As the U.S. continues to wrestle with healthcare and how to provide insurance, the country seems to be in a state of flux; many individuals and employers alike question how they will ultimately be affected. Warren Buffett and Charlie Munger have identified healthcare as the biggest issue facing American businesses, and the National Federation of Independent Business ( NFIB) reports that the cost of health insurance is "the most severe" problem facing American small businesses today. The growth in healthcare costs has long been an issue in a monopolized industry controlled by the major health carriers (i.e. Blue Crosses, United, Cigna and Aetna). The problem started spiraling out of control when insurance industry leaders, e.g. MetLife, converted from mutual company structures to stock company structures. When the best interests of the consumer become misaligned with the best interests of the service provider, we create a conflict of interest. After all, their fiduciary duty is to their shareholders, not their consumers. The benefits system in the U.S. has been flawed for many years. It is plagued by a lack of transparency and leaves the employer powerless to fight increased premiums with each renewal, for what is most often their second largest expense next to payroll. It’s time to collectively question the status quo and demand innovative solutions that leverage enhanced benefit plan design with emerging technology and contextual data. Business owners' cost for healthcare should be directly correlated with the health risk and outcome of their employees. All aspects of plan design need to be transparent, and business owners and employees must own their healthcare data, so they can understand exactly what is driving costs and actually control their spending. Viable solutions will come through companies like iXledger, a London-based blockchain insurtech start-up and collaborator with Gen Re that has partnered with online information hub Self Insurance Market to develop a marketplace for the growing self-insurance risk management sector. The marketplace leverages iXledger’s blockchain platform to navigate the complex, data-intensive processes of self-insurance, providing the visibility, workflow and resource management to receive cost-effective bids for appropriate services. See also: What Blockchain Means (Part 2)   The current group benefits market is primarily controlled and monopolized by the Blue Crosses, United, Cigna and Aetna (BUCAs), leading to diminishing provider networks, unclear benefits coverage and consistent premium increases over the last decade. American employees are unable to afford to participate in their own employer’s group medical plan. Aetna recently announced that it will not pay commissions to brokers on groups with fewer than 100 insured lives. Technology alone is not the key to driving down the cost of healthcare and enhancing benefits. The famed health insurance unicorn Oscar has the technology, but only leveraging new tools with legacy processes is not going to yield significant returns. Disruption in healthcare requires a totally new approach, not just new technology to try to enhance the current, monopolized benefit plan offering. Unfortunately, I believe Oscar will continue to lose to the BUCAs, unless it can quickly pivot. Oscar is currently losing roughly $1,750 per member, yet its last capital round provided for a $2.7 billion valuation with 120,000 insured lives, or $22,500 per member. Although Jeff Bezos and other technology leaders have defied all conventional means of valuation across the capital markets, an analysis into Oscar’s business has me a bit stifled. If you look at the member population, 48% of the New York enrollments in 2015 came from the ACA state exchange, who are often high-risk members. Perhaps that is why Oscar's ratio of hospital costs to premiums earned was 75%, compared with 62% at UnitedHealthcare. The lack of capital relative to the BUCAs and Oscar's existing member risk population will make it quite difficult to compete. See also: Blockchain Technology and Insurance   As Oscar shows, the solution to the health benefits crisis in the U.S. will not be driven with just new technology and enhanced analytics, but by integrating enhanced data and new technology, such as telemedicine, with innovative and enhanced benefit plan designs similar to what iXLedger is endeavoring to facilitate. The solution is a paradigm shift requiring new tools that compel new processes to put both employers and employees in control of their cost of healthcare while offering enhanced health benefits coverage.

If you’re an insurance professional who follows industry trends, you’ve probably heard the phrase “digital transformation” many times from consultants and industry analysts. And if you’ve been in the business for more than a few years, you’ve likely seen a huge uptick in the use of digital tools. But many insurers mistake digitization, such as collecting forms on a tablet instead of paper, for digital transformation. The truly exciting business developments in digital transformation are found in automation. Digital transformation isn’t about going paperless, though that’s a nice side benefit. It’s not about using apps to support the same old processes. Instead, it’s about rethinking traditional ways of doing business and replacing old processes with intelligent tools that eliminate or reduce the friction in transactions between carriers and customers. It’s about creating processes that address persistent pain points for insurers and policyholders alike. Traditional Processes Don’t Work in the Modern World For property insurers, underwriting without adequate data is a huge pain point. Many carriers either use area averages that may or may not reflect actual property value to assess risk, or they send out an inspector to conduct an assessment and create a report. Neither option is optimal in a world where customers expect personalization, transparency and speed. Assessing risk on averages can result in cancellations that disappoint customers and harm the brand. In-person inspections yield important data, but scheduling a time for the inspector to evaluate the customer’s property and home or business contents can be a time-consuming hassle on both the carrier and customer side. Carriers often wait for weeks or months to receive a report from an inspector. It’s not uncommon for up to 60 days to elapse between the coverage request and receipt of the report, which is frustrating for carriers and customers alike. See also: Digital Playbooks for Insurers (Part 4)   Why Digitization Isn’t Enough The process many insurers currently use to capture underwriting data illustrates why digitization alone isn’t enough. Sending an inspector out with an iPad to file an electronic report might shave a couple of days off the underwriting cycle, but it’s using digital tools to support a process that is fundamentally broken. It’s a solution that doesn’t address the root cause of customer and carrier pain points. Instead of putting digital band-aids on broken procedures, it’s time to rethink processes and change workflows. It’s time to evaluate solutions that go beyond digitization and look for truly transformative technologies that harness data, automation and machine learning to create more efficient, effective processes. And it’s time to apply insurance-centric computer vision to new applications rather than adapting products that weren’t designed to address the unique issues that insurers face. Automated Processes Deliver a Better Experience for Everyone So, how can automation and machine learning improve the customer experience and streamline carrier operations? Recall the underwriting process that is currently painful on both sides of the transaction: Rather than improving it on the margins with digitization, what if insurers reinvented the underwriting process entirely using technology that allows them to remove the friction from key processes and made the experience more personalized for customers while improving pricing transparency? Thanks to automation and machine learning that improve key underwriting processes, this is a reality today: Carriers can provide a link to a customer or third party to conduct an inspection through a smartphone camera lens. A friendly, artificial intelligence (AI)-powered assistant walks users through the inspection, automatically categorizing and inventorying items to create a baseline -- a rich media record of the customer’s property and contents in near real-time. Built-in, insurance-specific computer vision ensures that the AI inspector notices things a good human inspector would, such as the presence (or absence) of a fire extinguisher near an oven. For insurers, this type of breakthrough automation eliminates the problem of delayed quotes and mispriced policies. It also opens new opportunities for the agent and the customer to work together to mitigate risk, which protects customer property and the insurer’s bottom line at the same time. It makes a formerly opaque process clear so that coverage is priced correctly, and, if there is a claim, there are no unpleasant surprises because customers know what they’re buying up-front. From Customer Churn to Customer Delight For customers, an underwriting solution that automates key processes makes getting quotes fast and easy, and it ensures that pricing is completely transparent, so they understand what they’re paying for prior to filing a claim. Using automation in this underwriting process makes it simple to document customer possessions, which provides peace of mind. Using this automated underwriting process, customers can follow step-by-step instructions from a conversational AI assistant, using a program that is intuitive and requires no training. See also: How Underwriting Is Being Transformed   Underwriting that leverages automation makes it easy for customers to work with carriers to price their premiums correctly, identifying items under warranty and making suggestions to improve safety. In the event of a claim, having full documentation of all customer possessions streamlines the claims process. Perhaps most importantly, an underwriting solution that automates key processes allows the agent to focus on customer relationships — enabling agents to be more “heads up” rather than “heads down” over reports and paperwork. The underwriting technology described here isn’t a vision of the future; it exists now, and carriers who are looking for a competitive edge are evaluating AI-powered technologies like this today, so they can not only improve processes but transform them. Sometimes, an opportunity comes along to skip interim steps and embrace a better future. Insurers today have such an opportunity; they can skip digitization and move toward digital transformation by adopting automated, AI-driven processes, and the choice couldn’t be more clear.

“Me, Free, Easy.” Oliver Bäte, the CEO of Allianz, gave a CeBIT speech with this headline that covers all revolutionary insurtech activities and gives us the most important hint about what the products for customers will look like in the future. And this is not just applicable for insurance but for all businesses that would like to sell their products to new generations. As every insurance professional knows, the main principle of insurance is the law of large numbers. This theorem describes “the result of performing the same experiment a large number of times. According to the law, the average of the results obtained from a large number should be close to the expected value, and will tend to become closer as more trials are performed” (Wikipedia). At first sight, “me, free, easy” and the law of large numbers could seem to conflict, because the law of large numbers requires doing the same thing over and over while “me, free, easy” customizes almost every step of  the insurance experience according to customers’ needs. But insurtech makes it possible to customize the insurance experiment for every client and produce millions of different versions of products. See also: Insurtech Is Ignoring 2/3 of Opportunity   The biggest advantage of the insurance business is the ease of acquiring customer data. In many circumstances, customers are obliged to provide all the data their insurers ask for. The main dilemma here was how the data should be managed. I said “was” because with insurtech implementations — e.g. artificial intelligence, machine learning or big data — managing millions of details about millions of customers is as easy as shelling peas. Today, insurance companies have magical tools that find the right data for the right time frame for the right customer in a couple of seconds. So, the first feature of the new-age insurance product, “me,” is accomplished! “Free” means a world without intermediaries. It does not matter whenever, whoever, whatever; you can reach, buy and use. The main driver of a world without intermediaries is blockchain. Like many other industries, intermediaries mean checked (relatively trustable) data and incredibly increased operational costs for insurers and customers. Intermediaries reach people, make them possible customers, gather data and represent insurers’ corporate identity in many processes. Is it not too risky leaving your company’s reputation in another’s hands? Undoubtedly, the answer is yes. Thankfully, insurers don’t need to carry this risk any more. This responsibility will be transferred to customers, and all assessments will be performed by customers in accordance with the risk appetite of insurance companies and pre-defined criteria. “Easy” means easily understandable products that do not require sophisticated financial literacy. So, the policy owner does not need intense assistance with products (beforehand and after sales), as well. Possible dependencies are defined, and customers are informed about every detail of the products. The key to "easy" is helping customers configure products to reflect their own needs. Big data management and other disruptive technologies enable insurers to make configurations with their information technologies. And now, we have more “easy” and more “me” insurance products. See also: How to Collaborate With Insurtechs    

Just four years ago, I was a cheerleader. Social media was supposed to be the great hope for democracy. I know because I told the world so. I said in 2014 that no one could predict where this revolution would take us. My conclusion was dusted with optimism: A better-connected human race would find a way to better itself. I was only half right: Nobody could have predicted where we have ended up. Yet my optimistic prognosis was utterly misguided. Social media has led to less human interaction, not more. It has suppressed human development, not stimulated it. As Big Tech has marched onward, we have regressed. Look at the evidence. Research shows that social media may well be making many of us unhappy, jealous and — paradoxically — antisocial. Even Facebook gets it. An academic study that Facebook cited in a blog post revealed that when people spend a lot of time passively consuming information, they wind up feeling worse. Just 10 minutes on Facebook is enough to depress — clicking and liking a multitude of posts and links seems to have a negative effect on mental health. See also: The World Doesn’t Need Silicon Valley   Meantime, the green-eyed monster thrives on the social network: Reading rosy stories and carefully controlled images about the social  and love lives of others leads to poor comparisons with one’s own existence. Getting out in the warts-and-all real world and having proper conversations would provide a powerful antidote. Some chance! Humans have convinced themselves that catching up online is a viable alternative to in-person socializing. And what of consumer choice? Former Google design ethicist Tristan Harris noted in an essay on how technology hijacks people’s minds, that it is actually designed to give us fewer choices, not more. When you do a Google search for a restaurant, for example, you are presented with a limited set of choices, with advertisers appearing at the top of a list. We rarely browse to the second page of search results. Harris likened this to what magicians do: “Give people the illusion of free choice while architecting the menu so that they win, no matter what you choose.” We are becoming unthinkingly reliant — addicted — to ease of use at the expense of quality. We are walking dumpsters for internet content that we don’t need and that might actively damage our brains. The technology industry also uses another technique to keep us hooked: feeding us a bottomless pit of information. This phenomenon’ is the effect Netflix has when it auto-plays the next episode of a show after a cliffhanger and you continue watching, thinking, “I can make up the sleep over the weekend.” The cliffhanger is, of course, always replaced by another cliffhanger. The 13-part season is followed by another one, and yet another. We spend longer in front of the television, yet we feel no more satiated. When Facebook, Instagram and Twitter tack on their scrolling pages and update their news feeds, causing each article to roll into the next, the effect manifests itself again. Perhaps we should go back to our smartphones and, instead of playing Netflix or sending texts on WhatsApp, use their core function. Call up our friends and family and have a chat or — better — arrange to meet them. Meanwhile, Big Tech could carve an opportunity from a crisis. What about offering a subscription to an ad-free Facebook? In return for a monthly fee, searches would be based on quality of content rather than product placement. I would pay for that. The time savings alone when booking a trip would be worth it. See also: No, AI Isn’t Taking Over Firms’ Decisions   Apple pioneered the Do Not Disturb function, which stopped messages and calls waking us from sleep, unless a set of emergency criteria were met by the caller. How about a Focus Mode that turned off all notifications and hid our apps from our home screen, to ease the temptation to play with our phones when we should be concentrating on our work, or talking to our spouses, friends and colleagues? In the 1980s, the BBC in Britain ran a successful children’s series called “Why Don’t You?” that implored viewers to “turn off their TV set and go out and do something less boring instead,” suggesting sociable activities that did not involve a screen. It was wise before its time. The TV seems like a puny adversary compared with the deadening digital army we face today.

In Silicon Valley, a maxim is that "you have to eat your own dog food." In other words, you have to continually use your own products, your own sales channels, your own customer support so you can experience as many of your flaws as possible before you inflict them on customers. 

That sort of self-testing has, it seems to me, been absent from insurance for, oh, centuries. But I saw a ray of hope two weeks ago when I was speaking at a gathering of global insurance leaders in Zurich. After I laid out my vision of how digitization strips industries down to their essences and then allows them to be organized in new ways that don't have to include existing products or even companies (bye bye, Sears, Kodak and others too slow to adapt), a member of the C-suite from a major life insurance company told me about a recent epiphany. 

He had decided to buy a supplemental life insurance policy and went through his company's normal channels. But he couldn't make heads or tails of some of the terminology and found the process so long and complicated that he gave up. 

"And if I can't figure out how to buy a policy, then what chance do our poor customers have?" he said. His company is now going to do better, he resolved. Much better.

A study that Chunka Mui and I cited in Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years found that 80% of executives thought their product was the best in the market—and that 8% of customers agreed. 

We have, thus, counseled many executives to continually test all parts of their businesses as a customer would, without any of the special treatment that a C-suiter could easily get to smooth over problems. Those executives wind up with a much better sense of how they really stack up and remove all sorts of barriers to sales.

It's time that the insurance industry launched into a big meal of dog food. Products can be better, much better. I hope the process has begun in earnest.

Have a great week.

Paul Carroll
Editor-in-Chief

In recent years, insurers have understood that many Americans face real financial challenges – whether saving for retirement or making ends meet on a monthly basis. Yet, no single company has differentiated itself in serving customer needs.

Many companies that have a stated goal of improving financial wellness have focused instead on improving financial literacy. As a result, they haven’t seen as many improved outcomes as they’d hoped. Others, who have tried to remove customer barriers to action, have found that their efforts sometimes lead to unintended consequences (e.g., auto enroll and auto increase leading to increased hardship loans because of inattention to underlying cash management issues).

In addition, those competing for share of wallet in the financial wellness space have traditionally taken an “inside-out” view, highlighting their own product features but leaving customers to sort out which types of products they can piece together to meet their varied needs. Moreover, many traditional financial wealth advisers have focused on the narrow, super-affluent customer segment, whereas a broad swath of customers who desire advice and guidance remain effectively un(der) served.

According to a 2017 PwC Financial Wellness survey, 53% of respondents who are currently employed felt stress dealing with their personal financial situation, and 46% of respondents indicated that financial stress was their primary stressor.

As of now, recent advances in technology and analytics, including in robo-assisted advice (made possible by artificial intelligence and advanced analytics), are dramatically reducing the cost of providing financial advisory services, creating a sizable market opportunity as competitors can develop sustainable business models to target a much wider range of customers.

At the same time, advances in digital experiences available to consumers have started to heighten customer expectations about the transparency, accessibility and personalization of financial advisory solutions for anyone serving this space, including insurers.

Finally, technology advances and transformative portal and services architectures are paving the way for platform economies that allow connectivity across multiple providers.

Delivering integrated financial wellness solutions

To win customers, insurers must understand what customers want, rather than focus simply on what their own products can do. In the short term, this means addressing the need most customers have to maximize their monthly budgets. In the longer term, customers want to prepare for retirement, potential emergencies, healthcare needs, college expenses and transferring wealth to younger generations.

While customer needs may seem simple and straightforward, providing advice about them is anything but, given the complex and changing economic and financial conditions facing younger workers in particular. On average, millennials are saddled with almost 300% more student debt than their parents and are earning 2.9% in average annual returns on 401(k) plans, compared with 6.3% returns for Baby Boomers. Many younger workers will need to work longer; in fact, federal data suggests that the average millennial will need to work until age 75.

See also: Ethics of Workplace Wellness Industry

Helping customers understand and manage their financial wellness suggests a need for a broad solution centered on them (not a basket of off-the-shelf products). This solution includes:

• Personalized financial information accessible via a digital platform that takes into account personal circumstances and changing lifetime needs,
• Access to an adviser/coach/counselor who offers tailored guidance, actionable solutions and answers to specific questions on a range of topics (e.g., health, wellness, finances, insurance benefits, legal services), as well as
• Access to a wide range of customizable financial products and solutions (e.g., 401K/403B accounts, life insurance, auto/home insurance and college saving plans).

Competing with others for integrated financial wellness

While retail banks, wealth managers and financial planners are typically viewed as being the best-equipped to help individuals achieve their financial goals, many of them have focused primarily on helping wealthy customers accelerate their wealth accumulation and secure access to credit, rather than the protection aspects of wellness.

More recently, they have started to consider the implications of a broader definition of financial wellness; in contrast, employers have been concerned about their employees’ holistic financial wellness and how it affects their productivity for years.

Millennials are expected to make up 50% of the workforce by 2020 and 75% by 2025, and the extent of their financial stress is particularly concerning for employers. An alarming 47% of those who feel financial stress say that they’re either missing work occasionally or their productivity at work has been affected by financial worries, and even more of them – 50% – said that they’re spending three or more hours each week at work dealing with personal financial issues.

Employers will continue to be a critical touchpoint for insurers because they serve as an effective point of access to deliver financial wellness programs to employees, and have access to a significant amount of employees’ personal financial information. Employees tend to view employers as an objective party that seeks to protect their financial well-being rather than profit from them, and employer effectiveness in delivering financial wellness solutions can improve employees’ perception of and satisfaction with their compensation (which in turn has a real impact on a company’s performance).

The competitive landscape

Considering customers’ holistic needs, the size of the financial wellness market and employer motivation to provide employees financial wellness programs, the fundamental question is how insurers can capture the market before competitors do.

It won’t be easy. The financial wellness marketplace is crowded. It ranges from traditional, established players like financial advisers at financial institutions, retirement providers, individual and group insurers all the way to consulting firms, health insurers and emerging insurtech companies.

This competitive landscape is especially complex because these institutions’ capabilities are fluid, not static; many of them form partnerships and make acquisitions to obtain leading-edge capabilities and frequently revise their business models to incorporate emerging forms of innovation.

As in the market as a whole, seamless and personalized digital delivery remains vital to provide customers a worthwhile, user-friendly experience, as well as generate actionable insights insurers can use to tailor and enhance their financial wellness offerings.

See also: A Wellness Program Everyone Can Love  

We believe that whoever gains a meaningful share of the financial wellness market will:

• Focus on understanding and addressing customers’ holistic financial protection needs, rather than use the traditional “inside-out” orientation just to sell products and services.
• Offer personalized, actionable and digitally enabled financial wellness solutions that include financial products, advisory services and educational resources that continually promote improved outcomes.
• Effectively target specific customer segments.
• Develop ways to drive engagement with consumers through an advanced digital platform with real “human” support at moments of truth.
• Demonstrate positive ROI to employers.
• Derive the rich, data-driven insights into customers that enable continued improvement of financial wellness offerings.

Implications

To compete effectively, insurers will need to determine a distinct basis for differentiation and focus investment in those capabilities that are key to strengthening their way to play in the market. Potential ways to play include:

• Analytical segment specialist – Defined by the use of data-driven insights to better understand customers and provide tailored solutions to effectively meet their employees’ needs.
• Consumer experience expert – Defined by the provision of seamless end-to-end customer experiences, primarily through digital or mobile channels, to deepen relationships with both the employer and employee.
• One-stop-shop provider – Defined by providing employers and employees the ability to access and purchase all desired products or solutions in a single place using an ecosystem approach.

Real opportunity exists for insurers in the financial wellness space as the market’s current business model strains under changing socioeconomic conditions and a challenging investment environment. While the financial wellness niche was siloed in the past, forward-looking insurers must strengthen their market strategy, offerings and capabilities to gain market share in this highly crowded, competitive and converging marketplace.

This report was written by Jamie Yoder, Juneen Belknap, Kent Allison and Caitlin Marcoux.

Following on from the regional profile for Europe, we now move on to North America. We will be taking you through dedicated profiles for all the world's major insurance markets, each taken from our inaugural Insurance Nexus Global Trend Map, an in-depth account of insurance and insurtech trends internationally. Access all seven of our regional profiles straight away by downloading the full Trend Map here ... Our North America profile combines quantitative insights derived from our global survey and qualitative perspectives from our two in-region commentators:

• Chicago-based Stephen Applebaum, managing partner at Insurance Solutions Group
• Boston-based Matthew Josefowicz, CEO at Novarica

First, a quick overview of the salient stats from our survey, as they manifested themselves in North America: Key Stats: A Quick Recap i) The External Challenges: North America In North America, the top external challenges for the insurance sector as a whole follow the global trend from our earlier post on industry challenges, with technological advancement and changing customer expectations taking first and second place, except that in third place we find new emerging risks. In comparison, new risks comes fourth globally and only makes sixth place in Europe – which, as we indicated in our Europe profile, likely reflects some parts of the world being more exposed to disasters (and hence concomitant risks) than others. Further down the table, increased competition moves up a place, knocking increased regulation down one spot to seventh. ii) The Internal Challenges: North America Looking internally, the top challenges reflect the global trend we outlined in our earlier post on industry challenges, except that legacy systems wrests the top slot from lack of innovation capabilities (which, by way of comparison, comes first in Europe and Asia-Pacific). Innovation is, at its heart, customer-driven, so, in the course our regional profiles, we compare the insurer-customer relationship in North America with what we find in our other key regions – and this may well explain the different positions ascribed to lack of innovation capabilities in their respective challenge tables. The parallel suggestion is that legacy systems play more of a role in North America, which is another theme our North America profile explores. iii) Insurer Priorities: North America These are the priority areas on which North American insurers lead our other regions, out of our shortlist of 15 priority areas as presented in our earlier post on insurer priorities: iv) North America Top Trumps The table below is in the style of Top Trumps, with a regional score for each characteristic — we have tables for Europe and Asia-Pacific in their respective profiles, too. See also: Global Trend Map No. 14: Regulation   Today's discussion of North America falls into five short chapters, the first two of which we will be covering in today's post:

1. Insurers’ renewed focus on their primary underwriting business in the face of low interest rates and impending insurtech disruption
2. The rise of the new consumer and how this is changing the insurer-customer relationship
3. Customer-centricity as the prime mover of distribution and product
4. The impact of legacy systems and regulation on (re)insurers’ innovation and transformation efforts
5. How insurers are to unlock new sources of growth in a mature market

1. In the Eye of the Insurtech Storm North America, as we have defined it (that is, the U.S. and Canada), has a total population of around 350 million people, making it one of our smaller markets at less than 10% the size of Asia-Pacific. Not only are we looking at a smaller population, but it also has the biggest middle-class skew of any of the regions we deal with in the course of our regional profiles. This is predominantly a market of existing customers, and the low-end market opportunity is much less substantial than in Asia-Pacific, Africa and LatAm, for instance. So, while insurers in the developing world have to juggle the needs of an emerging middle class and those of the uninsured millions (often microinsurance candidates), in North America they can focus more single-mindedly on retaining and growing the customer of their existing policyholder demographics. Unsurprisingly, then, North American respondents exhibited the most focus on customer loyalty of all our regions. This focus on existing business has become paramount with the continued pressure (re)insurers are facing from low interest rates (admittedly, a global phenomenon), which is limiting the returns they can make on their investments and shining a spotlight on the profitability and sustainability of underwriting practices. "The real challenge is focusing on the underwriting itself and using data, analytics and market segmentation in order to really maximize underwriting profitability," Novarica's Matthew Josefowicz says. Insurance has always been a cyclical industry in this sense, moving with interest rates, so insurers – at least looking at the big picture – are used to periodic readjustments. However, this time is shaping up to be different in the sense that their underwriting market is no longer being served to them on a plate in quite the same way as before. Insurers the world over must now contend with new market entrants, such as insurtechs, which are raising the bar for customer service and lowering it for price.

"Innovative products and the market segments they support are underpinning the design of new insurtech business models, with companies like Lemonade, Slice, TROV, Cuvva, Surify and others establishing new model footholds in the market." — Denise Garth, SVP at Majesco

While insurers are already having to up their game to keep their underwriting customers, the overall turn toward insurtech is still in its infancy and also varies considerably from region to region. So, at what stage is this customer-led disruption in North America? The indicators we have gathered across this content series lead us to believe that North America is late – though only marginally – compared with Europe and Asia-Pacific, and we will substantiate this perspective in due course. Looking at things at the highest level, our most telling stat is the disruption score for North America. Only a quarter of (re)insurers in North America indicated that they were losing market share to new entrants, whereas this figure rose to nearly half of (re)insurers in Asia-Pacific. Whether interpreted literally or as an indication of carriers’ current mood, this implies that disruption – while certainly present – has not yet reached the fever pitch in North America that it has elsewhere, and potentially explains the lower prominence assigned to lack of innovation capabilities among the internal challenges for the region. Speaking primarily from a P&C/general perspective, Stephen Applebaum acknowledges that the U.S. market at least may be somewhat of a laggard, although he is careful to distinguish it from Canada. He places the Canadian market ahead of the U.S. in terms of innovation and technology adoption. Applebaum ascribes the notional leadership of the Canadian market to a mixture of culture, infrastructure and population size (Canada having approximately 10% of the population of the U.S.). We also call attention to Canada’s different approach to the broker market, its different regulatory regime and its different methodologies for data exchange. All of this said, though, the sorts of consumer needs that insurers in each market are trying to serve are fundamentally the same. In any case, regardless of where the North American market stands today, Applebaum believes that a huge amount will change over the coming 18 months and beyond. This is due partly to the steady globalization of technology (Applebaum cites as an example of this the recent push by Italian Octo Telematics into the U.S. market), partly to the size of the prize inevitably attracting takers. This prize would appear to be more tantalizingly poised in the U.S. than elsewhere, if indeed there is a slight lag in that market, as this makes it easier still for light-footed new entrants to outflank incumbents and capture market share. We have seen the rise of several high-profile insurtechs in the U.S., such as Lemonade on the homeowner and Insureon on the small-business side, and we note also the recent estimate that nearly half of investment money for insurtech in 2016 went to U.S. companies.

"You have to change your culture and embrace experimentation. We’ve set up labs around the world where we incubate innovation. It’s about embedding it through the employee base and being attuned to the customer. And it has to be top-down to be effective." — Cindy Forbes, EVP and chief analytics officer, Manulife Financial

If this gives the impression of a silently massing army waiting to storm the sleepy, unguarded border forts of insurance, then that is certainly a long way from the truth. Incumbent insurers in the U.S. are waking up to the threat of disruption in a big way. Applebaum, once again talking primarily from a P&C/general perspective, explains the twofold consideration going through insurers’ minds: "The first point to remember is that, while disruptors may still represent less than 5% of the P&C insurance market today, 5% of $200 billion is a significant amount of revenue lost from the traditional carriers," he states. "And the second point is that the rate of growth seems to be accelerating fairly rapidly, so that what is 5% today could very well be 25% five years from now, and that suddenly represents a material challenge to the industry. Nobody is ignoring it because they know that the adoption curve is going to look like a hockey stick." This recognition on the part of incumbents is finding expression in their recent insurtech investments – so it is misleading to interpret the high investment figure we invoked earlier as signifying only what is stacked against insurers. One of the main reasons it is being driven so high is in fact because of legacy insurers trying to get in on the action. Josefowicz, whose clients at Novarica include numerous Fortune 100 insurers, also acknowledges insurers’ growing preoccupation with insurtech. "The number of insurers that have internal development funds and investment funds is skyrocketing, as everyone is trying to stay in touch with all these new developments and approaches to using technology in the industry," he explains. "I don’t think it’s that the insurers believe the companies they’re investing in are going to be the next Facebook or Snapchat, but I think they do believe that these companies are going to show them the way, and they’re going to be able to learn a lot from them. Not just in terms of how to engage with customers but also how to use analytics and digital channels effectively, as well as all kinds of innovative practices that are difficult for a mature company to come up with on its own."

"The insurtech space got crowded in the last 18 months, with significant funding for new entrants. Now the rubber's hitting the road as startups bring products to market. It should be interesting in the coming year to see who's able to navigate the world of regulations and carrier relationships, and whether they're able to do it at scale." — Ted Devine, CEO at Insureon 2. Rise of the New Consumer

As intimated in the foregoing section, the 21st-century customer represents the ground on which insurtechs stand to challenge insurers: by raising the bar for customer service and lowering it for price. In line with this, both Josefowicz and Applebaum identified changing customer expectations – that is, how customers want to buy insurance and interact with insurers – as a key challenge in North America.

"Insurance in the U.S. has long been a product-driven, not a customer-driven industry. Faced with high churn and the specter of ambitious new market entrants, insurers are finally waking up to the need to better engage and service customers. To this end, we are increasingly seeing the creation of cross-functional customer-experience teams within carriers." — Mariana Dumont, head of new projects at Insurance Nexus

We are witnessing what Applebaum describes as the rise of the new consumer, and he believes furthermore that this is the No. 1 challenge facing insurers in the region: "It’s not only the millennials and the emerging demographic groups but basically the new customers who are almost always connected digitally," he elaborates. "They have come to expect that all of their interactions will be digital." Some data:

• North America achieved the lowest priority score for customer-centricity out of all our global regions
• Chief customer officer was a relatively unimportant new appointment within North American companies, at least compared with the prominence attained by chief information security officer, chief data officer and chief analytics officer
• North America is the only region in which lack of innovation capabilities fails to make the top spot

North America has been fractionally late on the current customer-led disruption of insurance compared with our other regions; if customer expectations are more easily met, then this will result both in the customer rising less high up the priorities ladder and in current levels of customer-centricity being deemed more adequate. This is, of course, a question of degree, as the customer is still critically important to North American insurers. "I think that in a lot of ways North American consumers are behind other advanced markets when it comes to insurance," Josefowicz says. "For example, in the U.K. a large portion of small-business insurance is now bought online. Here, that’s still very much an emerging segment of the market. The heavy shift to direct auto purchase in other mature markets is evident here but not quite as developed." At various points in this report we have tied the current consumer-led disruption sweeping through insurance (and all consumer industries for that matter) to changes in distribution. Digital channels have given new, non-traditional players with alternative products and services access to insurers’ customer base. This added element of competition – on both price and customer service – has fundamentally changed the way customers relate to all the products they buy, and this in turn is driving change within the insurance industry. In line with this view, and with our hypothesis that disruption has not yet arrived with full force in North America, we expected the distribution landscape here to be relatively more stable than elsewhere. This is indeed the impression that we have received:

• Among our three key regions, the direct digital channel appears to feature least prominently in North America
• While our respondents in all our geographies were increasing their distribution through affiliate partners, our broader research points to this channel being less developed in North America than in, for instance, Europe and LatAm

"Digital direct is new in Canada, and there’s a certain profile that it’s most suitable for. We are looking to target and attract the right customer. Then we want to capture as much data as we reasonably can along that journey so we can attract and convert customers while also understanding what’s working effectively to optimize our marketing efforts." — Michael Shostak, SVP and chief marketing officer at Economical Insurance

See also: Global Trend Map No. 15: Products   These measures suggest that traditional channels are indeed relatively more intact in North America than elsewhere, and this may be more the case in the U.S. than in Canada. Josefowicz puts this down in part to the innovator’s dilemma, whereby the need to innovate is mediated by the fear of cannibalizing the existing business: "If all your money is coming today through the broker channel, it’s very difficult to plan for a future where that’s not true, without disrupting the present," he explains. As customer behaviors continue to evolve, we expect to see growth across North America in the direct-to-customer channel. This, along with the steady growth in affiliate channels, will increase the number of channels that North American insurers must manage. "I think that the U.S. will start to look more like Europe in terms of the distribution models across the different product lines," Josefowicz says. "We don’t believe that intermediary distribution is going to disappear in North America, but it is already losing its monopoly hold on the market. So what insurers are going to be dealing with is not a future where everything is direct, but a future that is much more multichannel."

Much is said about blockchain technology and how it will change how business operates. As with any new technology, a gap exists between understanding the theory and seeing the practical applications. But it should be no surprise that blockchain technology is already being used to secure the digital electronic health record (EHR) of large numbers of people in Europe. EHR, augmented with data from self-monitoring devices, will change how health is managed. But this digital future comes with legal and ethical risks. Legitimate concerns include how sensitive personal data can be kept secure from theft or cyber-attacks. Without the assurance that blockchain technology promises, digital files can be corrupted, deleted and altered. Since much existing data protection legislation is purblind to digital data, the European Commission has acted to reform the rules across all E.U. member states. The General Data Protection Regulation (GDPR), aimed to strengthen data protection for those in the E.U., puts clear legal obligations on controllers and processors of any personal data. This move aligns with the concept of a “personal data economy” in which people take control of the scattered mass of digital data about themselves and share it with whomever they choose. Many individuals seeking life insurance want to share their medical data simply and promptly, so it’s important that rules protect that process without hampering it. See also: Blockchain: the Next Big Wave?   Beginning in May 2018, the GDPR will act to hand back control of personal data to individuals. Their data will be portable between service providers, and people will have the right to be “forgotten” and to have their data deleted when there are no legitimate grounds for retaining it. It is hoped GDPR will simplify the regulatory environment for businesses across the E.U., creating savings and increasing competition. Estonia is on the front foot. The country’s e-government system, which uses a website and smartcard to provide residents instant access to hundreds of public services, has earned it a reputation as a digital pioneer. Notably, too, the entire electronic patient records of its 1.3 million citizens are collated in one central database. The security of this store of highly sensitive personal data is underpinned using blockchain. Blockchain may be used in any form of asset registry, inventory and exchange. This includes transactions of finance, money, physical property and intangible assets, including health information. In Estonia, individuals’ EHRs are condensed as “blocks” and linked into “chains” by computer code in a bid to keep them safe. The blockchain registers every change, access and update to the records, including hacks or attacks from malware, using a series of computer code -- tracks that can’t be modified without leaving a trail. This makes it impossible for the information to be tampered with, deleted or improperly changed in any way without its being spotted. Patients may log in to view who has accessed their data at any point or added information to their records. This means people can feel their data is more secure and their rights protected while the opportunities for medical or insurance fraud and other harmful misuse are mitigated. Estonia stores complete patient histories in a national database to protect public health and create efficiencies and cost savings. The value in the combined medical data is used to drive improvements in the quality and effectiveness of care. The information can be exchanged between doctors so that interactions with clinical services are simpler and personalized. See also: Insurtech in 2018: Beyond Blockchain   Sharing data for the common good requires a high degree of trust. One way of ensuring accuracy is to allow people to agree on what represents the truth. Blockchain is a “trustless” system because the network of users act together to vouch for the accuracy of the record. The example of blockchain protecting patient records in Estonia demonstrates its potential to implement other trusted and secure transactions with less bureaucracy. For more perspective on how technology is changing life insurance, click here.

I cringe every time a company wants to do a benchmarking study. Wikipedia defines benchmarking as “comparing one's business processes and performance metrics with industry bests and best practices from other companies.” From the requester’s perspective, it is the prudent thing to do. So what’s the problem? The problem is the company’s mindset. Typically, the company already knows it is falling behind the industry and wants to pinpoint exactly how badly it lags. The company subsequently sets its sights on “catching up” with industry leaders, which will actually only make the company average. The leaders have in effect set a new standard for what their mutual clients expect. Is it really worth investing the time and expense to perform a benchmarking study, digest the results, prioritize, fund and develop new components just so you can become average? By the time the changes are implemented, the industry leaders have moved on to more innovative products and solutions, forcing you to reevaluate and repeat everything you’ve just completed in an attempt to become par...again. Is that what your customers and investors expect from you? Is that really the best you can do? You’ll seldom find an industry leader doing benchmarking studies. Rather than focus on the competition, vanguards focus on assessing the needs of the customer. What are the current pain points? What needs are being unmet? How many unnecessary steps or how much excess time does it take for a customer to use your product or service or interact with you? Wouldn’t it be cool if we could only offer/eliminate/change _________ (fill in the blank)? Leaders force their teams to think creatively about solving problems, which in turn often makes their company unique and makes their customers loyal. See also: Insurance 2025: Smart Contracts   Talk to the folks on the front line to gather feedback on what is and isn’t working, and ask what they are hearing from customers. What kind of feedback are you getting through social media or customer surveys? Listening to clients is an acquired skill and often is not fully appreciated for the value it holds. I’ve seen a company implement the wrong strategy after misinterpreting the multiple choice survey responses and failing to study and digest the free form comments. Surveys can become a landmine of misdirection if not done right. How many times have you completed a survey that asked about how well the customer service agent handled your problem, when the real problems had nothing to do with the agent and everything to do with the flawed processes created by the company? Make sure your surveys provide customers with open-ended questions that give them the opportunity to tell you what you can do better. Their comments will only add value if you actually take the time to thoughtfully harvest and analyze them. Ignoring the answers to a free form question is a huge lost opportunity. Having spent many years successfully leading innovation, I can honestly say that I never looked at what the competition was doing. I didn’t care. In fact, I often felt that, if I studied my competitors, it would taint my view and subconsciously lead me down their imperfect path as opposed to forging my own targeted solutions. It was more important to study our internal processes and any workarounds we had implemented, which is an easy way to flush out underlying problems that affect both the customer and company. Innovation, after all, is really about solving problems in a creative way. See also: The State of Workers’ Compensation   Sometimes, what’s going on outside your industry could be more important than what is happening within your industry. Disruptive companies typically come from outside and are not shackled by tradition or legacy technology or benchmarking results. They’ve asked the right questions – what would make things better or easier for the customer – and listened carefully to the responses. That’s where you’ll find valuable answers that will lead you to a new strategy – one where you’ll do more than just keep up with the industry leaders. It’s time to forgo benchmarking as a tool of the past, one that supported businesses that moved en masse at yesterday’s slower pace. Instead, rely on your own customers and internal resources to show you the way forward.

The number of foreigners purchasing property in the U.S. surged between March 2016 and March 2017, according to the National Association of Realtors. The association said foreigners bought 284,455 properties, about a third more than a year earlier. And, similar to previous years, a larger percentage of buyers, especially in states like Florida and Arizona, were European citizens. European home buyers who insure their properties through U.S. companies could require those businesses to upgrade their data protection efforts soon. As of May 25, U.S.-based businesses that have operations in the European Union (EU) or that have customers who are citizens of E.U. nations will have new requirements to meet regarding data protection. This is when the new General Data Protection Regulation (GDPR) takes effect. Any companies not prepared to meet the new regulations that experience a data breach could face massive fines. GDPR was designed to better protect E.U. citizen data. Standards vary based on where the data originates, but generally any information like name, address, credit card number, etc. is covered. In the domestic U.S., protected data is defined as personally identifying information (PII). As defined by GDPR, for an E.U. citizen it is known as personal data. Failure to protect the PII or personal data to the right standard could bring a hefty bill or, on consistent failure, even an order to cease business in E.U. countries. See also: VPNs: How to Prevent a Data Breach   Current U.S.-based data privacy regulations require companies to notify customers if a data breach occurs, but in the U.S. there can be a significant time delay between the breach and the notification letter; not so with GDPR. GDPR requires that supervisory authorities be notified within 72 hours, even while a breach is still being investigated. Failure to report within 72 hours could lead to significant fines. Maximum fines could be $26 million, or 4% of global gross revenue, whichever is greater. Insurance companies selling plans to E.U. citizens purchasing homes, rental properties or commercial properties in the U.S. could be affected by GDPR because they gather personal data on applications and store data on customers. If a hacker is able to breach the insurance company’s systems and gain access to E.U. citizen data, the company would be required to notify GDPR supervisory authorities and prove that it met all GDPR requirements. Failure to cooperate with an investigation or to meet GDPR requirements could lead to fines or worse. The first step toward compliance for any company is determining the need for and, if necessary, assigning a data protection officer (DPO). A company will be required to have a DPO if it possesses large amounts of data covered by GDPR. The DPO must be available and involved in any events where there is a possibility of a loss of GDPR-covered data. The DPO will be the point person for any GDPR issue with the affected persons and the supervisory authority. Obviously, because the DPO will be instrumental in proving a company’s compliance with GDPR, this individual needs to know the regulations and the company’s security protocols inside and out, backward and forward. If a company is not required to have a DPO, it should still have a plan in place for who it will call if the supervisory authority opens an investigation. Additionally, any personal data that is lawfully received, stored or processed by a company needs to be encrypted. This means completely encrypted at rest and in transit, complete end-to-end encryption. GDPR does not allow for lenience regarding outdated software or new implementations that are being investigated for deployment. Companies will also now be required to complete data protection assessments and privacy impact assessments. They will be expected to increase visibility into what level of impact a breach might have for customers and the company, if one occurs. And, all efforts made to comply with GDPR need to be documented so they can be given to a supervisory authority upon request. The best source of information on the regulation requirements is gdpr-info.eu. See also: Firms Ally to Respond to Data Breaches   Once GDPR takes effect, if a company experiences a breach or is contacted by a GDPR supervisory authority the best course of action is to show an attitude of compliance by offering complete support for the investigation. Then, contact the legal team. It is important to remember that complying with GDPR can be complex. It takes some time to update systems and processes to the level of security required by the new regulations. It can also be costly, and disruptive, but the protection of data is becoming paramount in the new business paradigm. For GDPR, the cost of compliance is geared to be less than the cost of sanctions.