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What Is Really Disrupting Insurance?

A long and detailed research initiative earlier this year found disruption very hard to pull off -- but saw that Munich Re was succeeding.

In a recent SMA blog, Karen Furtado, SMA partner, posed this question: “Have you ever found yourself hearing a word so frequently that it begins to lose its meaning?” The word she was referring to was “transformation,” but I think that everyone who reads that question immediately has a specific word of their own that pops into their heads. For me, it is the word “disruption” or any iteration of it – disrupt, disruptor, disruptive, etc. In the insurtech movement, those “disruption” words surface again and again. At SMA, we love the word “transformation.” It’s this year’s umbrella theme of the annual SMA Summit. We spend a significant amount of time with our insurer customers helping them with transformation strategies. We help our technology customers dig deep into their transformation messaging and outcomes. But disruption – well, not so much! SMA believes that it is very difficult to truly disrupt the insurance industry (even though there is a tendency among some people to throw the word about with unwarranted abandon). So, you can imagine how surprising it was that, after a long and detailed research initiative earlier this year, we actually hung the “disruptor” tag on Munich Re! See also: How Analytics Can Disrupt Work Comp   The goal of the research was to analyze annual reports, quarterly analyst statements, magazine articles and public presentations to gain insight into, and maybe some best practices from, the innovation and transformation journeys of some of the largest insurers – Munich Re among them. SMA’s recent research brief, Who Is Really Disrupting the Insurance Industry? And What You Can Learn from Munich Re’s Journey, reviews the findings. There are many lessons to be learned from their journey, but three things in particular resonate:
  • Munich Re did not let traditional reinsurance roles place rails around their innovation strategies and tactics. For example, they worked with a broker (Marsh) to develop a pandemic product. Neither of the participants is a traditional player in the product development process.
  • Munich Re has stayed true to its heritage and traditional competencies of risk knowledge and risk management but approached change through a new lens of innovation and brave technology exuberance. We also saw this with Chubb as it has stayed true to its deep underwriting heritage in its innovation strategies.
  • Business units are focused on specific innovation and emerging technology initiatives. They have not cordoned off these responsibilities within IT or stand-alone innovation organizations. Business is an active force, not simply a recipient of innovation outcomes.
It's a bit surprising and even inspiring that a reinsurer is an industry disruptor. Insurers need to study innovation and transformation activities at all industry levels because the traditional (or hyped) competitors may not be the ones that are changing the industry landscape. See also: Innovation: ‘Where Do We Start?’ To be clear, Munich Re is not the only reinsurer that is on an innovation and transformation path. Others are, as well, most notably Swiss Re. However, early on, Munich Re noted unprecedented external forces emerging and, rather than reverting to traditional and frequently successful strategies, the company boldly placed new lenses on business challenges. And the results are – and continue to be – disruptive. (There, I said that word again!)

Karen Pauli

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Karen Pauli

Karen Pauli is a former principal at SMA. She has comprehensive knowledge about how technology can drive improved results, innovation and transformation. She has worked with insurers and technology providers to reimagine processes and procedures to change business outcomes and support evolving business models.

Industry 4.0: What It Means for Insurance

Industry 4.0 will create enormous opportunities but also new risks, such as cyber, failure of critical infrastructure and uncorrelated effects.

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The topic of Industry 4.0 has been discussed at many conferences in recent times. When you talk to participants and colleagues, you quickly realize that everyone associates this buzz phrase with something different. To make matters worse, the term is now used in almost every industry as a synonym for the digitized, automated and connected world, also known as the “smart factory.” This article discusses the term Industry 4.0 and examines its impact on property insurance. Industry 4.0 is a new level of organization and control over the entire value chain of a product – from idea and design, to flexible production of customized products and delivery to the customer. Customers and business partners are directly involved in the processes. The term Industry 4.0 is synonymous with a range of available automation, data exchange and manufacturing technologies to increase production flexibility and efficiency/profitability and to advance the value chain conceptually in industrial production and manufacturing. The basic principle is the intelligent networking of machines, workpieces and systems as well as all other business processes along the entire value chain, in which everything is regulated and controlled independently. The ultimate vision of Industry 4.0 is to create an intelligent factory in which all production and business units, machines and devices communicate with each other – as much as possible without human intervention, but involving both employees and external suppliers. It should not be forgotten that the term Industry 4.0 is used synonymously for digitized production with the ultimate goal of increasing production at significantly lower costs. Design principles The design principles of Industry 4.0 can be summarized as follows:
    • Networking/interaction: Machines, devices, sensors and people can network with each other and communicate via the Internet of Things, or the Internet of People.
    • Information transparency: Sensor data extend information systems of digital factory models to create a virtual image of the real world.
    • Decentralization: Cyber-physical systems are able to make independent decisions.
    • Real-time decisions: Cyber-physical systems are able to collect and evaluate information and translate it directly into decisions.
    • Service orientation: Products and services (of cyber-physical systems, people or smart factories) are offered via the Internet.
    • Modularity: Smart factories adapt flexibly to changing requirements by exchanging or extending individual modules.
See also: The Unicorn Hiding in Plain Sight   Challenges for Industry 4.0 Although the goals of Industry 4.0 sound promising, a number of challenges remain to be resolved, including:
    • Availability of relevant information in real time through connectivity of all entities involved in the value chain
    • Reliability and stability for critical machine-to-machine (M2M) communication, including very short and stable latency (real time)
    • Progress in network technology toward real-time actions
    • Need to maintain the integrity of production processes
    • Increased vulnerability of the supply chain
    • IT security problems
    • Data, network, cyber and device security, etc.
    • Need to avoid unexpected IT errors that can lead to production downtime
    • Protection of industrial know-how
    • Lack of adequate skills to drive the Industry 4.0 revolution
    • Threat of redundancy problems in the IT department
    • Ethical and social impact on society – what would be the impact if a machine were to override the human decision
Challenges for the insurance industry The insurance industry will continue its interest in collecting data and information for underwriting, and preparing and evaluating it by linking new algorithms and artificial intelligence principles. For example, information collected at the operating and machine level could help to identify certain patterns and predict when maintenance work or servicing is required or when a machine is nearing the end of its life. This allows a more detailed assessment of the actual exposure, which in turn can have an impact on all business areas of the insurance industry – so that the insurance principles might have to be redefined accordingly. In the future, a claim will affect several lines of business simultaneously, which will often make it difficult to identify a person liable for a loss and to assign the loss to a line of business; this in turn will ultimately complicate claims settlements. The probability of business interruption losses – caused by fire or natural catastrophe, for example – will increase due to the virtualized value chain that is the result of the optimization of systems and their dependency on the environment or on suppliers, customers, energy supply, etc. Ultimately, this could lead to a significant extension of the recovery period following a loss event, which will, in particular, be a consequence of the search for causes, the substitution of destroyed machines, plants, networks and communication channels. As a further consequence, the complexity of the linked systems and technologies will also result in exposures not yet known, with serious but also unexpected outcomes. For example, a cyber attack or security failure could lead to an interruption of production/supply, whereby cascade effects can ultimately even lead to a complete collapse of the entire value chain. For the insurance industry, the outcome of such an event could be comparable to current losses from natural catastrophes or a pandemic event. The problem is that industry and insurers generally have little, if any, experience with the real but intangible and difficult to quantify risks arising from the networking and automation of business processes. Options for insurers The economy is doing everything it can to make Industry 4.0 a reality as quickly as possible. One example is the Mindsphere initiative launched by Siemens, a cloud-based open IoT operating system that can already be used today by the companies involved. It was developed for three purposes:
    • To simulate plant and machine behavior before conversion and modernization
    • To monitor machines set up at customers’ businesses
    • To compare production, quality and maintenance data with other machines, and thus increase efficiency and the ability to identify problems – for example, imminent defects – so that repairs can be carried out early and a prolonged production downtime can be prevented
Currently under discussion is the extent to which the insurance products available today in the property and liability lines of business offer sufficient cover for this concept. As Industry 4.0 is controlled via networks and data streams, protection against cyber attacks will certainly be taken increasingly into account in the current coverage concepts. In addition, however, new risks will arise with integrative and automated production, and new insurance solutions will have to be developed to cover these risks. The use of the new technologies will result in new and different liability scenarios for all market participants. One of the difficulties will be to determine, for example, what caused the damage and who could be held liable. In other words, is there insurance cover for a specific loss and, if so, under which insurance policy? In this respect, it is necessary for the insurance and reinsurance industries to address the topic of Industry 4.0 at an early stage and to support policyholders in the implementation of their Industry 4.0 concepts – to recognize the associated changes in risks and their implications for the liability and property insurance cover. To establish the insurance industry as an important know-how carrier and partner for the respective policyholder, a discussion with policyholders must be conducted as a matter of urgency regarding potential risk scenarios and possible protective measures. Furthermore, insurers should support the industry from the outset in the development of necessary protection and prevention measures – such as predictive maintenance, defense against cyber attacks, business continuity plans and measures against the failure of critical infrastructures – to identify and avert potential risks before their manifestation so that a possible loss can be avoided (i.e., preventive risk management). In addition, the insurance industry should promote the development of its own concepts for the analysis and assessment of new risks, including:
    • Turning away from burning cost toward risk models
    • Developing new loss prevention measures
    • Developing artificial intelligence
    • Introducing more extensive data analyses and forecast models to mitigate losses before they occur
The use of big data/IoT technologies can, for example, help insurers identify new risks and, if necessary, develop appropriate insurance solutions. This will include the development of new insurance products that meet both the challenges and exposures as well as the loss prevention and mitigation measures of policyholders, e.g. model terms and conditions for an Industry 4.0 all risks policy. Ultimately, the decisive element will be development of new ways to cope with accumulation scenarios by Industry 4.0 loss events with the focus on major losses. In addition, the internal and external business processes of insurance companies (keyword: digitization) will be affected, for instance, in the areas of communication, transparency, claims handling, preparation of proposals, etc. See also: 3 Major Areas of Opportunity   Conclusion If Industry 4.0 is implemented as planned, it will lead to a revolution in existing business processes that will also affect the insurance industry, which will need to adapt both its processes and current insurance products. In accordance with the promoted goals, Industry 4.0 can create an enormous added value, especially for industrial companies and not least for our global economy and society. It will be accompanied by the generation of enormous data streams that can be evaluated and used for resource-efficient and high-quality production. Ultimately, it will affect our well-known world of manufacturing and selling products and finally our whole lives. However, this concept will also entail new risks, such as cyber, data protection, failure of critical infrastructure and uncorrelated effects. Industry 4.0 will change the insurance industry as a whole and our currently well-known and widely used strategies for defining risks, insurance, underwriting exposures and insurance products. This means that the Industry 4.0 concept will also be a revolution for the insurance sector. This requires those in the insurance industry to follow developments and inherent changes in the industry as closely as possible and to adapt current insurance products to the new realities. In this respect, one can ultimately speak of today’s insurance industry as moving toward an Insurance Industry 4.0.

First, You Must Define the Problem

As Albert Einstein said, for every five minutes you spend on solutions to a problem, first spend 55 minutes defining it.

"Houston, we’ve had a problem here." John Swigert’s famous words were delivered in a voice as calm and clear as the mountain air in his native Denver, but to the Apollo 13 mission controllers thousands of miles below in Texas this fired the starting gun in a race against time. At 2am on April 14, 1970, an explosion in the main oxygen tanks and the failure of a major part of the electrical system suddenly put the Apollo crew’s lives at risk. The extreme conditions in which they had to work to repair it required rapid creative thinking on the part of a large group of people on the ground and aboard the ship itself. As the drama unfolded, the whole world watched, holding its breath. This wasn’t a simple case of pulling a ready-made solution off the shelf; instead it required exploring the nature and dimensions of the problem, redefining and shaping it. Only then did the solution route become apparent, emerging gradually as a direction worth traveling in. Let’s move to a different world and try, for a moment, to climb inside the mind of an artist trying to come up with something novel and of artistic value. This was what researchers Mihaly Csikszentmihalyi and Jacob Getzels did in 1971 working with a group of art students. They gave them a table on which there were around 30 objects and observed them as they carried out the task of constructing a still life composition from them. The results were powerful. These artists didn’t simply place the objects randomly and start to paint; instead they explored, arranged and rearranged, selected and abandoned. They took time climbing around the challenge they had been given, exploring it carefully before finally embarking on their particular journey through the landscape offered by the resources table. See also: Don’t Just Indulge in “Innovation Theater”   When the work was evaluated by a group of experienced professors, there was a clear link between the quality of what they produced and the amount of time and effort they had spent in this exploration stage. Csikszentmihalyi and Getzels called this "discovery orientation." Perhaps of even more importance was that when the researchers followed up their subjects later in their working lives as artists they found that their successful performance (now being evaluated by people buying their creations or galleries selecting their work for exhibition) was closely predicted by the approach they had shown in this early experiment. Problem exploration is correlated with high-quality creativity. So what we do in the early stages of working with a problem matters. We may not even be aware that it is a problem – as the sculptor Henry Moore observed: "I sometimes begin drawing with no preconceived problem to solve, with only a desire to use pencil on paper and only make lines, tones, and styles with no conscious aim. But as my mind takes in what is so produced, a point arrives where some idea becomes conscious and crystallizes, and then control and ordering begin to take place." Sometimes the problem can be like a toothache, nagging away in the background but not drawing our full attention. James Dyson wasn’t the first person to be frustrated at the inability of his vacuum cleaner to pick up all the dust and the need to keep changing the bag. But eventually something snapped in his engineer’s mind, and he took the recalcitrant machine to his workshop to try to improve things. Crawling around the apparent problem of an inefficient filtering mechanism – the particles of dust blocked the pores of the bag and quickly reduced its effective suction – he suddenly had a flash of insight. The actual problem wasn’t one of a better bag but whether you needed a bag at all. What if you could make a cleaner with no bag, using a different way of separating out the dust from the air being sucked through? What Dyson, the Apollo team and countless other innovators recognize is that it’s worth differentiating between simply recognizing that there is a problem to solve (problem identification) and how to make the problem and workable (problem definition and redefinition). The influential psychologist David Kolb suggested that the process is a little like watching a detective at work, “gathering clues and information about how the crime was committed, organizing those clues into a scenario of ‘who done it’ and using that scenario to gather more information to prove or disprove the original hunch.” Part of the challenge here is that unconscious processes play a part; problem finding is often linked to moments of insight or intuition. We catch a glimpse of something about the problem that triggers an aha! moment, a new way of looking at the problem. This idea was first advanced in 1926 by Graham Wallas, who argued that creative problem-solving involved an element of unconscious incubation that was often characterized by a sense of "intimation" as we became consciously aware of the insight that our brains had found. A team led by Gordon Bower at Stanford University began developing a theory around incubation and suggested that this isn’t simply a flash of inspiration – there’s an underlying process going on that involves two stages:
  • A guiding stage, where coherence or structure is unconsciously recognized and used.
  • An integrative stage, where coherence makes it way to consciousness.
Have you ever gone to bed feeling annoyed and agitated because you’re wrestling with a problem? Finally, you give up on it and turn out the lights – and then you wake next morning and there’s a solution staring you in the face. It sits there, and you’re not only pleased that it has arrived but also have a clear sense of aha! – you know it’s the right answer. What you experience is the transition between the two stages in Bower’s model. So, insight is not luck but the sum of various behaviors going on before that moment. And this fits with current neuroscience – for example, Jacob Hohwy’s idea of the predictive mind, which suggests that when we meet a problem our brain produces candidate solutions for this using models based on experience. We may have to modify the models to suit the particular circumstances of our current problem – it’s not always a simple matter of plug and play – but essentially we reapply templates that we already have on file. In other words, we begin the problem search by looking for something that we recognize – problem recognition. But if we can’t find a match, we begin a secondary activity, which is searching for new solutions to the new situation – essentially reframing, rethinking the problem. What does all of this mean for our approaches to innovation? Clearly, if we’re moving along an established trajectory, doing what we do but better – the Mk2 or 3 version of our product, the latest update to our software, the improvement to our established process – then such incremental innovation will draw extensively on what we already have on our mental shelves. But if we’re looking for a radical solution, trying to break out of the box, then we need to look at how we might help with the task of exploration toward a new solution. There are some useful strategies to help us develop "discovery orientation," for example:
  • Trust your gut – intuition is a powerful clue to emerging directions of interest, and it isn’t always possible to explain why you feel this is a direction worth exploring. Research on product developers looking for new technologies found that experienced engineers recognized the value of this and followed up on their early hunches about interesting directions to follow.
  • Prototype to explore – one of the powerful reasons behind the use of prototypes and minimal viable products is that they offer boundary objects that make very early ideas available for others to play with and explore. Their value is that they are not the final answer, may even be a long way from it, but the process of exploring and interacting can lead to key insights around which the innovation can pivot.
  • Look with new eyes – get fresh insights and questions from people unfamiliar with the problem being identified. By definition, they know nothing about it so they will ask different questions, sometimes naïve but sometimes cutting through to reveal a novel insight.
  • Broadcast search – much of the growing evidence around crowdsourcing of ideas for innovation is that by broadcasting a challenge widely we will pick up increasingly diverse perspectives on a problem. The power of innovation markets like Innocentive.com is less that they function as a replacement for our own thinking than that they allow us to access very different ways of looking at our problem. In their studies of the 250,000 regular solvers working on that platform, Lakhani and Jeppesen found it was this diversity that helped lead to novel solutions.
  • Construct crisis – under extreme conditions, conventional off-the-shelf approaches may not be suitable, and we need to explore radical alternatives. For example, the origins of "lean" thinking – an approach to process innovation that has literally changed the world – emerged out of a crisis in resources. Post-war Japanese manufacturers were forced to rethink the entire production process and come up with a low-waste alternative – they had to explore and reframe what they were doing. Lockheed’s famous Skunkworks managed to develop a jet fighter aircraft within six months from a zero base and without even having a working jet engine to experiment with. A growing body of research suggests that creating crisis conditions can be a spur to novel insights and valuable new directions for problem-solving.
See also: How ‘Not Invented Here’ Limits Innovation   In the end, it comes back to the idea of problem exploration, playing with the possibilities just like the artists did back in the early research on discovery orientation. It’s a principle that Albert Einstein understood rather well – and his words remain a useful source of advice for would-be innovators: “If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.”

John Bessant

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John Bessant

John Bessant holds the chair in innovation and entrepreneurship at the University of Exeter and has visiting appointments at the universities of Erlangen-Nuremburg and Queensland University of Technology.

Look out for the backlash(es)

sixthings

With technology, there's always a backlash. Margaret Atwood, author of the dystopian "Handmaid's Tale," says, "With all technology, there is a good side, a bad side and a stupid side that you weren't expecting." Proponents of a technology can always paint a glowing picture of the good side and somehow get us to not even try to imagine the bad side—then a bad side does, in fact, appear, and the stupid side sneaks up on all us. Backlash ensues.

Her observation popped to mind because of this article in the New York Times last week on the disillusionment settling in among Uber drivers in New York, suggesting that the sharing economy may not be all it's cracked up to be. I've actually been waiting for this backlash for a while, ever since a friend remarked to me about a year ago that Uber is "financed by drivers who don't understand depreciation." They track the hours they spend, plus the cost of gasoline and maybe oil changes, but don't account for the fact that every mile they drive takes something out of the value of the car. As a result, the drivers are essentially making a gift to Uber of the depreciation. The Times article does find disenchantment about the economics of the gig economy, plus even deeper concerns; Uber et al. sold drivers on the idea that they could work in their spare time and finance their dreams, but those careers as, say, recording artists are nowhere to be found. 

The idea of a backlash against tech probably isn't too hard a sell these days. We've all seen Facebook, Twitter and other social media have to scramble to defend themselves against charges that they are facilitating racism, the hacking of American elections and just about any other bad thing you can imagine. Elon Musk—Mr. Ironman himself—has found that not every rocket makes it to Mars and is facing a backlash.

I wish there were some easy lesson I could offer about how to anticipate the backlash against whatever technology you're exploring.

History can sometimes be a guide to understanding technology. In the early days of the commercial internet, some idealists envisioned world peace because all this open communication would lead to understanding and a global community. (No, I'm serious.) But historians pointed back to the early days of the telegraph in the mid-1800s, when similar hopes rose because you could now exchange messages between world capitals in minutes, not weeks or months, and could remove misunderstandings. Those hopes were, of course dashed. (The parallels turned out to be so strong that someone wrote a book on the telegraph whose title was "The Victorian Internet." Telegraph operators actually had the first chat rooms; when lines were idle, they'd gossip with each other up and down the lines.) eBay showed us that markets that theoretically operate with no friction don't actually get to operate in the theoretical world. They have to deal with the real world, one in which all kinds of friction can occur, especially when parties don't know each other and have to find a way to trust each other. Other examples can surely be found related to privacy issues, to the insights that are (and aren't) to be found in data, and so on.

But the only real defense I know is to be jaded: Look for the bad side of a technology even when the evangelist has all your attention focused on the good side. And be ready to duck fast when the stupid side shows up. It will. 

Have a great week anyway.

Paul Carroll
Editor-in-Chief

Paul Carroll

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Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

Consider Hiring an 'IT Whisperer'

IT customers want a “Dog Whisperer” to reassure them that "It’s not the dog’s fault; the humans need to adapt better to the dog's needs."

Insurers come in all shapes and sizes, from Tier 1 monolithic operations to the smallest captives and self-insured groups. One thing has been made clear to me in the 30-plus years I’ve served this industry: Regardless of size, many insurers do not fully understand their technology requirements. I’m not saying this because I want to sell them something they don’t need; I’m saying it because I’ve sat with hundreds of carriers over the years who suffer at the hands of less direct experience or the vision required to recognize the need for improved processes and the technology solutions to support them. This is especially true of small to mid-sized carriers, where budgets are fixed and IT staff is often stretched, leaving little room for ad hoc solutions, much less vision. Here “shadow IT” is often the norm (due to labor restraints, employees wear many hats, prompting those in positions outside of IT to work on catching and solving IT problems). Shadow IT can represent a real and present challenge to insurers of all sizes, because it often fosters a band-aid approach: Well-meaning but inexperienced employees make minor temporary improvements to address major long-term problems. Once the band-aid falls off, the damage is done, the technology solution provider (vendor) is called in and the fix that’s required is often immediate and expensive. See also: How Technology Drives a ‘New Normal’   This dilemma sometimes makes the vendor look like the bad guy, especially if the vendor is opportunistic and leverages the insurer’s misfortune to “fix” the problem with solutions the carrier might not really need. Further, it’s difficult to help remedy problems that the insurer is in denial about. Sometimes, a simple technology needs-assessment helps uncover where the problems originate. But remember that determining technical requirements begins with evaluating business requirements, which require a look at existing processes that are supported by technical support that is lacking in the first place. You can see why firefighting becomes the preferred mode—let’s just fix it so we can keep working. If we back up the discussion a bit, we see that the insurer’s real, primary need is for education. The vendor that is interested in becoming a trusted partner has an obligation to sit with the insurer and work together on confirming the business goals, then applying usage analysis and system requirements. In this way, the vendor becomes something akin to the “Dog Whisperer,” the seasoned canine expert on cable TV who tames otherwise unruly pets by noting that “it’s not the dog’s fault—it’s his owners who need to better understand his requirements.” When the technology solution provider connects with the insurer in a way that exposes the essence of the problem and provides the information and steps necessary to help solve it for the long term, it removes the need for crisis-mode operations. In most cases, this means a big change to the insurer’s existing processes, but the trusted partner doesn’t walk away from this challenge, either, because in almost every case those new processes free up the employee’s time to focus on providing more value downstream. See also: How Technology Breaks Down Silos   Taking the “Dog Whisperer” approach, we have learned from our customers’ use cases and implementation histories and bring the experience to each implementation analysis. We sit down with carriers to help them better understand their objectives and requirements, where the technology and process roadblocks are and what the potential is for that important long-term fix.

Jim Leftwich

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Jim Leftwich

Jim Leftwich has more than 30 years of leadership experience in risk management and insurance. In 2010, he founded CHSI Technologies, which offers SaaS enterprise management software for small insurance operations and government risk pools.

5 Tips to Ensure an Insurtech Fails

You are reading the headline correctly. If you follow these tips, your insurtech will either fail or will be heading toward failure.

You are reading the headline correctly. If you follow these tips, your insurtech will either fail or will be heading toward failure. #5 - Get too much feedback. I truly believe that feedback is the breakfast of champions, but, if you are focused too much on customer validation and discovery, you will fail, as you haven't executed. To avoid analysis paralysis, I recommend doing enough exploration to test your use case. If you are getting five people telling you directionally the same information, then you are good, and it is time to act. Go Execute! If you are getting five people who are telling you totally different things, then revisit or take your hypothesis and break it down. Also, keep a watch on who is your feedback base. Are you talking to decision makers or industry experts? Remember: Insurance is a very old and broad industry, and change is difficult. Ensure your feedback base is made up of industry personnel who face the pain that you are going to solve or have knowledge of it. As a serial entrepreneur, I meet folks every day who are an expert in everything. Really? Getting false confirmations from someone you won't be serving or, on the flip side, someone who doesn't believe you are addressing a real problem can be dangerous for startups. BEWARE. Learn to let the feedback go in one ear and out the other. Here comes the best tip ever: RUN from such advice. (j/k. Be respectful of everyone and develop a filter.) #4 - Form an imbalanced team. If you are a technology company with no tech, you have a problem. If you have a product but lack industry expertise in your team, you have a problem. If you are the type who wants to be in every conversation, not only will I say you have a problem, but your team will have problems. The list can go on and on. Having the right team can make or break an insurtech and requires much TRUST. See also: The Failures and Successes of Insurtech   As an insurtech, having the idea and perhaps the technology is fantastic. Having a team that can implement the product in a frictionless way is the key to more clients and more money. Don’t take shortcuts for implementation. Hire the right people: project managers (ensure they have startup experience or come from a Lean/Agile background), DevOps, QA, etc. Also, ensure you either have a team member or a mentor who specializes in change management to ensure smooth implementation. If you aren’t from the industry (like me), get completely immersed and surround yourself with mentors, go to events such as Insurtech FastTrack from Startupbootcamp, Global Insurance Accelerator, Insurtech Week and NAIC events (especially if you are doing work that affects regulators). #3 - Bootstrap. Most startups fail because they run out of cash. Developing a product is one piece of the puzzle, but how to market and sell takes capital: $$$s and resources. There is a lot of testing and strategy within marketing and sales to get the leads that may convert to customers -- and I haven't even touched on customer retention or operations. It is a great time to be a startup in the insurance industry. There are so many companies that have created a VC arm to their company or are partnering with accelerators to boost startup activity. Some don’t even take equity in your company, like Hartland. But don’t take fundraising lightly. If you want to sustain, you need to start the process of understanding the investment landscape during the idea stage. Even if you have someone who is interested in funding, you are not going to get a check the next day miraculously. Due diligence takes a long time - anywhere from three to nine months, sometimes longer. Also, finding the right lead investor or VC company is critical. Don't get desperaten and sign with whomever; be strategic, as you are forming a marriage. Find the partner that aligns with your goals and can open doors with future customers and investors. #2 - Attend a lot of networking events. For insurtechs, go to the conferences that will get you exposure. We have been very thrilled with NAIC events as we do have a module that needs regulators' feedback. Also, Insurtech Rising was the very first conference we attended back in May, and we were grateful for the outcomes. We can’t wait to attend InsureTech Connect in Las Vegas in October. But have you calculated the time you have spent on your business vs. about your business? (Thanks, Action Coach!) Don't get me wrong, networking is AWESOME, but if it doesn't help your company, your clients or you on a personal level (thanks, Brent Williams), you are wasting time. Might as well take a nap or, even better, go work out! See also: Touching Customers in the Insurtech Era   #1 - Solving all the world's problems. If your product serves everyone, then you will most likely fail if you don't pivot, focus on a segment or market it correctly. Even Facebook started with a focused audience initially before it took over the world. It is incredible to solve problems for various industries, but go deep into one industry first. Having focus and clarity is critical for startups. As an example, Benekiva as a platform solves problems for any organization that maintains beneficiaries. But, rather than being generic and solving everyone's issues, we decided to focus on the life insurance industry so we can have pinpoint focus and go deep in the organization.

Bobbie Shrivastav

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Bobbie Shrivastav

Bobbie Shrivastav is founder and managing principal of Solvrays.

Previously, she was co-founder and CEO of Docsmore, where she introduced an interactive, workflow-driven document management solution to optimize operations. She then co-founded Benekiva, where, as COO, she spearheaded initiatives to improve efficiency and customer engagement in life insurance.

She co-hosts the Insurance Sync podcast with Laurel Jordan, where they explore industry trends and innovations. She is co-author of the book series "Momentum: Makers and Builders" with Renu Ann Joseph.

5 Tips for Avoiding Personal Injury Claims

Issues can be complex: Personal injury laws differ in every state in terms of the type of injuries they cover and the reimbursements offered.

According to the Occupational Safety and Health Administration (OSHA), workplace injuries have a major impact on an organization’s bottom line, causing the employer to bear expenses related to workers’ compensation, medical treatment, legal services, repairing damaged property and so on. Personal injury lawsuits are convoluted, putting your business at a risk of fines and expensive lawsuits. Moreover, personal injury laws differ in every state in terms of the type of injuries they cover and the reimbursements offered. For instance, the law enables personal injury lawyers in Chicago to cover everything, from the carpal tunnel syndrome in offices to spinal cord injuries on manufacturing and construction sites. Thus, victims of a workplace accident have everything to gain. Consequently, it is important for business owners to promote an environment of safety and security in the workplace, thereby reducing the total number of personal injury claims. Here are five effective tips that will help you protect your business from personal injury claims. 1. Pre-empt Workplace Accidents Accidents in a workplace are erratic and unpredictable. Therefore, it is wise to pre-empt the potential safety risks and implement measures to avoid dealing with the aftermath of an injury episode. Every business has a unique set of safety concerns that need to be addressed in time. Identify and tackle the safety vulnerabilities for your business and develop strategies to avoid such setbacks. A business owner is responsible for the maintenance of the office premises and equipment. Hire a building inspector to identify and fix structural issues like loose railings and broken staircases that may lead to accidents. Schedule regular repairs and maintenance to keep your commercial property safe for employees, visitors and customers and protect your business from personal injury claims. Clutter is a potential safety hazard. Keep high-traffic areas like aisles and stairways free of boxes and waste paper to minimize the possibilities of accidents and falls. Workplace driving accidents cost employers an average of $60 billion per year. Make sure all vehicles used for business purposes are thoroughly inspected, repaired and maintained on a regular basis to avoid any accidents in transit. Do not encourage overtime working. More often than not, overworked employees suffer from mental and physical exhaustion, increasing the chances of workplace accidents and injuries. Make sure you have adequate staff to improve the productivity and maintain a safe work environment for all. See also: When Workplace Safety Is Core…   2. Create a Successful Employee Safety Program According to OSHA, educating employees about accident and emergency response and other safety measures can reduce workplace injuries and disabilities by as much as 60%. Conduct pre-employment tests to screen the most efficient, skilled and qualified individuals for the job. Train your workforce to follow safety practices and identify, report and effectively manage site-specific hazards, thereby empowering them to make safe choices. Analyze your workplace for safety hazards and take effective steps to eliminate or control them. If you operate in the heavy machinery, construction or hazardous chemicals domain, make sure your workforce is using the proper safety equipment and protective gear. In an office environment, make sure the housekeeping staff keeps the aisle free of debris and spills, reducing the risk of falls. Moreover, follow the ergonomic workplace standards that promote employee productivity, safety and well-being. Routine safety and evacuation drills prepare employees for dealing with natural calamities like tornadoes, earthquakes and fire. It is critical to reinforce the safety measures at all employee meetings and training sessions. Encourage a culture of safety by stressing the importance of complying with safety standards, thereby reducing the risk of workplace accidents and protecting your business from personal injury claims. 3. Invest in General Liability and Property Insurance When accidents occur at the workplace, the injured employees, customers or visitors can easily file a personal injury lawsuit, imposing heavy fines on the business and damaging its reputation. Investing in liability insurance, however, can alleviate the financial burden of these lawsuits and maximize security for your business. Thus, when faced with personal injury claims of negligence, property damage, libel, slander and advertising injury, you can rely on general liability insurance to protect your business against such claims and cover your legal fees and the medical and miscellaneous expenses. To protect your company’s building and physical assets against fire, theft and accidental damage, it is advisable to invest in a liability insurance policy that includes property insurance. 4. Hire an Expert Business and Commercial Litigation Attorney Personal injury claims not only cost the business money but also put its reputation at stake. Whether you own a small or a medium-sized enterprise or a large organization, it is critical to hire a business and commercial litigation expert who can offer you valuable insights when signing contracts and settling claims. Personal injury lawyers know the personal injury claim process like the back of their hands and are updated on the latest health and safety laws. Thus, they can effectively represent you in court and advise you on the next steps, thereby ensuring that your business is adequately protected against such claims. 5. Know What to Do Once an Accident Has Occurred Despite safety precautions, workplace accidents do occur, resulting in personal injury claims against the employer. When an accident occurs in your business premise, injuring one or more employees, you should know how to handle the situation. First things first, seek emergency help for the people involved in the accident. Secondly, get in touch with your attorney, who can help you manage this situation in a professional manner. Investigate the sequence of events that led to the mishap and record it in the form of pictures and videos. Ask the employees who witnessed the incident to give you a recorded statement about the accident and remember to note their names and contact details. See also: Workplace Wearables: New Use of Big Data   Take Home Message As a business owner, you should always be prepared for dealing with all unexpected events, including workplace injuries. Because personal injury claims severely damage the company’s reputation and eat into its bottom line, the best defense is to take pre-emptive, preventative steps toward minimizing the incidence of workplace accidents, thereby securing the business from such risks. The information shared in this post will help you create a safe work environment for your employees and protect your business from pricey personal injury claims.

How to Market to Different Generations

Approaches need to be tailored for the Silent Generation and Baby Boomers, rather than being mass marketing messages.

If you say that everyone is in your target market, you imply that your service or product applies to no one in particular. Defining a target market is important because everyone is in a unique life stage that will affect their buying process. Generational marketing is when you market to a specific generation of people based on the preferences, attitudes and upbringings that distinguish them from other groups. This approach means tailoring customized messages for specific age groups instead of sending mass marketing messages. The Silent Generation refers to people born between 1925 and 1945. The Baby Boomer generation refers to people born between 1946 and 1964. More babies were born in 1946, the year after World War II ended, than ever before: 3.4 million. That is 20% more babies than in 1945. The Silent Generation as Clients Characteristics of the Silent Generation include being technologically challenged, staying loyal to employers, using traditional methods and respecting authority and patriotism. More than half of the Silent Generation was married, and fewer women worked outside the home than do so today. Many of them did not have a bachelor's degree. This generation witnessed the creation of Social Security and Medicare. Members of this generation were brought up on the value of hard work and diligent saving. Marketing to the Silent Generation means earning their trust and providing them with value. The Silent Generation lean toward face-to-face communication. It is important to clearly communicate information and explain services or products you provide. With this generation, agents should be prepared to answer questions in person and provide hard copies of forms or reports. When discussing financial history, it is important to approach questions without judgment. As time passes, it is imperative that you notice any cognitive changes in your clients. See also: The Unique Skills in Each Generation   When you are meeting with clients from the Silent Generation, it is respectful to meet them in the lobby or reception area and walk with them to your office or meeting room. You should prepare the meeting room to be handicap-accessible, such as with adjustable chairs and wheelchair-accessible tables. Many in this generation have physical disabilities. Some clients will have hearing disabilities, and reducing extraneous noise will make the meeting easier for them and for you. If you will be discussing end-of-life planning, having family members present is usually a good idea. Many from this generation are worried about the economic challenges their children and grandchildren are facing and wonder why success has become much more difficult for them. Some members of this generation set up college trust funds for their grandkids, and some even assumed formal custody of them. The Baby Boomer Generation as Clients Baby Boomers are in the over-50 age group. They have been considered the "me" generation, characterized as having individualist attitudes. This group of men and women were the first TV generation. Baby Boomers were also the first generation where divorce was socially tolerated. This generation has grown up through the phases of getting married, forming families, raising kids and settling in careers. Some are  now grandparents. This generation is viewing the world around them in an experienced way. To reach this generation effectively through marketing, you will need to try to show you understand their upbringing and values. If you are looking to form a stronger relationship with your Baby Boomer clients, you will want to be as respectful as possible. Never refer to a Baby Boomer as old; it disregards the way the generation is redefining what growing old means. When marketing to these people, do not assume their age will hold them back. Many Baby Boomers are looking forward to retirement adventures like cruises, dinner parties, sky diving and other means of experiencing the world around them. This is not the generation to retire so they can sit at home at watch TV all day. When working with Baby Boomer clients, it is important that you keep your promises. This should go without saying; keeping your promises should be a priority with all of your clients. This is how you build and maintain trust between your business and your clients. Providing exceptional customer service is vital if you want to win over the Baby Boomer clients. This generation loves one-on-one interactions in person, over the phone or through online live chats. User-friendly websites can add to the customer service experience. Many Baby Boomers want to find the answers to their questions easily on their own. Baby Boomers are tech-savvy individuals, this age group is actually the fastest-growing demographic online. Baby Boomers spend more time per week online than they spend watching TV. Creating and posting informative sources about your products or services online is just as important as explaining the benefits of the offerings your company provides. The internet is one of the most important information sources for Baby Boomers when they make purchasing decisions. A website needs to be easy for Baby Boomers to use to purchase products, and marketing materials must include calls to action directing them to buy now. Baby Boomers can purchase Christmas gifts online from the comfort of their home; they couldn't do this before, and, now that they can, they love it. Incorporate social media into your digital marketing. Now that moms and dads are on Facebook, the younger generation is not as interested in being on these social sites. This is, however, a great place to reach Baby Boomers. Statistics show that Baby Boomers are the fastest-growing age on Facebook, with an 80% surge in users between 2010 and 2014. The Importance of Generational Marketing Don't assume that all Baby Boomers or all of the members of the Silent Generation are the same. No group of people can or should be stereotyped. Marital status, income, net worth, life experience, health and age are things that affect how people respond to marketing messages. It is your job to understand this, act accordingly and reach clients in the moments that matter with a message that will create a connection. See also: How to Attract the Next Generation   Whether you are working with a Baby Boomer or a member of the Silent Generation, every message should be tailored to connect with each individual consumers. You will find connecting with clients easier when you know what they consider to be respectful. Respecting your clients, listening to their needs and giving them the best solution for their situation will lead you into the ideal client-agent relationship you desire.

Jagger Esch

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Jagger Esch

Jagger Esch is the president and CEO of Elite Insurance Partners and MedicareFAQ, a senior healthcare learning resource center.

High Time to Trust Patients, Physicians

The days of trusting legislators to have our best interests at heart are in the rearview mirror. It's time for doctors and patients to take the lead.

The days of trusting your legislators to have your best interests at heart are in the rearview mirror. Apparently, their main interest is parroting the buzzwords of the moment to get elected and then being too busy banking lobbying money to listen to the voters. Our legislators have become spectators who wait for the perfect moment to pounce on their political enemy and then go on cable news shows to boast about it. The “us against them” attitude, punctuated by hyperbolic, apocalyptic rhetoric, closes the door to finding solutions. Our interests would be better served by having town hall meetings where voters could state their concerns, air their differences and learn what legislators are doing about their issues. Caution: Meetings at 9 a.m. on Wednesday ,when paid activists are guaranteed to outflank the working general public, are prohibited. There are strong differences of opinion on how to attain a healthy citizenry. Educating potential patients about what drives up medical care expenditures can start the conversation. Well-informed patients would demand solutions based not on corporate interests or government or political agendas but on a fair, competitive market that maximizes choices and achieves lower costs. Eight years of the Affordable Care Act have borne out Congressional Budget Office predictions that abandoning basic principles of insurance—which compensates only for events beyond the insured’s control and is priced according to the degree of risk—would lead to higher and higher premiums, fewer participating insurers and unsustainable government expenditures to subsidize insurance premiums. The data in three recent Centers for Medicare and Medicaid reports on ACA exchanges show “individual market erosion and increasing taxpayer liability.” The average monthly premium for coverage purchased through the exchanges rose 27% in 2018, and federal premium subsidies increased 39% from 2017 to 2018. See also: 10 Reasons Healthcare Won’t Be Disrupted   A less frequently discussed cost driver is the disturbing trend of private doctors’ offices being scooped up by hospitals, health insurance companies and venture capital groups. Prices tend to rise when health systems merge, because of decreased competition. And not only do hospitals and health systems generally charge more than private physicians’ offices, the government compounds this problem by paying more to hospitals than independent offices for the same service. A review of 2015 Medicare payments showed that Medicare paid $1.6 billion more for basic visits at hospital outpatient clinics than for visits to private offices. Patients are the biggest losers: They paid $400 million more out of pocket and had their tax dollars wasted. The study also found hospital-employed physicians’ practice patterns in cardiology, orthopedic and gastroenterology services led to a 27% increase in Medicare costs. This translated to a 21% increase in out-of-pocket costs for patients. Similarly, a U.C. Berkeley School of Public Health study of consolidation of California's hospital, physician and insurance markets from 2010 to 2016 concluded: “Highly concentrated markets are associated with higher prices for a number of hospital and physician services and Affordable Care Act (ACA) premiums.” In consolidated markets (defined by the Federal Trade Commission’s Horizontal Merger Guidelines), prices for inpatient procedures were 79% higher, and outpatient physician prices ranged from 35% to 63% higher (depending on the physician specialty) than less concentrated markets. Big medicine and third-party financing are taking the cost curve in the wrong direction. This speaks to the urgency of encouraging cash-friendly practices that bypass insurance and supporting direct primary care (DPC) practices. With DPC, all primary care services and access to low-priced commonly used medications are included in an affordable upfront price. Importantly, DPC’s time-intensive and individualized management of chronic diseases decrease hospital admissions, paring Medicare’s $17 billion spent on avoidable readmissions. See also: How to Optimize Healthcare Benefits   Why corporations want to marginalize private practice seems clear; the government’s motive is open to debate. Surveys consistently find that patients overwhelmingly want “personalized provider interactions.” Thus, herding patients into government-directed programs is not the solution. One core problem with government systems is their reliance on the goodwill of politicians. As President Ford said, “A government big enough to give you everything you want is a government big enough to take everything you have.” It’s time for Congress to scrutinize anti-competitive health system mergers. It’s time to bring to the floor more than a dozen bills to expand and improve Health Savings Accounts (HSAs) to give patients more control over all facets of their medical care. Congress, the clock is ticking on this legislative session. Stand up for patients. Or did the dog eat your courage?

More Opportunities for Reinsurers in Health

Market liberalization initiatives present even more opportunities for innovators in transparent health reinsurance.

As insurers and regulators address uncertainties in connection with risk-adjustment, transparent health reinsurance emerges ever more forcefully as a marketplace solution for managing risk in connection with healthcare costs. 

The immediate instance animating fresh reconsideration of health reinsurance is the early July Trump administration decision to desist from administering risk adjustment. The decision followed a federal court decision in New Mexico that found that the Centers for Medicare and Medicaid Services was being arbitrary and capricious in its risk adjustment. 

There is nothing inherent in risk adjustment that makes rational and neutral implementation impossible. It is simply that CMS wasn’t doing that in New Mexico in the court’s determination, so the judge sided with Land of Enchantment insurers and rapped CMS’s knuckles. Risk adjustment is a permanent element of the Affordable Care Act, or Obamacare, to transfer risk among insurers. Transitional reinsurance and risk corridors, elements of Obamacare that expired at the end of 2016, worked well... and badly. Transitional reinsurance had pooled enough money, coupled with $5 billion of Treasury subsidies over three years, to pay claims. Risk corridors, by contrast, paid but 12.5% on claims and put a number of insurers in the lurch. They had entered Obamacare markets on the supposition that risk corridors would pay vastly more. 

Administration decision making on risk adjustment leads inescapably to uncertainty because of the potential for adverse selection, an escapable element of insurance. Nicholas Bagley, a scholar, says that, “in one sense, the furor over the risk adjustment program may be overdrawn. The 2019 rule has been fixed, so we’re really talking about accounts receivable at this point. They’re big accounts receivable, amounting to hundreds of millions of dollars, but most insurers can handle a short delay in getting paid."

In another sense, however, the needless suspension of the risk adjustment program is a signal that the Trump administration remains intent on sabotage. Already, insurers were stiffed on their risk corridor money. Then the cost-sharing payments evaporated. Now, even risk adjustment money may go up in smoke. What’s next? This is no way to run a health program, and no way to run a government. 

One practical solution is to embrace transparent health reinsurance, a proposal that ITL published in anticipation of fade-outs for risk corridors and transitional reinsurance just over two years ago. If anything, conditions are more propitious now. 

See also: Reinsurance: Dying… or in a Golden Age?   

This past fall, the president placed the foundation for association health plans. Last month, the Department of Labor issued implementation guidance, which will go into effect later in August, so associations of enterprises could jointly negotiate and purchase health care coverage. DOL says: “As it has for large company plans since 1974, the department's Employee Benefits Security Administration will monitor these new plans to ensure compliance with the law and protect consumers. Additionally, states will continue to share enforcement authority with the federal government.” 

Similarly, the Trump market liberalization for short-term, limited-duration insurance opens another market for reinsurers. As with association health plans, CMS says that, “in the final rule, we also strengthened the language required in the notice and included language deferring to state authority.” 

The market liberalization initiatives, coupled with Department of Labor, CMS and state regulatory oversight, present signal opportunities for reinsurers. For instance, in the emerging private flood insurance market, “market growth to date has largely been driven by the interest of global reinsurers in covering more U.S. flood risk,” the Wharton Risk Management and Decision Processes Center reported in July 2018. Issuers would mitigate adverse selection. Associations and issuers of short-term, limited-duration insurance would mitigate risk. State legislators and regulators could enact statutes and set standards, their domain competencies. Mandatory, state-based reinsurance is wholly feasible, particularly in densely populated states, for each marketplace offering. This approach could go a long way toward creating foundations for accountable health organizations. 

See also: The Dawn of Digital Reinsurance   

Innovators like Amazon Web Services could bring one element of available technologies, cloud computing, to provide fresh applications boosting asset values and volumes and increasing probabilities for effective service. Associations, enterprises and individuals would experience greater healthcare security and quality.