It is still early in the evolution of collecting and using mobile data from drivers and their vehicles, but many large industries with huge stakes in the outcome are participating and paying close attention. The Current Conundrum: Many Contestants, Few Prizes Formed in 1995 as a collaboration between GM, Electronic Data Systems and Hughes Electronics, OnStar was almost certainly the grandfather of the connected car. In 2002, Progressive insurance and General Motors Acceptance Co. partnered to introduce the first usage-based insurance (UBI) program in the U.S. Using GPS and cellular phone tracking capabilities, the Snapshot program offered discounts to low-mileage drivers on the program. What followed – and continues to evolve exponentially – was an explosion of business models, technologies and programs for use in the insurance and commercial fleet industries, with applications ranging from underwriting, claims and fraud to accident management, driver safety and behavioral modification. While the earlier and still prevalent telematics programs rely on a small communications device connected to the vehicle on-board diagnostic (OBD) port, the proliferation of smartphones has enabled the elimination of these device costs and provided more convenient mobile solutions. In addition, car makers have begun installing software and communications in new-model vehicles, which further simplifies the user experience and expands program capabilities, integrating them into dashboard screen interfaces. By 2020, more than 90% of new cars will transmit telematics data, according to the Auto Care Association. More recently, intermediary technology providers known as telematics service providers (TSPs) have emerged to offer consumers and insurance carriers turnkey connected car programs, and several industry information providers have introduced telematics data exchanges (TDEs), which consolidate drive and vehicle data from a variety of car makers and provide insurers with uniform, normalized data. This connected car evolution from OBD to embedded to mobile to hybrid is enabling more than just new insurance products; it is transforming the business of auto insurance. Automotive original equipment manufacturers (OEMs), insurers, TSPs, telcos and information providers all seek to monetize the exploding streams of connected car data – but no universal or dominant models have emerged as yet. Secret to Success: Partnerships The emergence of insurtechs, with their innovative application of new technologies to solve age-old insurance challenges, along with the implied threat of those solutions to traditional insurers has dramatically changed the way insurance executives think about partnerships. Today, strategic technology-centered partnerships are enabling insurers to transform their core processes and expand into more markets than ever before. In fact, many of the largest carriers have formed or joined dedicated insurtech venture capital funds and accelerators, whose portfolios potentially represent a double win, financially and in process improvement. In the area of the Internet of Things, of which connected car is a major subset, inter-industry partnerships and alliances are critical – indeed mandatory – for success. Even one-time competitors are seen to collaborate where both parties do better together than separately. Partnerships between ecosystem participants are inevitable, and desirable – with each segment leveraging its core strengths and expertise in support of mutual business objectives and their common customers. In the case of connected cars, those are the owners, drivers and passengers as well as the policyholders. See also: 5 Steps to a Connected Car Strategy   Aligning Interests by Focus on the Common Customer By focusing on the common customer, each participating segment partner can “win,” defined as achieving their primary strategic objectives. In the case of auto insurers, winning means improving and strengthening the customer experience and relationship while improving underwriting and operating results. For car makers, winning means lowering the total cost of ownership for car buyers – a fundamental strategic objective that has recently emerged – and reinforcing brand loyalty with car buyers and owners. Furthermore, lowering total cost of ownership is a strategic objective that auto insurers embrace, as well. For intermediaries such as TSPs and TDEs, winning means adding significant value to existing relationships with insurance company clients and adding new customer segments and product revenue streams to their businesses while lifting and reinforcing brand recognition across all segments. And let’s not forget one more important reality – every connected car program, regardless of the participants, requires acceptance by the same common customer. Solving the "Many to Many" Challenge With the increase of advanced driver-assistance systems (ADAS), connected cars and the emergence of autonomous vehicles, data experts, along with OEMs, insurers, brokers and agents, are joining forces to bundle whole-life vehicle costs together to offer new mobility solutions such as car subscriptions, car sharing and other short-term vehicle use models to appeal to changing consumer needs. The challenge presented by this proliferation lies in the wide range of devices and the variations in hardware and software technologies that are broadcasting data in non-standard structures. This lack of uniformity presents what LexisNexis Risk Solutions calls the "many-to-many" challenge. The torrent of inconsistent data from disparate data sources presents numerous serious impediments to consumer program portability and driver scoring calculations and will eventually impede market confidence and growth of these programs. How this data is managed and converted from raw driving data into reliable rateable factors for use by auto insurers is crucial in determining how OEMs and insurers will collaborate to support the future of connected car programs for consumers within both insurance and auto industries. The solution that presents itself is a central hub that is capable of ingesting, cleansing and contextualizing driving data regardless of data source to resolve the many-to-many problem. With access to the entire insurance market for both insurers and OEMs, the potential exists to ultimately transform the mobility-insurance market into one connected ecosystem to the benefit of all participants – including consumers. Telematics Data Exchanges to the Rescue As connected car programs continue to evolve, the challenge insurers will increasingly face is that the number of sources and collection methods for telematics data will continue to grow as programs evolve and all of the resulting data will need to be standardized. Telematics data exchanges, such as the LexisNexis Telematics Exchange, are able to help insurers and OEMs navigate evolving technology by providing them with normalized data and advanced insights that are most relevant in growing their business. To succeed, these telematics data exchanges will have to be developed and managed by trusted, well-established information providers that already do business with a majority of insurers, that have a deep understanding of the automotive industry, that have sophisticated and powerful data processing assets and that have a culture of innovation as well as a corporate commitment to data privacy and security. When you consider all of these qualifications, there are really only small handful of companies that qualify. See also: Advanced Telematics and AI   Telematics data exchange providers enable insurers, auto manufacturers and drivers to benefit from the evolution of UBI programs. These platforms provide insurers with driver scores through a single point of entry and leverage existing system integrations, regardless of each customer’s data collection preference. They also enable OEMs to collect and seamlessly integrate vehicle data into insurers’ existing UBI programs. In addition, auto manufacturers can gain valuable insights, improve return on investment (ROI) and access data analytics expertise that provides them speed to market to provide value-added products and services to their customers. OEMs will also have a practical opportunity to encourage safe driving and enhance customer ownership experiences. Everyone Wins In summary, professional management of connected car data and the wide variety of telematics solutions will enable consumers to confidently share their driving scores across a range of carriers and maximize the benefits of participation in current and future programs. In addition, it will allow the claims process to evolve from its current state to instant crash notification, touchless claims and eventually to claims mitigation. Telematics data exchanges will help to build customers' loyalty to their chosen carrier and OEM brands. Additionally, a telematics exchange will enable participants to innovate and quickly execute by providing the vital ingredients and processes required to fast-track transformation at scale and deliver real value to customers. Successful telematics exchanges will bring together OEMs and insurers for the benefit of consumers in their seamless digital lives. The authors wrote this article in the run-up to the Connected Claims USA Summit in Chicago, where both spoke this week. 

At the 11th Annual Novarica Insurance Technology Research Council meeting, two keynotes laid out some fundamental issues for the industry to address. Novarica Keynote: Key Insurance and Technology Trends for 2018 and Beyond If I had to pick out a single dominant theme of my presentation on Novarica’s recent research and guidance to clients, it would be realignment. Rapid changes in technology capabilities are opening the door to realignment of the insurance value chain and product itself, as well as insurers' technology stacks, and the management of technology organizations within insurers. Realignment of the Value Chain and Product. We’ve been talking for the past few years about how advances in information technology make it easier than ever to analyze, package and transfer risk. Each of the traditional participants in the value chain between individuals or companies and the capital markets (i.e., distributors, primaries and reinsurers) is under immense pressure to prove added value and avoid disintermediation. We’re also seeing insurers start to leverage their risk management knowledge into products beyond loss reimbursement, with companies like Allstate commercializing their telematics capabilities and even selling their roadside assistance capabilities on a fee basis through partnerships. See also: 9 Key Questions for Insurer IT Leaders   Realignment of the Technology Stack. While insurers continue to strive for advantage in data and digital, and to build a solid foundation for agility and evolution by replacing legacy core systems, we’re starting to see two major changes. The first, which is more pronounced, is the incredible growth of cloud computing. Our research has shown a major shift in acceptance and embrace of cloud, and several meeting participants told us they plan to be 100% cloud-based within two years. The second, which is still at an earlier stage, is the embrace of microservices architectures, and the adoption of a capabilities-level architecture rather than an application-level architecture. This is something we’ll be watching closely in the next few years. Realignment of the Technology Organization. All business units are more dependent on technology than ever before, and the widespread adoption of agile is helping to improve communications, relationships and collaboration between IT and other business units in many ways. But there’s still a fundamental disconnect in many companies between the way that IT evaluates its own performance and the way that other business units evaluate IT’s contribution to achieving the company’s goals. We published research this year on the benefits of using business KPIs and IT value metrics, to ensure shared understanding and the feeling of shared values between IT and other business units. I closed with our nine questions for insurer IT leaders, all of which encourage re-evaluation of current practices and attitudes from an outside perspective. For example, instead of asking how to manage the threat of insurtech, ask what can be learned from these new entrants that are approaching the industry with a fresh point of view. Instead of asking how to win the war for talent, ask what is the value of working at your company? And instead of asking how to justify an IT investment, ask, how does the IT capability drive business results? Guest Keynote: Scaling and Growing High-Performance Organizations Chris Yeh has founded, invested in or advised more than 50 high-tech startups. He is the co-author, with LinkedIn founder Reid Hoffman, of The Alliance: Managing Talent in the Networked Age and the forthcoming Blitzscaling, based on a class he team-taught with Hoffman and others at Stanford. His presentation covered material from both works. If I had to pick out a single theme from his keynote, it would be clarity. Blitzscaling, the ability to grow an enterprise quickly, requires a clear understanding of the goals and risks. It’s defined as: “The pursuit of rapid growth by prioritizing speed over efficiency in the face of uncertainty.” This is a conscious choice to do things in a particular way that might be viewed as “wrong” by other frameworks but makes perfect sense when viewed against the Blitzscaling opportunity. The clarity of the strategic decision cuts through the noise of demands for efficiency. While insurers may not have many opportunities to Blitzscale, having this same level of clarity around goals to insulate them from traditional operational demands is critical to the ability to drive innovation. See also: How Technology Drives a ‘New Normal’   The Alliance framework for talent acquisition and management has a similar level of clarity to it. Companies and the people they need each have diverse objectives, some of which align and some of which do not. However, most talent strategies don’t acknowledge this, and are built on a level of disingenuity on both sides. By starting from a clear-eyed assumption that the employee is building a career that may involve leaving the company at some point, both parties can focus on creating mutual value and growth during the period of their alliance. As one CIO commented to me later, “Chris talking about looking at your employees as having ‘tours of duty’ and how we as leaders need to look at how we help them ‘level up’ was very relevant to some actual personnel situations I’m dealing with.”

At its core, the industry is plagued by an inherent conflict of interest. Our customers don’t have an industry expert advocating solely on their behalf; the experts have financial incentives coming from the insurance industry. As I say kiddingly, the first page of your insurance policy tells you, “We cover you for everything.” It’s the next 40 pages that take all that coverage away. I firmly believe that there is strong opportunity to shift the traditional brokerage model away from one that is purely transactional and toward the strategic advisory role that companies around the world need, one that is built on trust. But before we talk about the future, let’s explore the existing environment. See also: Ready for Fourth Industrial Revolution?   Insurance brokers' incentive is purely about the sale of a policy. They receive a commission when the policy is bound, not for providing strategic advice before, during or after the sale. Brokers wear three hats representing themselves, the insurance company and then the client. How can the client obtain the most comprehensive coverage at the market’s most competitive pricing when the broker wears three hats? How can someone negotiate solely on my behalf if he has financial incentives and contractual relationships that potentially conflict with my best interests?

1. If you are making 10% commission on a policy, are you going to be more inclined to sell a policy with a premium of $80,000 or $100,000 (assuming no differences in coverage)?
2. Consider a smaller, regional brokerage, which may have three or four carriers that it primarily writes business with on a direct basis. If Travelers is the primary carrier, I hate to say it, but that relationship means just as much, if not more, to the brokerage than many of the clients do. If the brokerage upsets Travelers, perhaps by moving risk to another carrier or pushing too hard against the company in a claims negotiation, the brokerage is in a bad way. Travelers needs to be kept happy if a brokerage wants to maintain leverage to effectively price and win new business and of course retain existing business… not to mention the contingency commissions received for writing a certain amount of business with a carrier.
3. Many brokers/agents, particularly the smaller, regional practices, are generalists, yet, in this era of emerging technology and data proliferation, insurance products are continuously refined and are often difficult to interpret without a deep understanding of both the particular client industry and new, relevant insurance contract language. Consider cyber insurance. There is no standardization in the industry, and almost every carrier has its own underwriting application and insurance policy language and structure. This leads many retail brokers to use a wholesale broker (specialist) to place the risk, as they do not understand how to properly explain the risk or terms of coverage (I can't say that I blame them).

The insurance broker needs to move toward being a true client adviser, going beyond just the placement of insurance and including continuous engagement throughout the year on items such as the insurance and indemnity language in your lease/supplier/vendor/etc. contracts, letters of credit and collateral agreements/negotiations, claims analysis and negotiations and so on. See also: How Tech Created a New Industrial Model   True risk management is an in-depth analysis of both risk mitigation and risk transfer. To transfer risk most effectively, an extensive understanding of your client’s entire operations and, at the minimum, its contractual obligations, is a must. Simply reviewing a contract to see if your client meets the insurance requirements that the landlord stipulates in a contract is not strategic advice. Reviewing the contract and advising your client that she should not be responsible for “any and all liability” but rather “damages, expenses, etc. resulting from or in connection with the execution of the work provided for in the contract” is what I would call strategic advice. That’s just the tip of the iceberg. As we consider new models of distribution and leveraging the rise of technology as we shift toward the “Insurance-as-a-Service” model with a focus on the customer experience, I firmly believe we must create solutions that provide insurance brokers (i.e. the industry distribution force) with the tools that they need to shift toward the strategic advisory role. We can diminish the current industry inefficiencies and yield more effective results on a consistent basis and with absolute clarity. The question now is, how do we effectively integrate “technology of tomorrow” with “business models of today” and interpret the “culture of yesterday”?

This post concludes our exploration of Insurance/Insurtech trends in North America as part of our progression through our seven dedicated Regional Profiles. In Part I and Part II of our North America Profile, we reviewed our general statistics for the region (gathered in the course of our Global Trend Map) and identified five qualitative themes, of which we have so far explored 4.

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

Here we present Part III of our Profile on North America, focusing on Themes 5and featuring commentary from our two local influencers:

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

You can access the full North America Profile whenever you like, with Themes 1-5 explored in order, by downloading the full Trend Map report here (which is totally free of charge)! We hope you enjoy reading ... 5. Mature Growth: Where are the Opportunities? If the current renovation underway at many insurers – complex, expensive and ultimately aimed at creating a lower-price model – is perceived as a cloud, then the silver lining is the greater scale that it will enable. In absolute terms, even ‘saturated’ insurance markets are under-penetrated ... In Part I of our Regional Profile, we characterised the North American market as being middle-class and relatively saturated, lacking the low-end market opportunities on offer in many parts of the world, like Asia-Pacific, LatAm and Africa to name a few (see our forthcoming dedicated profiles on these regions). While this is a useful designation for understanding how dynamics vary from market to market, it can be misleading: the truth is that, in absolute terms, even ‘saturated’ markets are under-penetrated. It's time to densify the pie! See also: Global Trend Map No. 16: Regions   Simply by rendering the coverage they offer more fit-for-purpose and intuitive, North American insurance players can bring more customers into play in existing segments and product lines – without having to completely reinvent the wheel. This way, even if it does sometimes appear a race to the bottom, the current convulsion in the industry will ultimately result in a denser pie.

"Advanced analytics, combined with digital and social tools, can provide a much more cost-effective way of reaching clients, and educating them about risk and prevention. We know that clients understand the concept of life insurance but still aren’t familiar with the products themselves. Through analytics tools and possibly AI we can deliver more information to the market, customised to clients, in a proactive way." — Catherine Bishop, Head of Insurance Strategy and Data at RBC Insurance

Obviously, some products and segments are riper for growth than others, and it is by identifying these early on – as well as the particular customer pain points to be overcome – that insurers can bring much-needed focus to their transformation efforts, which otherwise threaten to become too thinly spread and to do no more than reduplicate the flaws of the legacy business, just in a shinier form. ‘Insurers need to shift their orientation and look at the needs of individual market segments. Instead of starting with the risk, they need to start with the market,’explains Novarica's Matthew Josefowicz. ‘They need to be asking: what kind of coverage does the market need, how much detail do they want in it and how comprehensive does it need to be in terms of what they need to buy?’ Josefowicz points to several innovative new entrants who are successfully taking this bottom-up approach to insurance. ‘There are innovative companies like Slice that are doing insurance for the gig economy, and there are folks like Trōv who are doing single-item insurance in a scalable way – so there are many ways to approach the different kinds of risk that buyers need insuring,’ he expands. In many cases – particularly in mature markets like North America – the factor inhibiting growth is not the price or extent of coverage per se but rather insurers’ failure to distribute the product in an appropriate way. ‘I think that for some insurance lines, for example in life insurance, the reliance on traditional distribution and traditional sales processes is actually boxing the industry out of some market segments, who just won’t tolerate that buying process,’comments Josefowicz. ‘Life insurance is very under-penetrated in North America, and I think the opportunity is to use technology to make the buying exercise easier for those under-served segments that have been put off by inefficient and unpleasant buying processes.’ The injunction to double down on the customer – rather than simply redoubling sales efforts on fundamentally outdated products – applies not just to personal lines but also to commercial ones. The reality of doing business, whatever industry you are in, is changing rapidly, and the palette of risks businesses need protection against would be unrecognisable to the insurers of yesteryear, one conspicuous addition being cyber risk. Josefowicz believes that it’s still early days but that insurers are now moving towards effective product offerings in this challenging area.

"The most progress will likely be made by partnerships between innovative nimble start-ups and incumbents who are skilled at navigating a highly regulated and complicated ecosystem. Insurtech is not a zero-sum game." — Nick Martin, Fund Manager at Polar Capital Global Insurance Fund

We have touched on the endeavours of Insurtechs Trōv and Slice in creating more fit-for-purpose insurance products, but it is important to bear in mind that the confrontation between insurers and Insurtechs is not a zero-sum game, given that it is happening in the context of an expanding addressable market. We asked our local commentators to go into a bit more detail on how they see this ‘confrontation’ playing out. As we see in our other regions, there is a trend towards collaboration between incumbent insurers and Insurtechs. While the disruptive intent of some players is clear, many of them, strongly backed by none other than insurers themselves, will end up as components of the overall technology stack. In some cases, the Insurtech start-up is in fact just an incumbent appearing in a nimbler guise. Insurance Solutions Group's Stephen Applebaum gives the example of Canadian insurer Economical, which last year created brand-new start-up Sonnet as a way of innovating more quickly than they would be able to in-house. ‘Economical traditionally was an agency distribution model, so all of their insurance was sold through agents,’ clarifies Applebaum. ‘Sonnet is a direct-to-consumer business, so that’s the way Economical is going to walk both sides of the street.’

"There will be an evolution of customer experience. Economical is the first to launch as a coast-to-coast, fully digital service and there is education required in the marketplace, but my expectation is that others may well follow our path and this will be the customer’s expectation." — Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance

Josefowicz stresses the role of Insurtechs as trailblazers over and above their much-hyped role as predators. ‘A lot of the new entrants are pointing the way. I don’t know how many of them will become significant competitors in and of themselves, but they are clearly demonstrating to insurers that there is an opportunity to engage differently with customers and that customers are hungry for a different type of engagement,’Josefowicz explains. ‘To put it in a capsule, I don’t think Lemonade is going to become the biggest personal insurer in the world, but I do think a lot of personal insurance is going to look like Lemonade in the near future.’ See also: Global Trend Map No. 7: Internet of Things   Following Insurtechs down this route, be it through imitation, partnership or outright buying, will allow insurers to open up and serve those market segments that have hitherto been cut out of traditional forms of distribution and service – much like prospectors returning to bypassed reserves in mature oilfields – and this is where they should set their sights. ‘I think the most successful Insurtechs will be purchased by insurers, similar to the Allstate purchase of Esurance from the previous generation of e-insurance start-ups,’Josefowicz concludes. That concludes our Regional Profile on North America. Next week we move on to our Regional Profile on Asia-Pacific, with insights from Steve Tunstall, CEO at Singapore-based Insurtech start-up Inzsure, João Neiva, Head of Innovation, IT and Business Change at Zurich Topas Life in Indonesia, and HK-based David Piesse, Chairman of IIS Ambassadors and Ambassador Asia Pacific at the International Insurance Society (IIS). Key discussion points include:

• The high-growth, high-competition dynamic inherent in the Asia-Pacific insurance market
• The new calling for customer-centricity and the related question of disruption
• Using data and analytics to create more customer-centric products, such as personalised, on-demand insurance
• APAC distribution landscape and what insurers are doing to ensure scale for their products
• How to successfully manage back-office digital transformation

 

According to its generally accepted definition, operational risk is “the risk of loss resulting from inadequate and failed internal processes, people, and systems or from external events” and it covers also legal risk exposure. However, according to the risk management literature, strategic and reputational risks are excluded from operational risk definition. With its qualitative background, operational risk is found as one of the most treated components in business processes. Because its features, operational risk exposure of an entity is not easy to measure and risk appetite is not easy to determine. Like other qualitative risks, top down and bottom up assessments are performed for operational risk exposures. However, yearly analyses change frequently and finding a trend for exposures is really struggling. See also: Cognitive Biases and Risk Management   Risk management can add value to companies only because markets are imperfect and today, insurtech is the main driver which makes markets imperfect. As a revolution in insurance business, it is changing every dynamic in our business. Inevitably, it converts traditional risk management functions of insurance companies totally. After two very busy years with solid development, insurtech is more than an emerging risk now. And as risk management professionals, we need brand new approaches for manage its effects. Needless to say, insurtech affect all risk types of an insurance company, but because of above mentioned features, it is more difficult projecting how will change ORM (Operational Risk Management) after insurtech. My predictions on this grey point are as below. With digitalization, operational risk exposure of an entity will be based more on digital process based risks (not systematic or systemic risks!) than man-made risks. After insurtech implementations, many manual controls will die, and system-based ones fill these gaps. Enterprise risk manager will need to construct its risk management framework mainly on automated controls and this brings different testing processes as well. Insurtech implementations do not mean just digitalization, but also using disruptive technologies; as AI, IoT, machine learning, blockchain, AR, VR; in every step of insurance business. As a second line of defense of insurance companies, risk managers should be one step further from their colleagues and need to define control framework of these activities. See also: How to Improve ‘Model Risk Management’   Last but not least, one of the crucial side effects of insurtech in operational risk management is cyber risk. Today, cyber risk is assessed as third or fourth most threated risk in insurance professionals ‘expectations. However, more automated systems will put insurance companies into target of cyber-attacks and cyber risk will become most threated and costly risk in very short time.

One of the most pressing questions that has arisen from the insurtech movement is this: Will insurtech startups have a need to utilize the incumbent tech market’s capabilities? In the past three years, startups have been actively partnering with other startups, insurers and tech incumbents. Partnerships, of course, come in many different flavors. The latest SMA research has revealed that startup MGAs and greenfield insurers are increasingly partnering with existing core systems providers – as clients.

The first wave of insurtech startups – most of which were focused on personal lines – tended to go it alone, developing their own core systems. Many of today’s innovative new insurers and new MGAs have focused on commercial lines and see value in the core systems that incumbent insurers and MGAs already use. Their new core systems are increasingly coming from established core systems providers.

For the insurtechs, this means that they have access to expertise and content. Both are especially helpful for insurtechs pursuing opportunities in commercial lines – which account for the vast majority of the startups that purchased new core systems last year. The earlier insurtech startups targeted personal lines and life/health ventures. Today, more startups pursue the significant opportunities in commercial business.

See also: How to Collaborate With Insurtechs  

To compete in commercial lines, these startups need to have the robust capabilities that support the various new products being brought to market. Time to value is critical, and the content (rates, rules, and forms) provided by tech incumbents’ agile core systems can increase their speed to market. In addition, the expertise of their new vendor partners can be a valuable resource to help them navigate the complexity of the commercial market.

As SMA detailed in our recent report, Core Systems Purchasing to Thrive in the Digital World: What’s Hot – And What’s Not, 12% of all new P&C core systems sold in 2017 were bought by startup MGAs and greenfield insurers. We expect them to be a stronger presence in 2018 and onward, creating substantial benefits for startup and incumbent tech providers alike and opportunities in new spaces for all forms of partnerships. As this new market wave continues, the creativity and capabilities of all will be needed to support the insurance business moving forward.

The business of insurance has undergone drastic changes globally. In my recent article The Vote Against The Establishment, I noted that new entrant Lemonade paid a claim in three seconds. The growth of chatbots and claimbots is another attestation of the smart digital age, which is growing in the use of sophisticated technologies, including natural language processing, machine learning and augmented reality for all types of insurance from workplace safety to the general insurance life cycle. A recent interesting Bloomberg post indicated how WeChat influenced spikes in insurance sales in Hong Kong and the reaction by regulators. Yes, one can argue that the U.S. in general has strict regulations and gobs of historical insurance policies on siloed legacy systems. With globalization, consumer expectations worldwide have become very similar – no matter the age, geography or industry. Consumers care little about the technologies and processes an insurer or an agent uses to provide the information – all they care about is getting it immediately and via a device of their choice. Thankfully, there are metrics that insurers can use to measure how successful they are at doing this. The Net Promoter Score (NPR) is an age-old indicator of growth, and the Net Easy Score (NES) aka Customer Experience Index, is a metric for the contact center or service center. Simply put, a successful customer experience requires an understanding of the customer at a personal level and triangulating technology, information and human touch points, at the right time, in the right context and via the right device. The customer’s expectations are not the only trigger that is changing the insurance landscape. Insurers are leveraging technology advances to not only reach a wider market at a lower operating cost, and to improve their loss ratios, but also for economies of scale. Insurers will still need to balance technology with workforce behaviors and business priorities to allow for sustainable growth. It's not the millennial age group that positively disrupts — it's the millennial mindset! The customer is the common denominator across all industries. The customer demands immediacy, transparency and personalization of service at any time and on any device. Customers also demand to be able to connect with a human when they feel it is necessary, and to be left alone otherwise. Customers of all age groups and walks of life are usually heads down on their mobile devices during downtime, researching and comparing products, catching up on social sites, news, tech trends and more. While millennials like the convenience of shopping and researching online, they also crave unique experiences and instant gratification. The brand experience delivered to a customer is the sum total of personalized experiences across all the touch points – through advisers, service representatives, claims representatives and online channels. The retail industry offers an example in integrating offline and online channels. Yelp and Groupon, for instance, allow local businesses to reach potential customers with online, location-based technology. Millennial or otherwise, customers of every generation are familiar with the newest tech products. The Boomers are aging gracefully and have picked up on digital trends to make life simpler. Gen Xers on the other hand were always walking the fence and could adapt either way. Whether the consumer is 25 or 65, everyone is looking for hassle-free, seamless self-service and active customer care. See also: How Millennials Are Misunderstood   Take a simple example in insurance: Real-time alerts, offers and notifications and certain transactional capabilities on any device and at any time can avoid redundant or low-value calls into the service center or the agent’s office. This improves the productivity of the agents and service representatives and allows them to focus on more complex tasks for business success. This is just one of many reasons that a mobile-first approach to insurance products should be given top priority, even over the desktop experience. The tripod of customers, service representatives and agents According to Marketing Metrics, the probability of selling to a new prospect is 5–20% whereas the probability of selling to an existing customer is 60-70%. Service excellence is one of the drivers to customer retention and increased referral business. Insurers have undertaken initiatives to better understand their customers' insurance journeys (digital, emotional, physical) in alignment with those of the service representatives and agents. In addition, insurers are mining their historical customer data to assess the lifetime value (LTV) of the customer and the reasons for drop rates and spikes in purchase patterns. This not only provides up-sell insights but additional insights into the product uptake and service-level impact on business economics. Insurers are beginning to analyze information from social sites and literally billions of connected devices that consumers engage with every day to provide targeted, personalized and proactive service. Mobile Future projected that by 2020 there will be 5.5 billion mobile users globally. They also projected that by 2020 there would be 947 million mobile-connected devices and 163.2 million wearable devices in the U.S. alone. The service representatives and agents themselves need simplification of process and technology and require their daily journeys to be better understood by insurer management. As the face of the company, they provide the critical touch points that can make or break a relationship. More clients are becoming tech-savvy and will require a mix of digital empowerment and human engagement. Service representatives and agents/advisers need to have the ability to adapt to newer technologies, thus catering to customers in ways they choose to do business. Face-to-face guidance by advisers will still exist for those individuals planning for and nearing retirement, high-net-worth clientele and more sophisticated financial products. According to the U.S. census, there are almost 80 million Baby Boomers living in the U.S. Another article by CNBC indicated that only 27% of Baby Boomers were confident they had enough for retirement. Moving the Titanic from the Neolithic age to the fintech age Taking a specific example, the average life insurance application process takes 30 days or more with extensive and intrusive underwriting processes. Given the amount of information available through IoT, social sites, paid and unpaid data sources, plus historical insurer data, the underwriting processes can be minimized and personalized. Newer medical technologies that are FDA-approved exist wherein less intrusive and more immediate results can be obtained to drastically reduce underwriting and policy issue cycles. Simpler products with lower face values are already being issued online within minutes, including processing of the initial premium payment in the same session. Newer technologies provide powerful insights into personal and commercial risk information allowing various sales and service personnel the insights for pre-qualifying leads, providing targeted products and ensuring the highest quality of engagement. Another area is field service and productivity technologies that include augmented reality to drive productivity and reduce loss ratios. For instance, field staff and adjusters can use smart glasses to augment their inspections with additional safety and construction code information to help accelerate the underwriting process and assess claims losses. Furthermore, the vast expanse of information available today, and the AI capabilities to triangulate the information contextually have been proven to reduce loss ratios and identify high-risk entities. A handful of insurers and reinsurers are dabbling in advanced technologies, deriving contextual risk information from IoT, social sites and augmented reality and mining sentiments and financial trends for predictive and preventative claims analytics. Minimizing recruitment problems while maximizing productivity through technology Insurers are well aware of the recruitment issues they will face should they decide to not advance technologically in their business. This pertains more to the fact that a service representative’s turnover rate is very high and the average age of the agent is 56 (according to LIMRA). Attracting and retaining the younger generations (millennial, Gen Z and beyond), will require a realignment of the insurer business models, change in compensation models (especially for service representatives) and behavioral changes in the mindset of the workforce to realize the business metrics they need to stay relevant and gain competitive traction in the marketplace. See also: How to Attract the Next Generation   In summary, I see four major changes occurring in the industry: one where insurers are beginning to realize the benefits of their digital transformation efforts; second where the role of the agents, service representatives and underwriters is becoming more specialized; third where consumers are becoming more educated and empowered; and lastly where risk assessments are shifting from historical models to individualized and predictive projections.

When losses occur during natural disasters, carriers in the $4.5 trillion insurance market understand that — in addition to safety — at the top of policyholders’ minds is how they are going to recover, and how fast. It is at these times that carriers must respond quickly and efficiently to make their policyholders whole again while keeping costs as low as possible. Operating in a cost-sensitive and hyper-responsive market that affects all service industries, even the most sophisticated and progressive carriers often find themselves struggling to effectively deal with the scalability, complexity and unpredictability of managing a local, regional or national adjuster workforce. This typically drives up service costs, hindering service performance and ultimately hurting policyholder satisfaction, particularly in crises. One way carriers can respond quickly and safely — and keep policyholders happy — when natural disasters strike is relying on an on-demand model to supply a scalable and affordable workforce. This article provides an overview of the strain that natural disasters place on carriers and discusses how the on-demand model can relieve pressure by revolutionizing how the insurance industry responds. The Insurance Industry Is Feeling the Strain Since Hurricane Andrew, the industry has shifted from a reactive to a proactive approach. This process is assisted by the development of much more sophisticated technology, fully formulated catastrophe response plans and the realization of the necessity for immediate response. Still, as natural disasters increase in frequency and strength, the insurance industry is feeling the strain. It takes far too long to assess claims and initiate payouts following catastrophes in the current insurance environment. “Waiting six weeks, 12 weeks or more for financial reparations is terribly stressful for policyholders,” says Ryan Kottenstette, CEO at Cape Analytics. “Carriers are striving to do better, and emerging tech companies can help them.” Indeed, the internet, mobile apps, on-demand models, automated estimations, drones and storm tracking technologies are but a few examples of how technology is improving the speed at which insurance companies settle claims. See also: Key Findings on the Insurance Industry   The main struggles for insurance professionals and insurance companies when dealing with large-scale natural disasters like the one-two punch of Hurricanes Harvey and Irma include extended response times and lack of resources. Extended Response Times “A stale claim is an expensive claim,” says John Rollins, an executive with Cabrillo Coastal General Insurance Agency LLC in Gainesville, FL. “The key… is getting to the policyholder and getting some money in their hands so they can begin the recovery process.” Certainly, one of the biggest pain points is time. Anything that slows payouts diminishes their value at the front end of a crisis. “There is a huge number of claims and a limited number of adjusters to handle them,” says Suzanne McCormack, director of business operations at Robert L. McCormack Public Adjusters. “As time goes on, the policyholders become more and more restless because their homes or businesses have been impacted, and they want to get back to their normal lives. People are understandably very emotional having been through the trauma of the disaster, then waiting and waiting to get back to normal.” In addition to the emotional toll that wait times place on policyholders, delays open the door for insurance fraud. “In the past five years here in Utah, catastrophic winds have provided the opportunity for rogue roofing contractors to knock on doors with minor roof damage, claiming that they can help provide a free roof replacement,” says Brent Thurman of Keystone Insurance. “In some cases, the contractor has even removed additional shingles before the claims representative arrives in an effort to have the entire roof replaced rather than a smaller repair. This can be difficult to track during a normal claim load, let alone a time when claims adjusters are overbooked by the sheer volume of claims submitted during a catastrophe.” Lack of Resources Carriers have traditionally understood the value of in-person asset inspections. However, maintaining an infrastructure capable of quickly completing these inspections in any location has become cost-prohibitive for most companies. As expected, during and after Hurricane Irma, many of Florida’s adjusters were still on the front lines in Texas, working on claims made after Hurricane Harvey hit. “I would have to say it’s difficult to find enough inspectors willing to work 12- to 14-hour days seven days a week,” says John Espenschied of Insurance Brokers Group. “Most large insurance carriers are facing thousands of claims daily that need to be inspected. However, there are only so many insurance adjusters around the country, and pulling hundreds away from their regular duties creates a shortage.” Then there is the underlying problem of managing logistics during a crisis. “From a logistics perspective, the biggest issue for the insurance industry will be the ability or inability to ramp up quickly and effectively to appropriately service the volume of claims that have and will continue to be submitted after disasters like Hurricanes Harvey and Irma,” says Dawn Sandomeno, national director of brand management, Procor Solutions + Consulting. “Whether it is the insurance companies having enough trained staff to triage claim intake or insurance adjusters managing a portfolio of claim appointments to visit loss sites — many of which are inaccessible — the capabilities of the industry will continue to be tested.” In fact, as insurers scrambled to get more of the nation’s 57,000 independent adjusters to Florida, it created a bidding war and the promise of a record payday for anyone available. It was reported that some Florida home insurers increased fees paid to adjusters by about 30%. In some cases, adjusters could earn $30,000 for evaluating a single complex property claim. Of course, these unprecedented increases in fees have the effect of increasing the cost of each claim. See also: Why Is Insurance Industry So Small?   The Power of the On-Demand Model We live in an era of immediate gratification where Uber provides rides on demand and Amazon delivers almost any product we desire on the same day we order it. Consequently, policyholders’ expectations for the types of services they want to receive continue to grow more demanding. To respond quickly and safely, carriers can leverage innovative approaches that align business processes from information-gathering to claims adjustment. By further aligning these essential business processes in a real-time, location-based context, carriers will be in a better position to understand and calculate risk while responding during catastrophes in hours, not days. Using workers contracted through an on-demand provider, carriers can get more done more quickly. They have access to a distributed workforce of vetted and trained information gatherers who are ready to be dispatched to the scene of a catastrophe at a moment’s notice. As on-demand options become more accessible, the insurance industry is beginning to realize that some of its traditional processes are less efficient than they need to be. The idea of sending a highly-paid, licensed adjuster to handle every claim scenario, regardless of its complexity, is being questioned. “ During a catastrophe, many claims require only a simple validation of damage. But traditional claims handling processes are over-engineered for such a situation. Why send a highly paid, licensed adjuster when an on-demand workforce can validate the damage immediately for a third (or less) of the cost? Why tie up valuable adjuster resources on simple claims when there aren’t even enough adjusters to handle the more complex situations that do require their level of expertise? This article is an excerpt from a white paper by WeGoLook, a provider of on-demand workforce solutions for the insurance industry and other industries around the world. You can find the full paper here.

Walmart’s acquisition of Flipkart demonstrates both Indian e-commerce’s coming of age and a repetition of history. U.S. giants will spend billions in India because they see huge opportunities, and this will produce a short-term boon for Indian consumers. When the dust settles, though, prices will rise and consumer choices will become more limited than they had been. Foreign companies will mine data and manipulate consumer preferences. They will have once again colonized India’s retail industry. Protectionism for physical goods and services is usually a bad thing, as it limits the incentive to innovate and evolve, stifling a country’s competitiveness and productivity. India’s protected domestic companies became lethargic, offered substandard products and services at high prices, and hobbled India’s economy. In a digital economy, though, things are very different. The value resides in the ideas, which spread instantaneously via the internet. Entrepreneurs in one country can easily learn of the innovations and business models of another country and duplicate them. As core technologies advance, they become faster, smaller and cheaper — and accessible to everyone, everywhere. Startups constantly emerge, putting established players out of business. So, speed and execution are key to business survival and competitiveness. Valuable competition and innovation can arise from within the domestic economy itself, without having to invite foreign companies to the table. Technology-based industries, such as retail, electronics and distribution, that require large capital investments handicap the small players, because money provides an unfair advantage to the larger ones. See also: Copy and Steal: the Silicon Valley Way   The latter can use capital to put emerging competitors out of business — or to acquire them. It is what U.S. technology giants do as a matter of course. Amazon, for example, has been losing money, or earning razor-thin margins, for more than two decades. But because it was gaining market share and killing off its brick-and-mortar competition, investors rewarded it with a high stock price. With this inflated capitalization, Amazon raised money at below-market interest rates and used it to increase its market share. It also acquired dozens of competitors — just as it tried to do with Flipkart. Having become the dominant player in the U.S. e-commerce industry, Amazon has its eye on India. A company that it left in the dust, Walmart, is desperate not to also lose the Indian market. Both are doing whatever they must to own Indian retail and then split the spoils between them. That is why controls are desperately needed on this kind of capital dumping. And such controls won’t reduce competition or throttle innovation. As they did in China, they will stimulate competition and, through that, innovation. Chinese technology companies are now among the most valuable and innovative in the world. In addition to having a valuation that rivals Facebook’s, Tencent’s WeChat e-commerce platform is far more advanced than any rival in the West. Baidu is building highly advanced artificial intelligence (AI) technologies as well as self-driving cars. And DJI (Dà-Jia ng Innovations) has become a global leader in drone technologies. Had China not imposed controls, these companies may not have survived at all. It is probably too late to save Indian e-commerce from modern-day East India Company-style colonization. But there are many other industries in which Indian startups can still lead the world. See also: Too Much Tech Is Ruining Lives With the exponentially accelerating advances occurring in technologies such as sensors, AI, robotics, medicine and 3D printing, practically every industry is about to be disrupted, and there are opportunities for Indian entrepreneurs to create solutions that benefit India and the rest of the world. India urgently needs to wake up and protect its entrepreneurs from foreign-capital dumping. And it needs to provide incentives for Indian — and foreign — companies to invest in its startups, just as China did for its own.

A recent headline read, “Insurers go all-out on mobile, but what comes next is elusive.” But what if the future doesn’t have to be elusive? The article shares some interesting statistics on Canadians’ use of mobile related to insurance purchases:

• 74% begin their insurance research journey online.
• 25% of those who begin their research online use a smartphone only.
• 61% of this segment will immediately abandon a broker’s website if it is not considered mobile-friendly.

And it’s not just Canadians. A January 2018 Pew Research Center study of U.S. consumers found that as mobile devices have become more widespread:

• 77% of Americans go online on a daily basis.
• 43% go online several times a day.
• 26% report they are online “almost constantly” (up from 21% in 2015).

As the article rightly points out, new findings on mobile behaviors like these require insurance and financial services companies to avoid assumptions and dig deeper into the various segments — considering demographics that include lifestyle, employment statistics, income and related buying preferences — in their marketing efforts. However, what’s next doesn’t have to be elusive. Highly effective targeting based on these characteristics can easily be achieved through social media advertising. As we shared in A Brief Guide to Mobile and Social Media Audience Targeting, social media platforms allow marketers to target ads based on consumers’ locations, demographics, interests and behaviors. See also: The Time to Adopt Mobile Was Yesterday   But that’s not all marketers can do through mobile and social media advertising. The Denim platform allows corporate marketers to achieve micro-targeted, hyper-localized ads at scale on behalf of any number of agents or advisers. Why? Because an ad presented from a local agent’s Facebook page consistently outperforms the same ad presented from a corporate brand’s Facebook page. Best of all, customers achieve better results at lower costs. This is apparent when you compare consumer engagement data on ads powered by Denim to Facebook advertising benchmarks for the insurance and financial services industry:

• The average click-through rate (CTR) of finance and insurance ads placed on Facebook is 0.56%, while the average CTR of micro-targeted, hyper-local ads powered by Denim is 1.95%.
• The average cost per click (CPC) on Facebook for finance and insurance is $3.77 — higher than any other industry. In comparison, the average CPC of ads powered by the Denim platform is $0.33.

See also: 4 Ways Social Media Can Win a Promotion   Perhaps a better headline would go something like, “Insurers go all-out on mobile; what comes next is micro-targeted, hyper-local mobile and social media advertising at scale.”