According to Maersk, “Everything that can be digitized will be digitized,” and there is no doubt that the world of shipping is undergoing a digital revolution. Marine insurers cannot afford to be left behind. From vessel movement data to port statistics and engine diagnostics and data, the Internet of Things (IoT) empowers insurers to segment and optimize their existing portfolio, identify new sources of risk and opportunity and offer truly connected policies. Having operated in the IoT space since 2012, our (Concirrus’) turning point came in 2016, when we were approached by a marine insurer, which was interested to know whether data and IoT technology could be applied to commercial marine insurance. Unlikely? Perhaps, but we could see that the maritime industry was bursting with data that, with some clever technology, could be repurposed, to offer invaluable insights to marine insurers. Having now spent the best part of 18 months living and breathing marine insurance, my team and I have developed a view on where the marine insurance industry is going, and it is a far cry from the traditional market model that is currently under so much pressure. A new marine model There are three primary characteristics in the current market. The first is rating factors. For the past 200 years, marine policies have been rated on risk, using a standard set of rating factors - vessel type, age, place of build, flag, tonnage, etc. See also: How Is Marine the Heart of Insurtech?   The second is policy type. In the current environment, policies are global in nature, with wide coverage and few exclusions. Finally, placement, which is managed primarily via brokers using paper as their main form of conveying risk and getting contracts and documents to and from customers. The way insurers go about managing those three characteristics is undergoing a seismic shift. Rating factors. It’s now clear that demographics alone are not an accurate indicator of risk. Add behavior to demographics, and you get a far better picture. We know this intuitively. For example, if we gather 10 people of any demographic pool, we know that, while they are all equal on paper, their driving styles vary dramatically. We have also seen this proven in other areas of insurance. This approach holds true for marine insurance, too, but how do we get there? The answer is the combination of vast quantities of data, combined with machine learning algorithms and interpreted with insurance domain expertise. It is entirely possible to find out which behaviors correlate to claims, and the behaviors that cause claims. Because these are causation factors, they can be used as lead-indicators, meaning the insurer can see the claim before it’s happened, leaving the insurer to potentially intercept, mitigate and reduce the quantum of the claim overall. Policy type. Not everybody might need the global policies that are provided today, which means that, even in a soft market, some risks are overpriced and some underpriced. There is a market for policies that are "fractional" and provide elastic coverage. A simple example of this is war zone coverage. Today, this requires the customer to notify the broker, who, in turn, notifies the insurer that war zone coverage is required. In the future (well, actually, it’s possible today), this process can be managed automatically by placing an IoT device on the vessel to detect an incursion into a war zone -- with insurance technology that automatically turns on the coverage, collects the premium and issues the appropriate documentation to the customer. This zonal type of insurance also means that specialist insurers can narrow their focus to a given set of perils, whether that be geography or a specific aspect of the marine insurance spectrum. A zonal approach also means that insurers can assess their exposures and tightly tailor their reinsurance program. With the current competitive pricing climate, it is widely recognized that the marine customers, who have invested heavily in safety technology, are not reaping the requisite insurance benefits, whereas other fleets are paying too little. That balance needs to be addressed. Placement. This is last aspect of change that I see as being key to unlocking the greatest benefits. There is undoubtedly a role for a real-time placement platform for commercial risks, such as the Lloyds PPL and other solutions from EY, B3i, etc. Compare these with the current, paper-based and manually intensive process; real-time placement will allow the insurance market to operate much like the stock market does today, with much greater visibility and speed. It’s hard to believe (or maybe it’s not), but it’s been said that by 11 am on the first day of trading for the year, the London stock market will have processed more transactions than the Lloyd’s market will in an entire year of operation. We need only to look to other markets to see how real-time trading platforms have enabled an entirely new business model. One interesting analog of a market changed by a real-time placement platform is that of the betting industry. While it has always been possible to bet on who might win the Masters golf tournament, it is now possible to place a bet in real time on whether Tiger Woods might hit the next shot into the water. This type of bet is only possible because the technology allows the odds to be calculated, priced and placed in real time. See also: Global Trend Map No. 7: Internet of Things   Given that is estimated that only 10% of the world’s risks are currently insured, micro bets may offer direct insight into how the insurance market could work, when you combine behavioral technology, fractional policies and a real-time placement platform. Our belief is that this new operating model would open large swaths of the market, which are currently uninsured, to innovative insurance products. A major concern for insurers and reinsurers is the need to assess and forecast exposures and losses. Events such as the Tianjin explosion and hurricanes Harvey, Irma and Maria challenged insurers to understand accumulations and losses and in some cases caught them by surprise. The latest IoT technology will allow insurers, reinsurers and businesses actively managing risks to monitor their assets, in real time, and be more prepared for events – such as conflicts, natural disasters and machinery failure. The Internet of Things and connected technologies mean that mobile devices and sensors offer up constant streams of data, and, within this data, lies insight into the behaviors and risks associated with that asset. At a basic level, this means a business can be aware of which mobile assets (e.g. vessels and cargo) are in what location at any time. By cross-referencing connected data sets, the total monetary value of those vessels and freight units can be determined automatically. Using algorithmic technology, the latest technology can take things a step further. For example, companies can act whenever total exposure levels (the total insured value of its assets) reach a certain threshold, within a geographical zone. Today’s best-of-breed platforms, supported by data science teams, allow users to extract and unlock behavioral insight from their assets, leading to the creation of better products, pricing and profits.

Anyone who has founded a business appreciates how much time, effort and expertise is required to make it successful. Establishing a captive insurance company is no different; you might be tempted to throw up your hands and forgo it. After all, insurance is not your core competency. That could be a mistake. The captive insurance industry has matured sufficiently to the point that there are now many capable service providers that can help you analyze your insurance needs, launch and license your captive insurance company, arrange for reinsurance and manage the captive. When implementing a captive insurance plan, it is critical to focus on both its appropriate establishment and its continuing operation; these are two distinct areas of expertise. I generally recommend that businesses engage the services of an adviser to help launch the captive insurance company and another to manage its operations. See also: The Ten Questions of Captive Insurance, Part 3  I recommend retaining a lawyer who is well-versed in captive insurance to engage the services of an independent, fully credentialed underwriter and an independent, fully credentialed, third-party actuary. The underwriter will evaluate the risk inherent in your business and identify areas that should be insured. The actuary will price the risk that will be considered for your captive insurance company to provide coverage for your underlying business. Together, they will identify the coverage that can be underwritten by your own captive insurance company and how much in premiums you can pay for such coverage. Armed with that information, your attorney, accountant or advisers should be able to determine whether it makes sense to proceed with a captive insurance company. Once that determination is made, your adviser will likely work with a captive insurance service provider or insurance actuary to design insurance policies that cover key risks in your business. An important decision to make is the jurisdiction in which your captive insurance company will be licensed. Jurisdictions vary in their costs, the time it takes to form your captive and regulatory requirements. The jurisdiction that will ultimately be chosen should be the result of a detailed discussion with your attorney and captive manager. Once the captive is established, you would typically sign a long-term contract with a captive manager to handle its day-to-day operations. As a business owner, you’re aware of the risk involved in any long-term contract and the amount of due diligence necessary before entering into any such arrangement. This is where the services of an experienced professional advisor can be invaluable.

A litigation analysis found that lawyers used telephone negotiation in 72% of the cases studied, resulting in settlement only 35% of the time. That means that phone negotiation sessions or other processes had to be used multiple times to get to settlement. We can assume that repetition resulted in a loss of time and money for the participants. In contrast, mediation resulted in resolution 100% of the time in the studied cases. Yet, lawyers used mediation in only 2% of the cases. Here are some of the problems with telephone negotiations: Lack of Visual Information You can’t share documents or other visuals over the phone. Even if all participants to the call are supposed to have the documents in their possession, you can’t be positive they are actually looking at a document, even if they say they are, or if it’s the right one. Body language provides visual cues to the negotiator about how things are going. Facial expressions can show surprise, anger or anxiety as parties exchange information. You can’t look someone in the eye over the phone. Without the visuals, it may be easier for people to dissemble. Likewise, over the phone you are unable to enhance your own message with gestures or other body language. In mediation, the mediator interprets participants’ body language to better facilitate negotiation. See also: Work Comp: Mediation or an ‘Informal’?   Getting Negotiators to Pay Attention Listening is hard work. When negotiators use the phone, they may not be focused. There could be active interference, e.g., flashing lights and text messages on the phone, incoming emails, other notifications from multiple devices or co-workers coming by. Even without those distractions, people’s attention may drift. Technology Can Get In the Way What about using Facetime, WhatsApp, Skype or another video call utility? Theoretically, this could overcome some of the deficits of voice-only negotiation. On the other hand, have you seen the hilarious Tripp & Tyler video about video conference calls? Even when the technology is working perfectly, body language can be difficult to interpret or convey through video. It's true that video conferencing might be helpful during mediation if, for example, the adjuster or injured worker is in another state and unable to travel to the mediation, assuming the principal negotiators are physically present. See also: Tips on Mediation in Workers’ Comp  

Every industry wants to improve the experiences it provides to customers. And perhaps more than any other area of business, companies are looking to other industries for examples, case studies and lessons learned. Recent personal experiences with three industries highlighted how experiences have changed and how different they can be. In a period of one week, I was engaged in transactions with a car dealer, a mobile phone company and an insurance company. Here were the scenarios and some observations – especially what it means for the insurance industry. New Car Purchase Situation: My daughter purchased her first new car The first reaction that most people might have it that this was a frustrating, poor experience. That, in fact, was not the case. The sales person was knowledgeable and helpful. The auto industry figured out long ago how to simplify the purchase options and price haggling. Gone are the days of walking in with printouts of the dealer cost for every option/feature and using that info to determine which features can be combined to create the right, affordable vehicle for each person. Also gone are the days of endless back and forth negotiations – will you reduce the price by $500 if we downgrade the stereo package? The proposal from the dealer had four line items and a simple bottom line price. Easy peasy, lemon squeezy. It still took some time to get through all the paperwork – much room for improvement there. But overall, it was a relatively painless, mostly pleasant experience. See also: 4 Insurers’ Great Customer Experiences   Mobile Phone Upgrade Situation: A family member swapped an old iPhone for a newer iPhone The phone companies MUST get it together. Maybe there are some that are better than my provider, but I couldn’t say from personal experience. (In case you’re wondering why I don’t change, I’ve heard too many complaints from the customers of other providers.) But, my provider’s plans are so complicated and obtuse that it’s a nightmare to try to understand what I’m paying for. And, if that’s not enough, the plans are frequently changing. It took almost three hours in the store to swap an old phone for a new one. And that does not count the time spent at home activating the new phone and downloading all the apps and data from the cloud. One of the culprits is the “family plan.” Like many families, my 20-something “kids” are still on my plan. By the time all the various devices (phones, tablets, telematics devices, etc.) are tabulated, there are many “lines” that are part of the plan. And every time you call the provider or go into a store, they have a “new plan” that will be better for you. If you are really a glutton for punishment, choose the option of a full paper statement every month. It can easily be 50-plus pages. Seriously? It is way past time to think about the customer experience. First-Time Insurance Buyer Situation: Purchase of a new auto insurance policy My daughter called the insurance company to get insurance for the new car. The agent recognized that it was her first time buying insurance and asked if she wanted to understand the coverages. She said yes, and he proceeded to carefully explain every coverage and the options she had, which was greatly appreciated. In addition, the agent discovered that she just moved into an apartment. She thought she had purchased renter’s insurance through the complex, but he helped her understand that the coverage was only for the structure, so he sold her an inexpensive policy to cover the contents. Plus, with two policies, she got a discount on her auto insurance that almost made the renter’s insurance premium a wash. She walked away with a positive view of the insurance company. Key Takeaways One thing these three situations have in common is that the experience was all delivered primarily through humans – not through digital self-service. In each case, the transaction was heavily aided by digital systems, with the agents/salespersons using tablets or desktop computers. All three products were complex, which made it preferable, if not necessary, to have a human intermediary explain and discuss options with the customer. Also, even with the easy car purchase, maybe with the insurance purchase, but especially with the mobile phone purchase, there are opportunities to simplify the product and the process. See also: Who Controls Your Customer Experience?   From an insurance perspective, this example demonstrates why I have a contrarian view about agents in general. I believe that agents, brokers, advisors, and other human intermediaries will be around insurance for a long time in most lines of business. Auto insurance is deemed a commodity, and many will expect sales to all be conducted by digital self-service – the agents will be gone. But even in that line, there will be a role for agents for some time to come. More and more people will purchase auto insurance, term life insurance, renter’s insurance and others online over time, but it may be a long time before we reach the tipping point where more policies are sold online than through agents. This does not mean that insurers and agents should be complacent. In fact, an aggressive plan for digital transformation for both groups is mandatory to remain relevant and competitive in the future.

Today, we continue our journey through our dedicated regional profiles, in which we explore key insurance/insurtech trends continent by continent. In Part I of our profile for North America, we reviewed our general statistics for the region, which we gathered in the course of our Global Trend Map (download the full thing here), and identified several qualitative themes (of which we explored the first two):

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 explore themes 3 and 4 in discussion with our two in-region influencers:

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

3. A ‘New Insurance’ for the ‘New Consumer’ In Part 1,  we identified the rise of the new consumer, who expects and seeks out on-demand digital interactions, as representing both a challenge and an opportunity for incumbent insurers. It is not enough just to focus on customer-centricity in a broad sense. If, as we have suggested across this content series, distribution disruption is the root of customer disruption, it is on this ground that insurers must stand and fight. This makes distribution into a key axis of insurer response as carriers seek to prevail over their new-age competitors. It unsurprising, then, that we discern a fresh strategic focus on distribution from our North American correspondents: "Every major, every top-tier P&C carrier is actively developing multi-channel communication capabilities and multi-channel distribution capabilities," states Stephen Applebaum, managing partner at Insurance Solutions Group. This is far easier said than done, given the legacy constraints that insurers find themselves under, which we explore in the next chapter. "Insurers’ infrastructure, which has been built over literally hundreds of years, never anticipated having multiple channels of communication to support, so insurers are scrambling to learn how to do that," Applebaum continues. ‘In the past, it was a paper-based business, and the postal service was the method of communication, or the agent was the method of communication. The role of the agent is dwindling, as is that of the post office in P&C insurance." There is a risk that insurers attempt to become all things to all people from a distribution perspective, dissipating their energies, and the task of transforming distribution will certainly be a much more manageable one if they can focus their efforts on what really works for their specific customers and products. "Different segments of the market and different products imply different distribution methodologies – so it’s a matter of dealing with increasing complexity," summarizes Novarica's Matthew Josefowicz. While distribution is arguably the centerpiece, the heightened demands of 21st-century consumers in fact apply to the entire customer journey from start to finish. It is not enough to give customers the option of researching, buying and accessing their products via digital channels in addition to physical ones – the entire interaction must be as frictionless as possible, and all of this irrespective of access device. Applebaum gives us some context around what this means for insurers: "Whether it’s filing a claim through an app on their phone or receiving a claim payment electronically to an app or to their bank account, or even just exchanging information like adding another vehicle to the policy, today’s consumers don’t want to have to make phone calls, and they don’t want to send emails. They basically just want to exchange digital information as quickly and efficiently as possible." Encouragingly, most North American respondents indicated that they had digital, mobile and cross-platform strategies in place (see our earlier post on digital innovation).

"Insurers must focus on removing the friction points customers encounter in their interactions if they wish to meet the needs and expectations of their customers. Processes and customer interactions need to be redesigned from the customer’s point of view." — Cindy Forbes, EVP and chief analytics officer, Manulife Financial

Friendly interfaces with high usability go some way toward eliminating friction from customer experience, but the greatest improvement is to be wrought at the back end, by achieving transparency and straight-through processing. The analogy of the retail industry (as it moves toward e-commerce) is once again instructive: What matters to retail customers is not always the absolute speed of their order but often their ability to track its progress. Offering this level of immediate insight to customers – as well as satisfaction – generally requires some level of automation. See also: Global Trend Map No. 9: Distribution   If we take claims as an example, we see that automation does not imply that the whole process is automated across the board, rather that enough is automated to provide clarity on the status of a given claim. Some simple claims will be dealt with automatically, while, for more complex claims, customers can be provided with a working estimate for the resolution time – the key point in each case is the clarity and feeling of control that customers are left with. In our post on claims, we registered a moderate degree of automation among North American respondents, in line with our other regions. In addition to a seamless, zero-friction experience, customers are also demanding personalization, and in the context of insurance this applies first and foremost to range of coverage and premium price. Usage-based insurance (UBI), which we went into in greater depth in our profile on Europe, is a fundamentally new insurance for the new consumer. Formal UBI strategies are only acknowledged by a minority of North American respondents, but this is consistent with our other key regions (for more on UBI, see our earlier posts on Internet of Things and product development). The premise of UBI is that insurers can leverage real data on individuals’ actual usage (for example of a car) to tailor prices and ultimately reward better risk behaviors. The two key ingredients here are data and analytics. Analytics was in fact one of the priority areas that North America led on in our insurer priorities section. A majority of North American insurers also reported increasing their investment in this area, and the salience of the chief analytics officer role in the region has already been noted.

"The whole business understands the value of what analytics can help deliver. In traditional businesses, this seems to mean reports, hundreds of them every month that are mostly rearview mirror. Getting intelligence out of that is what many companies should be focusing on and then making use of it." — Michael Shostak, SVP and chief marketing officer at Economical Insurance

As for data, this is available from a variety of sources. In North America, we find well-established the use of third-party aggregators as a supplement to first-party data, although this data is often neither personal nor in real-time (two key criteria for UBI). The pre-eminent ingress for UBI data must remain IoT, which appears not to be quite as well-established in North America as in our other regions. Although IoT was not ranked highly as a priority in any of our global regions, it came out lowest in North America with a rank of 13th (compared with 10th in Europe and Asia-Pacific). We also suggested in our Internet of Things section that Europe has the lead in terms of platform implementation.

"With connected devices becoming more and more ubiquitous, the availability of data is increasingly a nonissue. The next hurdle for insurance carriers in North America is finding ways to incentivize customers to adopt IoT solutions and part with their personal data – and this requires careful investment in building customer engagement." — Emma Sheard, head of strategy at Insurance Nexus

These measures aside, Applebaum is quick to point out that all the familiar consumer devices that enable IoT in insurance have a presence in the North American market, from in-car telematics to smart-home security and connected-health devices, and he even points out a couple of areas that are well ahead of the curve: "I think IoT is catching up, but there are a couple of specific areas, like water leaks, where it is quickly gaining traction in the U.S. market, both in personal-line and in commercial-line policies," Josefowicz explains. "IoT devices that control water leakage are becoming very popular." Josefowicz points to the strong IoT opportunity for the U.S. market in commercial property and commercial inventory. Applebaum also acknowledges the property opportunity and hints at some of the innovative uses of drones in this area: "Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming. So drones, water-leak management and of course telematics are prime examples of IoT where there is adoption." Given the strong growth indicators for the next two to three years, it would be foolish to read too much into our depiction of North America as an IoT laggard. Indeed, our stats on IoT platform implementation suggested that our key global markets could be aligned in as little as a year. One extension of IoT that Applebaum flags as a space that insurers are watching closely is autonomous driving. "We will have a situation where people don’t drive cars, where software drives cars and cars don’t have many accidents – but when they do, they are going to be extremely serious and will involve large liabilities," he explains. "There is a lot of IoT left where there is no adoption as of yet, it’s just being developed, it’s emerging, and that would cover all the other 50 billion sensors that are going to be broadcasting data by 2020," Applebaum concludes. Insurers looking to usher in the "new insurance" must, concurrently with expanding their sources of real-time data through IoT, build out their back end so that it can, first, cope with and, second, capitalize on the influx of sensor data; to have the unprecedented volume of data that IoT promises but deficient systems for accommodating it would be like striking oil in a world without refineries. Fundamentally, front end and back end must be developed in synchrony, given the dependencies that each one has on the other, although we believe that organizations may place a different emphasis on them depending on the point they have reached in their transformation. One hypothesis would be that focus on the back end – which is the foundation of the whole transformation effort – is higher at the outset and that, with the passing of time and the steady expansion of capabilities, the C-suite’s strategic focus shifts toward harvesting the rewards at the front end. As we pointed out in the table in our priorities post, North America has a substantial lead over Europe in underwriting (by 19 points), risk management (13 points) and product development (5 points); Europe on the other hand leads North America on Internet of Things (by 11 points), pricing (9 points), digital innovation (5 points), customer-centricity (5 points) and claims (3 points). We feel intuitively that, in the context of emerging UBI models, the priority areas on which Europe leads have more of a front-end flavor, and those on which North America leads more of a back-end flavor. We suggested in our profile on Europe that the North American market might be marginally behind Europe in terms of customer-led disruption, and it is possible that Europe’s front-end overtone reflects this market having progressed marginally further down that path. Whatever the blend, every insurer must juggle early-stage and late-stage initiatives all at once, managing their investments across these tranches like they’d manage any other investment portfolio. "We think it’s very important for insurers to exist in three timelines at the same time," Josefowicz emphasizes. "They have to mitigate the limitations of their legacy systems, they have to address current business needs – short-term, tactical business needs – and then they have to keep an eye on the future in terms of how technology is going to change their business tomorrow." 4. How Insurance Must Set its (Digital) House in Order Standing at the start of the road of digital transformation, incumbent insurers find themselves in an awkward position. In one sense, operating a pre-existing business should represent a headstart over new players. However, their established systems and processes quickly reveal themselves to be less a blessing than a curse, when we consider the rampant dependencies that exist between them. Josefowicz briefly sketches how this becomes problematic for insurers: "The majority of insurers in the U.S. are working with 20th-century systems that didn’t anticipate 21th-century challenges," he explains. "Most of the systems of record or policy-management systems that most insurers have are from the '90s or before, and they didn’t anticipate this level of digital and this level of analytics, so they aren’t necessarily as flexible as they need to be to bring new products to market quickly." It is to the drag of these legacy systems and processes that Applebaum attributes the relative tardiness of the U.S. market, with much of the previous generation of technologies being more entrenched in the U.S. than elsewhere in the world (a good analogy would be with telecoms, whereby cell phones have achieved their highest penetration in precisely those areas where legacy fixed-line infrastructure is missing).

"The CTO or CIO is driving both the ‘cleanup’ of redundant systems and systems that don’t communicate well, but additionally he or she would typically have the responsibility for driving the vision of the future. They need to be finding efficiencies where possible and pinpointing the best investment areas for the future. The CTO must understand the needs of customers, business partners (third parties) and also internal stakeholders such as sales, marketing, actuarial and finance." — Damon Levine, CFA, CRCMP, ERM practitioner, writer and industry speaker

The ideal solution to legacy would be wholesale system replacement but, given that budgets are limited, (re)insurers are more often than not forced into an uneasy coexistence with systems old and new. The overwhelming challenge North American insurers face today – starting with their back office – is to orchestrate the myriad pieces of the transformation jigsaw, keeping cost, time and adverse business impacts to a minimum, and we will see that there are various approaches that they can take. "The last decade has really been insurers struggling to make their 20th-century systems meet 21st century business challenges, and replacing them when they can," Josefowicz says.

"The key considerations for choosing a technology platform include compatibility with existing customer information storage and analysis platforms at your company. Of course, cost and adaptability to a changing data landscape are also of interest. The regulatory landscape, including penalties for data loss, will evolve." — Damon Levine, CFA, CRCMP, ERM Practitioner, Writer & Industry Speaker

See also: Solving Insurtech’s People Challenge   Applebaum observes that digital transformation is overwhelming the resources of most insurers, who simply cannot provide all the pieces of the puzzle in-house, and that this is forcing them to look further afield. "Insurers want to be all things to all people, they want to be available by all channels," he comments. "If they can’t do it internally, for whatever reason – like they’re not fast enough or the skills don’t exist – then they will partner. And if they can’t partner, they’ll buy. But basically, it’s by any means possible." In the longer term, Applebaum believes, many components of the stack, like the management of IoT data streams, will end up as the preserve of large third-party software vendors, which can not only specialize but also operate at a scale far beyond that of even the largest insurance carrier. This will also work out positively in other ways, like from a cybersecurity perspective, because it will shift the liability from the insurer to a third party that can bring to bear a much wider experience with cyber threats. Incidentally, cybersecurity was one of the priority areas on which North America led our other global regions. Alongside legacy, we should draw attention to the regulatory environment – at least in the U.S. – as another hurdle that insurers have to get over in their efforts to innovate: "The regulatory environment in the U.S. is extremely complex, with the insurance industry regulated at the state level, so essentially that’s like operating 50 different insurance companies when you are just one insurance company, because you have to adhere to this never-ending, changing regulatory environment, state by state by state," Applebaum elaborates. "That’s not the case of course in the European markets or in the Asian markets, where country markets are regulated by a single national authority. So that’s a real issue for carriers, and they’re trying to deal with it. It’s expensive, it’s complex and it’s a reality." Josefowicz agrees that regulation will remain a key factor for North American (re)insurers, though he notes that this applies less to the Canadian market, which does not have the 50 separate regulatory regimes on a state level that the U.S. does. While this framework is indeed onerous, requiring insurers to file for the same product in multiple jurisdictions and potentially structure it differently in each one, insurers at least operate on a level playing field with insurtechs in this respect. Indeed, Josefowicz believes that incumbent insurers’ established regulatory competence and compliance may be one area where they can convincingly trump new market entrants: "Most insurance companies that exist are already pretty good at managing the state regulatory process, and in fact they see that as a defensible capability because it’s something that they have a lot of experience in that new entrants struggle with," he says. "And you can see what happened with Zenefits, where they ran afoul of the licensing requirements, as either inexperience or a willingness to disregard regulatory challenges a la Uber, which is much more painful in the financial-services world than it is in the taxi world."

Customer Experience This is a concept that has been and will continue to be written, talked and debated about for years. In our currently connected society, it is imperative that all companies (not just in insurance) find better ways to interact and engage with their customers. There are a few key points when those offering insurance (carriers, agents, brokers, etc.) interact with their prospective clients and policyholders:

• Initial Interaction — What is it like when prospective clients first interact with you? How do they uncover their needs and go through suitability with the person/chatbot/online?
• Purchasing — What is the purchase process like? How are forms filled in?
• Policy Issuance — What is the policy issuance like? How is it ensured that the policy customers purchased and contract they just entered is fully understood?
• Engagement — What sort of interactions does the company have in terms of engaging with policyholders while they are a client?
• Reactive Customer Service — How are the interactions when the policyholder reaches out to the company for non-claims-related issues?
• Claims Process — What is it like to file a claim with the company, and what is the engagement throughout the process of approving/rejecting the claim?

Having an easy way to communicate with customers at these various steps are crucial to creating a successful customer experience. An ideal state would be one in which customers can choose the method in which they prefer to interact with their Insurance provider. This week I cover:

• Three different types of insurance customers
• Different ways to communicate with insurance policyholders
• A solution that incorporates many different tools for customer engagement

See also: How to Collaborate With Insurtechs   Three types of insurance customers Broadly speaking, there are three types of insurance consumers:

1. Self-service — These are people who like to do it themselves. They do all the research themselves (through aggregators, customer reviews, etc.), prefer to purchase their policies online (either through an app or website) and love using AI-powered chatbots in their queries, claims handling and any other matter that comes up.
2. Through someone — These are consumers who prefer to have someone alongside them when they make an insurance purchase or have any queries. They will likely use an agent, broker or financial adviser to help identify the best policy for them and fill in application forms, to call on with any queries/policy changes and to be the first to call when a claim comes up.
3. Hybrid — This is where probably the majority of people fit these days. They may be OK to buy insurance online, but they like to have someone they can refer to for any questions that come up during the process. They may also be OK to file a claim or change policy details themselves and also like the option to do it "through someone" if they so choose.

I don’t see these three buckets changing for a long, long time (though the percentage of people who fall into each one may shift). As such, it is important that insurance carriers know their current and future customers to build an experience that will best engage with them. Different ways to communicate with policyholders There are numerous ways that insurance carriers and agents can communicate with their prospects and policyholders. The traditional ways are via:

• Email
• Phone – for purposes of this article, I will call this Voice 1.0, including calls between agents and customers as well as call centers (including interactive voice response (IVR))
• Text – this has some challenges, especially between agents and customers due to the fact that they are not secure/non-trackable (something that companies like Eltropy solve for)
• Post (i.e. snail mail)

The newer ways include:

• Live Chat — Something that has been around for some time and that we are seeing provide very interesting progress for a variety of industries.
• Video — For the same reasons as text, video was not as prominent due to the lack of security/auditability around it, but we have seen this starting to expand in banking as well as the insurance claims process, with companies like DropIn Inc.
• Voice 2.0 — Think Alexa and Google Home. Coverager has done a summary of the insurance carriers that are currently offering Voice 2.0 solutions for their customers. Expect the functionalities and list of companies to grow as these tools become more popular.
• Chatbots — This has to be one of the most common and overused terms within our industry over the past couple of years (I am also guilty of it!). Many carriers felt that they were at a massive disadvantage if they didn’t have one (even if they fully didn’t understand what it meant to have one!).

This article by Richard Smullen, CEO and founder of Pypestream, pours some cold water on the term "chatbot" and ends with something that also explains the feelings I had when writing this article: "If I had one wish for this industry, it would be that we get rid of the term 'chatbot' and instead call this user interface built around conversations a CI, or conversational interface." A solution that incorporates many different tools for customer engagement A few weeks ago, I experienced a string of customer service failures. I won’t mention the companies they were with, but one was with an insurance company, one was with a big tech firm and the last was with a flower company (I had some delivery issues with some flowers that I ordered for my girlfriend). These experiences, especially the one with the insurance company, had me thinking about what tools could have been in place to make the overall experience better. Just days later, I was fortunate to meet the co-founders of SaleMove, Dan Michaeliand Justin DiPietro. They describe their solution as a digital-first, omnichannel platform and have built three solutions that can be used together or separately, depending on their client’s choosing (the platform is currently being used by many top-tier banks and insurance companies): OmniCore — a complete omnichannel digital solution that offers live phone (voice 1.0), live chat and live video in the solution. For carriers and agencies looking to engage with their customers digitally, while having the power of a human behind it, this has it all. OmniBrowse — a great solution for front-line agents and call center employees. This solution allows a co-browsing solution to enable employees to have context of what their customers are viewing. One thing that frustrated me so much with the customer services failures I had above was that the person I was speaking to in the call center (with the exception of the big tech company) could not see what my actual problem was. At a bare minimum, if your call center personnel do not have co-browsing capabilities for your online platforms (whether it be purchasing sites or customer web portals), you are living in the stone age. OmniGuide — has incorporated AI into the solution, but not exactly in the way we see many chatbots out there today. This solution provides agents and call center personnel with AI-assisted responses to the customers they are chatting with, that they can accept, amend or discard. This solution rapidly increases the response time to consumers. If incorporated with OmniCore, it also gives the customer the ability to jump on a call with the human behind the chat in a matter of seconds. See also: Where Will Unicorn of Insurtech Appear?   SaleMove integrates onto a company’s website, through a single line of code, with no changes to the website required, and customers do not need to download or install anything on their end to be able to use the SaleMove platform. Video chatting or co-browsing with an agent is seamless. Please see a demo of this in the video below. Please note that the video is simply a demo and that SaleMove Insurance Agency is not an actual insurance agency. Also, I’m not so naive about my property that this was my first experience in acting. Summary Michael Dell was once quoted as saying, “Our business is about technology, yes. But it’s also about operations and customer relationships.” When I first started as a financial adviser in 2006, my boss came in to my office while seeing me on the phone making cold calls and said "Get out of the office…this business is built on belly-to-belly conversations with people, and, if you aren’t out there meeting people, you’re never going to get business." Both gentlemen are right. We are social creatures at heart, and my strong belief is that relationships are built on human-to-human interaction. This is why I currently and will always feel that an agent will be relevant in the years to come. Technology helps to enable and enhance the relationship-building process, and a hybrid model (one that has technology tools to engage with customers and humans available when customers want it) will likely be the winning solution. For organizations looking at upgrading/enhancing/introducing engagement solutions, they need to think about two things:

1. What communication problem are we trying to fix?
2. What is the preferred method for our customers (either policyholders or internal employees).

They should then build a solution based on the answers. One of my fellow insurtech enthusiasts, Patrick Kelahan, keeps using a great line in many of his LinkedIn posts  It’s, "innovate from the customer backward." Instead of finding a cool, new, emerging technology and trying to implement it in hopes of being more innovative and engaging – figure out what your customers want and need and then find the solution that best fits.

To say that most new producers don’t hit the ground running is an understatement. Between learning about the specific products and coverages the firm offers, beginning to prospect leads and acclimating to a new job, it’s common for new producers to feel overwhelmed from day one. The issue isn’t exclusive to insurance. New hires struggle in every industry—nearly a quarter of all workers turn over before their one-year anniversary. A third of new hires may never give their new gig a fair chance—they admit to looking for a new job less than six months into a new position. But research suggests that new producers have an especially difficult time finding their footing. Only 56% of new producer hires have been successful over the past five years, according to a Reagan Consulting report. These findings confirm what many in the industry have known for a long time and experienced first-hand: it’s tough to get your start as a new producer. But it’s not impossible—and it’s up to leadership to help. Who’s getting hired? Nearly two of every three new producers hired in the past five years have a background in the insurance field. Ten percent are insurance industry professionals with no sales background, while 55% are experienced producers. Only 35% of new producer hires are from outside the insurance industry. Reagan points out that while luring producers with experience (and established books) from other firms is a good way to ensure a successful new hire, agencies and brokerages, and the industry at large, will have more long-term success by developing a robust recruiting and development process to nurture in-house talent. Julie Donn, a senior development consultant for The Institutes Producer Accelerator Program, featuring Polestar, has seen the impact these programs can have on a new hire. She says that, with the right onboarding process and mentor, becoming a successful producer doesn’t have to be difficult. But a little charisma still goes a long way. “It all boils down to being able to build relationships,” Julie says. “People buy from whom they like. Understanding the technical aspects of insurance is extremely important, of course, and is a lifelong learning process. But you have a team of people behind you to help with that as you’re learning. You have to be personable.” See also: How New Producers Can Get Fast Start   What’s working? The Reagan study looked at technical and sales training strategies and their effectiveness. Providing external training resources was generally the most valuable method. This external training must be curated and adjusted to meet the specific needs of new producers, according to the authors of the report. “We repeatedly heard from top performers that a haphazard, make-it-up-as-you-go approach needs to be replaced by coordinated programs that are intentional and proactively managed. Several firms attributed their recent advancements in producer recruiting and development to the significant investment they have made in their development programs,” Julie says. Reagan dug even deeper into how firm structures and procedures affect producer success, focusing on specific practices such as these:

• Specialization — 29% of producers are required by their firms to specialize, and these producers had a 7% higher rate of success. Individuals with experience in the insurance industry but no sales experience were most likely to specialize, Reagan found.
• Team-based selling — Team selling was less popular among agencies but did lead to increased new producer success. Reagan notes that team selling may be increasing as firms seek to capture institutional knowledge from seasoned producers approaching retirement. Among producers hired in their 20s, 71% who practiced team-based selling were successful.
• Assigning accounts — Assigning specific accounts to new producers also increased success, but authors were quick to note that each firm must balance helping new producers learn the ropes by working on assigned accounts (and potentially increasing referrals) and letting producers find and earn their own business.

Mentoring — a key component Mentoring resulted in more successful producers across all categories and was particularly effective among new producers hired in their 20s or 30s who were from outside the industry or had no sales experience. If you’re looking to recruit mentors from within your ranks, start by asking senior producers and sales leaders. However, not all mentor relationships are created equal — 60% of mentors are not paid to help bring new producers up to speed. See also: Why You Need Happy Producers (Part 2)   Donn says that these mentor relationships are crucial early in a producer’s career and that, whatever tactics firms use to help new producers succeed, it’s crucial that new hires feel supported and see a clear career path. “Knowing they have someone who is talking with and addressing concerns is crucial to getting new producers started more quickly,” she says. “There’s a structure and a plan, and someone is in constant communication with them to make sure it’s happening. It’s a huge benefit to firms.” How do you get new producers up and running effectively? Share your tips in the comments below, or learn more about the The Institutes Producer Accelerator program, which offers a comprehensive onboarding solution.

At the WCRI Annual Issues and Research Conference, Randall Lea MD from Alice Peck Day Hospital discussed value-based care. The hospital has been working on a study of value-based care and the workers’ compensation industry. Value-based care has been gaining traction on the group health side but not in workers’ compensation. Study participants included medical providers, payers and regulators. The hospital found that none of the study targets were overly enthusiastic about the concept of value-based care in workers’ compensation. Survey respondents expressed doubt the model would catch on because of regulatory constraints and a lack of understanding by market participants. See also: 5 Ways Data Allows for Value-Based Care   A major theme of the survey responses was the need for a change in the regulatory environment to allow for a value-based care system. All stakeholders agreed that without full employer control of medical choice such a model could not function. Providers also pointed out that they would need to be free from utilization review  for this to work. You cannot hold providers accountable for outcomes and at the same time limit what treatment they can do. Another challenge of the value-based model in workers’ compensation is that outcomes are gauged by more than just medical outcomes. Return to work and impairment are concerns in the workers’ compensation area that do not exist in group health. Regulators were concerned that a value-based model needed to provide incentives to all stakeholders, medical providers, payers AND injured workers. Another major concern of study respondents was payment/reimbursement. A value-based system needs to provide prompt and fair reimbursement to medical providers. Existing fee schedules would need to be eliminated. Providers were also concerned about having the required volume of patients to make a value-based model worth their effort. The study groups had wide views about what types of payment models would be preferred. Options included bundled, Medicare like, shared risk and fee for service (FFS). Study participants were also concerned about how outcomes would be measured. For example, is an actual return to work needed, or does a release to modified work achieve the outcome? The medical provider has no control over whether the employer will provide modified work. There are also concerns about how the patient’s satisfaction would affect the outcome measurement. There could be conflict between what the payer seeks to achieve and what the patient wants in terms of care. A good example of this is the challenge around opioid medications. See also: 3 Key Points on Value-Based Care   The conclusion is, do not expect to see true value-based care systems in workers’ compensation any time in the immediate future. There are too many regulatory constraints that must be overcome.

This is an excerpt from "Lead Your Tribe, Love Your Work: An Entrepreneur's Guide to Creating a Culture That Matters." Jeff was a talented designer at Digital-Tutors. He grew up near our headquarters in Oklahoma. This was a huge plus for me because it meant he had roots in the community and wanted a long-term workplace. I wanted people invested in the long-term success of the company. Jeff loved Digital-Tutors, loved his job and loved working there. His work was great, and for years he helped build the artistic standards for our growing brand. He got along with everyone. That perception came crashing down one day when a couple of people brought his fatal flaw to my attention: He harbored a prejudice. This manifested itself in the subtle ways he acted toward one of his black co-workers. As a teacher for years, I usually clued in on those types of passive-aggressive interactions, but Jeff never acted inappropriately in front of me. When I wasn’t around, though, he would “joke around” with his co-worker. It happened often enough that other people noticed a pattern. See also: The Entrepreneur as Leader and Manager   When I talked to Jeff about the situation, he tried to pass it off as harmless fun: “Aww, he knows I’m just messin’ with him!” No, Jeff was getting away with racism. His black co-worker didn’t think it was funny, his other co-workers didn’t think it was funny, and I definitely didn’t think it was funny. One of our core values was respect. I'd defined it as: We will not tolerate the disrespect of people or property. I cannot and will not allow the mocking or someone else's prejudices to belittle any member of my tribe. That’s a clear line in the sand because it goes against our core value of respect. Jeff's conduct clearly violated that, so I let him go. Immediately after letting Jeff go, I called an impromptu meeting with everyone in the company. For some who worked alongside Jeff and were familiar with his behavior, the decision wasn’t a shock. For others who didn’t work closely with him, it was unexpected. Our impromptu meeting explained why they wouldn’t be seeing him in the break room in the mornings or at company events anymore. My purpose for gathering up everyone in the company at once was to make sure everyone got to hear the same information at the same time. There was no chance for gossip stemming from many versions of the story. During the all-staff meeting, I explained the situation with as much depth as I legally could. As I told my tribe, my decision was all rooted in our core value of respect. Finally, I opened the floor for questions. Again, it was about giving my tribe the chance to get answers at the same time. See also: Is the Insurtech Movement Maturing?   To my surprise, some of my employees used this time for questions to express their thanks for making the tough decision to stick to our core values. Those who weren't aware of Jeff's behavior were understandably shocked—as I had been when I first found out. However, they weren't surprised by the consequences. As much as it hurt to let Jeff go, everyone understood it was the best decision for the company. We loved our company, our tribe, and we loved changing the world for our customers. That wasn’t an accident. It was by design, and I had to keep it that way. As the leader, it was my responsibility to make sure bad guys (and gals) didn’t slip past our outer walls and poison us from the inside.

In the U.S., premiums for family coverage have increased 55% since 2007, and business owners often bear much of this financial burden. Employers are reaching their breaking point. Employers are getting creative in an effort to reduce their healthcare costs, including looking for alternatives to the typical preferred provider organization (PPO) plan. Many are choosing self-insurance coupled with reference-based pricing, which is the assessment and payment of medical claims based on Medicare reimbursement data or the provider’s self-reported cost to deliver the service. Reference-based pricing, also referred to as metric-based pricing, sometimes gets a bad rap from different players in the insurance industry due to outdated notions about this type of health plan model. The truth is that the cost savings and other positives are undeniable: businesses typically save up to 30% off their total healthcare spending. In the constantly evolving world of healthcare, it’s important to understand how reference-based pricing has advanced over the past several years and the reasons why many self-funded employers are turning to reference-based pricing as a sustainable healthcare solution. Below are some common misconceptions and the facts you should know as an informed insurance or benefits professional. Misconception: Providers will turn away patients on reference-based pricing plans. Because self-funded employers with reference-based pricing select a reasonable level of reimbursement with a fair profit margin for medical services, the majority of hospitals and facilities accept payments every day throughout the U.S. A common misconception about reference-based pricing is that facilities will turn away patients who have this plan, but it is illegal to deny medical services to any patient in an emergency under the Emergency Medical Treatment and Active Labor Act (EMTALA). In the rare instance where admission is denied for other types of care, skilled reference-based partners can resolve the situation on a case-by-case basis with the facility. See also: When Big Data Can Define Pricing   Fair payments begin with a line-by-line, in-depth assessment of each medical procedure’s cost by a quality reference-based pricing partner that ensures that facilities are reimbursed quickly and properly. Further, the right partner will recommend reference-based pricing as a solution to companies that are the right fit, and in the right market. When choosing a healthcare solution, brokers and employers should ensure the reference-based pricing partner is experienced, knowledgeable about the specific market and focused on building relationships with hospital systems — encouraging collaboration rather than confrontation. Essentially, the “reference point” needs to consider the provider cost and allow for a fair margin above that cost. Misconception: Balance billing only happens with reference-based pricing. Another reference-based pricing misunderstanding is that plan members will be responsible for paying large balance bills after receiving care -- charges that the provider levies beyond what the insurance has paid. With an experienced reference-based pricing solutions provider, the chance of balancing billing for plan members is greatly minimized, because facilities receive a fair reimbursement that they willingly accept. If a payment is not accepted, an expert reference-based pricing solution will assist plan members with balance bills every step of the way and not leave them to resolve the issue on their own. The truth is that balance billing is common across healthcare and most notably occurs with out-of-network claims in traditional PPO health plans, and these members do not have anyone to advocate for or support them. In fact, nearly one-third of privately insured Americans have received a surprise medical bill in the past two years when their health plan paid less than expected. In addition, the number of Americans who don’t have the means to pay unexpected medical bills or are at risk for bankruptcy as a result of uncontrollable healthcare expenses is on the rise. In the case of a payment dispute or balance bill on a reference-based pricing plan, a good partner is dedicated to supporting plan members and advocating on their behalf with minimal disruption, resulting in satisfaction for all parties involved. Misconception: Employers with reference-based pricing are destined for legal action. It bears repeating that most facilities accept payments when the reimbursement amount is fair and paid on time. In the rare instance a facility does not accept payment, there are many steps before the threat of litigation. Often, when a local company meets with a hospital system to discuss reimbursement conflict, there are multiple opportunities for positive results for each party. There are significant advantages for both the health systems and the employers to resolve the dispute by working together and setting precedent for future dealings. See also: 4 Trends to Expect in Health Insurance   If a resolution is not reached, it is vital that an employer is partnered with a solutions provider with strong patient advocacy and legal expertise, ensuring all members and the employer are protected against aggressive billing, collections and potential legal action. Reference-based pricing can be the missing puzzle piece. It is vital that brokers, employers and other industry professionals are armed with the facts about reference-based pricing. Employers should not overlook its many benefits, and industry professionals should know when to recommend this viable solution. Businesses that implement reference-based pricing can use their savings toward growing their business or putting dollars back into the paychecks of their employees. Brokers that offer reference-based pricing can remain in the center of the healthcare benefits discussion and showcase their knowledge to clients. And both employers and brokers should choose an experienced reference-based pricing partner to ensure not only the greatest cost savings but the smoothest experience possible for the employer, employees and provider once the plan is implemented.