have access to a wide range of coverage types to meet consumer and business needs, and not all carriers will be able or want to create the new products.

Extreme Customer Focus Prepares for the Future

Insurers can prepare for autonomous vehicle adoption by establishing an extreme customer focus, dedicated to establishing enduring loyalty as insurance needs change. Loyal customers spend 67% more over three years than new ones.

As the insurance marketplace opens up to the sale of ancillary services, gaining wallet share from loyal consumers will certainly help to boost revenues as demand for traditional products decline, but to stay competitive, insurers will need a broader mix of coverage types. While current coverages have remained largely unchanged over the decades, the coming years will see an industry in flux as insurers phase out outmoded types of coverage while phasing in new products and services.

In this environment, the platform ecosystems may be the most critical aspect of bridging the gaps. Today, they allow insurers to fulfill the needs of price-sensitive consumers while also meeting the evolving needs of their customers. Tomorrow, platform ecosystems will provide the “flexible business model and diverse product mix” that Deloitte says will be critical to success for insurers in the autonomous age of driving.

Almost all of my mediations end with agreement to a Compromise and Release. Parties often bring a partially completed Compromise & Release form, DWC-CA form 10214(c), to the mediation. That’s great. But when considerations prevent execution of a final agreement at the mediation, a Memorandum of Understanding, known as an M.O.U., can be invaluable. After working hard to come to terms, you don’t want to let the passage of time blur people’s memories or minimize their commitment. Participants should not leave the mediation without a record of their agreements. A Memorandum of Understanding memorializes the skeleton terms agreed upon at the mediation. Parties sign off at the mediation. The M.O.U. might specify a timeline or conditions. Some settlements are complicated, requiring many addenda. Unanticipated issues may have arisen and been resolved at the mediation. Parties need to return to their offices to draft the final settlement document. The M.O.U. should specify the basic terms as well as deadlines for completion of the initial settlement document, exchange of revisions, and submission to the WCAB. See also: Work Comp: Mediation or an ‘Informal’?   Some agreements are conditional, usually upon CMS approval of a Medicare Set-Aside allocation. Attorneys may address this issue by doing everything but the walk-through, including signatures, pending approval. This leaves a potentially dangerous loophole when unforeseen events occur during the waiting period. Another way to document a conditional agreement is through an M.O.U. Unlike the agreement, which sits in a file drawer, an M.O.U. can specifically address the condition, including what will happen if the condition cannot be fulfilled. For example, if CMS comes back with a higher amount, and the parties do not assent to that amount within a specified time, they can agree to return to mediation.

How emerging technologies may transform insurance rate modeling Insurance rate modeling for mass-market consumer products such as P&C, health and life relies heavily on macro risk factors, the “law of large numbers” and building pools of risk. Broadly speaking, outside of specialized lines, relatively little customer-specific data is used in developing rates. Incentives, such as “safe behavior” discounts, are used primarily to encourage good behavior and to help ensure that low-risk prospects do not feel unfairly represented by their premiums. A practical reason for limiting the process to mostly high-level analysis is that large volumes of data are both hard to collect and to analyze on a discrete level. But emerging technologies are starting to remove some of these limitations, potentially creating ways to optimize risk portfolios in consumer-oriented insurance products. I have written several articles now talking about the potential for the Internet of Things (IoT) in loss prevention and claims facilitation. While much of my focus has been on technologies related to smart homes, arguably more progress has been made in auto telematics and wearables. Data on driving behaviors and personal biometrics of an extraordinary number of people are now being tracked in real time. These data sets may be used to do more than determine the fastest route to work or calculate the remaining target steps you need to take in a day – the data may be a treasure trove of environmental and behavioral information for insurers. Similarly, smart home devices such as connected smoke alarms and leak sensors, along with home security systems, wireless door locks, etc. are beginning to paint a picture of the risk profile in the home at a level never seen before. But the technology advancements do not stop at the increase in data availability; much of the emerging opportunity has to do with new computing models and “the cloud.” Not long ago, the resources needed to model to an individual rating outweighed the value. But we are now in a world where additional computing resources can be launched with the simple click of a button and disparate databases can easily be joined together for comparison. In other words, the discrete data now exists, and the computing power needed to analyze on an individual level is finally within reach. See also: How Tech Is Eating the Insurance World   Tiptoeing in Recognizing that technology may enable improvement on both sides of the risk pool by potentially better identifying both low- and high-risk candidates, insurers are beginning to evaluate options to model risk on a more discrete level. This enhanced lens on data may be one of the most interesting opportunities in the insurance market to-date. The availability of this data, and the associated computing power to process it, is arguably one of the core pillars of the insurtech revolution – but this discussion is for another article. In the meantime, we are seeing early tests toward enhanced data sets in four key markets: health, life, auto and home. 1) Health and Life – Early tests around wearables conducted by major health and life players seemed more to be assessments around consumer comfort with insurers potentially getting a peak into your lifestyle. For example, there have been several examples of fitness trackers given away as affinity products to members of a plan. Initially, there was broad skepticism that consumers would have interest, recognizing that insurers were testing the waters around one-day having access to more detailed lifestyle data. However, early sentiment proved positive, and the market is now seeing the use of individual diagnostic data expanding in the role of premium calculations. Automated collection of this data is not hard to imagine. 2) Auto – Many auto insurers are exploring real-time driving data analysis along with innovative safe driver rates through OBD data collection – with some starting to require it for certain program participation. Consumers, eager to lower their insurance costs, seem to be more than willing to share how fast they drive or how hard they turn when less expensive rates are in play. 3) Home – It’s easy to see how early wins in health, life and auto may translate into the homeowners market. Already, new smart home rates are entering the market, and in these cases smart home products may “self-verify” their presence, removing doubt of whether a customer truly has safety devices installed in the home. As various IoT devices in the home begin to communicate with one another, the insurer has lots of new data that can be used to adjust risk down to a specific premise. A Virtuous Circle? In today’s world of rating, there is an imbalance of information that puts insurers at a disadvantage with insureds. Insureds must represent the value of their property, the current state of the property, the cause of loss when it happens, etc. Generally forced to assume that all statements are true, insurers must price uncertainty into the risk. But moving toward greater data transparency may very well be a win-win for both the insurer and the insured. Low-risk customers may be offered rates more in line with their risk profile. High-risk customers may receive higher premiums, but they may also have clear visibility into the factors affecting their rates and potential corrective actions. Insurers may have less volatility in their portfolio with a better understanding of where the losses may occur. Perhaps this increased data availability will result in lower rates for insureds at maintained or even improved margins for insurers. But how does the overall market respond with more symmetrical information and greater transparency? More importantly, how do consumers respond when they realize the insurer now knows more specific details about them? What if the rating bar moved from basic personal information, like credit score and claims history, to allowing consumers to opt in for very granular inputs such as: how many steps you took today; whether you sped to work; whether you activated your alarm system before leaving your home? Putting aside the regulatory restrictions, the privacy concerns and the general creepiness of this concept, would consumers be willing to give insurers this very personal data in return for big discounts? If “yes,” would it further ensure good behavior of those that did opt in? Could a “positive self-selection” of sorts start to occur? In consideration of these potential impacts, there are three economic phenomena that insurers model into rates that may be affected: 1) Adverse selection – People who most need insurance are most likely to buy it, and people less likely to have loss will opt out – e.g., older folks may opt for more health insurance, or safer drivers may choose less coverage than their daredevil counterparts. The bias of high-risk consumers to buy coverage over low-risk consumers results in higher loss ratios and raises premiums of those who participate. But if rates were lowered by removing the risk padding, would lower-risk customers be motivated to participate? Would the risk/reward ratio reach a point where self-insurers feel like the better bet is to participate with the marketplace? 2) Morale hazard – There is risk that insurers bear that insureds, knowing that they have insurance, will be lazy about protecting their belongings. Why lock your doors if insurance would cover a theft? But when behaviors can be monitored, do consumers act differently? Would “safe” people open up data on their personal lives in return for discounts? Perhaps let the insurer know how many nights a week the alarm is armed or the doors are locked for a lowest-rate option? 3) Moral hazard – This phenomena is when insureds take on riskier behavior when coverage is obtained. In other words, a driver who chooses to increase coverage then goes on to take greater driving risks, again, rationalizing the change in behavior as they are “paying for coverage.” Again it’s worth contemplating if behaviors would change by exposing behavioral data. See also: Embrace Tech Before It Replaces You   Arguably, through increased transparency, a virtuous circle may be created where better information leads to lower rates. Lower rates drive lower-risk candidates into the market; as more lower-risk candidate participate, losses are lessened, which further drives down rates. Additionally, the lowest-risk candidates are the most likely to participate in high-transparency markets, compounding the loss reduction and further driving down rates. Even better, bad actors who know they may not be able to change their behaviors may opt out. I recognize I am ignoring huge hurdles for this type of transparency: regulatory constraints, privacy issues, consumer interest, etc., but I do feel strongly that early entrants into these types of products may see very interesting results. Basically, better information becomes the great equalizer… Conclusion New, high-resolution data sets along with the computing power needed to make them useful are finally here. While having this added information doesn’t necessarily serve as the silver bullet to perfect rate modeling, it certainly offers insurers an opportunity to refine their analysis and reduce the guesswork. Obviously, the effort to operationalize these new data sets may be significant, and, as noted above, there are certainly consumer and regulatory concerns as this highly personal data is used, but the potential is certainly compelling to consider. At the least, now is the time to start considering where these data sets would be useful as the industry contemplates a move toward highly individualized risk opportunities.