Will the future of driverless cars rhyme with the history of the Segway? The Segway personal transporter was also predicted to revolutionize transportation. Steve Jobs gushed that cities would be redesigned around the device. John Doerr said it would be bigger than the internet. The Segway worked technically but never lived up to its backers’ outsized hopes for market impact. Instead, the Segway was relegated to narrow market niches, like ferrying security guards, warehouse workers and sightseeing tours.

One could well imagine such a fate for driverless cars (a.k.a. AVs, for autonomous vehicles). The technology could work brilliantly and yet get relegated to narrow market niches, like predefined shuttle routes and slow-moving delivery drones.  Some narrow applications, like interstate highway portions of long-haul trucking, could be extremely valuable but nowhere near the atmospheric potential imagined by many—include me, as I described, for example, in “Google’s Driverless Car Is Worth Trillions.” For AVs to revolutionize transportation, they must reach a high level of industrialization and adoption. They must enable, as a first step, robust, relatively inexpensive Uber-like services in urban and suburban areas. (The industry is coalescing around calling these types of services “transportation as a service,” or TaaS.) In the longer term, AVs must be robust enough to allow for personal ownership and challenge the pervasiveness of personally owned, human-driven cars. See also: Where Are Driverless Cars Taking Industry?   This disruptive potential (and therefore enormous value) is motivating hundreds of companies around the world, including some of the biggest and wealthiest, such as Alphabet, Apple, General Motors, Ford, Toyota and SoftBank, to invest many billions of dollars into developing AVs. The work is progressing, with some companies (and regulators) believing that their AVs are “good enough” for pilot testing of commercial AV TaaS services with real customers on public roads in multiple markets, including Singapore, Phoenix and Quangzhou. Will AVs turn out to be revolutionary? What factors might cause them to go the way of the Segway—and derail the hopes (and enormous investments) of those chasing after the bigger prize? Getting AVs to work well enough is, of course, a non-negotiable prerequisite for future success. It is absolutely necessary but far from sufficient. In this three-part series, I look beyond the questions of technical feasibility to explore other significant hurdles to the industrialization of AVs. These hurdles fall into four categories: scaling, trust, market viability and secondary effects. Scaling. Building and proving an AV is a big first step. Scaling it into a fleet-based TaaS business operation is an even bigger step. Here are seven giant hurdles to industrialization related to scaling:

1. Mass production
2. Electric charging infrastructure
3. Mapping
4. Fleet management and operations
5. Customer service and experience
6. Security
7. Rapid localization

Trust. It is not enough for developers and manufacturers to believe their AVs are good enough for widespread use, they must convince others. To do so, they must overcome three huge hurdles.

8. Independent verification and validation
9. Standardization and regulation
10. Public acceptance

Market Viability. The next three hurdles deal with whether AV-enabled business models work in the short term and the long term, both in beating the competition and other opponents.

11. Business viability
12. Stakeholder resistance
13. Private ownership

See also: Suddenly, Driverless Cars Hit Bumps   Secondary Effects. We shape our AVs, and afterward our AVs reshape us, to paraphrase Winston Churchill. There will be much to love about the successful industrialization of driverless cars. But, as always is the case with large technology change, there could be huge negative secondary effects. Several possible negative consequences are already foreseeable and raising concern. They represent significant hurdles to industrialization unless successfully anticipated and ameliorated.

14. Congestion
15. Job loss

I’ll sketch out these hurdles in two more parts to come.

Nepal is famous for the Himalayas, Momos (Nepalese spiced dumplings), temples (did you know that Buddha was born in Nepal?) and dangerous roads. I recently was sitting in the front seat on travels from Kathmandu (the capital) to Hetuada (an industrial town). The distance is approximately 87 kilometers, or roughly 55 miles, and it was a five-hour journey due to many factors that I’ll discuss shortly. The drive made me think about the similarities to entrepreneurship and lessons from my three-year journey. The first start of the journey was smooth; the roads were wide and then, very quickly, the roads started getting narrow and curvier. Lesson #1: The initial glory days of starting a company can soon surprise you with curveballs. There are so many firsts during startup years, such as first hires, first social media campaign, first time giving a 60-second commercial. Keep your eye on the goal, and don’t let the narrow roads or curves take you off-guard. 80% of the journey from Kathmandu to Hetuada were on unpaved roads. Imagine driving on gravel roads for more than three hours. Lesson #2: There will be bumps on the road. Don’t complain. Prepare and plan for the journey. Get the right tools for the job (vehicle). Know that bumps will occur and will disappear with time (and experience). There were several places during our journey where roads were congested. Competition is fierce, and, even if you are first to market, you are at best six months before other startups start offering similar value propositions. Lesson #3: Having a strong sense of direction, strength and perseverance will allow you to navigate the congestion. Have the right people in place to handle difficult tasks (driver in our case). It may at times seem near impossible to get out of the congestion, but, with the right maneuvers, you can come out triumphant. There are no road systems, or like a DOT (Department of Transportation) in Nepal. and cars, motorbikes, buses, horse carts and other vehicles with wheels will sneak in and pass you. There are times where our car did the same, depending on the opportunity. At times, it may seem others are getting ahead and are succeeding. Lesson #4: Don’t get discouraged – if you are solving the right pain points, have a strong team and present a solution, when the right opportunity arises you will succeed and make a pass. When I started my entrepreneurship journey, my co-founder and I built a product that was a “vitamin,” not a pain-killer. It was when we met an individual in 2016 who shared with us the pain points within the life/annuity industry that he experienced while selling and servicing products in the life insurance sector. Both of us fell in love with the pain points and joined forces through a company called Benekiva. We found the right pain point, a strong team and our solution, which incorporates portion of our initial solution. See also: The Entrepreneur as Leader and Manager The drivers in Nepal are completely bold. One wrong turn, and you may not exist. Lesson #5: Be fearless. A startup is not like a trip in the Himalayas. Fail and fail fast. A failed startup does not kill you, it makes your stronger. Also, entrepreneurship is not for everyone. If you want a stable and normal life with steady work hours and pay, then it may not be a right fit. If you are a creator and have a fear of mediocrity, then you are in the right club. I recently read a fantastic blog – Fearing Mediocrity from Ryan Hanley, which summarizes my thoughts on being fearless. There was a place during our journey where we stopped to take a stretch and tea break. Lesson #6: Make sure you recharge. Lori Greiner, from Shark Tank, has a famous quote, “Entrepreneurs are willing to work 80 hours a week to avoid working 40 hours a week.” The statement is so true, and as entrepreneurs you don’t want to experience burnout. My break is this! I’m visiting my family and friends for three weeks, and my responsibilities for Benekiva are handled. I’ve delegated to my co-founder or my staff. I just have to be willing to check in. I love what I do, so it doesn’t feel like work even though some of my meetings are at 2:00 am or 3:00 am; it doesn’t bother me. See also: AI Still Needs Business Expertise   Though the travel is treacherous, and a short distance takes hours, the ride is gorgeous. Tall, beautiful mountains, breathtaking views and an amazing landscape. Lesson #7: Enjoy the journey. You will encounter amazing people, mentors, other like-minded individuals and people who make you think, “Where have you been all my life?" You will get to participate with leaders of industry, attend amazing conferences where knowledge is abundant and work with others to create ideas. Enjoy the journey, my friends. As Dr. Seuss says in "Oh, the Places You'll Go": “You're off to Great Places! "Today is your day! "Your mountain is waiting, "So... get on your way!” Thank you for reading this article!

Eighty years after Karen Blixen published her memoir, "Out of Africa," it may be time for the local insurance industry to start writing a sequel: "Into Africa."

That thought is prompted by a seminar that Africa Re hosted last week in Lagos, Nigeria, and that was put on by our chief innovation officer, Guy Fraker, and by our friend Grace Vandecruze, a veteran investment banker who is now the managing director of Grace Global Capital. Several dozen executives attended from the biggest insurers in Nigeria and Ghana, underscoring the interest in innovation among companies operating on a continent with almost unimaginable opportunity.

Grace said South Africa is the only country on the continent with any significant penetration by insurance products, and just 17% of households there own at least one insurance policy. In every other African country, she said, market penetration ranges from a fraction of a percent to a mere 4% of households. Meanwhile, the continent is home to more than 1.2 billion people and has six of the 10 fastest-growing economies in the world. 

Virtually everyone on the continent has a cellphone, so, while companies in the U.S. and Europe complain about having to adapt legacy distribution and customer service networks to the demands of digital customers, insurers in Africa can develop optimized, fully digital systems from the get-go. African countries may also be able to leapfrog more-developed economies and build telecommunications systems based on the next generation of wireless technology, which is known as 5G and which promises Wi-Fi-like capabilities everywhere (though the jury is still out on the actual capabilities of 5G).

When I covered the computer industry for the Wall Street Journal in the '80s and '90s, a common geek joke was: 

Q: "How did God manage to create the world in only six days?"
A: "He didn't have an installed base."

Ba-dum-bum. 

But the punchline applies here: Because Africa doesn't have an installed based in insurance or in many of the underlying technologies that are being deployed by the industry in other parts of the world, insurers there have a chance to do things right the first time and leapfrog the rest of the globe.

I'm not suggesting that hundreds of business development types from outside the continent immediately book flights to Lagos and other African business centers. There is considerable expertise already there among the major insurers, sometimes facilitated by our new friends at Africa Re. 

Insurance still needs to establish a trust factor among consumers in Africa, but the good news, Guy says, is that the low penetration of insurance means that companies have a unique opportunity to work together as a community for now, rather than as competitors. Basically, you have to have a pie before you start fighting over how to divvy it up.

So, let's all do all we can to help bake that pie. As we all know, broadly available insurance will provide stability that the people in Africa and their economies can build on. 

Have a great week.

Paul Carroll
Editor in Chief

It’s a remarkable time in the insurance industry. Looking around at other major industries — retail, banking, manufacturing — it’s easy to see the changes that disruptors and technology have brought about. Yet in many ways it hasn’t hit home for insurance carriers. The same established players dominate at the top, and thousands of smaller firms maintain loyal clients throughout the insurance ecosystem. “Get ready for change,” is a message that has been ringing out in the insurance market for a decade but finally seems to be getting through. Everyone from global consultancies to insurance leaders is predicting that, in the next five years, major insurance companies could fall, existing ways of doing business will become obsolete and disruptors big and small — from insurtech startups to Silicon Valley giants — will punish those clinging to the status quo. Here’s an illustrative example from PwC of how demand is outpacing market offerings: Among millennial small business owners, 75% would prefer purchasing commercial insurance online, yet only about 1% of policies are sold without any intermediaries. Other market segments are further ahead: 30% of personal auto policies are sold without intermediaries, for example. See also: Are You Tapping Your Innovation Energy?   It’s clear where carriers and the third-party administrators (TPAs) that serve them need to be moving. Now it’s just a question of how they get there, and specifically how to keep their legacy systems while operating with the efficiency and agility needed in today’s market. One way to do this is collaboration, by viewing tech-savvy innovators as potential partners in the race to gear up for the digital age. This is true across the value chain, from sales to risk management to claims intake and distribution. Carriers and TPAs are searching for solutions. And there are clear signs that the do-it-yourself mentality is giving way to a culture of collaboration. Capgemini found in 2017 that 53% of insurance executives around the world prefer partnering with insurtech firms to leverage digital technologies, as opposed to 36% who favor in-house development. These partners can increase agility and configurability everywhere from front-end services like applications and renewals to back-end services like claims processing. And because the technology has already been developed — and often has the support of a team of digital natives — set-up time is quick and requires minimal changes to the carrier’s infrastructure. Projected spending on artificial intelligence solutions among insurance companies illustrates the broad application of new technology. Deloitte predicts that insurers will increase their spending on AI by 48% in the next five years, boosting automation in everything from claims processing to fraud investigation, program advising and threat prevention. A new report by NetClaim spotlights what this shift means for claims intake and dissemination. At the moment, most insurers and TPAs continue to handle these functions in-house, but that looks likely to change soon. About a quarter of carriers and TPAs already outsource their intake and dissemination needs to vendors, and about a quarter said they are looking to shift from in-house to outsourcing. One of the drivers of this change is cost: Vendors have the expertise and economies of scale to do the job cheaper than it could be done in-house. But the days are gone when call centers could bring in business simply by being the cheapest option. See also: Innovation — or Just Innovative Thinking?   According to the NetClaim survey, almost as many carriers believe innovation is being driven by need for better quality control and fraud detection (64% of respondents) as efficiency and reduced prices (68%). Also, carriers and TPAs agreed on the need for innovation in the claims intake and distribution process. About 80% of carriers and 94% of TPAs saw a need for innovation in these functions. What carriers and TPAs need most are partners that can keep their organizations moving and adapting as quickly as the rapidly changing market evolves. Nimble vendors specializing in intake and built for change offer one way that organizations can add deeper innovation and better solutions than keeping those functions in-house.

At children’s birthday parties, a guest magician may utter the well-worn phrase, “now you see it, now you don’t” – and a bouquet of flowers disappears. That trick, a heartwarming memory for many, also relates to the vast quantity of questions on an application for commercial lines insurance. It’s daunting for a business owner to come face to face with the numerous blanks on an insurance application. Much of the required information is not immediately at hand – or not understood at all. For distributors, the familiarity with the content is certainly there – at least for seasoned personnel. But the time it takes to fill empty boxes keeps them away from more useful interactions with customers. On the other side of the transaction, company underwriters need information to price the risk. For a very long time, the industry has been at a stalemate. A conundrum? Not any longer. See also: 3 Keys to Selecting the Right Platform   Enter data prefill and new data sources. Data prefill certainly isn’t new – personal lines insurers have employed it for some time. But, the impetus to use the capabilities in commercial lines has not been present until now. Business owners require a simpler application process, and distributors need to be freed from clerical tasks. Undertaking a data prefill initiative may be a simple decision for some organizations – but for others it may be a challenge. In either instance, SMA has a five-step analysis process (Why, Who, How, Where and What) that can guide any organization looking at data prefill. It’s important to approach the initiative with a measured assessment to ensure a successful outcome, even if everyone is already on board with data prefill. Given the press that organizations such as Cake Insure and Pie Insurance have received, it might be easy to assume that data prefill is all about small business and workers’ compensation. Clearly, there are significant opportunities in the small business arena to condense insurance applications down to three, four or five pieces of data. Evan Greenberg, CEO of Chubb, has declared that the current 30 questions in small business applications will be condensed to around seven within 18 months. However, it would be a mistake to assume that data prefill is just about one commercial lines segment. In fact, insurers covering all but the most complex jumbo commercial lines have an amazing opportunity to use the same data integration techniques for data prefill to automatically integrate data into more complex lines of business – to improve data accuracy and thus drive profitability. Regardless of the line of business or size of the business insured, augmenting application data with new, emerging data can support underwriters in their decision making. And, perhaps, it can eliminate the need to obtain information from business owners and distributors and promote a much greater degree of accuracy. SMA’s recently released report, Transformation in Commercial Lines: The Five Steps for Data Prefill, provides a view of this. See also: The Problems With Blockchain, Big Data  This brings us back to “now you see it, now you don’t” and the disappearing questions on commercial lines applications. Having spent a long time as an underwriter, I recognize that it is unsettling to think about losing the data elements that one has relied on to make decisions. However, with data prefill, that data can be found and used in many ways: eliminating questions on applications for small businesses and prefilling internal systems for more accurate decisions on complex lines. No one will be deprived of data – the source will just be different – an insurance magician’s answer to several challenges!

What makes it difficult to detect and prevent fraud within an insurance firm is also what might make fraud attractive to criminals: The low number of transactions in insurance provide few tracks for tracing financial crimes. Outside of premium payments and claim submissions, insurance customers engage in relatively few transactions (compared with banking customers) from which companies can build and test anti-money laundering models on their own. And, while insurance is a heavily regulated industry, it has been relatively ignored when it comes to its anti-money laundering practices in comparison with the attention regulators give to financial institutions. For these reasons, some fear that an annuity account, for example, might be just the place a nefarious character would park funds as part of a larger money laundering scheme. The Next Focus for Regulators Immediately following the financial crisis of 2008, regulators were laser-focused on big banks’ policies and procedures for deterring financial crimes. Those that didn’t comply with the U.S. Patriot Act and Bank Secrecy Act were hit with hefty fines. No wonder: It is estimated that almost 70% of illicit finance flows through legitimate financial institutions, while less than 1% of global trade is seized and frozen. Regulators are now turning their attention to non-traditional banks like Western Union (which expects to pay compliance-related charges of up to 4% of its revenue in 2017) and PayPal (which in 2015 agreed to pay $7.7 million to the Treasury Department’s Office of Foreign Assets Control for sanctions violations). Insurance companies feel they are the next industry to receive the attention of examiners and are acting to comply with know your customer (KYC) and anti-money laundering (AML) rules. At stake for insurers is not just large penalties if a regulatory agency feels that anti-money laundering policies don’t meet expectations. Risk to reputation is of top concern to insurers, which understand that it takes only nanoseconds for customers to find an alternative carrier or for investors to learn on social media that their institution was used in organized crime or, worse yet, funding for terrorist activities. A regulator’s ability to directly affect an insurer’s bottom line is also a major threat. A regulator could, for example, hamper the insurer’s expansion efforts, preventing it from entering a market or from acquiring a business because it lacks the right safety controls. See also: Cognitive Computing: Taming Big Data   How Insurers Can Mitigate Money-Laundering Activities To avoid this, I recommend to my clients that they focus on evaluating the entire AML and KYC function across the enterprise, cleaning and enriching the data that firms already have and bolstering AML efforts with outside expertise. Clean and Enrich Your Data The availability of high-quality data that is meaningful and predictive lays the foundation for an effective financial crimes prevention strategy. This critical first step is often overlooked and no easy feat for the typical insurance carrier that operates in silos and segregates information within different systems and lines of business. Before investing in new tools and technology, partner with data remediation experts to assess the quality, completeness and predictive power of the customer profile data and fill in missing data to ensure that KYC and AML systems work effectively. Establish a Consistent, Enterprise-Level Customer Onboarding, KYC and AML Process Regardless of the many products and channels your insurance company offers, you need to establish a single, consistent process for monitoring, evaluating and onboarding customers. Many insurance companies bring in an IT partner to assess their AML and KYC policies and procedures, as well as how technology can be leveraged to improve effectiveness. The right partner will help you define an onboarding strategy with a strong customer experience component and establish the roles and responsibilities for different lines of defense. This includes the agents who capture the customer information and onboarding; the financial crimes unit that monitors transactions and customer behavior; and the internal audit group, which ensures all policies and procedures are followed and measures their effectiveness at preventing financial crimes. In addition, with clean data and an enterprise-level AML process, you’re ready to customize off-the-shelf generic AML models with observed client performance, data from public sources and third-party data feeds for the industry. Look Outside Your Industry for AML Expertise Insurers can learn a lot from compliance experts in other industries, such as banking, law enforcement and the public sector. Your recruitment efforts should focus on building financial crime teams with people from these sectors. Find opportunities to share stories and best practices with compliance professionals outside your industry. Attend conferences focused on financial crime and regulation where the attendee list includes both banks and insurance firms. See also: Big Data? How About Quality Data?   Insurers whose AML strategy is built on meaningful and predictive customer data and that create a culture of compliance that permeates all areas of the company, will succeed at strengthening their mandated AML/KYC functions. While these changes can’t happen overnight, by pulling in expertise from outside the industry insurance companies can make great strides toward protecting their assets from fraudulent activities.

Today’s insurance marketplace is crowded – and for good reason. Global investment in insurtech surged in 2017, with North America accounting for $1.24 billion in deals. Innovative solution providers with dollar signs in their eyes have emerged in every category of the industry, from health insurance to cybercrime. Furthermore, according to McKinsey, 61% of insurtechs surveyed said they focus on enabling the current value chain, demonstrating their desire to enhance efficiency of product delivery and streamline redundant processes. This proves that, despite the proliferation of insurtechs today, the independent insurance channel isn’t going away – it’s simply evolving. Establishing a foundation with internal processes With all the considerations an agency owner has to think about, it can be a daunting task to get started making changes to your current processes. To be successful, it’s imperative agencies build a strong foundation and implement the right software solutions from the beginning to set their workforce up for success. Agencies with inadequate tools suffer from high absence rates, excessive overtime costs, low retention, poor employee satisfaction, high labor costs and more, which ultimately costs them money. When looking to evaluate whether an agency staff is set up for success, agency owners should consider the following questions – and if the answer to any is “no,” evaluate service offerings to address these fundamental needs:

• Does your team have the tools they need to maximize profitability?
• Do your customer service reps complain about repetitive tasks and manual data entry?
• Do your current processes help your producers and CSRs work efficiently, or get in the way?
• If you closed a huge deal and needed to hire 10 new producers, could your current system meet that demand?
• Can your staff quickly and accurately respond to agent or policyholder questions?

While there is an almost endless selection of service offerings available to agencies, there are a select few – like workflow management – that are crucial to building an agency’s foundation. Because many of the agencies we work with are small businesses, they may overlook establishing procedures and processes that take into consideration the flow of information with the fewest touchpoints. Opportunity exists for agencies that implement best-practice workflows, which can cut processing time in half. A basic example of an agency workflow can be seen through the lens of the renewal process. When an agency looks at the renewal process with a fresh set of eyes, what it typically discovers is there's usually commonality between the way it renews a certain piece of business across different customers. The agency that thinks every renewal Is unique usually spends a lot of time on duplicate tasks that can be streamlined when it brings different parties together to discuss process improvements. While this seems like an arduous task, it’ll drive agency value in the long run. See also: Embrace Tech Before It Replaces You   “The most-effective brands are fixated and intentional about seemingly mundane things like internal processes,” says Kitty Ambers, CEO of NetVU. “Why? Because process ultimately impacts the customer experience. Can you imagine your favorite restaurant delivering on its menu if the staff used a unique way of prepping or cooking every order? “But that concept is not so obvious in service industries such as insurance, where the ‘menu offerings’ can be so varied,” Ambers adds. “Agency leaders should pay close attention to internal processes so that production, service and back-office workers aren’t freelancing with individual workflows, which steals minutes and hours of time each day across the organization.” Fortunately, there are a wide array of solutions that make it easier for agencies to manage both internal and external processes leading to increased overall efficiency. Creating a more efficient workplace Technology, when used correctly, can increase the efficiency of internal and external processes. From speeding up tasks through the ability to seamlessly hand off information across multiple parties that participate in a common process to reducing duplicate data entry, one of the most fundamental roles of technology is to make life easier for those who are using it – the employees in an agency. An agency is not only looking to make employees' lives easier – they also look to incorporate technology to streamline operations and increase efficiency. While a workforce is one of an agency’s greatest assets, it’s also one of the biggest expenses to scale. For example, a business with 100 employees spends an average downtime of 17 hours per week clarifying communication, resulting in an annual cost of over $500,000. That means getting the right tasks to the right employees is crucial. Furthermore, when agency personnel don’t have to waste time logging into multiple carrier websites and entering duplicate information, agencies can instead focus time on providing the best possible customer experience – after all, insurance is an industry that thrives on relationships. One of the most effective ways for an agency to free employees’ time is to embrace innovative technology offerings, but too often agencies are hesitant to adopt new technology or simply don’t know where to start. With each passing day, technology is evolving to provide employees with the tools they need to do their job more efficiently, so they can focus on building and fostering customer relationships. Whether it's streamlining carrier connections with e-docs integration, which automates the download and filing of policies and messages, or increasing accuracy and productivity by eliminating the manual processes of indexing incoming structured documents, there is most likely a service offering that will save your company time and money. Instead of fearing technology, agencies should focus on how it can enable relationships — whether through eliminating non-value-adding tasks via automation or simplifying communication. Being able to evaluate and analyze how effective an automated workflow process is working helps to see just how efficient your servicing teams are and if there are changes you can make to improve the throughput of the process. In addition to providing real-time data, workflow reporting tools provide insights into historical data that better equips agencies to deal with business cycles and allocate resources accordingly. Without visibility into workloads and with no objective way of balancing work among support staff, it can be hard to focus on servicing customers. In fact, agencies that implement process management technology see an average increase of 25% in their books of business. With the right tools in place, agents can remove bottlenecks and improve profitability without adding additional staff. See also: The Future of the Agency Channel  While each of the aforementioned examples has it own unique value proposition, they share one common thread: the ability to streamline the user experience and strengthen customer relationships. The future of the industry Insurance is a critical Industry that services consumers and businesses alike, and, while many have embraced technology at a rapid pace, many still stand to benefit from its adoption. Whether leveraging systems to increase internal efficiency like renewal management or incorporating solutions to streamline the communications with the companies you write with, agencies must learn to embrace technology to their advantage. According to Ambers, “There is a reason why investors from both outside and inside the insurance industry are targeting agents and brokers.” “This is a rock solid, steady-Eddy business built on relationships. It’s proven over a long period of time to be a smart solution for families and businesses. Well-run agencies generate returns above many other industries. For better or worse, insurance is the last big industry to be undergoing change brought on by new technology. I say: Bring it on. I don’t see disruption; I see agents and brokers being enabled by these new interests. We are confident we’re the best solution for consumers.”

Over the past two decades, enterprise risk management (ERM) has evolved from a novel concept to an accepted and mature business practice. As such, insurers have significantly improved their identification and mitigation of risks, especially in the areas of underwriting aggregation, capital inefficiencies, dominance of legacy systems and others. Certain emerging risk areas are definitely on insurers’ radar screens, such as: the Internet of Things (IOT), autonomous cars and climate change. Yet, there are other emerging risks that are not fully recognized or understood. These require a robust application of enterprise risk management techniques. Alternative Capital at the Primary Level So far, alternative capital providers, in the form of insurance-linked securities. collateralized reinsurance, etc., have made their impact felt among reinsurers. Primary insurers, of course, have used alternative capital in place of traditional reinsurance, usually CAT bonds. However, primary insurers have not felt the threat of being replaced by alternative capital. The risk is real that large books of low-volatility policies, which would normally be covered by primary insurers, could be packaged by banks, reinsurers or other parties into securitized risk pools. Such packages would be attractive to investors, who want to participate in a different tranche of risk than currently offered at reinsurance levels. Thus, primary insurers could be bypassed altogether, at least, in terms of bearing risk and being paid for risking their own capital for doing so. Primary insurers would likely be needed to supply some services, such as actuarial and claims, by the party packaging the pool. But insurers could be replaced over time by other entities, given advancements in automation, coupled with artificial intelligence. See also: Insurers Grappling With New Risks   Before a wholesale movement of business occurs, primary insurers themselves could package large books of their less volatile business and offer them as alternative capital investments. However, in doing that, they may hasten the scenario where other parties become the packagers, simply by virtue of providing the example. Market Fragmentation It is clear now that internet players, which are expert at digitization as well as a variety of other forms of innovation, will be insurers as well as distributors of insurance. What is less clear, but is nevertheless an emerging risk area, is how well they will perform at profitability and how much market share they will absorb. Despite the lack of clarity at this point, the risk boils down to increased fragmentation in the marketplace wherein large and small insurers, alike, will have to deal with more competition and a greater division of business among all players. It is not uncommon for personal insurance buyers to bundle their home, auto and either small business or life insurance with one or two carriers. But with more choices in an already crowded arena and heightened ease of doing business, it is easy to picture the same individual buying his or her 1) auto coverage from a per-mile internet provider because of best rates, 2) homeowners coverage from another internet provider because of its social responsibility stance, 3) small business coverage from a traditional insurer because of its customer service and 4) life insurance from yet another internet provider because it requires less information and hassle. It is also easy to see that more provider choices for customers will likely lead to less volume for any one insurer. Already there over 5,000 insurers domiciled in the U.S. Although the larger insurers control a disproportionate share, more active insurers may play havoc with that situation while knocking out some smaller insurers altogether. Bottom-line, fragmentation risk carries burdens for insurers in terms of: 1) how  to vary expense with volume, 2) how to keep their brand awareness and image vibrant and 3) how to encourage and manage continuous innovation. Cyber Aggregation Cyber has become a growing line of business among many, mainly larger insurers’ portfolios. When insurance pundits are questioned about where growth will come from, cyber is the answer cited most often, usually followed by privatized flood insurance. See also: How the Nature of Risk Is Changing   Although loss modeling has come a long way for natural catastrophe events, it is still in its infancy when it comes to cyber events. Thus, the progress that insurers have made in managing how much aggregate business they write subject to hurricane or earthquake prone losses is far superior to their ability to manage cyber aggregations. This risk area is incredibly significant because of factors that this author has written about previously. Cyber events can potentially be either or both simultaneous and ubiquitous, unlike natural catastrophes, which tend not to happen at the same time or simultaneously around the whole world. Consider the magnitude of the losses if the "Not Petya” cyberattack that happened to Merck were to have happened to the entire Fortune 500 or to half of the Fortune 1000 during the same week. The insured loss alone for the Merck attack was estimated by Verisk-PCS as $275 million. Alternatively, consider the losses if hackers were to strike the electric grid in five major cities at the same time. Insurers face the risk that they are assuming more risk than they realize or are capable of handling should a massive, coordinated attack occur. Until models are more perfect, insurers should proceed with an abundance of caution.

The National Flood Insurance Program (NFIP) needs to change. It was $30 billion in debt last year (though Congress forgave $16 billion of that), its flood maps are woefully outdated and its incentives are out of whack – while the riskiest homes it insures make up just 2% of premiums, they account for 25% of claims. In recent months, Congress has extended the program (and occasionally let it lapse) without making any meaningful reforms – a strategy that has proven woefully inadequate to the problems the NFIP faces. This month presents yet another deadline: Unless Congress renews the NFIP by tomorrow, it will lapse. This is a golden opportunity to modernize a program that is not adequate for the new realities of severe weather. We’ve faced this opportunity before, and various stakeholders have offered solutions. One common chorus is to encourage private insurers to get in the game to fix the NFIP. I’d like to modify that proposal slightly: Privatize flood insurance, and make everyone get it. If this sounds philosophically similar to what the Affordable Care Act tried to do for health insurance, that’s because it is. We all agree that health insurance premiums won’t come down if only sick people buy it. Encouraging everyone to buy health insurance makes sense because everyone – even the healthiest among us – faces risk. Anyone, after all, can get hit by a bus. Today, the same is true of flooding. After last year’s hurricane season, FEMA’s official position became “anywhere it can rain, it can flood.” In other words: All of us could benefit from flood insurance. See also: Emerging Market for Flood Insurance   Of course, there are several major differences between the health and flood insurance landscapes. First, while nutrition and medical research are improving our tools for staying healthy, our collective flood exposure is growing. There are three major culprits:

1. Human nature. We like living near water, which means living in high-risk areas. As long as people will buy or rent homes near the water, developers will build them.
2. The current regulatory environment provides incentives for development without providing incentives for management of flood risks – we saw the results of this all too clearly when Harvey hit Houston last year, and we saw it again this hurricane season with Florence and Michael.
3. Extreme weather is the new normal. Four of the five most damaging (and expensive) hurricanes of all time have happened since 2012. The most expensive was in 2005. This is not a fluke.

The second important difference between flood insurance and health insurance is that the American people are already paying for flood insurance. The NFIP is a taxpayer-subsidized program, but only taxpayers with an active policy enjoy protection in the event of a flood. Privatized universal coverage would not greatly affect the number of people currently paying for flood insurance, but it would significantly increase the number of people who enjoy the benefits of coverage because payments would be tied to actual policies. The third difference is that our current system for flood insurance encourages behavior by homeowners, developers and local leaders that works against everyone’s long-term interest. For example, the NFIP currently has updated flood maps for some communities that show an increased number of homes at risk for floods. But residents have, in some cases, successfully lobbied for delays in the effective date of those maps because, as soon as they become effective, home values will drop and residents will have to start buying flood insurance. In other words, skewed incentives are pushing people to act against their best financial interest and against the interests of other taxpayers. Privately run flood insurers would mean no reelection pressures to falsify flood maps (which local politicians currently face), and homeowners for whom flood insurance is mandatory would have no incentive to avoid it. See also: Future of Flood Insurance   Beyond all this, though, privatization makes sense for other reasons. Private insurers would find ways to provide incentives for relocation rather than rebuilding in areas that flood repeatedly. They would prioritize the data analysis necessary to make flood maps that are both accurate and predictive. And they would likely lend their lobbying weight to reforming development and environmental regulations that contribute to our growing flood exposure. This amounts to a significant change in how we think about flood insurance in the U.S., but our risk of flooding has changed significantly in recent years. Anything short of a drastic overhaul will mean the NFIP just ends up further underwater.

“Hi, Karlyn. It’s your sister. We’ve been evacuated. There’s a big fire up in Paradise that might head down our way. Just wanted to let you know we’re heading to our daughter’s house. We only had 15 minutes to grab stuff, but it probably is just a precautionary alarm. Call when you get a chance.” That was the voicemail I got Thursday afternoon after I had spent a day chatting with an insurer about customer experience and the claims process. The next voicemail said: “We’re on the road again. My daughter's place is now being evacuated. We’re going to mom’s.” And when I got off the plane, the last one said: “Mom’s evacuated now, too. We’re all coming to your house.” Sadly, she and her husband lost their home and business in the northern California wildfires. Fortunately, everyone is alive, I have enough room for everyone and I know a little bit about insurance. It turns out that being a bit bossy is also a great attribute when you’re helping someone in a disaster. Now, usually, I cover the claims process by looking at the technologies that insurers deploy when handling a claim. But all of a sudden, I now get to experience a totally different lens on the process. I helped my sister and her husband file their claim on the home and on the business. Both carriers are big name brand carriers that I know well. I know what systems they use, I know their strategy and their commitments to customer experience, and I know where their executives believe they are. But, so far, we’ve had mixed experiences. So I have some advice… The First Notice of Loss (FNOL)

• Both carriers had terrific after-hours intake staff. Although I know their claims admin solution and could visualize the fields on the screen as the carriers were gathering information, the intake process did not feel like they were just filling out a form. It truly felt like these people cared. They both spoke slowly. Which, it turns out is VERY important. They were patient, and they were very clear about the next steps. I asked my sister afterward how she felt, and she said “I feel safe. I think they’ll be here to help me.”

Advice to insurers:The FNOL process is not about how quickly you can get the information; it’s about how safe you can make the claimant feel. Yes, the technology is important, but this is not the place to put data entry staff. Five stars to both carriers! See also: Spreading Damage From Wildfires   Acknowledgment of Claim:

• Here’s where we first start to see some stubbed toes. Both companies sent an email after the FNOL. The commercial lines company came within hours and provided a contact name and phone number. Literally 40 minutes later, the claim was reassigned to a different adjuster. No other information was provided other than a name and phone number. There was no information about what was going to happen next or what to expect. The personal lines company's first email came one full day after the FNOL and said it was “reminding” us to view terms and conditions to receive claims documents. It required us to set up an account on the company's portal. This wasn’t really a reminder, as no one had mentioned a portal to us. The wording was such that we believed we had to set up the portal account before anything would happen on the claim – especially because, at that point, no adjuster had been assigned, and there had been no other contact by the insurer. And the process for creating an account was actually unclear even to me. It took me multiple attempts to just set up their account, and I’m not quite sure what we’ll do on that site once something happens. The setup certainly did not need to be done before contact with the adjuster.

Advice to insurers: Provide a more explanatory acknowledgment. Explain what will happen and when it will happen. Think about the sequence of the automated tasks and the order in which a claimant gets information. Don’t send out the online access instructions until after the adjuster has made contact and can explain the process. It’s too confusing when instructions just come randomly. Or provide a document that explains the process and where this step fits in the process. An acknowledgment of claim should include some level of information around what the process will be. By setting expectations early, you reduce the claimant's angst. Adjuster Assignment and First Contact

• The business insurance carrier reached out the next business day to provide basic information and to explain the next steps. My sister and her husband were told to put together an inventory and provide a monthly profit and loss statement going back two years. They were not given any information about what happens next in the process. We believe that nothing is happening until the inventory is complete and they find a way to recreate the P&L statements – both of which feel like pretty formidable tasks, especially for people who have just gone through such a harrowing experience. The personal insurance carrier did not even call. Not that day, or the next day or even the next day or the day after that. Meanwhile, friends who also lost their homes have had money deposited in their accounts and have people looking for long-term housing. My sister has nothing. Finally, five days after the FNOL, I called the personal lines insurer. The insurer claimed it had tried to call – but we show no record of any calls on my sister's phone  or her husband's – and there was also no email outreach from the adjuster (although the email on the terms and conditions did come through). Let me just say, I’m already pretty sure that I do not want this carrier as my insurer or as the insurer for my family and friends.

Advice to insurers: Keep reaching out until you talk to the claimants. Or email. Or text. Any contact at all is better than none. My sister feels abandoned. Immediate Support

• When we finally got hold of the personal lines company five days after the total loss of my sister's home and business, the company offered $500 of emergency funds. Let me just say – that’s kind of a pathetic amount of money given that my sister and her husband had to buy clothing, toiletries and other supplies immediately. With only 15 minutes to evacuate both a home and a business, you don’t take a lot with you. Fortunately, they didn’t have to rent a hotel, but they were already $2,200 into basic expenses. And the document that they received explaining the temporary living expenses – honestly, it feels like it assumes that we’re going to try to defraud the insurer. Sure, you may have fraudulent claims. But if you have a trusted, long-term customer who has never filed a claim, you may want to treat that customer differently. My sister said, after that call – “I think they’re going to scam me. I think they’re going to do everything possible to not pay me. Do you think we need an attorney?” Notice how quickly she went from, “I think they’ll be here to help me,” to, “Do I need an attorney?”

Advice to insurers: Be careful in how you word your explanations. Small nuances in language come across very differently to people who are traumatized and desperate for help. Use some kind of fraud analytics tool up front to determine how trusted your claimant is. Trusted claimants may be eligible to go down a different path. Explanation of Benefits

• I happen to know a little bit about insurance and so requested copies of the policies so I could understand all the coverages. The first response from both companies provided only the jacket. I had to make a second call to each insurer to get the underlying language, although I had asked for that in the initial call. And the commercial lines company sent me the wrong person’s policy. I got a copy of a policy for someone else’s completely unrelated business entity. As expected, each policy has a lot of little sub coverages – like debris removal or coverage for fine arts. But both companies only told us about the limits of insurance for the major coverages. They did not identify all the little sub coverages – and without an insurance expert reading the contract, my sister and her husband wouldn’t have known that there is coverage for their trees and shrubs, so wouldn’t have put them in the inventory. On the commercial policy, there’s a difference of almost $400,000 of additional coverage from those small sub coverages. Additionally, the insurer got the basic limits wrong, as there is a special endorsement that attaches to the policy that provides additional coverages and extends certain limits within the policy. If I hadn’t requested the policies, and didn’t know how to read and interpret them, there’s a lot of coverage that might have gone unclaimed.

Advice to Insurers: Let the claimant know all the different sources of coverage that may be available to them. Send a full copy of the policy with all the underlying policy language. What Comes Next

• Here’s where being bossy comes in handy. It turns out there are a LOT of things that have to be done when your home and business burn down. Things like rerouting landlines to a cell phone and setting up a P.O. Box to get the mail. Filing a FEMA claim and contacting the county to get your property taxes reduced. Figuring out how to get an inspector and how to find a contractor. Even just figuring out who to call to see if the road has opened and whether you can get access to your home to start some kind of salvage. I bet that insurers know all these different steps. But neither carrier provided us with a checklist of things to do or a checklist of what will happen next. Our instructions are: “Create an inventory and keep receipts.” My sister and her husband are sitting in limbo and want to move forward. But they don’t know what needs to be done.

Advice to insurers: You know what has to be done. Help your clients with a checklist both of insurance activities and of non-insurance activities. Give them a timeline of what to expect. Recovery is more than a check. And claimants generally have not had their home or business destroyed in the past. They don’t have basic information about what to do. Even as simple a checklist as "reroute your phone lines and get a P.O. Box" is good advice. See also: Increased Flood Exposure From Fires   Going through a major event like a firestorm is traumatic. Technology is a terrific tool that allows carriers to deliver a great customer experience. But there are aspects of the customer experience that, as of today, even these two big brand-name carriers don’t have right. Some of it can be automated, and some of it is about the human touch. As an insurance industry, we can do better. And we should.