The National Safety Council reported a 14% increase in fatal auto accidents between 2014 and 2016, reaching the highest total since 2007. More accidents lead to more insurance claims, and thereby more payouts from insurers. As a result, insurers are striving to more accurately measure and stratify the risk associated with their customer base to help lower claims and increase profits. Unfortunately, it’s difficult to accurately assess risk, and many insurers are stuck using traditional methods to determine rating policies. For years, insurers have used factors like credit score, age, gender and location to set rates, but these traditional factors are not adequate alone to accurately stratify the customer base by risk. When insurers began to use credit score, they were pleased because drivers classified in the riskiest decile based on credit cost two times more to insure than those in the lowest risk decile. Although a 2x lift may seem significant, it pales in comparison to what can be achieved using modern technology to directly measure driving behavior. In particular, data shows that, by using smartphones to measure distraction, at-risk speeding, harsh braking and other factors, smartphone telematics can provide a 17x lift from lowest to highest deciles in terms of crash risk. See also: Distracted Driving — an Infographic   Using smartphone sensor data – and thereby leveraging technology their customer base already possesses – insurers can more accurately measure and analyze driving behavior, and use this information to stratify risk and set pricing based on driving performance. This also aligns with what consumers want. A recent survey revealed that only 20% of respondents had full clarity on how their insurance providers set prices, which seems out of touch given consumers’ overall push for transparency across industries. What’s more, 73% of drivers surveyed want insurance rates based on how they drive, not traditional factors such as gender, age or income level. Despite the significant benefits of adopting a smartphone telematics program, some insurers have been hesitant due to concerns about customer adoption, user satisfaction and ease of implementation. For example, survey respondents indicated that only 22% had ever been offered such a program by their insurer. Considering that 75% of drivers said getting a discount from an insurance provider would motivate them to be a better driver, it is time for insurers to put their concerns aside and try offering a smartphone telematics program. See also: It’s Rush Hour in Telematics Market   Not only can these programs help insurers assess risk, but they can help build a loyal customer base dedicated to safer driving, because smartphone telematics apps offer a way to engage with customers through gamification features and real-time feedback. These features have been shown to help change driver behavior for the better: One insurer saw 74% of their drivers improve. Among these drivers, there were 47% fewer claims and 48% less-severe claims. By extracting behavioral risk factors from smartphones – a modern, ubiquitous technology - and combining them with traditional assessment factors, insurers can achieve better risk stratification, set more accurate rates, reduce the quantity and severity of claims and improve loss ratios. Also, by implementing a comprehensive smartphone telematics program, insurers obtain a direct channel to their customers, where they can engage to improve driving habits and increase loyalty to the insurers’ brand.

I’ve just returned from the ISPIM conference in Stockholm, where around 500 people spent several days kicking around the big questions of how to work successfully at the innovation frontier. A great feature of the conference is that it brings together researchers and academics, practitioners and policy makers, consultants and coaches – and there’s a willingness to share ideas, insights and concerns. It was also a conference taking place against a footballing background – and there were plenty of detours to local cafes to catch games of the World Cup. Watching footballers take the field for their tournament matches reminds you very quickly that these are not simply a group of 11 men tumbling out of the pub or roused from their Sunday afternoon armchairs. They are a trained and rehearsed squad, their performance the result of hours of strenuous effort. All that hard work doesn’t guarantee them success on the pitch, but it certainly helps. It’s also interesting to watch the surprising contenders – small countries like Switzerland or Belgium taking on their much bigger rivals. Success in a competition like this is about being agile, flexible, creative – and remembering that what worked in the past may not be enough to succeed in the future. Winning depends on the capacity for innovation – and for innovating our approaches to that challenge. In many ways, the drama being played out on the pitches in Russia was the same as that being discussed in the conference sessions. Innovation matters to any organization trying to deal with an uncertain and increasingly turbulent environment. And the evidence is clear – success isn’t an accident but rather the product of well-rehearsed and embedded behaviors. As with athletes training for the big event, success depends on a regime of practice and reinforcement to the point where these things become automatic.   Psychologists call these routines, and they define "the way we do things around here"; they become the culture of the organization. There’s no shortage of conferences like ISPIM at which companies share experiences to try to distill recipes for success. And there’s plenty more inspiration to take from a wide range of reports from consultancies mapping trends and identifying key innovation management practices. The dates and locations might change, some of the specific challenges might appear new, but the underlying message is surprisingly constant. And it’s backed by a wealth of research studies that have been trying to explore and unpack the DNA of successful long-running innovators. See also: 3 Myths That Inhibit Innovation (Part 2)   So what does it look like – what is "innovation fitness"? It’s not a single magic ingredient but rather attention paid to a set of principles and the behaviors that help the organization act on them. Anyone might get lucky once, but to sustain innovative performance requires something much deeper, and seven core principles stand out as being important:

• Innovation is not a magic moment – it’s not like the cartoon in which a bubble appears containing a bright idea. It takes place over time, and smart organizations map and manage the journey from idea to successful capture of value from that idea.
  • This doesn’t happen by accident; it’s a journey, and there are different stations on the way, different activities requiring different approaches
  • Smart organizations have a map for their journeys, create structures and policies, use tools and methods to help manage risk and uncertainty as projects proceed
  • They use this process to enable them to repeat the trick and build into it the capacity to stop or pivot projects as well as start them

• Innovation is not a slogan or a fashion accessory; it’s a strategic imperative
  • Innovation needs a road map for the future, spelling out clearly where and how change will take us forward
  • It depends on strategic leadership, providing a stretching vision and encouraging and empowering people to contribute their ideas and efforts toward realizing it
  • It requires commitment, not just words – strategic innovation leadership is about putting resources into play
  • People only buy in to strategy when they understand it, so it also requires mechanisms to communicate and engage them
  • Innovation is about scarce resources and risk, so it’s essential that it is monitored and measured, a key part of the organization’s high-level dashboard
• Innovation is all about change – smart organizations recognize that strategic advantage can come from change along multiple dimensions.
  • Change in what we offer the world – products or service innovation
  • Change in how we create and deliver that offering – process innovation
  • Change in the markets we address and our relationship to them
  • Change in the underlying mental model – business model innovation
  • Smart organizations explore all the innovation space available to them and build a balanced portfolio across these different types
• Innovation involves a portfolio of risk:
  • It involves a great deal of "do better" incremental innovation, exploiting what we already know – improving on what’s already there, tightening up processes, improving customer service, enhancing product offerings, etc.
  • But it also involves radical innovation, exploring new and unmapped space. This kind of "do radical" innovation is about step changes along the trajectories we work with, bigger bets around new technologies, entering new markets, shifting our approach, etc.
  • And from time to time it requires "do different" – reframing the game, looking with an entrepreneur’s eye on how to change the rules of the game or start a new one – disruptive innovation, co-evolving in an emerging new world
  • Organizations need different capabilities in each, allowing for experimentation, failure and above all learning and accumulation of experience for next time
  • And they need "ambidexterity" – being able to do all of this under the same roof, taking advantage of the leverage their resource base can offer. They find ways of integrating the learning around renewing the organization while balancing the tensions and internal challenges that different forms of innovation can set up.
• Innovation is a multi-player game – it’s an ecosystem of different actors who can become part of an innovation network
  • This has always been the case, innovation is about networks of knowledge. But in today’s knowledge-rich environment the challenge of open innovation begins with recognizing that not all the smart guys work for you
  • Smart innovating organizations spend a lot of time developing and managing their networks – seeking out and building new nodes, strengthening existing ones and pruning redundant ones
  • They recognize that users are a powerful source of knowledge, and work to engage lead users and user-innovators in processes of co-creation
  • They explore beyond the boundaries of the normal business frame, looking to develop peripheral vision to pick up on weak signals and emerging opportunities far from their core

See also: How ‘Not Invented Here’ Limits Innovation  

• Innovation is about people and smart organizations working to develop an active innovation culture.
  • Innovation not just as the province of specialists, so everyone can contribute to the innovation story
  • Needs enabling structures and tools, like collaboration platforms
  • Needs to tap into the natural creativity and entrepreneurship but also channel it
  • Needs to train and develop it – understanding innovation and acquiring and honing the skills to be innovative
  • Needs to recognize and reward it
  • Needs to tolerate ambiguity and failure
  • Needs to give people space, time, permission to play
• Innovation is a dynamic capability – organizations need the capability not only to adapt to a changing world but also the second-order capability to step back and reset their approaches. They need innovation model innovation.
  • Need for double-loop learning, adding and modifying and pruning the innovation routines – the behaviors embedded in structures, processes and policies.
  • Three key questions need to be regularly asked. Of the routines we use:
    • Which should we do more of, reinforce?
    • Which should we do less of, even stop doing?
    • Which new ones do we need to cope with new challenges?
  • Need for a core team to help with this, monitoring and reviewing, catalyzing and experimenting – an innovation management capacity
  The challenge, of course, is not just recognizing the need for these capabilities but actually acquiring them. And unfortunately there’s no substitute for the hard work and commitment to building them to the point where they become the way we do things around here. It’s about learning and practice – simply taking out a gym membership doesn’t build up the kind of high-performance athlete able to compete at world-class levels. So why put in the hard work? Because research evidence, reinforced by consulting reports and conference presentations, also shows that success does follow. Actively managing innovation makes a difference. Innovation isn’t a matter of luck, it’s a capability that can be built. Innovators are made, not born.

In a 2011 article in Insurance and Technology, Kathy Burger enumerated several big technological changes in the insurance industry since 2001, including the rise of big data, the ubiquitous nature of cell phones and social media and an increased emphasis on data security and privacy. Seven years later, these once-big innovations are par for the course. P&C insurers and insurtech companies are now positioned to use these tools — which scarcely existed in 2001 and which were only beginning to be broadly embraced in 2011 — as the foundation for the next wave of major changes in the insurance industry. Now, let’s look at some of the biggest rising insurtech trends today to get an idea of where they’re likely to take us 10 years from now. Auto Insurance In July 2015, Jayleen R. Heft published an article at PropertyCasualty360 with the provocative title, “Will the auto insurance industry be obsolete in 20 years?” Heft cited the work of Deutsche Bank research analyst Joshua Shanker, who argued that by 2030 self-driving cars and ride-sharing services would occupy so much of the automotive market that setting rates based on driving data would no longer be necessary. Instead, the companies behind these vehicles and services would simply “insure their cars like any other product,” Heft said. While self-driving cars and ride-sharing services like Uber and Lyft are already shaking up the auto industry, predicting the demise of auto insurance by 2030 — or by 2028, even — may be premature. Pay-per-mile auto insurance is gaining popularity. Spearheaded by companies like Metromile and Esurance, the pay-per-mile model charges a base rate, plus a specified rate for each mile driven. “Each mile usually costs a few cents,” Craig Casazza explains in an article for ValuePenguin. “So if you drive 200 miles per month at a rate of five cents per mile, you would be charged $10.” In addition, Metromile only charges drivers for the first 250 miles driven in any given day in most states. Tracking Mileage With Telemetrics Both Metromile and Esurance use telemetrics to track miles driven to calculate each month’s rate. Metromile calls its program the “Metromile Pulse,” and it uses the car’s OBD-II port to track mileage. Other insurance companies have experimented with telemetrics for a number of years but haven’t connected rates directly to miles driven. Instead, they use the vehicle’s data to adjust rates in a more complex, less transparent manner, Casazza says. See also: Future of P&C Tech Comes Into Focus   The pay-per-mile model is increasingly popular with younger drivers, who often have the option to abandon their cars entirely for the convenience of Uber or public transportation, but who are happy to keep the freedom of their own vehicle when they feel they can more directly control its costs. For these drivers, who include a growing number of those currently under age 40, auto insurance may survive into the 2030s — although it may operate in a very different way. Shanker’s prediction that auto insurance will fade into product liability insurance over the next decade, however, may be prescient. In an October 2017 article in Business Insider, Danielle Muoio explored Tesla’s partnership with Liberty Mutual to sell insurance as part of the purchase price of the company’s vehicles. The plan, called InsureMyTesla, factors in the car’s autopilot feature while setting rates and comes up with a lower cost than other insurance plans as a result, Muoio reports. Insuring Shared Rides Similarly, while ride-sharing company Uber currently requires drivers to carry their own auto insurance coverage while also providing supplementary insurance, the company may switch to providing all insurance coverage on its cars as it continues to move into the self-driving vehicle market. Given Uber’s bumpy ride in producing self-driving vehicles, however, the company’s total abandonment of conventional auto insurance expectations for human drivers may be more than 10 years out, Tech Radar’s Leif Johnson and Michelle Fitzsimmons said in May 2018. Adding Value and Processing Claims “Digital technology destroys value,” warned a March 2017 article by Tanguy Catlin, Johannes-Tobias Lorenz, Christopher Morrison, and Holger Wilms at McKinsey & Co. According to the authors, “although digital technology propels some companies to become clear market winners, for many more its impact depletes corporate earnings and the overall value of an industry. Consumers, not companies, are often the ultimate winners.” To stay relevant, the authors said, insurance companies must “meet customers’ expectations, which have been transformed by digital technology.” In 2018, insurance companies seeking to stay ahead of the curve often accomplish this task by breaking down their own silos and presenting a quick, clean digital interface that makes it easy for customers to interact with the company and for staff to understand customers’ needs and provide clear, consistent answers. Bridging Human and Automated Workflows By 2028, companies are likely to have struck a balance between automation and human intervention — a balance that many insurers are currently struggling to find, Rick Huckstep writes in an article in The Digital Insurer. Automation offers both the opportunity to improve claims response and the challenge of providing the “human touch” that customers also demand, as Roger Peverelli and Reggy De Feniks put it in a December 2017 piece for Insurance Thought Leadership. The goal will be to use automation in a way that doesn’t feel automated. As AI technology continues to develop, this goal may be fully realized within 10 years. The automation of many of the current day-to-day tasks faced by insurance agents will, in turn, change agents’ jobs. Some commentators are already predicting that today’s field agents will be obsolete by 2023, replaced by “bionic agents” who have fully integrated digital tools, including AI and machine learning, into their work. How Automation Influences Customer Expectations Customers are already demanding the knowledge and flexibility a bionic agent exemplifies. As Jason Walker writes at PropertyCasualty360, “Consumers today want the ability to conduct insurance business anytime, anywhere for simple transactions, while at the same time be able to have a relationship with a professional to discuss complex policy questions or walk them through the claims process.” As this option becomes ever more normalized for customers, the demand for the same experience in insurance will rise. as well. The result? By 2028, “digital natives” won’t only be insurance customers — they’ll also be insurance agents who leverage technology not only to serve customers but to demonstrate real value in the insurance process. See also: Key Strategic Initiatives in P&C   Automation and Claims Processing Field agents aren’t the only insurance industry professionals who will see their work change dramatically by 2028. The ways insurance companies process claims will change, as well, driven in large part by customer expectations. For instance, Ben Rossi writes at Information Age that about a fifth of young adult customers (ages 18–24) expect insurance companies to use drone technology to survey property damage and gather information for claims. This idea “would have been unthinkable as recently as a couple of years ago,” Rossi says. Ten years from now, sending a drone to a damaged building or factory site may be as commonplace as sending a human adjuster has been for the past 10 years. For many of us, 2008 feels like it was yesterday. In 2028, our memories of 2018 will feel the same — yet the insurance industry is poised to be eons ahead of where it currently stands, and insurtech will lead the way.

Research firm Forrester’s “Global Business Technographics Security Survey, 2016” found that 49% of decision-makers interviewed had experienced at least one cyber breach during the past 12 months. Of these respondents, 55% had suffered an internal incident involving an employee or a third-party business partner. The survey also ranked top external cyber attack methods: software vulnerabilities, user interaction (phishing, malicious link or email attachment) and use of stolen credentials (logins, encryption keys). These statistics – and countless others – demonstrate the need for businesses and consumers to address the fundamentals of cybersecurity. Without an effective combination of people, processes and governance implemented alongside technology solutions, organizations are at an increased risk of sustaining significant financial damage. Other areas of the business – such as brand, human resources, operations and regulatory compliance, among others – could also take a hit. While leading companies operate more mature cyber risk programs, organizations that lag behind often subscribe to a number of commonly held myths about where to focus their security efforts. These myths prevent the accurate assessment of risk and exposures and hamper the implementation of measures that can protect critical assets and successfully manage a breach when it occurs. Myth 1: Cyber Is Merely an IT issue The information technology (IT) department works full-time to implement, update and maintain technology for the company. However, the same department is often expected to manage the risks associated with that technology, as well. As cyber threats continue to increase, IT departments can easily become overwhelmed. The responsibility for managing cyber risk should lie principally with information security practitioners, regardless of whether the organization has a full-time chief information security officer (CISO). Reality: Cyber Preparedness Starts at the Top and Affects the Entire Organization Taking a comprehensive view of how cyber risk affects the business across various functions is the responsibility of the entire organization—with the C-suite playing an important role. Executives, inclusive of the board of directors, must be familiar with the specific risk issues that affect their organization’s security posture, especially regarding its most critical assets, or “crown jewels,” and then ensure the right departments are involved in devising a comprehensive strategy. This way, security is not only aligned with IT but also tied to the business and the executive leadership team. Many companies conduct cyber-threat “tabletop” exercises to simulate specific scenarios that would play out in a real-life cyber attack or breach – and are increasingly involving the executive team and board of directors. More mature companies with effective governance and risk management processes believe it is imperative to include these senior business executives in these situations. In fact, these exercises are most successful when concentrated on scenarios involving a company’s crown jewels, which enables them to prioritize their efforts toward their most critical assets. Setting the tone at the top helps create buy-in at the highest levels to assess the company’s exposure to cyber risk. This perspective also helps teams implement the necessary remediation and proactive cyber security programs to guard against worst-case scenarios in the event of an attack. Further, information security teams will have the backing to enforce better training and awareness programs, policies and procedures across the organization. See also: Global Trend Map No. 12: Cybersecurity   Myth 2: Technology Solutions Are a “Silver Bullet” While technology is clearly an integral part of effective cyber risk management, investments in technology alone will not fix the problem. If a company focuses its efforts purely on technology designed to detect external threats and perpetrators, it may overlook the impact of human behavior – malicious or otherwise – on cyber security. Research shows that of the businesses that experienced data breaches in 2016, insiders (that is, people with access to the organization’s systems and information) were responsible for 43% of data loss. Whether it is simply employee curiosity or carelessness, these blind spots are often the weakest links in a company’s armor. Increasingly, malicious tactics are designed to bypass sophisticated security technologies and exploit simple human error. Reality: Technology Can Be a Part of the Solution – But It’s Not the Entire Solution Companies need to not only verify that their technology profile is up to date but also implement and maintain their technology effectively. To minimize “insider risk,” for example, organizations should steer clear of allowing everyone to gain access to the most critical and sensitive information and systems. Any access to the company’s critical assets must be governed by strict processes and procedures based on the principle of granting privileged access. Prioritizing programs geared to employee awareness, education and training is also an important step to address common, human-related vulnerabilities, such as malicious attachments in emails, phishing and social engineering tactics and weak passwords. Ensuring the entire organization exercises good “cyber hygiene,” such as better password management practices, should be a priority. Security technologies are a critical part of any program, but they can be potentially circumvented without the appropriate expertise and processes to implement, run, monitor and maintain them. This effort includes installing relevant antivirus software and regularly updating hardware. With cyber security tools – often seen as a silver bullet in a security program – configuration and maintenance should focus on minimizing false positives on security alerts and ensure the appropriate resources are in place to analyze them. From IT to legal, compliance, human resources, business innovation and other departments, it’s critical to create a multidisciplinary team that can assess, manage and respond to risks within different departments and functions. Ultimately, even with the most sophisticated and advanced technology, a culture of security must penetrate the organization. Myth 3: Regulatory Compliance Equals Security As seen most recently with the European Union’s General Data Protection Regulation (GDPR), regulators are stepping in to address consumer privacy and data concerns. While compliance with these regulations is necessary to avoid fines, class action lawsuits and other issues, compliance alone will not address cyber attacks or security compromises. For example, a company may be compliant with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Payment Card Industry Data Security Standard (PCI DSS) and other regulatory measures or requirements and still experience a breach. Compliance provides a mere snapshot into a company’s security profile at a certain point in time, whereas effective security is a continuous process of improvement. Reality: Regulatory Compliance Is the Bare Minimum While regulators design regulations with effective security in mind, compliance requirements should be viewed as a baseline to support due diligence in cyber security. However, compliance should not be seen as the end goal in cyber security but as an opportunity to improve overall data hygiene on a continuing basis. Investing in compliance with cyber security regulations is also a chance to create additional security wins. For example, companies can identify – or reclassify – critical assets and prioritize protections against them. Compliance is also a chance to work with key stakeholders across the organization to define the organization’s tolerance toward risk, which helps the security team navigate cyber security decisions. Myth 4: Only Industries That House Sensitive Data Are Under Direct Threat Companies that hold sensitive data, including personally identifiable information (PII), healthcare data, credit card data and personal health information, are obvious targets for cyber attacks. As such, certain industries, such as financial services or healthcare, have traditionally been more heavily regulated. However, many industries must protect trade secrets, intellectual property and sensitive data. For example, the convergence of the physical and digital worlds through the Internet of Things (IoT) means companies face risks beyond data breaches. For example, in the manufacturing, oil and gas and automotive sectors, cyber attacks can result in severe business disruption. Far-reaching regulations can also affect sectors such as education. Reality: Companies of All Sizes Across All Industries Have Vulnerabilities Gartner predicts that, by the end of 2018, there will be twice as many employee-owned devices as company-owned devices used for work. Last year, businesses alone had more than three billion connections with IoT – introducing myriad risks. Aside from the sheer growth of technology and increased entry points for breaches, malicious cyber actors have also shifted their focus. Increasingly, as recent ransomware attacks have demonstrated, attackers are exploiting vulnerabilities with the specific aim of disruption – as well as financial gain. For example, ransomware demanding a few hundred dollars from users is designed to wreak havoc, not necessarily extract the highest payments possible. Every organization – regardless of size or industry – should be thinking about their specific exposures to cyber risk and putting a plan in place to improve their overall resilience. See also: Insurance Industry Can Solve Cyber   Myth 5: Companies Can Outsource a Function Along With the Responsibility and Risk Companies of all sizes outsource regulated processes, such as their handling of payment card industry (PCI) transactions. The rationale is that the process of evaluating and verifying compliance is expensive and does not make economic sense, especially if the company is not handling a vast amount of transactions. When an organization outsources a function in this way, it often has the misperception that the responsibility for compliance is also outsourced to the third party. Reality: Companies Ultimately Own the Risk Even when outsourcing transactions and management of any regulated data, a company is still responsible for that data in the event of a cyber attack. In the case of PCI, the company that processed the credit card will be responsible for ensuring proper practices are in place to protect the data collected in the transaction. This ownership is true even if the responsibility for the breach lies with someone in the call center of the third party that processes all of the company’s credit card transactions. In many cases, that third party may also be outsourcing part or all of a function to a “fourth party.” This scenario is just one example that demonstrates the need for organizations that outsource any functions to implement effective third-party risk due diligence processes to ensure that all their vendors are compliant. Cyber is evolving rapidly, so identifying where the risk lies can be a moving target. That’s why companies must remain vigilant. By separating the myths from the realities, companies can be in a better position to mount an effective defense against cyber threats. You can find this article originally published here.

Do you want to own 100% of a grape or 10% of a watermelon?

That intriguing question was posed recently in an email forum on healthcare by ITL thought leader Dave Chase but applies broadly to the approach that incumbents take to innovation. Are they satisfied with owning all of their historic market, or will they go after a smaller share of a vastly larger market and give themselves a chance of winning big?

The latest analysis of the data from our Innovator's Edge platform, by our Paul Winston, suggests that incumbents had better think big, because startups certainly are.

As described in detail in this article, early-stage tech companies raised nearly $115 billion—that's "billion," with a "b"—in the first half of 2018. 

The fund-raising covers a whopping 6,420 deals—and those are just for the companies that provided numbers. A further 3,194 companies raised money but didn't specify how much.

The funding covered a wide variety of technologies, a global focus on innovation (with a heavy representation in Asia, especially China) and attempts to innovate at certain strategic points in the value chain. 

Paul's piece is the most revealing I've seen in a long time on insurtech. Please read and ponder.

Have a great week.

Paul Carroll
Editor-in-Chief

As explored in two prior posts, there are a number of classes of myths surrounding insurance innovation. In Part I , we looked at how a lack of urgency caused by multiple factors leads to strategic complacency. Part II discussed how that lack of urgency combined with concerns about the financial impacts of innovation efforts make it easy to postpone those initiatives until a "better time." Process Myths In this final installment, we will touch on a a number of the myths that inhibit a company from starting an innovation project or, worse, stall a project that is in flight. The post on financial myths explored the conflict between current IT and new efforts. The waters are further muddied by the uncertainty surrounding what constitutes innovation.

• Does innovation only represents those game-changing efforts that revolutionize an industry?
• Conversely, are all those projects that are on the IT road map innovation?

Game-Changing Innovation Often when innovation is discussed, the focus turns to the biggest, most successful projects, which had multibillion-dollar impacts. Most folks will have heard of the successes and have opinions one way or another. Too frequently, the belief that innovation is only these big successes turns executive teams off to the possibility of leading their organization to innovate. The concept of the lighting-strike idea is ingrained in modern lore. Although this big bang process does happen, it is the exception rather than the rule. More often, disruptive innovation is the process of hard work and iteration rather than a single "Aha!" moment. In fact, the initial form of products that disrupt markets is generally less capable than current solutions and addresses the least desirable segments of the customer base. Over time, those products are refined and move up into more desirable customer segments. Innovation concepts are also seen as unicorns: only discovered by unique individuals. Organized innovation efforts should cast a wide net for ideas. Creative solutions to existing problems exist today in your organization. The challenge is to align the organization appropriately, focus efforts and develop a culture that embraces the challenge. We will explore the organization-based myths in a bit, but first a look at another form of innovation will add color to the picture. Sustaining Innovation At the other end of the innovation continuum, away from the lightning strike, is the concept that any development or product improvement efforts are innovation. Unfortunately, not all projects are innovation. Organizations that believe that any improvement efforts are innovative are likely on a dead end road. Maintenance is not innovation, no matter how urgent. A project to upgrade versions of AIX on your policy admin system is decidedly not innovation. A similarly sized effort to investigate and deploy a new claims-focused chatbot probably is. While not unique or novel, it could be classified as incremental or sustaining innovation. Sustaining innovations are those that are undertaken to improve products to existing markets, rather than to address new markets or value chains. Harvard Professor Clayton Christensen describes it this way: “A sustaining innovation targets demanding, high-end customers with better performance than was previously available. Some sustaining innovations are incremental, year-by-year improvements that all good companies grind out. Other sustaining innovations are breakthrough , leap-beyond-the-competition products.” Most organizations have a significant portion of their efforts and budgets targeted at sustaining innovations. The CB Insights State of Innovation survey results determined that 78% of innovation portfolios are focused on this type of innovation effort. Therein lies the challenge. You’re doing it; so, too, are your competitors. Any improvements provide competitive advantage only for a short period until others catch up, and the cycle repeats. See also: How ‘Not Invented Here’ Limits Innovation   An organization should commit to a range of innovation efforts, both sustaining, breakthrough and game-changing, sometimes called "ambidextrous innovation." A good rule of thumb is that the corresponding ratio of investment would be 70%, 30% and 10%. This breakout allows for continuous efforts at sustaining innovation while encouraging investigating "moon shots." If innovation runs the gamut from incremental to industry-changing, how does an organization create a culture that embraces and pursues it on a regular basis? Innovation Culture While large, well-funded innovation labs get a lot of press, most innovation starts with small teams. But even getting the culture right for those small teams is critical to their success. Most organizations recognize that effective and successful innovation efforts must be led from the C-suite. Often, after a decision to initiate an innovation effort, the CEO announces that she will personally will take charge. The implementation may need more finesse. Although the buck generally stops on the CEO’s desk, having her lead the day-to-day may actually impede progress. One of the reasons is that open communication can be inhibited if there are too many organization layers between the participants. A second reason is more nuanced. As a project moves through the various stages of the innovation process, close coordination with legal and finance may be required. Having the project report into a senior executive in one of those disciplines often helps. Regular updates into one or both of these areas, along with those business units having a vested interest in success, can fast track a project. Another myth is that once a team is set on task, the hard organizational work is done. “Innovation will drive the culture” is an oft-heard mantra. Unfortunately, in many instances the reverse is more accurate: Culture drives the innovation. Some cultural issues need to be addressed up front. Insurance is inherently a conservative business, and saying “No” is rightly part of the culture. Individuals build careers around never making a mistake. Thus, no can be an ingrained habit. Innovation on the other hand is all about saying “YES.” That shift can be difficult for some conservative organizations. Encourage participants to first find the value in every concept. Positivity is contagious and will lead to increased participation. One major myth is that there are too few good ideas. On the contrary, there are lots of good ideas. A key to success is rigorously soliciting, collecting, evaluating and filtering them. In the early stages of the innovation process, many ideas should be explored. So, solicit participation from your entire organization. Often, innovation and creativity are seen as someone else's responsibility. But by extending participation to the entire organization, you may find that insights may come from unlikely departments and individuals. With many valuable ideas and opportunities, prompt evaluation and selection must be a core principle. This is where constraints come into play. Both time- and expense-based constraints focus mind and project. The last myth that should be addressed is the notion that the goal of innovation efforts is to launch. In some instances, the launch is immediately successful, but, in most cases, further modifications are required to perfect the new product and processes. Pilots are worthwhile and often necessary. However, the final goal is widespread adoption across multiple relevant business units. Frequently, pilots reveal how the process can be improved. To encourage widespread adoption, implementation must be streamlined, benefits clearly articulated and internal support built. The ultimate measure of success should be returns on investment of 5X to 10X in two to three years. This level of success will obviate financial concerns of cannibalization and build support for follow-on projects. See also: Digital Innovation in Life Insurance Long Story Short Consumer behavior has changed dramatically in the past 10 years. While traditional insurance practices sufficed to allow continued success, both incumbents and new entrants are working hard to change to meet new expectations. Even though the industry has weathered many storms, and successfully repelled outsiders in the past, this time is different. Twenty-years ago, the auto line was revolutionized with the introduction of credit-based underwriting. Today, there are pioneering efforts in a dozen areas with the potential to have effects of the same magnitude. Couple those industry changes to the changing expectations of insurance buyers, and the potential for one or more industry revolutionizing innovations grows every quarter. This is not the time for complacency. Financial performance rightly concerns senior executives and must be part of any decision-making process. The problem to avoid is allowing financial considerations to be a primary gating factor. Financial analysis can be a valuable addition to the project definitions by providing guidelines as to the magnitude of the returns given the potential impacts of the innovation project. Success depends on an organizational commitment to change. This requires culture shift, buy in and support from middle management, and widespread participation. Although there are any number of moving parts to an integrated innovation strategy, implementation is fairly straightforward, and well within the capabilities of any well-managed insurance organization.

The wellbeing of our workforces is vitally important because it affects both the top- and bottom-line performance of an organization. Programs that focus equally on the personal health of employees and their professional productivity needs are becoming essential to help companies attract and retain talent. This was the subject of a recent “Out Front Ideas with Kimberly and Mark” webinar. Our guests were:

• Fikry Isaac, MD, MPH, the CEO of WellWorld Consulting and the retired chief medical officer, VP global health at Johnson & Johnson.
• Andrew R. Gold, Pitney Bowes, VP, total rewards and HR technology
• Alanna Fincke, SVP, director of content, meQuilibrium
• Brad Smith PhD, VP, analytics and reporting, meQuilibrium

Why It Is Important Wellbeing benefits individual workers as well as entire organizations and communities. It is a holistic approach that includes the mental, emotional, physical and financial health of the person. First, wellbeing is a way to engage employees with one another and management within the company. Activities such as walking and fitness programs allow groups to come together in a fun way that helps build trust and camaraderie. Wellbeing programs also can help employees become healthier by teaching them new habits and helping them get treatment for chronic conditions that they may not be aware they have. A screening, for example, can uncover risk factors for certain illnesses and help workers get the right medical care they need. The employee gets healthier and can continue working and earning a living. From the company’s standpoint, this helps improve productivity and controls the cost of medical care, so it is a win-win for everyone. From a broader perspective, the environmental factors within and outside of the workplace also affect the overall wellbeing of the individual and should be addressed. The boundaries between work and home life have become blurred, putting added stress on workers. Wellbeing programs need to take into consideration many aspects of the person’s work and home life. They need to help the worker become resilient to be able to handle the demands and pressures of both. Creating a culture of health within the workforce is paramount to the success of a wellbeing program. Any program or service within a company has to be ingrained in the culture for it to be successful. A wellbeing program needs to be part of the fabric of the business mindset so all employees – especially leaders – embrace the idea of a culture of health. Resiliency Resiliency is a newer concept that is gaining attention in workers’ compensation and on the benefit side. It is an important component in workplace wellbeing. Today’s business climate is more stressful than ever. The pace of work makes it difficult to keep up. The work-life merger adds to it. All of this takes a toll on employees. The latest trends show:

• 60% of employees report high stress.
• The annual cost of stress is $300 billion.
• One million workers are absent from work every day.
• 30% of the population has undiagnosed mental health issues.

Resilience teaches employees how to adapt to the changes and stresses of today’s work. While we cannot change the things that happen at work or in our lives, we can learn to change how we react and manage the stress. It is not something we are born with. There are scientifically based teachable skills to help us be more resilient. We can learn to control our thinking and how we react to pressures. Evaluating the Need for a Wellbeing Program Every company is different, and it is important when considering a wellbeing program to assess the organization’s needs against the value and impact of any given program. Some companies develop their own internal systems while others use commercial measures. Johnson & Johnson for example, surveys workers annually to determine where each person is on the health spectrum and how satisfied they are with the programs and services offered. The company also has a value system of management to assess the performance and engagement levels of leaders in the various business units. See also: Wellness Programs Lack Health Literacy   There are also a variety of tools available on the market to assess the need for wellbeing programs.

• The Gallup-Sharecare WellBeing Index looks at the key factors that drive greater wellbeing for individuals and populations. It is the world’s largest data set on wellbeing.
• Employee engagement surveys assess the level of employee engagement in their organizations and their perceptions of management’s involvement.
• The Centers for Disease Control and Prevention Worksite Health Scorecard designed to assess whether companies have implemented science-based health promotion and protection interventions.
• The Health Enhancement Research Organization (HERO) Scorecard is designed to focus on best practices for promoting workplace health and wellbeing. It shows what may be missing, the need and what employers can do to build a solid wellbeing program.

Pitney Bowes assesses the needs of its employees by talking to them directly and looking at various data. Feedback sessions, surveys and discussions with various department heads can reveal trends in a company that can be addressed through wellbeing programs. An important point in evaluating the workforce is to look at it holistically, not just a specific injury. Solutions for Employers Providing access for employees and their families to well-defined services can be effective in improving the wellbeing of a workforce. For larger corporations, onsite health clinics are ideal for quick issue resolution. They can also provide opportunities for preventive services and access to educational programs. Access to services for mental and emotional support is another very important service, whether it is through an Employee Assistance Program or an online tool. Energy management is an up-and-coming area to help with resilience. Companies that utilize it assess the energy level of their employees and provide training to increase their energy. The number and types of programs that are available can seem overwhelming, but not all programs work for all companies. Employers need to identify those that fit the needs and culture of their own workforce. One solution that companies are using is called meQuilibrium. Two of our panelists were from the firm, which uses behavioral psychology and neuroscience to help people manage stress. We typically do not include specific vendors in our webinars, but this is one instance where we thought it would be worthwhile. meQuliibirum is a digital tool powered by data-driven insights that measure and benchmark. It is a skills-based learning product that begins with an assessment to determine how the worker reacts in certain situations, connects with his community, his level of sleep and a host of other issues. The user is then given tools to help him become more resilient. Measuring Outcomes Measuring the success of a wellbeing program should take into consideration both the effects on workers and the return on investment for the company. One technique is to look at the four Es: enrollment, engagement, efficacy and experience.

• Enrollment is first and foremost because a program can’t have a significant impact on the bottom line if only a few employees are involved. Companies that have successful wellbeing enrollment use grassroots methods to spread the word, starting with senior management.
• Engagement. Once you get workers in the door, keeping them involved is equally important. The percentage of people enrolled in any given month will tell you the level of engagement, as will how long they stay involved. It’s also important to know what elements of the program they are using.
• Efficacy speaks to the effectiveness of the wellbeing program. Does it deliver what is promised? The best way to measure that is with an employer’s own data. For example, lower use of employee leaves suggests there is an improvement in employees’ resilience.
• Experience refers to whether and how the program is helping employees. Is it changing their lives? Would they recommend it to their families or friends? Do they have stories about life-changing events due to the program? Those can show the success of the program.

The four Es are also applicable to the workers’ compensation program. Enrollment, for example, could pertain to whether and to what extent an injured worker is engaged with case management. Efficacy is also important because we often do not look at the return on investment (ROI) holistically in workers’ compensation across expense, medical and indemnity buckets. A Net Promoter Score (NPS) in workers’ compensation could be extremely valuable. There is an opportunity to use measurements from the benefits side of an organization to help an employer incorporate them into workers’ compensation so vendors and suppliers have a more consistent way of reporting metrics on the company. HERO is another excellent way to measure success. This national non-profit organization is focused solely on identifying best practices of workplace and wellbeing to improve the lives of employees and their families. The HERO Scorecard can provide an instant assessment of a company’s wellbeing program compared to others in its database. From an employer perspective, measuring the ROI of a wellbeing program can be difficult. All the various elements work together to drive improvement for workers, so it is hard to see the overall ROI, but you can look at various metrics. Some numbers may not look significant, but are important. An Employee Assistance Program may only have 3% to 6% of employees involved at any given time, but it is important to those workers using it, so it is important to understand benchmarks. Other metrics that can be considered are things such as weight loss or other changes that measure benefits of the program. Additional metrics may also help, such as the data for care utilization, claims analysis, participation in wellness programs and lifestyle modification outcomes. There really is no one-size-fits-all way to measure the ROI of these programs, but the more details you can get, the better. Another way to measure the success of a wellbeing program is to look at its return on value; how much workers are engaged in their work based on their perceptions of the company’s support in helping them be healthy and take care of their families. The financial success of companies that have invested in health and wellbeing can be measured and is sometimes available in various publications. The American College of Occupational and Environmental Medicine, for example, has published studies showing the stock market performance of companies over time to see if there are differences after wellbeing programs have been implemented. See also: Employee Wellness Plans’ Code of Conduct   Challenges to Implementation Putting a wellbeing program in place can be challenging, but taking a few extra steps will help.

• Due diligence up front. Especially if you are using a third party, you need to really know what you are implementing. For example, if data is to be exchanged, what data and in what format?
• Communication. One of the biggest challenges is getting the word out to the people who can benefit from the program. Some companies use various marketing tools such as behavioral economics to spread the word. There should also be some way to motivate people to participate. Monetary incentives are one method.
• Effectiveness. It is important to monitor and see what is or is not working within the program and be willing to find a different approach, if needed.

Lessons Learned Despite a company’s best efforts, not every piece of a wellbeing program will meet expectations. You want to make sure you carefully assess whatever you put in place. Something might be perfect for one organization but not work well for another. Johnson & Johnson had to abandon a nurse line for employees because it just did not work. Pitney Bowes brought biometrics to company sites to make it more convenient for employees to get their blood drawn and get immediate results. But it turned out that method did not lead workers to take action. Instead, the company now pays employees to see a physician to get the same information. The physician can then persuade them to take action. You have to look at the data and utilization to see if a particular program is valuable or not and be prepared to make adjustments, or even pull the plug entirely on a service, based on those results.

I have been following and interested in space and rockets since I was a child. In April, I was honored to give the distinguished lectureship at the University of Mississippi Medical School, School of Population Health, titled SpaceX, Moonshots and Diabetes in Mississippi. The announcement that the U.S. Air Force has contracted with SpaceX for a launch of its Falcon Heavy brought that point home again. The gist of my presentation compared the current efforts to launch rockets into space with our healthcare system. In the space race, there are two major players at this time, United Launch Alliance, composed of Boeing and Lockheed Martin, with decades of experience and strong government relationships, and SpaceX, the Elon Musk company. ULA is like our current healthcare system -- big names, big contracts, major impact on and strong relationships with our federal government -- and the rockets cost a lot of money. In fact, ULA could also be compared to the Cancer Moonshot, which also has big names with strong government relationships and has big bucks. The Cancer Moonshot approach of using big data analytics, biologics and CRISPR to edit out the genetic defect are all needed and are all great ideas. They are also shiny objects, and they will most likely cost a lot of money. See also: 10 Reasons Healthcare Won’t Be Disrupted   As Buckminster Fuller said, "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." SpaceX is the upstart that is doing just that. It is based on Elon Musk's original vision to re-energize the public to space exploration by putting a greenhouse on Mars. This initial vision has become the goal of "enabling people to live on other planets." He quickly discovered that he could not do it with the rockets developed because they cost too much. So what did he do? He devised a new system/rocket and removed the waste, the waste of throwing away the rocket, resulting in lower costs and making his dream reasonable. Well, he did that and much more. His launches are considerably cheaper than those of the big guys of ULA. His Falcon Heavy is only the latest example: "The launch contract will cost the U.S. Air Force $130 million, far less than the $350 million average cost of United Launch Alliance’s Delta IV, previously the heaviest lifter in the U.S. arsenal." So what does that have to do with healthcare and diabetes in Mississippi?

• In 2015, Mississippi ranked first in the nation for overall diabetes prevalence, with more than 333,000 adult Mississippians living with the disease; that’s more than 14.7% of the adult population
• Diabetes accounted for more than 1,000 deaths in Mississippi in 2015
• In 2013, direct medical costs (e.g., hospitalizations, medical care, treatment supplies) accounted for about $2.4 billion, of which Medicaid spent almost $1 billion.
• MS has an estimated 30% of adults with pre-diabetes, creating the potential that more than 600,000 Mississippians are on the path to develop type 2 diabetes

Yet we know that perhaps 80% of type 2 diabetes is preventable. We also know that an estimated 30% of healthcare is waste, fraud and abuse. So that's roughly $800 million in waste, etc. that if freed up from the system could be applied to the social determinants of health that are driving this disease. Imagine that, the money to solve the problem is locked up in the system itself. Why not create a grand mission just like Elon Musk's mission to Mars. A mission that people can work toward, as they do the incremental changes needed to create the new system to make it happen. Lifting a quote from President Kennedy, I said: We chose to eradicate every case of lifestyle-related type 2 diabetes and pre-diabetes in the state of Mississippi, for no more than we are spending today on healthcare. We chose to eradicate every case of lifestyle-related diabetes and pre-diabetes, not because they are easy, but because they are hard; because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win.  So how do we do this? By creating an Accountable Health Organization, implementing a broad-based population health program, changing the reimbursement to the healthcare system to a value-based approach, perhaps to capitation, and using the savings to fund the social services. It's a heavy lift, no pun intended, and it will take decade(s), but it can be done. It will require new systems, a long-term approach and a lot of small changes to get there. If we created the system to do this with diabetes, we could then apply it to the rest of the preventable issues, for we will have developed solutions for diet, exercise, patient engagement, adherence, appropriate medical care, rural care, urban approaches, personalization and on and on. See also: How to Optimize Healthcare Benefits   In fact, the UMMC School of Population Health and the Jackson Hinds-Comprehensive Health Center FQHCs have begun just such an effort by starting with pre-diabetes. Can you imagine the look on all our faces when we succeed...? You can find the article originally published here on LinkedIn.

How much will the distribution of P&C insurance change in the next five years? This is anything but an academic question. Insurers, agents/brokers and tech companies are all trying to read the tea leaves to position for success in a changing environment. Insurtechs focused on distribution are numerous; new entrants are surfacing every day. And the inexorable and rapid move to digital is the overarching theme that is affecting all of insurance, including the distribution area. SMA’s recently released research report, The Future of Distribution in P&C Insurance: Transformation in the Digital Age, takes a look at how insurance executives believe distribution is likely to evolve. The ways that personal lines and commercial lines distribution go forward are expected to be quite different. In general, insurers expect significant consolidation among commercial lines agents and brokers and see the trusted adviser role rising in importance. Major disruption by insurtech and entry by the global tech giants (Google, Amazon, etc.) is not anticipated to be as much of a factor, although still an important one. On the personal lines side, 59% expect major disruption by insurtech, and almost half assume that the global tech companies will play a significant role in the distribution of auto and homeowners insurance. See also: Future of P&C Tech Comes Into Focus   Other factors that will change the distribution channel environment include the continuing rise of direct (especially for personal lines) and an increase in comparative rating, which both personal and commercial lines executives foresee. There are two aspects of change that are especially noteworthy. First, almost no one predicts that insurance distribution will be largely unchanged five years out. In fact, none of the personal lines execs and only 8% of commercial lines execs responding said that distribution will be about the same in five years. The second interesting finding is that only 10% of personal lines insurers believe that agents will assume more of a trusted advisory role. In our view, it will be critical for personal lines agents to up their game. This includes becoming more of an adviser in a world that is increasingly connected and digital and has a changing set of risks. In addition, agencies must embrace the digital world to meet customer expectations, improve operational efficiencies and gain more insights into prospects, customers and their insurer partners. Insurers also expect emerging technologies to have a huge impact on distribution. Artificial intelligence, chatbots and mobile/digital payments are the top three technologies that insurers plan to invest in over the next three years to enhance their capabilities in the distribution space. See also: Key Strategic Initiatives in P&C   Pundits have been predicting the demise of the agent channel for decades, yet the channel is still dominant. The word "disruption" has been used in relation to distribution more than any other area of insurance. And to be sure, P&C insurance distribution is poised to change significantly. But ultimately, SMA expects agents and brokers to still be playing a major role in five years, although the agencies of the future might look quite different than those of today.

Insurers that earn jeers from their customers are falling further behind the ones that earn cheers. That’s the key takeaway from Watermark Consulting’s 2018 Insurance Customer Experience ROI Study. The study, which was last conducted two years ago, seeks to provide insurance executives with a macro understanding of the impact that customer experience has on a company’s fortunes. This is important information for an industry that publicly affirms the importance of customer experience, but privately struggles to quantify the benefits of such investments. About the Study Watermark’s analysis is based on data from what is arguably the best-regarded source of insurance carrier customer experience rankings—J.D. Power & Associates’ annual Insurance Satisfaction Studies. The study’s approach was simple: We calculated the cumulative total stock returns for two model portfolios, composed of the Top 5 (“Leaders”) and Bottom 5 (“Laggards”) publicly traded companies in J.D. Power’s annual study. (A white paper about the study, referenced at the end of this article, includes a more detailed description of how the analysis was conducted.) We went through the exercise twice—once for auto insurers (where J.D. Power rankings were available from 2010-2017), and once for home insurers (where rankings were available from 2009-2017). In both cases, our model portfolios tracked the stock performance of the carriers for the year-earlier period of their designation as a Leader or Laggard (so, for example, J.D. Power’s 2017 Leaders were used, retroactively, to build our 2016 stock portfolio). See also: Profiles in the Customer Experience   This approach was consistent with our thesis that the market would already be rewarding/penalizing the Leaders/Laggards in the full-year period preceding the release of J.D. Power’s consumer survey (given the customer experience the carriers were already delivering). It also helped ensure that the model portfolios’ performance was not at all influenced by the publication of the J.D. Power study itself. The Results Yet again, the Insurance Customer Experience Leader portfolios far outperformed the Laggard portfolios—and the margin of victory widened considerably as compared to the 2016 study. [caption id="attachment_32200" align="alignnone" width="570"] Watermark defines Auto Insurance Customer Experience Leaders and Laggards as publicly traded insurers falling in the Top 5 and Bottom 5 national ranking of J.D. Power’s 2010-2017 U.S. Auto Insurance Satisfaction Studies. Comparison is based on performance of equally weighted, annually readjusted stock portfolios of Customer Experience Leaders and Laggards.[/caption] As the accompanying graphic shows, over the eight-year period studied, the portfolio of Auto Insurance Customer Experience Leaders far outperformed the industry, generating a total return that was nearly double—171 points higher—that of the Dow Jones Property & Casualty Market Index. While a few carriers made repeated appearances in the Leader category over the eight years examined, only one, Erie Insurance, earned that distinction for every year of the study. What’s most striking is the growing chasm between the Auto Insurance Customer Experience Leaders and Laggards. The Laggard portfolio now trails the Leader portfolio by an astounding 242 points. As with the Leaders, there was some year-to-year consistency in the Laggards list, with two firms— MAPFRE-Commerce Insurance and the Hanover—showing up in that category every year of the study. The graph below, which shows the analysis for home insurers, exhibits a similar pecking order as seen with the auto insurers. The Home Insurance Customer Experience Leader portfolio outperformed the industry, generating a total return that was nearly double (87 points higher) than that of the Dow Jones Property & Casualty Market Index. While several home insurance carriers made it into the Leader category multiple times, Erie Insurance was again the only one that achieved that distinction for each of the years covered by the study. The Home Insurance Laggards in this latest study fell even further behind the Leaders, with the cumulative performance gap between the two portfolios reaching 119 points. (In the prior study, the gap was 57 points.) Interpreting the Results This study should give pause to anyone who is skeptical of the value that customer experience differentiation accords to an insurer. The Auto and Home Insurance Customer Experience Leader portfolios generated average annual returns that were more than double that of their Laggard counterparts. The results suggest that carriers that consistently excel in customer experience tend to be viewed by the market as more valuable entities than those that do not. That enhanced value is a function of the Leaders seeing a rise in revenue, thanks to happy, loyal customers who spend more with them, stick around longer and refer others. It’s also a function of a more competitive cost structure, as the Leaders can spend less on new business acquisition because of all the referrals they receive. In addition, because these firms’ happy customers complain less, there’s not as much stress on their operating infrastructure, which also helps keep expenses in check. The Laggards, of course, are weighed down by just the opposite factors—depressed revenues, high customer churn and profit-sapping, strained infrastructures. What was notable in this year’s study was that the disparity in performance between the Leaders and the Laggards wasn’t just striking—it was also growing by double digits. This suggests that the competitive edge enjoyed by Insurance Customer Experience Leaders is both real and strengthening. That should certainly concern any carrier that frequently finds itself in the Laggard category, because these results do not bode well for firms that struggle to endear themselves to customers. See also: Why Customer Experience Is Key  Those angling to break into the Leader category should be forewarned: There is no “silver bullet” for achieving customer experience excellence. Latching on to some buzzword– big data, insurtech, AI, etc.—won’t get you there. Neither will advertising how great your customer experience is. The reality will always overshadow the marketing. Companies that do customer experience well—inside and outside the insurance industry—recognize that there are no shortcuts. Customer experience isn’t some “initiative du jour” for them. It’s not just part of their business. It is their business. Those leading firms often rely on a handful of time-tested experience design principles. (See the white paper referenced below for examples). However, at their core, what makes the Leaders different is their unwavering commitment to always start with the customer—understanding their needs and wants, their frustrations and aspirations—and then working backward to craft a distinctive, impressive, end-to-end experience. Fundamentally, it is this outside-in philosophy that gives these companies their competitive edge. And, as this study so clearly illustrates, the strength of that advantage should not be underestimated. Note: A white paper describing Watermark Consulting’s 2018 Customer Experience ROI Study (Insurance Industry Edition) is available for complimentary download at http://bit.ly/CX-ROI-INSURE. You can find the original published here on Carrier Management.