The millennial generation - which generally refers to individuals born between 1980-1996 - continues to fascinate businesses. Millennials are now the biggest cohort in the workforce and are opening the majority of small businesses. That means they hold a lot of power, both through the products and services they purchase and by way of social influence. Companies are motivated to understand millennials and win them over. That is not an easy task, considering that millennials show high levels of distrust in major institutions and most businesses. The health insurance industry, which struggles with public opinion more broadly, has a long way to go in terms of gaining millennials' business and trust. Below are three factors they should consider to convince millennial decision-makers that health insurance is an important purchase. Costs are a bigger concern than for other generations Millennials are more concerned with costs than other generations. Many young adults are saddled with student loan debts, while, at the same time, salaries have largely stagnated, and costs of living continue to increase. Millennial business owners understand these struggles because many of them have experienced them personally. Many millennials would rather go without health insurance than enroll in an unaffordable plan, especially because they are often relatively healthy and may not see an immediate need for healthcare services. To convince millennial business owners that health insurance makes sense for them, health insurers will have to prove their value. Insurers need to persuade millennial business owners of the short-term and long-term benefits. Insurers should create targeted, relatable ads that emphasize coverage of preventive services, which can reduce costly healthcare services down the road. Millennials treat health and wellness as a daily, active pursuit, so this message may resonate well with them. Small businesses should also view health benefits as an appealing incentive to attract and retain millennial talent. See also: How Millennials Are Misunderstood   Transparency is crucial for millennials While costs are important, millennials also place a high value on other brand characteristics like transparency. Considering the high levels of distrust among this generation, it makes sense that millennials want clear and honest information. In a dense and complicated industry like health insurance, companies can benefit from making information as simple as possible. It is especially important to be clear about pricing structure so potential customers can quickly understand what plan benefits include and don’t include. Insurance providers should also use social media and other channels to communicate with millennials and make it clear that they care about members. According to Ambassador, 71% of consumers are more likely to recommend a brand after having a positive experience with them on social media. They prefer digital experiences Millennials grew up with technology and are comfortable using the internet and their smartphones for all sorts of things, from banking to shopping. Taking care of their health is no exception - millennials are more likely to engage with insurers digitally and use telehealth services than older age groups. Millennials are coming to expect these capabilities, and some companies are doing better than others. For example, millennials’ retail expectations are based on the experiences they have with Amazon, Spotify, Airbnb and others. Insurers that focus on providing more streamlined digital services, like e-commerce marketplaces, online portals and subscriptions to mobile health solutions, will be in a better position to win over millennial consumers. See also: Taking Care of Small-Medium Business Conclusion To appeal to more millennials, health insurers will have to adapt their business strategies to prove their value, increase transparency and provide more digital offerings. Millennials are skeptical and cost-conscious, but they also care about their health a great deal. By meeting or exceeding millennials’ expectations, companies can gain loyal customers and increase the number of millennials who are insured.

Until insurtech, insurance companies were defining microinsurance policies as social responsibility projects. With the magic touch of technology, the picture is changing rapidly! Microinsurance is a type of micro financial activity, which protects low-income people and communities with low premiums and limited coverages against risks. The main objective is providing financial protection for all low-income members with pooling risks and financial resources. The target customer group is quite big, as well. More than 2 billion people are potential customers of micro insurance worldwide. Microinsurance enhances financial security and peace of mind, supports social security systems in poor or developing countries and provides a high-level risk management system. For long-term investors, microinsurance stabilizes and develops financial markets in developing and poor countries and provides considerable liquidity for critical times. See also: Microinsurance: A Huge Opportunity   Four features are crucial for penetration by microinsurance:

• Premiums should be affordable for low-income households
• Products should be very basic and easy to understand and cover limited risks
• Underwriting, claims and collection processes should be operated with high effectiveness
• Products should be distributed effectively and with minimum distribution cost

With insurtech, the picture is changing rapidly! Insurtech is converting microinsurance into a very profitable area. The first rule of insurance, the law of large numbers, is now valid for microinsurance business. The number of insureds is widening, and this makes claims more stable and predictable for insurance companies. The first impact of insurtech in micro insurance is on UW processes. Because of the low premiums, operational efficiency is the key of success in projects. Insurtech allows insurers to have their own automated UW decision-making processes for fast and low-cost policy production. The key to success, management of operational risk, is reduced significantly. The products are simple, do not require any financial literacy and are very user-friendly. Target customers purchase policies without location restrictions via digital distribution channels. Premium collections, claims notifications and all compensations activities are performed with digital tools that were developed and perfected by insurtech. See also: A ‘Nudge’ Toward Microinsurance   For now, microinsurance projects mainly focus on personal accident, health and agricultural activities, but new products are being developed promptly. With all its components, like artificial intelligence, machine learning, chatbots and the Internet of Things, insurtech is becoming the new leverage for microinsurance -- not just diversifying and absorbing risks for individuals, but also providing very strong preconditions for other productive activities for policy owners.

Mary Meeker laid out her annual report on the state of the internet and e-commerce last week, and I waded through the full 294 slides so you don't have to. (The full report is here—http://www.kpcb.com/internet-trends—for those who want all the detail.) The report by Meeker, a partner at venture capital firm Kleiner Perkins, has become the bible for internet followers and, as usual, contained some surprises.

To me, the most startling number was that sessions on mobile shopping apps surged 54% last year (use of mobile apps overall rose just 6%). The 54% covers all types of products, many of which are easier to buy on a mobile phone than insurance is, but, still: The time for a robust mobile strategy was yesterday (minus about a year and a half).

It was also striking to see that 6% of all online product purchases began with something that someone saw in a social media feed. The figure represents all product sales online, so the applicability to insurance needs to be sorted out, but the 6% is triple the percentage from just two years earlier, suggesting that there is upside for those promoted product placements. 

As always, the report showed a continued surge in online commerce—up 16% in 2017, even faster growth than the 14% increase in 2016. The online share of the value of total consumer purchases in the U.S. reached 28%, up from 20% in 2013. When people were asked how they conducted their 10 most recent transactions, 60% occurred digitally.

The social and mobile trends, on top of the general growth of online commerce, suggest to Meeker that companies will increasingly sell directly to consumers—but that companies must target their efforts well. She reports that many of the best mobile apps, for instance, used video and "gamification" and that successful offers were increasingly personalized.

Amazon may, though, soak up much of the increase in e-commerce: Already, 49% of product searches in the U.S. begin at Amazon, and most of the searchers never leave the site.

Although Meeker didn't specifically address insurance, some observations in the report suggest both opportunities and challenges for the industry.

On the plus side, she said the world is moving more toward subscription models, rather than sales of individual products—and subscriptions sound a lot like automatically renewable insurance policies. The number of gig workers available to help inexpensively with, say, parts of the claims process—a la those employed by our friends at WeGoLook—reached 5.4 million in the U.S. last year, up from 3.9 million in 2016. The cost of cloud computing fell 11% last year, on top of the 10% drop the year earlier. 

On the challenges side, profits are increasingly being competed away. The price for an offline good fell 1% since the start of 2016, and the cost of an identical good online declined 3% over the same period. In addition, some insurance costs were negative outliers in her general economic analysis. While prices have been falling for almost every category of household expenditure in the U.S. for decades, the percentage of household income devoted to pensions and insurance climbed from 7% in 1972 to 8% in 1990 and now to 10% in 2017. The percentage devoted to health insurance went from 5% in 1972 to 5% in 1990 and now to 7%. 

Either we take advantage of the opportunities presented by digitization and meet the challenges, or ... perhaps Amazon or some other tech giant will.

Have a great week. 

Paul Carroll
Editor-in-Chief

P.S. As advertised last week, we finalized the agreement between our Innovator's Edge information platform and SAP. Here is the announcement: http://insurancethoughtleadership.com/press_release/ie-sap-partner/

The Employee Health Code of Conduct calls for employee wellness programs to commit to the improvement of employee health while avoiding harmful practices. Quizzify is proud to be the first wellness program to embrace the code, and the Employee Health Code of Conduct will be a contractual term in all contracts moving forward. See also: A Wellness Program Everyone Can Love We urge all honest and competent vendors to follow our lead and incorporate this pledge into the fabric of their operations and contractual obligations. The Employee Health Program Code of Conduct: Programs Should Do No Harm Our organization resolves that its program should do no harm to employee health, corporate integrity or employee/employer finances. Instead, we will endeavor to support employee well-being for our customers, their employees and all program constituents. Employee Benefits and Harm Avoidance Our organization will recommend doing programs with/for employees rather than to them, and will focus on promoting well-being and avoiding bad health outcomes. Our choices and frequencies of screenings are consistent with U.S. Preventive Services Task Force (USPSTF), CDC guidelines and Choosing Wisely. Our relevant staff will understand USPSTF guidelines, employee harm avoidance, wellness-sensitive medical event measurement and outcomes analysis. Employees will not be singled out, fined or embarrassed for their health status. Respect for Corporate Integrity and Employee Privacy We will not share employee-identifiable data with employers and will ensure that all protected health information (PHI) adheres to HIPAA regulations and any other applicable laws. See also: The Value of Workplace Wellness   Commitment to Valid Outcomes Measurement Our contractual language and outcomes reporting will be transparent and plausible. All research limitations (e.g., “participants vs. non-participants” or the “natural flow of risk” or ignoring dropouts) and methodology will be fully disclosed, sourced and readily available.

I recently shared an article discussing the fact that the workers’ compensation system is not functioning as designed, with some key data points that show just how badly the industry is missing the mark when it comes to litigation. In a nutshell, workers’ comp was created to reduce the need for litigation, and yet it has become a highly litigious market. This translates to enormous, unnecessary costs for companies while not benefiting the injured worker. Before we get into addressing the problem, we need to determine how it became a problem to begin with. Why do workers feel the need to hire a lawyer? I engaged in a little informal research on the matter. I found a number of common trends in the reasons attorneys say they were hired to represent injured workers: 1. Insurance company denied claims. 2. Insurance company denied a treatment. 3. Injured worker was afraid he/she wasn’t going to get needs met (mostly referencing necessary care or financial impact). 4. Injured worker was afraid he/she would lose a job. 5. Injured worker wasn’t sure how to get what he/she needed. 6. Friend/coworker told the worker that he/she needed to get an attorney after being injured. 7. Lack of communication from carrier/employer/TPA. 8. Overbearing communication from carrier/employer/TPA. The first two seem obvious. People rarely like to be told no — that is a trait we all develop early in life and tend to keep over the years. Beyond denials of claims when a case is righteous and defensible, there will be battles to be fought over compensability and reasonable, necessary care. See also: The State of Workers’ Compensation   The next three all have the common thread of fear. Reducing fear and anxiety should be a central goal of claims operations and employers. Effective communication is essential to eliminating these issues. Reason #6 can best be mitigated by addressing the other reasons better and improving the overall brand of our industry. That brings us to the last two. One says not enough hand-holding, and the other says excessive hand-holding. Although these seem contradictory, they are essentially the same thing; we aren’t engaging the individual how the person wants to be engaged. For example, as a former marine and athlete, I have had my share of injuries and know how to manage my care and recovery. Just stay out of my way, and I will be back on my feet faster than my doctor could predict. But, another person with a different life experience would be just the opposite. I don’t want you to call me all the time, but if you don’t reach out to the other person (and often) you have a problem. The combination of these points shows that a one-size-fits-all approach to engaging claimants can cause (expensive) problems. We Need to Make Changes I’d make the case that state legislatures need to be engaged; we were promised protection from litigation and ended up with a system that facilitates it instead. Unfortunately, there is not a quick fix, and we need to address the aspects within our control to stop the bleeding where we can. Attorneys are not within our control, although we may wish they were. I don’t begrudge the attorneys — they are doing their job, and everyone has a right to do their jobs to the best of their abilities. But we are making their job easier by making simple and addressable mistakes. Inserting lawyers into the claims process translates to thousands of dollars in unnecessary costs. We should know (or at least honestly believe) that injured workers don’t want to go the legal route unless they feel they have no other options. So now, what can we do about it? I would suggest we need to take action in three areas. First, take steps to reduce the perceived need for litigation. This should include leveraging new capabilities in artificial intelligence (AI) that can assess risk of litigation as well as provide new insights into claimant sentiment. Using these types of signals to drive the way you engage injured workers will allow you to focus extra communication, hand-holding and empathy on the claims that need it without adding excessive claims handling costs to all your claims or “over communicating” when too much communication is bad. Second, when the fight does occur, use intelligent processes for picking the right attorney. AI and business intelligence solutions can help identify not only the attorneys with the best overall results but also which is the right attorney for this instance. Benchmark your panel of attorneys in the same manner an outcomes-based network benchmarks physician performance as a first step, and then develop the nuanced approach to claimant-matching over time. Third, develop more sophisticated “fight-or-flight” signals using predictive analytics so that you know what the likely costs/outcomes are if you cooperate, settle or draw a hard litigation line when the fight starts. Excessive litigation occurs when it’s easy and profitable to litigate, so the harder and less profitable we make it the fewer “excessive” cases we will see over time. In summary, I refuse to believe injured workers are typically looking to score big with a vicious lawsuit directed at their employer or claims company. I am not saying it doesn’t happen, just that there is no way that that is the behavior driving the costs and the bad outcomes, and it certainly is not that common in research to date. Most people just want to be treated fairly and get better. See also: Workers’ Comp: the Best of Both Worlds   While I am not the first person to make this case, what is new are the technology options that unlock the capabilities to make a change. Most AI and machine learning models are still early in their sophistication and application, but the tools do exist to make more informed decisions and drive processes and engagements that can change the game. But first, we need to devote our resolve to tackle this issue head-on; we need to make the commitment to integrate and experiment with new approaches to how we address the underlying causes that are 100% within our control. As first published in WorkCompWire.

The three independent U.S. insurtech startups whose 2017 full-year results we profiled -- Lemonade, Root and Metromile -- continue to grow rapidly in early 2018. But so far that has meant more red ink: Results that are bigger and blacker remain elusive. We’ve again analyzed publicly available financial results called statutory statements. The same caveats from our 2017 full-year analysis remain, and again we use only public data to write this post, which reflects only our personal opinions. Our prior statements regarding the three companies also remain – we think highly of their management teams and long-term potential. All three have a lot of runway and time to perfect their business models. We think they will. We produce this analysis not to critique their management. We want to help investors, entrepreneurs and traditional industry insurers to understand what is happening in insurtech through a lens of insurance fundamentals and facts rather than dogmatic opinion-mongering. Overall observations Top line: bigger. All the three companies are growing at rates associated with successful early-stage startups. For a time, these rapid growth rates may sustain their impressive, rumored valuations. Root nearly tripled its top line in the last quarter, apparently without spending too much on customer acquisition, and now has closed the gap on Lemonade. We suspect that this narrowing may surprise a few people, considering the differences in the two companies’ “share of voice.” (Admittedly, we also give Lemonade a lot more attention, in part because its business model is less straightforward.) Bottom line: redder. Underwriting results have continued to be consistently poor, even excluding expenses, which are influenced by scale and inter-company agreements. This is true even considering paid losses relative to premiums earned. It has been suggested that some of the poor underwriting results are because of exceptionally prudent or cautious reserving, but we find little evidence that reserving practices explain the high loss ratios. Auto and renters are well-modeled, short-tail lines of business where large absolute differences in estimates are less common than in lines where losses take longer to become known. In between: A quarter doesn’t make much difference in insurance. Detailed breakouts of spending are only published annually. The most notable change: Lemonade materially reduced the potential giveback and made an accounting change that reduces the expenses reported by its insurance company. Lemonade Insurance Co. used to pay its parent a flat fee of 20% for various services rendered by the parent and affiliated companies. In March, this was raised to 25%, retroactive to 1/1/2018. The higher fee increases the slice going to Lemonade’s non-regulated entities by a quarter. Furthermore, Lemonade Insurance Co. no longer reports the true cost of the services provided by the parent, meaning that its expenses for 2018 will appear lower than they actually are. (We explain this later.) Lemonade Insurance Co. Love ‘em or hate ‘em, there’s something for you in Lemonade’s first quarter results. The gross loss ratio (excluding loss adjustment expense) of 116% is still almost double what it should be to have a sustainable business, but it is within the last year’s quarterly range (from 104% to 144%). A quarterly loss ratio with a small book like Lemonade’s ($2.9 million gross earned premium) is still quite sensitive to individual losses and reserve assumptions. The company reported $207,000 of gross adverse development in the quarter, which added seven points to the gross loss ratio. Premiums earned continue to grow rapidly. Texas is actually Lemonade’s largest state, followed by California and then New York. Lemonade’s other eight states combined produced less premium in 1Q18 than New York. In the last quarter, direct written premiums have almost doubled in New York, but the growth in California and Texas has slowed to around 40%, quarter-to-quarter. This is extraordinary growth even if it is slowing. Lemonade has pointed out that it looks at different measures that aren’t published in yellow books – which we suspect include indicators of the sustainable long-term growth rate in the major states as well as seasonality factors in its renters’ insurance book. Reinsurers continue to subsidize the company’s losses: Reinsurers incurred $3.53 for every $1 in premium they received in the most recent quarter. The aggregate XOL reinsurance contract normally runs another two years (through 6/30/2020), illustrating why reinsurers that back startups also consider having equity participation. See also: Touching Customers in the Insurtech Era  A homeowner’s company would typically aim for numbers something like the following (which are from a leading homeowner’s insurer), plus or minus a few points: Compare with Lemonade’s numbers: The Giveback Lemonade’s giveback is one of the company’s most intriguing features. Customers join cohorts, and, if any premium remains after paying the cohort’s claims, fees and reinsurance, that money goes to a designated charity. Lemonade says that this “giveback” was 10% of “revenues Lemonade recognized” from its launch in 2016 until mid-2017. Another is coming in mid-2018. Lemonade has hinted at “an exponentially larger giveback in years to come.” We’re not so sure. There are two big headwinds. First, Lemonade raised the fee paid from its cohorts to the parent company from 20% to 25%, effective 1/1/2018. Such arrangements are common in the insurance industry and are approved by regulators, but not always gladly. Sometimes profit is moved to an affiliated agency that doesn’t have to pay claims, while losses remain in the regulated insurer. The second headwind against the giveback is that Lemonade’s cohorts have to pay for reinsurance, the cost of which is almost certain to rise in 2020 if the company continues ceding several times more losses than premiums. The giveback will probably remain – someone’s cohort will have very low losses – but the combined effects of a bigger fee to the parent and more expensive reinsurance could greatly reduce the giveback “in years to come.” This matters because the giveback is the crux of Lemonade’s business model for both its investors and customers. As CEO Daniel Schreiber has explained:

“If there is underwriting profit it is donated to non-profit - if it isn't and there are insufficient funds the reinsurers have a bad day, not Lemonade. "The 20% is insulated - we take 20% in good years and in bad and that is not really impacted by loss ratios - so we are indifferent to the level of claims.”

Set aside the line about being “indifferent to the level of claims.” The 20% is not insulated – it has already gone up – and reinsurers usually seek “payback” if they have a bad day. Payback means higher reinsurance fees such that, over time, reinsurers make at least a modest profit margin. That means a bad day may be coming for Lemonade, though perhaps not until late 2020. What would happen to the company’s vaunted social mission and behavioral incentives if the economics stop adding up? Lemonade has the cash to weather a lot of bad days and maybe even a pivot or two. The company confirmed its shareholding structure in the first quarter, and the figures support (but do not precisely confirm) the rumored $600 million valuation when Softbank and other investors put in $120 million. In the past weeks, Lemonade’s Policy 2.0 initiative has generated a relevant debate and raised challenges to regulators, who will have to examine the policy and deal with claims disputes. Ambiguity in an insurance contract typically is interpreted against the insurer, which could make it that much harder to get the loss ratio down. Lemonade remains a challenging company for regulators, and traditional agents are lining up to kill any regulatory flexibility given to insurtechs. Lastly, we comment on a quiet but meaningful accounting change. The 20% fee paid by Lemonade Insurance Co. (now 25%) was far less than the actual cost of the services received. Lemonade Insurance Co. used to report consolidated figures that gave a true representation of the cost of running its operation. No longer. Effective in 2018, the consolidation is gone, and perhaps $3 million of expenses seem to be missing in 1Q18 – highlighted in yellow above. In terms of disclosure, throughout 2017, Lemonade used the language shown below. The highlighted language is the key bit that is missing in 2018. Now in 2018: Transparency…. Root Insurance Co. Root has grown explosively, with gross premiums written having trebled since 4Q17, for a run rate exceeding $30 million. $2.9 million of $7.9 million of gross premiums written were in Texas, with Ohio and Arizona also chipping in more than $1 million each. Potentially most impressive is that Root apparently has achieved its growth without massive advertising spending. If ad spending as a percent of total expenses remained constant this quarter compared with last year (a big “if,” because overall expense are rising rapidly), then Root has greatly cut its ad spending as a percent of the premium. See the bottom line of Exhibit 2. As with Metromile and Lemonade, Root’s loss ratio remains unsustainably high, but the company’s $51 million fundraising round in June gives it a few years of runway to make improvements. Following our previous article, the CEO of Root commented that his company’s loss ratio was high in part due to prudent reserving. Indeed, Root was the only of the three startup insurers to report favorable development in the quarter, to the tune of $239,000 of gross positive development, which would cut almost 10 points off the 2017 gross loss ratio. (In reality, Root cut about seven points from the 1Q18 loss ratio, because prior year results aren’t restated when reserves develop.) There could continue to be favorable development, but so far the 2017 loss ratio would be cut from 138% to 128% -- still well above a sustainable level. Further, the company in 2017 paid $1.36 of losses for every $1 of premium earned (on a net basis). Root’s reinsurance comes up for renewal at the end of June 2018 and currently consists of a 50% quota share and $1M XS $100K tower, which limits volatility in results. Metromile Insurance Co. Metromile, the oldest and the biggest of the three, continues to grow premium – achieving an impressive plus-25% quarter-to-quarter, nearing an $80 million run rate. California continues to be the largest state for Metromile, accounting for $11 million of $19 million of direct premium written this quarter, as compared with $5 million of $10 million in the first quarter of 2017, which suggests that the company relies on one state but has room to expand. The company appears to be losing money in each state. As with other insurtechs, distribution has been easier than profitability. The gross loss ratio including LAE at 104% remains close to the results posted in 2017 but above a sustainable long-term rate. For comparison, Progressive’s personal lines loss & LAE ratio was 74% in 2017 (30 points lower), with a combined ratio of 93%. The gross loss ratio is affected by $1.5 million of adverse development at Metromile, which added about eight points to the loss ratio this quarter. Does loss ratio scale? We have been surprised to hear some investors comment that they expect loss ratios to decline with scale and to consider them as any other costs on the insurance income statement. There are some elements of loss ratio that scale, but only in a limited way, i.e. a few points, not cutting the loss ratio in half.

• Claims: Taking claims in-house at the right time can reduce the loss & LAE ratio. TPAs get paid to manage and settle claims, which isn’t always exactly what carriers or MGAs want. (Claims is a moment of truth that drives loyalty, and insurance fraud is real.) Bigger insurers also have better ability to drive favorable pricing with repair shops, contractors and outside adjusters.
• Portfolio management: Scale can enable the company to be more selective about risks underwritten, thus avoiding the worst risks. It’s hard to manage a portfolio (i.e. cut the worst risks) when also growing it rapidly from a small base.
• Underwriting: Scale can help the company understand its own loss experience and adjust its underwriting accordingly. When companies start, they assess what risks are good or bad using industry data and place bets that certain segments are more attractive, thus targeting those segments or distributors that target them. As the company gathers data on the performance of its own book, through time and scale, the company can adjust underwriting and pricing to attract customer segments that perform particularly well for its particular business model. Again this has a trade-off against growth.
• Mathematics: The law of large numbers will cause actual loss ratios to converge closer to the expected loss ratio. This isn’t really the loss ratio scaling down, but rather limiting the probability of a single really bad loss poisoning a year’s results.

However, when an insurer says that “we are indifferent to the level of claims” and then turns in a loss ratio that is double a sustainable level, investors should ask themselves, “What if they really are indifferent?” See also: Why Financial Wellness Is Elusive   Conclusion We have been grateful for the positive feedback on our first article covering 2017 results, with both startups and incumbents featuring highly on the list of companies whose employees read the article. So far, 2018 results do not lead us to change our conclusions from 2017. The three companies we’ve analyzed have several years of cash on hand, during which time they will probably continue to grow rapidly. They will probably improve their loss ratios, and expense ratios will scale down. The question is whether the figures get to a sustainable level. We won’t know for a few years whether these daring start-ups are really ground breakers or just expensive follies – as long as they are not acquired in the meantime. We’re cheering for them and think that we will see rapid growth and also profitability improvements in future quarters. We were asked a few times about other companies, particularly in non-U.S. markets. Many countries have similar filings to the U.S. statutory filings, but we’ve not published anything on them yet. Also, agencies and brokers typically do not file public financials. We have begun to observe a trend, such as with Next Insurance, of insurtech agencies converting to carriers or at least exploring the idea seriously. There are many reasons why this makes sense at a certain point in a company’s development, and it will provide more insurtech carriers’ financials to analyze in years to come. To be notified of future articles, please follow Matteo and Adrian Jones on LinkedIn or subscribe to Insurance Thought Leadership's Six Things weekly newsletter. You can also find us at the leading conferences, including: Adrian: Plug and Play Summer Summit in Silicon Valley, InsurTech Insights in London, Rendez-Vous de Septembre in Monte Carlo and InsureTech Connect in Vegas. Matteo: InsiderTech London, Connected Insurance Summit in London, InsurTech Insights in London, NAIC Insurance Summit in Kansas City, Rendez-Vous de Septembre in Monte Carlo, Annual North America Re/Insurance Conference in New York and InsureTech Connect in Vegas.

Is insurance broken and in need of rescue? That was the question I recently asked myself while hiring a rental car to visit the infamous "White Line" mountain bike trail in beautiful Sedona, AZ. When I discovered the full Hertz insurance cover was going to cost me double the price of the actual car hire, I couldn't help but relay my shock to the salesperson. She proceeded to tell me about customers' typical reaction to the accompanying insurance cover purchase, and three things, from the conversation, stuck in my mind:

1. Many customers opt not to take the liability cover even though it leaves them quite exposed.
2. A surprisingly high percentage of customers ask for a refund on their insurance payments, at the end of the rental period, if they didn't need to make a claim!
3. Customers are generally very distrustful of the insurance product they are buying. Customers are often unsure whether it will actually cover their needs if they have to make a claim.

To my mind, this random conversation captured three big problems the insurance industry currently faces: Problem #1: Consumers often don't value insurance Insurance is quite an unusual product. Except for maybe a coffin and a fire extinguisher, it's the only purchase I can think of that you make but hope to never have to use. Let's face it. Buying insurance is usually an uninspiring "grudge purchase." Tedious paperwork, arcane questions, having to think about what can go wrong in your life. Is it any wonder that the experience is up there with a visit to the dentist? Of course, the reality is that should your home be destroyed in a storm or should you be involved in a car accident deemed to be your fault (especially with third-party injury) insurance can be the saving grace preventing potential financial ruin. Problem #2: Consumers don't always understand insurance After going through the pains of considering the potential financial impact of personal tragedy, you are rewarded with the product: a paper contract. Not just any old paper contract, but a long-winded, very conditional and often confusing document. How exciting! Again, is it any wonder that insurance customers can't or don't want to take the time to understand the precise nature of what some deem to be the world's most boring product? Problem #3: Consumers generally don't trust insurance companies  To highlight the trust issue, I turn to the most popular definition of "insurance company" from the crowd-sourced Urban Dictionary:

Insurance Company: "An affiliation of pirate-gamblers who accept bets called premiums. The dollar amounts of the premiums are non-negotiable, but the amounts of the claim settlements, should the company lose the bet, are rarely delivered without argument."

While the quoted source may be a parody, I believe the underlying inclination signifies the typical level of distrust that consumers have of insurance. See also: Where Will Unicorn of Insurtech Appear?   Don't get me wrong. I believe insurance plays a critical role in our lives, and insurance companies can provide a great service as well as a very rewarding career path. But, when it comes to the general consumer view of insurance, there seems to be an issue. Ask 10 random people on the street to describe "insurance" in three words, and you can be nearly sure at least one person will allude to issues of distrust Insurtech to the rescue? So what is the industry doing to solve these problems? It appears that the nimble insurance technology startups (insurtechs) are playing a large part in leading the way in attempting to overcome these issues. Below are three insurtech companies focused on addressing these issues and arguably changing the insurance world for the better: Solution # 1: Improved Value - Metromile Telematics has been around for a few years now, particularly in Italy, the U.K. and the U.S. Onboard car technology is used to monitor and potentially assess the driving behavior of each individual driver, thus moving insurance from a pooled pricing model to a more individual specific model, one where the underlying policyholder risk is more closely monitored. These telematics technology devices (also known as a “black box”) are able to pick up a number of diverse driving metrics such as:

• mileage
• location
• time of day
• driving frequency
• behavior around hazardous zones
• speed
• rates of acceleration
• braking habits

This information can then be considered in a more accurate and individualized pricing model, one that potentially allows the previously trapped (i.e pooled) policyholder to break free from his or her age or gender (non-EU) status, etc. and prove worthy as a safe driver that is a good risk and unlikely to have an accident and hence claim. Low-mileage drivers, as well as young male drivers, can benefit, and this is the market that Metromile has targeted. The usage-based customization of insurance certainly seems to be keeping customers happy, with policyholders reporting they feel like they are getting a fairer deal. After all, should a low-mileage, safe driver really be subsidizing a riskier driver just because they share common old-school rating factor characteristics? Metromile has been forging ahead with this lifestyle app-based continuous digital engagement model since 2011. And the company shows no signs of slowing down. In late 2016, the company raised a further US$150 million in funding through which it acquired a carrier enabling the company to now underwrite its own policies. Solution #2: Simplicity and Understanding - Trov The Trov promise:

"As simple as Tinder and as beautiful as Airbnb" — Scott Walchek: CEO of Trov

Trov provides on-demand insurance for personal items that can be toggled on and off via a few simple taps from your phone. The company aims to give the mobile generation easy protection that they can enjoy "without worrying about rigid policies and confusing fine print."  In addition, Trov seems to be jumping on the personalized cover bandwagon - treating policyholders as individuals instead of an average risk within a cohort. The flexible app gives customers the option to tweak their cover toward their own personal circumstances. As one customer put it: "Why pay for an expensive insurance plan designed to cover your worldly belongings when all you really care about is your mountain bike and your laptop?" 

"Protect just the things you want - exactly when you want - entirely from your phone" — Trov website

This simplicity and flexibility seems certain to appeal. I personally like the idea of being able to quickly and easily protect my mountain bike by getting temporary insurance for the times when I do actually take it out and use it. And if a claim is required, it's all handled via an in-app chatbot. Insurance for the smartphone generation indeed! While I do wonder how Trov counters fraud (given the ability to so easily turn the cover on and off), as we are living in the age of convenience, it would seem that this model is sure to appeal beyond just tech-savvy millennials. Solution #3: Enhanced Trust - Lemonade Lemonade is the poster child of insurtech, or at least the king of savvy insurtech marketing. When the company shouts about paying a claim in three seconds, using AI not actuaries and bots not brokers, it certainly makes one stand up and take notice. Lemonade began selling insurance nearly two years ago and has now amassed a sizable level of funding and following. The companyy promised to bring trust back into the insurance world - the way it should be and how it was in the beginning. The tools of their trade: behavioral economics and artificial intelligence. The promise to the customer: simplicity, convenience and affordability. But back to the trust issue. How is Lemonade approaching it? The business model attempts to disrupt the cycle of distrust between the insurer and the insured. This is done by separating the pool of risk capital from the company's own 20% flat fee. Essentially this model aims to remove the incentive for the insurer to minimize claim payouts on the basis that doing so will not affect its bottom line (the remaining 80% claim pot gets paid out to small peer groups under a giveback scheme, after some unavoidable expenses such as reinsurance cover). Basically, the deal is: Trust us to pay out your claim quickly, with minimal fuss and without any sneaky "catching you out in the fine print" shenanigans, and we will trust you to only claim if it's genuine.

"Knowing that every dollar denied to you in claims is a dollar more to your insurer brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins." — Dan Ariely, chief behavioral officer at Lemonade

The behavioral implication, with the removal of potential conflict, is that the enhanced two-way trust will drastically reduce fraudulent claims. This, combined with the operational cost efficiency savings from AI and technology will allow the company to have happy customers and still make a sustainable profit. At least that's the theory. See also: Convergence in Action in Insurtech  Now, while I love what they are doing, I'm not entirely convinced their model is altogether different from some of the smaller mutuals, especially those that still maintain some level of social bonds. Maybe I'm biased because Lemonade doesn't seem to like actuaries, but I also wonder whether the company's pricing, underwriting and risk management will allow its loss ratios to stay low enough to not affect their 20% flat fee over the long term. It takes some time for reality to test the theory, in insurance. So I, for one, will be watching the Lemonade space with interest. Conclusion So is insurance really broken and in need of fixing? Let's not forget what insurance is all about. In essence, insurance is about the pooling and sharing of risk. Swapping an uncertain, and potentially large, outgo for a small(er) more certain outgo (the premium). This is unlikely to change, and insurance companies obviously already do this. But, I do believe, there is a need to modernize, especially in relation to the customer experience. I don't see insurtech companies causing a complete revolution. But they are likely to play a big part in the evolution of insurance. What do you think? Does insurance need to evolve? Is insurtech the answer to the customer experience issues? Are these insurtechs all marketing talk and lacking substance? Will the asset-rich insurance incumbents ultimately lead the way in the unfolding tech world evolution? This post first appeared on the ProActuary blog here.

In 2017, a 15-year-old girl from Bedford, PA, was trying to live an ordinary teenage life until her classmates began bullying her. They attacked her on social media sites like Facebook and Kik about her red hair and braces, some going as far as telling her that she should kill herself. Her mother remembers finding the young girl sobbing for hours because of what people were saying about her in school and online. Even though her mother took her phone and tried to comfort the girl, less than a week later she would die by suicide. While the rate of death by suicide among teenage girls is at an all-time high, they’re not the highest risk demographic of the more than 40,000 people who die by suicide in the U.S. each year. According to the CDC, seven of 10 suicides in 2015 were men, making men 3.5x more likely than women to die by suicide. Now the third-leading cause of death among adults age 15-44 worldwide, the global rate of suicide will hit 1.53 million per year by 2020, which constitutes one death by suicide every 20 seconds, according to the World Health Organization. Children as young as 11 are dying by suicide as a result of experiences on social media, and we know of at least three examples of children broadcasting their own death to live audiences using social media tools such as Facebook live, Twitter and YouTube. How are leaders responding? In response to these disturbing trends, Facebook has partnered with organizations like the National Suicide Prevention Lifeline to develop a set of tools intended to help individuals find resources and support who are considered "at risk" for self-harm. The first of these tools is a new suicide-prevention feature on Facebook that uses artificial intelligence (AI) to identify posts indicating suicidal or harmful thoughts. The AI scans the posts and their associated comments, compares them with others that merited intervention and, in some cases, passes them along to its community team for review. The company plans to reach out to users it believes are at risk, showing them a screen with suicide-prevention resources including options to contact a helpline or contact a friend. While in some cases the artificial intelligence software will notify the Facebook community if it flags a situation as “very likely urgent,” in most cases it will simply work in the background to offer messaging and advice to the friends and family of a person in need. See also: Blueprint for Suicide Prevention   Dr. John Draper, of the National Suicide Prevention Lifeline, said that he feels that the software sounds promising. “If a person is in the process of hurting themselves and this is a way to get to them faster, all the better,” he told BuzzFeed News. “In suicide prevention, sometimes timing is everything.” Facebook is also making certain suicide prevention organizations available via Facebook Messenger, its instant messaging app. Facebook users will be able to flag posts that they feel indicate "at risk behavior,” which Facebook will respond to with an on-screen option to receive suicide-prevention resources. Can we use social media to predict suicide? New research out of Korea suggests that we might be able to begin using social media to predict suicidal behavior. The three-year study looks at the social and environmental factors that contribute to suicidal behavior and describes correlations between public mood and suicide and how data from social media sources and weblogs (blogs) might be used to predict that behavior; their primary hypothesis being that social media variables are meaningfully associated with nationwide suicide numbers. At the end of the study, the research team concluded that, “We found a significant association of social media data with national suicide rate, resulting in a robust, proof-of-principle predictive model,” and the team suggests social media data be used in future predictive modeling. How suicide prevention advocates are using social media. Sites like the Suicide Prevention Coalition of Colorado, the Mighty and To Write Love on Her Arms are also using social media to engage audiences with messages of help and hope. The Suicide Prevention Coalition of Colorado, an organization of which the author of this article is a member, uses Facebook, Twitter and email newsletters as educational and communications tools to promote events, raise awareness of mental health legislation and bridge the gap between service providers across the state of Colorado that might not have the resources they need as solo practitioners. To Write Love On Her Arms (TWLOHA) is a site that offers hope and help to those struggling with depression, addiction, self-injury and suicide. With a Facebook following of more than 1.5 million and a Twitter following of nearly 300,000, they share individual stories of hope and recovery and work to destigmatize suicide and self-harm. The Mighty is a blog with more than 5,000 contributors and 150 million readers that also gives people suffering from mental health disabilities a place to find resources, encouragement and support. This site, like TWLOHA, focuses on shared experiences. Individuals struggling with disability, disease and mental illness write in and share their stories of hope and recovery. Bell Canada, a telephone company in Canada, is running a "Let's Talk" campaign dedicated to raising $100 million for mental health programs by 2020 and encouraging people to find the strength to come out and talk to someone if they find themselves struggling with thoughts of self-harm. See also: 6 Things to Do to Prevent Suicides   What you can do to get involved today. Twitter is a wonderful conversation tool where you can do a search for keywords like #SuicidePrevention and become a part of the conversation with leaders, educators, individuals struggling and those with experience. A continued effort to destigmatize mental health issues helps those struggling realize that there is help. You can use social media to interact with your legislature. Most politicians today are active on social media, and some even have live events on social media, giving us the opportunity to ask them where they stand on issues such as mental healthcare as well as share our opinions on the issues. You can share resources on social media, especially around the death of a celebrity, to help further the conversation online and help someone find resources who might not have the strength to ask for help. Finally, if you or anyone you know is struggling with thoughts of suicide and need to talk to someone right away, reach out to the National Suicide Prevention Lifeline at 1-800-273-8255 or visit online at http://suicidepreventionlifeline.org/talk-to-someone-now/. If you need support for suicide grief or suicidal thoughts but are not in crisis, the National Suicide Prevention Lifeline offers resources on how to help either yourself or a loved one.

Walmart’s acquisition of Flipkart has created shockwaves in India, with the realization that the vast majority of its $16 billion price will go to foreign investors, namely Tiger Global, SoftBank, Naspers and Accel Partners. Now Indian investors are kicking themselves for missing out on the largest e-commerce exit ever. But they have no one to blame but themselves: Flipkart tried hard to raise money locally but was ridiculed and turned away, leaving only the foreign giants to rescue it. This pattern will repeat itself until India’s investors realize that the best opportunities are not in Silicon Valley but at home. Frankly, I sympathize with Flipkart founders Sachin and Binny Bansal because I, too, have seen the Indian inferiority complex at work. In a talk I gave at INK India in 2014, I predicted that a billion Indians would gain internet connectivity through their smartphones within a few years, and that this would begin to transform the country. Tens of thousands of startups building health sensors, robots, drones and commerce and infrastructure tools and hundreds of thousands of application writers addressing local problems could solve not only India’s problems but those of the world. See also: India’s Coming of Age in Digital   I also tried educating the executives of Wipro and Infosys. When they told me of the huge funds they were setting up to invest in Silicon Valley, I warned them that no one there cared for their companies or investments; at best, they would be offered bottom-of-the-barrel deals and be left chasing rainbows. And that is largely what has happened. I live in Silicon Valley and am a professor, not an investor. I did, however, get involved with one Indian startup, because it had world-changing potential yet was dying on the vine. Indian investors ridiculed the notion that something of such magnitude could emerge from India; all they did was waste the time of the founders. The company, HealthCubed, develops a compact medical-grade device that provides more than 40 measures and tests, including blood pressure, electrocardiography, blood oxygenation, heart-rate variability, blood sugar, blood hemoglobin and urine protein and is able to diagnose diseases such as HIV AIDS, syphilis, dengue fever and malaria. These are the same tests that labs and hospitals provide — but for less than one hundredth of their cost in the U.S. Simply having the lab results immediately constitutes a huge benefit in a rural health clinic. Additionally, the data can be immediately uploaded to the cloud, allowing for rapid evaluation by a remote physician. And analysis of the bounty of data thus collected will enable fresh insights into many conditions. I rarely have a problem getting Indian executives and VCs to return my emails. Yet when I wrote to them about HealthCubed, most didn’t even respond. Ironically, the investors who did respond said the valuation of the company was too high — without even asking what it was. So I gave up on India and advised HeathCubed CEO Ramanan Laxminarayan to register the company in Delaware and move the intellectual property to the U.S. Then I invested my savings in the company and joined the board. James Doty, MD, a world-renowned neurosurgeon and entrepreneur who founded Stanford University’s Center for Compassion and Altruism Research and Education, did the same. He found the technology to be more advanced and more effective than anything he had ever seen. Acumen, a New York–based impact investment fund, also invested in the company, as did American moguls Ray Dalio, Ross Perot Jr, Bridget Koch and actress Sela Ward and her VC husband Howard Sherman. One of Silicon Valley’s most respected investors, Raju Reddy, and an alumnus group from BITS Pilani also readily supported the company. The product is now helping hundreds of thousands of villagers in more than a hundred districts of four states of India, thanks to the Aditya Birla Group. The world’s largest NGO, BRAC, is using it to improve health and create employment in hundreds of villages in Bangladesh. Tens of thousands of Rohingya refugees in United Nations clinics outside the borders of Myammar are being diagnosed with it. And it is now set to roll out in Ghana, Senegal and Nigeria. See also: What India Can Teach Silicon Valley   I expect that, by the end of 2019, HealthCubed will have done more than 100 million diagnostic tests; and that eventually products such as this will disrupt the U.S. healthcare system itself and will quickly spread throughout the Americas — and that India’s VCs will have another cause for regret. That’s not to say Indian entrepreneurs shouldn’t take some of the blame. As Silicon Valley’s Hemant Kanakia said to me in an email: “Part of the problem I have observed while being an investor in Indian startups in the last six years is that Indian entrepreneurs have a short-term outlook; they want to make money and live the lifestyle of the rich. Sachin Bansal had no ambition like founders of China’s Tencent or Baidu have — of conquering the world.” Yet even Silicon Valley was like this when its ecosystem was in its infancy. I’ll bet that as a generation of founders such as the Bansals achieves great success, they, too, will develop grand ambitions.

The idea of risk-sharing began 5,000 years ago when Chinese merchants combined their cargo on multiple ships. Now, this dinosaur industry is being pushed into the modern era with the help of the Internet of Things (IOT). This technology has the power to transform insurance, but it comes with its own challenges. The traditional insurance claims process has stayed the same for decades, and it doesn’t sit well with customers. According to an Accenture Strategy Report, customer churn because of declining loyalty and poor customer experience represents as much as $470 billion in life and property and casualty premiums. The growth of the IOT has disrupted the industry and forced companies to change how they process claims. Customers use technology in their everyday lives and expect companies to do so, as well. Just 15% of customers say they are satisfied with their insurer’s digital experience. In today’s fast-paced world, customers want results right away. Insurance claims that take weeks or months to process can be a serious source of frustration. See also: Welcome to New IoT: ‘Insurance of Things’  However, the IOT allows insurers to move more quickly and make powerful data-driven decisions. Companies no longer have to wade through paperwork and can instead move through the claims process more efficiently. Instead of filling out countless forms, customers can now submit claims via mobile apps by taking a few pictures. Connected devices like biometric and environmental sensors make it easy to calculate risk and adjust policies as situations change. Data from connected devices allows insurers to know their customers on a deeper level with more accurate personal information, which can help create powerful bonds and add an element of customization to insurance that has long been lacking. Insurers can also more easily detect fraud, recommend personalized products and create more accurate estimates. In an analog world, an insurer didn’t know when a customer put a house on the market. In a digital world, insurers can know of available homes right away and recommend a new home insurance policy, plus auto and life insurance coverage. Aside from improving the customer experience, using the IOT also helps insurers cut costs. Automation can cut the cost of the claims process by as much as 30%. In many cases, those savings can be passed on to customers. IOT-connected devices have helped some insurance companies lower their premiums by as much as 25%. Most insurers believe that connected devices and more data will prevent greater losses, which could decrease the number of claims and lower insurance prices for customers who have reduced risks. In health insurance, data from devices can monitor a person’s health and recommend products and policies based on that data. Many companies are already offering discounts to customers who link their devices to their insurance coverage due to the likelihood of lower risks. However, the growth of IOT in insurance isn’t without challenges. Consider the example of a Danish woman who had been receiving insurance payouts to cover her inability to work due to an injury. Her profile on a running app told a different story—she was actually much more active than she claimed and regularly participated in sporting events that would have been near impossible if she really was an injured as she claimed to be. The woman’s insurance payments were cut in half, but questions arose about the rights of an insurance company to use data from IOT devices. Similar cases are popping up around the world of private customer information being shared online and companies using that information against their customers. Insurers need to be transparent and communicate their terms and conditions to their customers. See also: Global Trend Map No. 7: Internet of Things   Most insurers know the importance of striking when the iron is hot and adopting new data-rich practices before they become commonplace and don’t yield a competitive advantage. However, the IOT shift is so great that it can be overwhelming for companies to know where to start to get the best results. Aside from the growing pains, most insurers agree that the IOT will revolutionize the industry and customer experience. In an industry as regulated as insurance, taking advantage of new IOT technology is one way companies can stand out and offer a forward-thinking approach to their customers. It’s definitely time for change in insurance, and that change is coming through the IOT.