It was 1975. While completing an application for malpractice insurance, a dentist told me his address was 12345 Main St. I commented on how simple it was. He shot back, “So simple even insurance agents can understand it.” In 1994, while speaking about managed care to a conference for librarians, I mentioned the rising cost of healthcare. There were about 250 in attendance. The audience was engaged. Suddenly, someone in the back of the room screamed, “Read the Golden Stethoscope and see what those bastards are doing to us!” I was shocked by this apparent “nut” in the crowd. Looking around, I realized the majority of attendees were nodding in agreement with the “nut.” A few months later, working as the executive director of the Louisiana Managed Healthcare Association, I was at my office. Don, one of my board members, called to say I needed to come to his office right away because two federal agents wanted to talk to us. I did what any of you would have done. I threw up in my garbage can, then went to Don’s office. We met with these two agents for about four hours. They were investigating physicians in two parishes who were allegedly colluding with a hospital to drive patients to their institutions. What they were doing was illegal. Later that week, I spoke to the medical society in one of these parishes. One hundred doctors were in attendance. The doctors had just concluded a meeting that celebrated their leadership in funding a physician-owned HMO. This was a priority because no one was going to tell them what they could or couldn’t do in the practice of medicine. See also: How to Earn Consumers’ Trust   Once introduced as the executive director of the Louisiana Managed Healthcare Association, I began my presentation on Managed Care 101. Ninety-eight of the doctors were polite hosts and a respectful audience. The two other doctors operated in full attack mode. Toward the end of the program, one screamed at me from the back of the room, “I don’t think insurance companies and HMOs should make money in healthcare.” I explained that many people felt doctors were making plenty of money in healthcare and that premiums were too high. I will never forget one doctor’s response. He said, “We’re just getting by.” Ninety-eight of his colleagues bowed their heads in embarrassment. Later, I was told he was grossing $2 million a year. (I wanted to yell, "The Feds are going to get you," but I didn’t.) A November 2012 Gallup survey ranked 23 professions based on the public’s perception of their ethics. Agents rank seventh FROM THE BOTTOM – between legislators and attorneys. Not everyone loves us as much as we love ourselves. The dentist, the librarians, the physicians and the participants in the ethics survey all have their opinions. I’m assuming most see themselves in a positive light but are often suspect of others. This brings me to the point of the story. On TV in 1954, Robert Young played Jim Anderson, an insurance agent, in Father Knows Best. Those were simpler times, and insurance was not the expense that it is today. We now see ourselves as the Main Street agent (adviser), a trusted choice, “like a good neighbor” and other “feel good" personifications. But more and more consumers I talk with are “mad as hell and won’t take it any more” with the cost of insurance. Premium costs, rate increases, larger deductibles and co-pays are breaking our clients. The worst is yet to come. When the National Flood Insurance Program must finally demand actuarially sound rates, and the adverse selection of the ACA finally takes its toll, voters will rebel, and government will gladly welcome the chance to further expand its failed involvement in our industry. See also: Why More Don’t Go Direct-to-Consumer   We can explain all we want. Consumers don’t care. All they want is relief. In my opinion, if we don’t aggressively work to solve the cost problems because we believe nothing can be done, we will lose our industry and agency system as we know it. Peter Drucker stated this clearly in 1993, when he said, “Customers do not see it as their job to ensure manufacturers a profit.” Peter Drucker was a very wise man. Video stores, book stores, travel agents, solo practitioner doctors, full service gas stations, etc. were dumb, fat and happy, and now most are gone. The consumers no longer saw their value. How might consumers spell relief? A – M – A – Z – O – N, or W – A – T – S – O – N or A – I or some other innovation that we can’t even imagine. America's agents need to wake up before it's too late!

Part 2 – You CAN reduce your claims expenses and improve the customer experience. In Part 1, we looked at how your claims processes and systems are a customer experience issue. This time, I will dive into the fact that you can reduce your claims expenses while improving the customer experience. A recent article in A.M. Best’s journal shared a survey that indicated the top two items that needed technology improvement are: --Improving the customer (and agent) experience. --Legacy administrative and claims systems. Reducing the claims expenses of a company does not have to mean a reduction in the customer experience. Improving the customer service or experience does not mean you need to increase expenses by adding human capital in the company. I have learned that there can be a happy medium. See also: Finding Efficiencies in Claims Process   Here are some questions and thoughts to keep in mind as you and your team evaluate ways to reduce the claims expenses while maintaining or enhancing the customer experience: Does your company have a proactive or reactive digital strategy? Digital strategy and digital capabilities are not the same thing. I believe digital channels and experiences are going to change the insurance industry. You must meet your customers where they are and want to meet. If that is mobile, then you need a way for your customers to process claims on their mobile devices. And not just some functions, all of the claims functions. Have you ever started a process on your mobile device only to go down a path that leads to – “We apologize, that function is not available on our mobile app, please go to www dot…” (You get the point.) It is frustrating, to say the least. Insurtech: Does your company just talk about it, or do you actively engage in it? Talking about insurtech and actively engaging are two different topics of discussion. Here is what I have learned in building businesses. A business is always in one of four phases at a given time: innovating, pivoting, growing or dying. Ask yourself, which category are we currently in? Let's hope it isn’t the last category. Insurtech can help your company with the first three categories. However, you must become engaged. This means reaching out to insurtech companies and taking a new approach by working with them. You may be pleasantly surprised by what they can offer to you, your team, your company, your customer experience and your bottom line. Are your legacy systems hindering innovation, or even preventing it? Let’s discuss item #2 of the A.M. Best survey results. I can tell you from experience; When I inquire about legacy systems at life insurance companies, I hear a sigh. This is not a sigh of happiness, it is a sigh of not wanting to discuss this subject. At all! Most people almost cringe at the thought of discussing the legacy systems. See also: Top 10 Claims Trends That Will Affect 2018   Here are the facts: Your legacy systems exist and are currently a necessary part of the business. They will probably get phased out or updated. This process is going to be expensive. But does it have to be? What if an insurtech recognized this issue as a barrier to entry for its product or offering and decided to tackle the legacy issue head on? What if it could connect to your legacy systems and complete the claims processing functions while delighting and providing WOW to your customers? What if it could accomplish this with minimal resources and at a reasonable price? My point is there are many ways your company can be innovative. If you start to have an open mind and explore some of the insurtech companies out there, you may get all of the innovation your business needs! Stay tuned for Part 3 of this article to learn how your claims process can become a revenue driver for your products.

Picture this scenario: For an hour, you have the undivided attention of an expert in your field with years of experience directly relevant to your current job and your career. How would you spend that time with the expert? Specific answers will vary, but chances are that watching a PowerPoint presentation or reading from a textbook together isn't very high on your list. Yet those passive acts sometimes make up most of an organization's training sessions, leading some to wonder if there is a more efficient way to train employees. A growing number of learning and development pros have found success by turning that model on its head with the flipped classroom approach. With this concept, trainees study material on their own time and spend classroom time working through real-world scenarios and having more in-depth discussions with experts on the topic. The Pros and Cons of a Flipped Classroom Proponents of flipped classroom training argue that traditional “sage on the stage” training sessions squander the valuable and limited time trainees get with subject matter experts. The experts essentially become content delivery vehicles. Even if they present the information in an engaging and informative way, much of their expertise and industry know-how remains untapped as they spend time covering the basics. Traditional training sessions are not ideal for learners, either. In a traditional classroom setting, the lesson can progress only at a single speed. In turn, advanced learners may get bored with the pace and lose interest, while less experienced learners may struggle to keep up. See also: How Millennials Are Misunderstood   In flipped classroom structures, trainers record videos or prepare presentations that trainees watch on their own before the training session. They’re expected to show up to the session with a basic understanding of the material and to be ready to discuss it in greater depth with the trainer and fellow participants. This flipped classroom approach offers advantages that may be compelling to many—trainees can learn at their own pace with relatively basic technology requirements in preparation for a collaborative training session focused on social interaction and tapping the expertise of the subject matter expert leading the training. Potential issues do creep up with flipped classroom learning. First and foremost, trainees must find time to complete the pre-assignments. This means either finding time during the workday to watch videos or being sufficiently motivated to review the material after hours—both of which are easier said than done. There’s also a small technology hurdle to overcome. Trainers need to be comfortable creating the content, and trainees need to be tech-savvy and have the resources to access the content. Can Flipped Classrooms Work for Risk and Insurance Training? The flipped classroom concept has already delivered proven results in school classrooms. In one school that implemented the flipped classroom approach, the failure rate dropped from 30% to 10%, and the rate of graduates going on to college increased by almost 20%. The flipped classroom concept is not new to the corporate world, either, though advocates say it’s still underused. Some companies, including McAfee, are already using it to train and onboard new hires. Others are using the basic concept to flip business presentations and meetings. Many insurance professionals are finding success with the approach, as well. The increased interaction between learning and development professionals and trainees is an obvious benefit for students, and employees showing up with a basic understanding of the material can make sessions less frustrating for trainers. In many cases, the flipped format is actually a better fit for learning industry-specific topics like underwriting or claims because the collaborative environment more accurately simulates the workplace. See also: Time to Formalize Insurance Career Path   It’s important to note that the same pitfalls that exist in traditional classrooms can limit the effectiveness of flipped classrooms. The challenge of developing quality materials still exists for those leading the training, as does the challenge of motivating trainees to thoroughly review the pre-training materials and actively participate in discussions. If you can solve these challenges, however, the format has serious potential to reinvent training, from general onboarding to more specific technical topics. Have you had success with the flipped classroom approach or with giving trainees material to review at their own pace before entering the classroom? Let us know in the comments section below.

"My light bulb moment was when I realized that as important as insurance—and by extension insurtech—is, 'risktech' is the future of technology that will be the most helpful to risk leaders going forward.

"I am not talking about today’s popular governance, risk management and compliance systems framework, but rather the technology solutions that will help mitigate risk by more effectively navigating the digitization of the risk profile of organizations."

This was an insight shared by Chris Mandel, Senior VP of Strategic Solutions for Sedgwick, in a recent article, "Insurtech or Risktech," published by Risk & Insurance. Chris's lightbulb moment came during a discussion that occurred during an event on technology hosted by Siemens in Houston, the result of a collaboration between Siemens and Insurance Thought Leadership.

Chris closes this piece with what amounts to a leadership challenge for risk managers in verticals other than insurance: "The good news is that these solutions are already beginning to emerge…. The remaining question is whether or not risk leaders are up to this new world challenge and how they’ll respond." 

The basis for Chris's challenge to risk managers certainly also applies to corporate leaders across the insurance industry. 

Never before have leaders faced a more demanding or compelling challenge to innovate. But, to do so, they must suspend a host of common beliefs: that an innovator first requires size, a particular culture, an abundance of resources or the completion of internal digitization efforts. 

A few quick snapshots from the Innovator's Edge shows why those beliefs must be set aside.

In a relatively short list of technology-based firms, the total funding into their success exceeds $78 billion, spanning 2,096 firms. Look at the mix of technology applications.

Many fall outside of what many might classify as insurtechs, yet, to echo Chris’s phrase, these are very much "risktechs" in that many of these early-stage firms will affect risk—and by extension the insurance industry—to a far greater degree than many of the process improvement benefits being delivered to insurers via insurtechs. Note that many of these companies started with teams of less than five, yet will deliver massive amounts of innovation without meeting many of the common beliefs about how to produce it. 

To highlight the need for broader thinking about innovation, consider the next chart, based on 547 early-stage entities with a funding total exceeding $29 billion. This chart shows that the funding supporting autonomous vehicle startups exceeds the selected insurance categories combined.

While insurtech companies will yield benefits to insurance operations in the near term, in the long term the application of "risktech," such as autonomous vehicles, potentially rewrites the rules of the entire insurance industry.  

Since 2000, the cost of technologies has fallen by a factor of 3,000X while the computational capabilities have grown by a factor of 10,000X, and the insurtechs and risktechs riding those waves will provide the insurance industry with exponential growth opportunities. We maintain that adopting the best practices in insurance innovation is achievable, regardless of the size and perceived resource constraints of an insurance company.

Corporate leaders across the entire insurance value chain would be well served to consider these trends in the context of their legacy. Who will be remembered as the leaders who embraced growth via innovation vs. those who chose not to? Which path truly represents the more significant systemic risk to an enterprise: embracing the possibilities of innovation, or staying the course while competitors become innovators and transform their future?

Guy Fraker
Chief Innovation Officer
Insurance Thought Leadership

p.s. I'll be speaking about the tremendous opportunities for insurance innovation in an upcoming webinar in partnership with Johnson Lambert. Register to attend and join the conversation. 

Over the past nine years, $20.6 billion has been invested into insurtech startups (data below as of March 21). In 2016 and 2017 alone, this figure amounts to $10.7 billion. I love it. There is nothing better than reading about a newly funded startup from a large VC firm. It takes a ton of blood, sweat and tears to get an investment from a high-profile VC, and it is extremely rewarding for the startup that is able to secure funds from one. These transactions tend to generate a lot of press (as they should). The money allows the startup to say, "We have proven ourselves by gaining some traction, have passed the intense due diligence of a VC firm and now have the runway to serve you." "You" in this sense typically means a carrier (in the case of a B2B insurtech startup). There is another group of startups out there that do not get any funding press because they are self-funded. These firms sometimes fall under the radar of carrier innovation teams that are scanning the market for meaningful solutions. This article is NOT to take away from the funded companies. The majority of startups I work with are well-funded by VCs. This article IS to educate on what a self-funded (i.e. bootstrapped) startup is, some advantages and challenges of working with one as well as how a carrier should assess a bootstrapped startup vs. a VC-funded one. To help with this, I had the pleasure of interviewing Nick Mair, CEO and co-founder of Atticus DQPro. Atticus DQPro is a data monitoring platform designed specifically for the operational and regulatory needs of the insurance market. Atticus DQ Pro was bootstrapped from Nick’s first business, Atticus Associates, a consulting service to the London and specialty Insurance market. What is a bootstrapped startup? The self-funding can either come from a founder's personal finances or another revenue stream, such as consulting. A third approach is to fund a company based on the revenue from a product that you are building, though this can be harder to get off the ground. There are also circumstances whereby a company will bootstrap for a period of time to obtain more attractive fundraising terms (more on this later). For Atticus DQPro, Nick had an established consulting business in the U.K. insurance market. The focus was on technological implementation and transformational change for carriers. See also: Where Are the Insurtech Start-Ups?   By gaining on-the-ground understanding of how carriers work and what their problems were, Nick and his team were able to identify a solution for the specific need their clients were facing. They got the idea and the funding from their consulting business. What are some of the advantages to working with a bootstrapped insurtech startup? "When you are bootstrapping, you are living on very limited amount of cash, and this means you are forced to solve a problem faster than a VC-funded outfit." I found Nick’s statement to be quite interesting. Whether a startup is bootstrapped or VC funded, it must have a solution that is relevant to the carriers it is trying to work with. For those that have VC funding, their runway may be a bit longer. VCs are typically looking for a total return/liquidity event five to seven years from time of investment and good traction within one to three years. Bootstrappers do not have this same luxury. "Many bootstrappers are looking to solve a real problem now rather than something truly disruptive," Nick said. Nick explained that, from his experience, bootstrappers must get to product/market fit and real revenues faster. If they don’t (unless they have very deep pockets), then they could be out of business in less than a year. Nick said bootstrappers are pushed to solve problems faster with the carriers they work with and then scale quickly after that. Bootstrappers can mine opportunities that are not of interest to VCs because they’re sub-scale; e.g it’s a $5 million to $30 million opportunity rather than $100 million-plus. That window leaves a lot of niche problems for bootstrappers to fix without competition from funded startups. Nick said: "We can argue revolutionary change is required for our industry, but evolution can happen in parallel to solve real business problems now." Lastly is the area of domain expertise. Many bootstrappers (as in the case with Nick) are industry specialists who have found a need within the domain and want to fix it. By contrast, many of the VC-funded startups come with founders with deep technology backgrounds. They have built great solutions that they believe can enhance or disrupt insurance yet lack the insurance industry domain expertise. I do see this dynamic shifting. There are many more VC-funded startups with founders who come from within the insurance industry. What are some of the challenges to working with a bootstrapped insurtech startup? Not all VC-funded startups are looking for long-term disruptive solutions. Many have product/market fit solutions that solve the existing problems of today’s insurers. These VC-funded startups can scale their teams (specifically in sales/business development) much more quickly than a bootstrapped model allows. Nick shared that this problem typically comes when the bootstrapper has around 10 clients and needs more resources to continue to market and deliver their product. This is typically the time that a bootstrapper needs to try to secure outside funding. Nick’s view is that bootstrappers that can generate a decent annual recurring revenue (of roughly $1 million to $2 million) will be in a better position to get additional funding on more favorable terms (i.e. the startup already knows it has something that works and can be more confident when/if seeking additional funding to scale, through a VC, small private equity firm or carrier). Getting to that point and knowing when to make that call can be hard for a bootstrapper. Another disadvantage of working with one is that the team is primarily the management team and advisory board. Having a VC-funded startup brings the experience of the firm that invested. A VC firm has massive skin in the game for the startups to succeed. If the VCs are with a reputable firm, they have dealt with startups for a long time and likely had some good exits. They will be able to bring a perspective that the founders may not have and may not have access to within their own management team/advisory board. What does this mean for carriers? Should they partner with a bootstrapped insurtech startup or a VC-funded one? A few months ago, I wrote An insurance carrier’s guide to working with an insurtech startup. The first point is to "understand and prioritize your organization’s needs." I would like to reiterate this. A carrier must have a problem/area that needs to be addressed. If the startup fills this need, then I said to move to the next, which is due diligence. If the startup is VC-funded, this is a good first step. VCs have ridiculous due diligence processes (just ask any founder what the process is like). If a startup has secured a Series A or higher from a reputable VC firm, it has passed a certain test. The VC will have looked at the business plan, legal entity setup and founding team to the nth degree (among other things). A carrier must perform its own due diligence but has the assurance that someone else has also done a fair amount. For a bootstrapped one, it is important to know where the funding is coming from and what sort of runway the startup has. For both, it is important to know what sort of engagements they have done. If they are only in pilot stage with the carriers they are working with, this is OK. Ask what sort of results they can share with you from the pilots they have done/are doing to indicate whether that is the sort of result you are looking for. Additionally, when looking at the team of the startup, it is extremely valuable if some of the founders/team members have actual insurance industry experience. This will add another element of understanding of the carrier’s business while working together. Lastly, carriers should start with a pilot when working with a startup (whether funded or bootstrapped). This is a good way to validate the work the startup says it is going to do with you before going fully commercial. Summary There are tons of startups out there. It’s such an exciting time to be in this business and to be working with such smart and energetic people who are trying to make insurance better for consumers. I have deep admiration and respect for all startups, whether they are funded by VCs or bootstrapped. It takes a lot of courage and perseverance to start a business, especially in one as highly regulated as ours. See also: What’s Your Game Plan for Insurtech?   There are many reasons why a startup would be bootstrapped vs. raising funds. The last point Nick made to me was that "self-funded can mean bootstrapped by design/choice rather than trying to get funded. Founder reasons can be keeping control, better work/life balance or greater freedom." For those thinking about starting an insurtech startup, have a look at this article that Nick shared with me. And for those carriers looking to partner with a startup, do your due diligence and make sure you are filling a need and putting the carrier in a better place as a result. VC-funded startups and bootstrapped ones are both good options, and you should consider both for your innovation efforts. This article first appeared at Daily Fintech. 

There’s a lot of talk about how artificial intelligence (AI) will lead to the displacement of vast numbers of agents and brokers in the insurance industry. The truth is, while AI will automate certain processes, it will ultimately enhance — rather than replace — humans in the marketing and distribution of insurance. “Human advisers are going to continue playing an absolutely critical role,” said Farron Blanc, VP, Innovation Studio for RGAx, at Denim Summit 2017. “When you go fully digital, the conversion rates are probably about 1% from seeing an ad all the way through paying the first premium. As soon as we put in a call center, we’re seeing — depending on the segment — a 30% conversion rate.” There’s no question both humans and technology will play a critical role in the future of insurance. But what are the benefits only a human can bring, and what are things humans can’t do without technology? Let’s take a look. The Human Value Below are a few things humans bring to the table that technology can’t do alone:

• Trust. As Chip Bacciocco, CEO of TrustedChoice.com, pointed out during Denim Summit 2017, insurance is, at the end of the day, a social contract and requires trust. “The real point of buying insurance is that you can go to sleep at night feeling like you did the right thing, you’re taking care of your family,” he said. “If you aren’t 100% certain you clicked the right button on that screen, and that real people are really going to pay your claim someday, you never really get to sleep.”
• Accountability. Along with trust, any type of business or social contract needs someone to hold accountable. “You need to know who to talk to when something goes wrong. You need to know who your advocate is,” Bacciocco said.
• Expertise. Let’s be honest: Insurance is confusing. Often, customers and potential customers need to talk to another human being who can empathize with their concerns and truly get at the heart of their questions. Agents and advisers bring years of expertise to the table that can help customers make the right decisions and give them peace of mind.

See also: Cyber: How to Fix the Human Factor   The Technology Value Here are the types of benefits made possible only when technology is added to the equation:

• New markets. Technology makes it possible to reach new market segments. For example, RGAx looked at the needs of Hispanic remitters and found that a $7 per month insurance policy would solve a pain point for them: protecting their loved ones with remittances for two years if something were to happen to them. “How do you get humans to sell $7 insurance to people who really need it?” Blanc asked. “Technology is this great democratic leveler that allows us to reach new forces.That’s why it’s disruptive. It allows us to reimagine the value chain and serve people in whatever way they want.”
• Personalization. There is an unbelievable amount of data available on consumers, especially when it comes to their digital behaviors. Recently, Denim announced we have collected more than 1 billion data points on consumer engagement with mobile and social media ads powered for insurance and financial services companies. Technology allows us to activate data to deliver highly relevant offers and personalized experiences to consumers.
• Multiple channels. Not all consumers want to engage with their insurance and financial services providers the same way. Some would prefer to do everything face-to-face or over the phone, while others would prefer to do everything online. Still others will start the process online but then need to talk to a person to complete the request. Technology makes it possible for consumers to engage with providers in the channel they prefer, any time of the day or night.

See also: How Technology Breaks Down Silos   Key to the future will be combining the best elements of human interaction with the best elements of technology to provide a superior experience to every consumer, every time.

Spring is here … but for many parts of the U.S. you would not know it!  Many are making decisions to wear their gloves, hoping they still fit! For insurance, the dawning of a “new spring” is here, as well: Digital Insurance 2.0. But for many, it does not fit well with their current business model, products, processes and more. They are grounded in Insurance 1.0. The shift from Insurance 1.0 to Digital Insurance 2.0 is rapidly intensifying as we move aggressively into the digital age. And where the business models of the past 20 to 30 years, represented by Insurance 1.0, were resilient for their time, they will not meet the needs or expectations and customer decision models represented by Digital Insurance 2.0. The point of purchase is a pivotal moment in the customer and insurer relationship. It is where insurer growth happens (or doesn’t). It is where customer loyalty begins (or doesn’t). It is where prospects release their misgivings and hand themselves over to insurer care and service (or decide to look elsewhere). Insurers certainly recognize many of the benefits of meeting a new digital age with customized, personalized customer engagement that leverages digital technologies to create seamless customer journeys. However, at the heart of the purchase process is the moment of decision. And Insurance 1.0 hasn’t kept pace with an understanding of how people make decisions. Digital Insurance 2.0 models will dramatically improve purchase decisions by catering to decision motivators and triggers. See also: 4 Insurers’ Great Customer Experiences   In our recent report, Future Trends 2018: Catalyzing the Shift to Digital Insurance 2.0, we look at the behavioral reasons related to insurance purchase decisions that should act as digital motivators for insurers. We begin with a look at why traditional Insurance 1.0 purchasing may actually be reinforcing bad decisions and behaviors. Insurance 1.0 doesn’t work well with how customers make decisions In our Future Trends 2017 report, we explained how customers’ decisions and behaviors are not always driven by rational thought or the desire to maximize utility, as we were taught in traditional economics classes. The rapidly emerging field of behavioral economics helps explain some of the seemingly perplexing and, frankly, “bad” decisions people make about important matters like insurance. Traditional insurance practices, though certainly valuable, may contain some questionable motivational detractors at the point of purchase and service. For example:

• Are prospects ever confused with their insurance options, their actual coverages or their best routes to service?
• Are customers ever hampered from making a final decision by some hurdle presented during the sales process, such as additional requirements that may take time to present?
• Are customers ever encouraged to be “good” customers in uniquely new ways that will remove any future desire to make fraudulent claims?
• Are customers too often left “on their own,” with no personalization or automation to help them through the decision-making process?

A number of new Digital Insurance 2.0 entrants, and some established insurers that are creating new business models, are leveraging behavioral economics principles, in addition to an array of technologies like cloud, digital, mobile, AI/cognitive, IoT and data/analytics to facilitate better decisions for both the customer and the company. Psychological motivators and digital facilitators Here are just a few use cases to illustrate the intersection of Digital Insurance 2.0 and behavioral economics in the decision process"

• Lemonade customers pick a charity to receive premiums left over after claims, creating a further commitment to that charity and a desire to be claim-free for the good of the entire customer population. At the beginning of any claim submission, Lemonade customers also sign an “honesty pledge,” creating a commitment and desire.
• Friendsurance uses a peer-to-peer model to create commitment among group members to avoid claims so the group can share in rebates or lower premiums. This can only be accomplished through a digital framework.
• InsurePeer allows individuals to reduce their premiums by recruiting others (e.g. friends, family) to vouch for their risk-worthiness in exchange for “InsurePal Tokens” – but there is also a financial penalty if an at-fault claim is filed.
• Insurers (existing and new) present customers with several coverage options during the shopping process and position certain choices as ones that “other people like you chose…” to encourage the shopper to make a decision.

Some of these behavioral motivators could possibly be managed without a digital process, but none of them are. They are all firmly rooted in a digital model for quick and easy decision-making that captures the essence of the human desire to be committed, consistent and informed. The Motivation Equation The Fogg Behavior Model, developed by BJ Fogg, the director of the Stanford Behavior Design Lab at Stanford University, lends a simple formula to insurers for making sense of digital services and offerings. While the model incorporates elements of behavioral economics, it consists of just three components: motivation, ability and triggers, all of which have to occur in the same moment for a behavior to occur. Fogg’s model highlights an inverse relationship between motivation and ability. If someone has low ability for a behavior (e.g. a snail mail paper application and service process), a high level of motivation is needed (plus a trigger) to make a behavior happen. Similarly, if someone has low motivation for a behavior (e.g. “I’m marginally satisfied with my current insurer”), whoever wants them to cause a behavior must make it extremely easy (and provide the right trigger). By using this model as a lens for how people make insurance decisions, it reveals the many weaknesses of Insurance 1.0 models that Digital Insurance 2.0 models can exploit. Unfortunately for those companies firmly entrenched in Insurance 1.0, there aren’t any effective deliberate triggers for low-motivation and low-ability scenarios. This is the dynamic that Insurance 1.0 operates in with many customers: They are not very interested in nor engaged with insurance (motivation), and they think it is not easy to do business with (ability). The implication for Insurance 1.0 players is that it will likely be very difficult to encourage their customers to engage in desired behaviors, like purchasing additional policies, signing up for services (e.g. electronic billing), using the company’s app, not submitting fraudulent claims or getting satisfied customers to switch from another carrier. Insurtech startup ClearCover has staked its position on this concept and market realization. The business model is set up to piggyback on customer-originated triggers like life events and in-progress insurance shopping, to create motivation through low price (by avoiding high marketing spending) and to enhance ability through an easy research and purchase process. In reality, many of the triggers that cause customers to engage in Insurance 1.0 behaviors are likely of the serendipitous type, caused by an event on the customer’s end. Commonly cited reasons for shopping and switching are examples of these triggers:

• Trigger: Price increase or poor service
• Motivation: high. Sensation: pain (anger, confusion, perceived unfairness)
• Ability: Low. Our research shows that researching and buying insurance is not easy, but motivation may be strong enough to overcome the lack of ability, especially if competitors make the experience extremely simple. This is a key focus for Digital Insurance 2.0 players.
• Trigger: Life event (marriage, birth of a child, new home, starting a new business, etc.)
• Motivation: high. Anticipation: fear (realization of what you could lose and desire to protect it)
• Ability: Low. Again, as our research shows, insurance researching and buying is not easy, especially for those new to insurance (i.e. millennials, Gen Z).

In stark contrast, Digital Insurance 2.0 companies are using data, technology, platforms and processes to beat Insurance 1.0 models in all three components of the Fogg Behavior Model: Digital Insurance 2.0 Triggers: Using new data sources, including location, activity and condition data from connected devices, combined with improving analytics and AI/cognitive computing, insurers can predict and respond in real time to occasions where people should be highly motivated to act. Using platform-based ecosystems, the trigger for insurance can even be embedded or “invisible” as part of another transaction or activity, like buying a house or an Uber driver picking up a passenger. See also: Much Higher Bar for Customer Service   Digital Insurance 2.0 Motivators: The data and analytics enable triggers that can “catch” customers before or during an event whose immediacy and context should result in higher motivation to act…or to not have to engage in an insurance-related behavior at all, in the case of a platform-based ecosystem. Digital Insurance 2.0 Abilities: AI-driven apps radically simplify and speed insurance transactions like researching and buying insurance and filing claims. Platform-based ecosystems organize all relevant components of a customer’s journey into one place, including insurance, greatly simplifying the process by removing silos and embedding and streamlining tasks. Digital Insurance 2.0 players, many from insurech, are effectively using these three attributes.

• It was the combination of a life event trigger, high motivation and low ability that inspired Yaron Ben-Zvi to start Haven Life in an effort to simplify the process of choosing and buying life insurance.
• Lemonade’s behavioral-economics-based model radically simplified, redesigned and sped up the insurance process, from buying to claims, positioning the company for growth.
• PingAn’s model as an ecosystem platform has found opportunities to embed insurance within the purchase of other things, such as for shipping insurance of Alibaba purchases.

While these are just a representation, they highlight the fundamental differences in Digital Insurance 2.0 business model assumptions and approach, leveraging people and technology, to trigger, motivate and make it easy for customers to take action in buying insurance. It may go without saying, but these digital enhancements to the research, purchase and service processes should also be accompanied by innovative ideas in product development and corresponding organizational transformation. However, now you can add at least one more compelling business reason to shift into the realm of Digital Insurance 2.0. Not only is it the right move for the organization’s customer-first focus, but it is also a practical way to fill the sales pipeline with customers who will be better-informed, more loyal, likely more profitable and certainly more satisfied with the purchase process.

Small commercial remains a fundamentally attractive sub-segment of commercial insurance. It is intrinsically a large and underserved market; while many small businesses are confident about their business needs, they are often unknowingly underinsured. For example, according to our recent global survey of small business owners, nearly two-thirds of U.S. small businesses do not have business interruption coverage, and 53% lack indemnity coverage. Additionally, once small business owners have a policy in place, they are generally less prone to shopping and switching carriers than larger customers. Their agents also have limited incentives to facilitate this process given lower levels of commission. This has traditionally helped well-established small commercial players better navigate the ebbs and flows of the underwriting cycle, with more than decent levels of profitability for those who can navigate the more sophisticated pricing environment and agency consolidation trends. A market primed for significant disruption Most traditional small commercial players, which rely primarily on agency distribution, have operated the same way for decades and are now saddled with inefficient operations and bloated cost structures. While some of them have made sensible strategic moves (e.g., expanding their underwriting appetite by acquiring or building excess and surplus lines capabilities), none has demonstrated a “silver bullet” solution that puts them safely ahead of the pack or better positioned to deter entrants. In a challenge to incumbents, technology (e.g., advances in automation transforming underwriting and servicing) is increasingly lowering barriers to entry. Additionally, there is unmet demand among small business owners for digital insurance offerings due to a shift in purchasing preferences. Nearly 90% of small commercial purchasing decisions are made by business owners, many of whom have been conditioned by their personal shopping experiences (e.g., 77% of customers who purchase personal insurance online prefer purchasing commercial insurance online, as well). This has had a major impact on their attitudes for other insurance products, as 33% of U.S. small businesses would prefer purchasing commercial insurance online. For millennial small business owners, that number climbs to 75%. Despite this rise in demand, only about 1% of commercial insurance policies are currently sold without any intermediaries, compared with around 10% of homeowners policies and 30% of personal auto policies. This confluence of factors may convince a number of players that entering or further breaking into small commercial and successfully underpricing incumbents should be a relatively straightforward exercise. However, we have yet to see even early disruption of this sub-segment, even though it has grabbed recent headlines and many players have increased their focus and investments in the space (either as new entrants or incumbents who have not traditionally prioritized their small commercial business). While incumbents have generally maintained their dominant position, small commercial outsiders, including 1) predominantly middle market carriers moving downmarket, 2) personal lines carriers moving upmarket and 3) startups, have found the market challenging. We explain below why this is has been the case. A) Middle market and super-regional commercial carriers The lower end of the small business market can constitute a logical growth opportunity for middle market and super-regional commercial carriers, especially as their producers avoid small and micro risks. For carriers, these risks are attractive because they are generally less price-sensitive and easier to underwrite than the more complex business they typically handle. Channel conflicts. One key challenge is managing channel conflict with the existing agency force. Generally, entering small commercial requires expanding the agency network. In addition to committing the time and resources necessary for expansion, carriers also need to be extremely careful and subtle in how they assuage the concerns of their existing agency force, many of whom may view the shift downmarket as a “decommitment” by the carrier to its existing larger accounts and loyal agents. Because smaller risks can be costly for agents to acquire and service relative to commission, many carriers going after small commercial have to regularly emphasize to their top producers that they are pursuing business that producers don’t want. Others look to collaborate with their mid-market agents by providing incentive compensation for referring micro accounts. See also: The 5 Big Initiatives in Commercial Lines   Operational efficiency. Another key challenge is operational efficiency. Given the risks these carriers traditionally underwrite and process, many of them have grown comfortable with manually intensive processes. Succeeding in small commercial requires low-to-no touch processes that support the speed and scalability required to handle a high transaction volume. Straight-through processing has become table stakes to acquire and service a greater number of customers at a lower cost, as has using tools to monitor the performance of the book in real time to avoid adverse selection. B) Personal lines carriers For predominantly personal lines carriers, diversifying away from increasingly commoditized business and moving upmarket can also constitute the next logical growth opportunity. In fact, several leading personal lines players, including Allstate, Berkshire Hathaway through biBERK and Progressive, have clearly announced or demonstrated over the last few years that they are making small commercial a higher priority. Advertising. A key challenge for these carriers as they move upmarket is generating awareness of their offerings. While spending billions of dollars annually on mass advertising may work in personal lines, small commercial requires a different marketing approach. They need to consider alternative means of getting small business owners’ attention, such as building affinity partnerships that can help funnel traffic in preferred customer segments, or deploying targeted advertisements on social media. Distribution. Another top challenge is picking the right distribution channel(s). Building a brand new network of small commercial agents can be an expensive enough proposition for middle market carriers, but with personal lines carriers that rely on independent agents the cost can be even higher as there is usually less overlap with their current agency force. As such, sticking with an agency distribution channel may be a significant barrier to entry for some players. Building strong digital customer-facing quote, bind and service capabilities can be a way around that. In addition to aligning with trends in small business owner expectations, personal lines carriers that choose to go direct can potentially take advantage of a lower expense base from not having to pay commission and redirect that to price savings. But it makes the advertising challenge even more significant. C) Startups Even though a non-traditional player has yet to make a significant dent into the market, a variety of tailored solutions continue to emerge. Newer entrants like Bunker and Founder Shield have focused on specific underserved customer segments. Others have attempted to innovate by providing purely direct-to-customer offerings for commercial lines (e.g., Pie Insurance for workers’ compensation). Insurance knowledge. Many insurance startups owe more to their marketing ideas and technology-savvy staff than to their founders’ understanding of the industry, which can leave some significant blind spots. Incumbents often are able to rely on extensive, high-quality experience datasets to distinguish good risks from bad ones and appropriately price them. Startups usually lack this fundamental information. Foundational insurance infrastructure. A slick front-end website has limited benefits if it’s not backed by essential middle- and back-office functions like risk management, policy endorsements processing and other post-bind servicing (e.g., annual premium audits). Many startups have to stand up these functions and don’t have the expertise to effectively navigate and operate in different state regulatory environments. For startups looking to grow fast, building these capabilities from scratch can seem prohibitively expensive and time-consuming. However, there are plenty of partnership opportunities that can expedite this process, as well as options for renting solutions as opposed to buying them (e.g., licensed producers, cloud-based platforms). The digital opportunity Small commercial outsiders need to consider how they are going to provide a digital end-to-end experience along the entire customer journey to meet small business owner needs. This requires a clearly defined digital small commercial go-to-market strategy that addresses customers, products and services, pricing, channels and brand. Indeed, many current small commercial players have already recognized this shift and are investing in enhancing their existing digital capabilities, including via strategic partnerships (e.g., with fintechs). These players are looking to create true omni-channel offerings and increase the loyalty of their existing customers. Other players are pursuing small commercial opportunities by building differentiating business models. These “digital attackers” are creating purely digital offerings that emphasize speed and ease-of-use while avoiding the constraints of legacy systems. New aggregators are occupying the client interface and consolidating different product providers (e.g., Simply Business). Other integrators are starting to build new business models for the customer journey (e.g., Flock). And various segment-specific digital direct-to-customer and B2B2C models are emerging (e.g., Cake). Given the relatively large opportunity in the space (particularly the micro space), these options are worth considering for small commercial outsiders. See also: 3 C’s for Commercial Brokers in 2018   The outsiders that will be best set up for success in small commercial are those that can both strategically plan for the risks that have tripped up similar players in the past while finding opportunities to inject digital capabilities into their operations. They will be able to hit the ground running and differentiate themselves from both incumbents and other new entrants. Furthermore, they will be better positioned to meet the changing and currently unmet preferences of small business owners. Implications

• Small commercial has changed very little over the years. We believe the market is ripe for disruption although there have been no major changes to date.
• Small commercial generally has been a profitable line that has weathered underwriting cycles well, but it does suffer from inefficient operations and bloated cost structures. Lowering costs of entry into the market are putting pressure on incumbents to improve their business operations.
• As in personal lines, there is increasing desire among small commercial customers for a digital purchasing process. As of yet, customer expectations have gone largely unfulfilled, which provides a real opportunity for whoever can meet them.
• Digital solutions – often from insurtechs – offer promise to improve not just the customer experience but also operational efficiencies and cost structures.
• Though nascent, aggregators are consolidating different product providers, integrators are starting to build new business models for the customer journey and various segment-specific digital direct-to-customer and B2B2C models are emerging.

You can find the report here. This article was written by Jamie Yoder, Jon Blough, Francois Ramette, and Marie Carr.

The benefits of a formalized onboarding program are well-established. Across all industries, companies use onboarding to achieve three primary goals, according to research from Aberdeen:

• Engage new hires in company culture
• Improve new-hire productivity
• Reduce first-year turnover

In the insurance industry, where just shy of 50% of new-producer hires reach validation, these three onboarding objectives are closely related and even more crucial to the success of agencies and brokerages. Yet, only 32% of companies currently have a formalized onboarding program, Aberdeen reports. As we’ve mentioned previously, onboarding programs must be formalized to create any lasting, demonstrable effect. New producer hires must have a similar experience throughout their first several months on the job to determine which actions further the goals. The proven approach is to establish a framework for the onboarding process that is required of all producers, complete with a set schedule, key milestones and benchmarks. With that focus on structure and schedule in mind, here’s an overview of The Institutes Producer Accelerator, featuring Polestar, a successful four-part producer onboarding program 1. Getting started — the first month The first four weeks of any new job are a whirlwind. Producers are tasked with shoring up their sales expertise and insurance industry specifics while also ingraining themselves in their new company’s culture. Finding the right balance of these elements will depend heavily on the producer and his or her job history. A sales pro with little hands-on experience in the insurance business will have very different needs from a recent risk management and insurance graduate who’s never made a sales call. Similarly, a successful producer from a competitor may have all the knowledge and experience needed to succeed but may need to learn new basic processes to fit with your organization’s culture. The best approach for most producers is to create a blend of training and refresher content on sales and insurance basics with a heavy dose of your company culture. Make sure that your program covers insurance topics, like client loss exposures and commercial liability, as well as sales and time management principles, like understanding the sales cycle and best practices for delegation. See also: How New Producers Can Get Fast Start   Producers should also be introduced to senior managers who can detail the company’s culture in the context of its business strategy, competitors and industry landscape. Most importantly, during the first month of a new producer’s tenure, he or she should be matched with a mentor. According to research from Reagan Consulting, 55% of new producers have a mentor—most often a senior producer or sales leader. Reagan researchers concluded that mentors offer the most help to producers hired from outside the insurance industry and individuals with little sales experience. 2. Building relationships — months two and three For new producers, their second and third months should optimize their performance in their new roles within your organization. That means continued meetings with mentors with a heavy focus on goals and objectives, along with specific challenges facing your firm. It’s also a time to continue building insurance and productivity know-how. The second onboarding phase centers on helping the producer establish strong relationships—not only with mentors, co-workers and company leadership, but clients, as well. Weeks five through 12 should focus heavily on refining producers’ sales tactics and targeting specific trouble areas commonly facing new producers, including asking for referrals and shifting from price to value when working with prospective clients. These skills are best learned in a coaching-call environment where the producer and coach role-play specific interactions and the coach provides highly tailored feedback. 3. Expanding skills — months three and four After a few months on the job, new producers should begin to switch from learning material to maintaining their knowledge and staying current on the insurance industry and sales best practices. New producers should identify the industry publications they’ll use to keep up with the industry. They can also take advantage of webinars and other forms of group learning, where insight from other producers is often just as valuable as the material being presented. It’s also a time for producers to start developing specialties to set themselves apart and present unique value to the organization. Producers should work with their mentor to select a specialty industry to focus on and familiarize themselves with industry trends, like data analytics and other technological advances. See also: 4 Good Ways to Welcome Employees   4. Developing strategies — months five and six As a producer enters the sixth month on the job, formalized onboarding should begin to taper off in favor of more specific career guidance through mentors or direct supervisors. At this point, producers are probably not fully verified, but their path toward greater success and productivity should be relatively clear. Part of their transition to a fully contributing team member may be to start networking at industry meetings and seminars and providing unofficial mentoring resources to more recent producer hires.

In Part I of our profile for Europe, we reviewed our statistics for the region, which we gathered in the course of our Global Trend Map (download the full thing here), and outlined a number of qualitative themes, exploring the first two of these:

1. Growth opportunities in a relatively saturated market
2. The European consumer and Europe’s early adopter status
3. How European insurers can deliver on their customer promise with new tech
4. Dynamic, real-time insurance and IoT
5. Progress on developing connected insurance models across the continent

Here we explore themes three to five in discussion with two in-region influencers:

• Switzerland-based venture capitalist Spiros Margaris, VC (InsureScan.net, moneymeets and kapilendo)
• Charlotte Halkett, former general manager of communications at U.K.-based telematics provider Insure The Box (now MD of Buzzvault at Buzzmove)

Delivering on the Customer Promise In Part I, we posited that Europe holds a slight innovation lead over our other major regions, finding this borne out in the more disrupted distribution landscape (with affiliate, aggregator and direct-to-customer channels all relatively well established). However, embracing innovative distribution methods is only part of the story for European insurers seeking to engage digitally savvy and ever-more-demanding consumers; another key aspect is to incorporate a greater level of personalization into products. "The consumer is used to a really personal experience now, and that is exactly the same as when they’re buying a pair of shoes online," comments Charlotte Halkett, formerly of Insure the Box (and now at Buzzmove). "They’re used to being able to get something if they want it, where they want it and at the cost they want, including complete information like the exact half hour it’s going to turn up in their house and what color it is. "That’s the same for the £1,000 insurance they’re going to buy, they want to have that real personalized experience to get the cover they want, how they want it, and to be able to influence the price that they’re going to pay. The big, overwhelming message is that the insurance industry is going to need to be flexible and innovative, because consumers are becoming ever-more-demanding, and the base level of their expectations is rising all the time." Personalization in insurance extends from offering positive customer service across channels to customizing policy prices on an individual basis (UBI). Halkett believes that the U.K. market in particular has been a leader in this sense: "The complexity of pricing has always been at the cutting edge in the U.K.," she says. "From developing general linearized modeling through to telematics, the initial development has occurred within the U.K. And it’s partly to do with this being a worldwide center of insurance, that’s true, but it’s also to do with the consumer. It’s very consumer-led: consumers are very willing to adopt, consumers are very willing to try new things." Halkett believes that the U.K. has served as a guinea pig for in-car telematics and that the models developed here can benefit a wide range of insurance markets. This impression fits in with our product-development stats for Europe overall: Auto was indeed one of the lines respondents identified as driving the most product innovation in the region, the other being health (see our earlier post on product development). We explore UBI models, especially as they relate to the auto line, as our next theme.

"It is important to listen to your customers and speak their language in order to influence your top and bottom line. If you want to satisfy your customers, you have to know what they want and need, what they're saying about you, and how they feel about your products, services and brand." — Monika Schulze, global head of marketing at Zurich Insurance

All these customer initiatives, if they are to be more than just good intentions, require far-reaching back-office transformation; investment is required in new technologies and solid digital capabilities (such as analytics), and these in turn need to be grounded in well-conceived strategies if they are to truly take root and flourish at an organizational level. Let’s look now at what European insurers are doing practically to deliver on their customer promises. Encouragingly, a large majority of European respondents acknowledged having formal digital, mobile and cross-platform strategies, so digitization appears to be well underway among European (re)insurers, consistent with our other regions (see our earlier post on digital innovation). We also found a strong increase in analytics focus/investment among our European respondents, as well as a reasonable level of coordination of analytics across their organizations (see our earlier post on analytics and AI). Analytical and machine-learning models have plenty to get their teeth into with what customer data has been captured directly by insurers, but they can additionally be supplied with external data from third parties. We found this practice to be widespread in Europe, as indeed were formal data-governance strategies.

"The one who is doing similar business to you should be considered as a chance and not as a risk - being connected via Open APIs based on your open insurance ecosystem. You will win because your processes and technologies are faster, cheaper and more customer-oriented than others, because you are open." — Oliver Lauer, formerly head of architecture/head of IT innovation at Zurich

One major hurdle for the implementation of more data-driven, customer-centric systems is the presence of legacy, and this is just as present in Europe as anywhere else. Legacy systems came in second place among the internal challenges for Europe (in line with the global trend), and was additionally identified by our European contributors Halkett and Margaris as a serious challenge for the region. Margaris highlights a couple of particular pain points as far as legacy systems go: "If you have legacy systems, it’s difficult to put cutting-edge technology on top of them," he says. "Legacy systems make it so much harder for incumbents to innovate and to comply with regulations." Taking Insurance into the Real World, Real-Time In Part I of our profile on Europe, we tentatively identified Europe as an early adopter, and we saw this tendency manifested in the prevalence of new-age distribution channels and personalized, customer-centric products. Here, we extend this line of inquiry by turning to the vanguard of personalization in insurance, namely the Internet of Things, and exploring the progress it has made within European insurance. IoT is the final frontier of customer-centricity in the sense that it takes insurance into the real world on a real-time basis, placing the customer literally, and not just figuratively, at the center. If Europe is marginally further along the journey of customer-driven disruption than our other regions, as we have suggested, then we would expect IoT to be marginally ahead, as well. And while the technology is making strides the world over, our stats do place Europe above trend on the IoT-for-insurance adoption curve, at least in terms of current platform implementation (more details in our dedicated Internet of Things section), and the pre-eminence of the continent in this field is borne out by much of our broader research. While Internet of Things was not a priority area that Europe led on in our insurer priorities section (it came second behind Asia-Pacific), Europe did achieve top spot for mobile, customer-centricity and claims – which form a constellation very auspicious for IoT-enabled business models and innovation. Margaris tends to agree on the importance of IoT for European insurers, and Halkett, as we have already mentioned, credits the U.K. market as having fostered the development of in-car telematics.

"The IoT development (expected to reach $20.8 billion by 2020, according to Gartner Inc forecast) should help a new insurance to emerge, increasing customer-centricity and decreasing costs. An example of IoT impact on insurance is wearable tech, a passive way to monitor health and wellbeing, in real time and for everything. By identifying those who seem to be looking after themselves, insurers can drive premiums down for them." — Minh Q Tran, general partner at AXA Strategic Ventures

The real opportunity consists not just in personalized experience à la retail but in personalized pricing, so that the price customers pay reflects their real-world usage as captured by connected devices. It is thus that personalization and premium-price reductions actually go hand in hand; rather than requiring two strategic thrusts, they can be part of one IoT-enabled customer-centric approach. These two Ps – price and personalization – are the two main advantages enjoyed by insurtechs, so insurers looking to the future, and to future-proof themselves, should definitely be taking an interest in IoT. See also: Global Trend Map No. 15: Products   While still only a minority of insurers in Europe have a strategy on usage-based insurance (UBI), this is in line with our other key regions; we expect to see this percentage rise dramatically across the board over the coming years. Auto, home and health are the leading lines across all our regions in terms of the expected IoT benefits, though the benefits of sensor networks in other lines should not be ignored. Auto is an example of a line that has already been extensively transformed by IoT in the form of telematics. This area is home to solutions of varying sophistication, from smartphone apps to "black boxes" built into cars. Depending on the richness of data coming from in-car sensors, a variety of insurance use cases and business models are enabled. The one that most immediately jumps to mind is UBI, incorporating dynamic pricing and driving behavior modifications. By making customers’ premiums dependent on how they drive, insurers both encourage better driving (which is good for everybody) and lower the cost of premiums, which helps to get more people, more affordably, on the road. "The joy of all insurance is the same: the financial desire of the insurance company is completely aligned with customers’ needs. So nobody wants to have crashes! The consumer doesn’t want to have crashes, and the insurance company would like to reduce the risk on their books," Halkett says. "With telematics, you really get to do that; it’s not only that you get to understand the risk of the individual consumer, it’s that you get to influence that risk, so the risk that you write does not have to be the risk that you keep." Even if premium prices remain the same, a premium with the potential for reduction is an infinitely more saleable proposition than the fixed-price alternative. And it is not solely up to drivers to educate themselves – insurers can take a much broader tutelary role by communicating tips and advice on a continuing basis. In this way, companies like Insure The Box are much more than just providers of telematics. "We take customers, and then we make them safer drivers," Halkett says, "and we do that via communications, online portals and via direct messages to the consumers, all the time rewarding safer driving behaviors." From language courses to money-saving apps, gamification has proven itself time and time again to be a powerful force for bringing about positive outcomes, and the case with telematics is no different. The key is to engage the customer via whichever touchpoints are the most natural and offer the highest level of trust and engagement. Insurers should not therefore conceive IoT solely in terms of inbound traffic (data traveling from customer devices to their back office) but also as a means of achieving higher engagement for their outbound messaging (from insurers to customers). Halkett points out the potential of connected home devices, such as the voice-enabled Amazon Alexa, for initiating contact with consumers in a world where "mobile" refers to much more than portable telephones.

"Automated data capture through IoT does not just help insurers preempt claims, it also helps mitigate losses and improve customer service when claim events do occur, by rooting out fraudulent or inflated claims and enabling faster turnaround of legitimate ones. Provided customer privacy concerns form part of the discussion, there is no reason why connected claims cannot be a win-win for everyone." — Mariana Dumont, head of new projects at Insurance Nexus

Beyond facilitating UBI models and continuous customer engagement, IoT solutions also give insurers detailed insight into what is actually happening on the ground on a second-by-second basis. Admittedly, this requires a lot of data and sophisticated models and, in telematics for example, is certainly a lot more than just detecting high G-forces. Indeed, Halkett recounts an example from the early days of Insure The Box, where a spike in G-forces triggered an accident alert but actually turned out to be nothing more than the forceful slamming of one of the car doors. Nowadays, though, the company can reliably detect the telltale signs of accidents and other claim events from the incoming stream of black-box data in real time and react accordingly. With motor accidents, speed is of the essence, so being able to dispatch an ambulance instantaneously to the scene can be the difference between life and death: the ultimate in claims loss mitigation. This data is also useful in the inverse case, where insurers want to demonstrate that an accident has not in fact occurred (and that, therefore, an associated claim is fraudulent). The business case for IoT in claims is self-evident; as we recall from our Internet of Things post, a majority of our respondents selected claims as one of the areas best-placed to benefit from IoT. Further still, in our stats on claims, a majority of respondents believed that IoT would affect the claims department, and a majority also acknowledged having a high level of focus on claims loss mitigation. The immediate access that IoT gives to data, which does not have to be sought out and gathered but simply ends up in insurers’ back-end systems as a matter of course, is driving the development of automated, or straight-through, claims-handling. We found a reasonable incidence of automated claims-handling among our European respondents, whose claims departments also expressed a strong focus on customer experience. In the context of continually expanding horizons, we asked ourselves what the next stage of dynamic real-time insurance might be. Continuing this section’s particular focus on the auto line, we of course cannot ignore the amount of chatter around autonomous driving and what it means for the insurance industry. While some believe that autonomous driving may eliminate the auto line, the truth of the matter is that human error is not the sole source of catastrophic events on the road. "You don’t just eliminate all risks by making your vehicles autonomous," Halkett points out. "And that’s before you even start to think about what you’d need to do to have an entirely autonomous ecosystem. The environment is going to have to have so many significant changes before it can support current autonomous functionality, and the journey between now and 100% autonomous – even if that does happen, and it’s not certain it will – is not straightforward at all, and there will be lots of different forms of mobility between now and then." Halkett underlines rural and city driving as two key hurdles to be overcome on the way to full autonomy. For now and the immediate future, she believes there is food for thought enough in the intermediate stages between today’s conventional cars and the putative point of total autonomy in the future: "We’re going to have multiple different vehicles, some with ADAS systems, some with minor help for driving in there and some with barely more than a glorified cruise control, up to fully autonomous vehicles, all on the road at the same time with drivers behind the wheel with very differing levels of experience and expectations for that driving, too. "And what they are going to want from their insurance is a seamless product that just covers them for whatever they’re going to do – that is the reality of what the insurance industry is facing over the next 10-20 years." Instead of focusing exclusively on different degrees of autonomy within what is essentially a private ownership paradigm, Halkett believes insurers should also be looking laterally, at emerging mobility formats: "I would be looking at things like ride-sharing, things like shared ownership and different forms of vehicles, before we ever got to the point of complete autonomy," she concludes. Driving Connected Insurance Models Across the Continent Our exploration of Insurance IoT and telematics has so far leaned toward the U.K. But what sort of progress have new-age insurance models made across the continent as a whole? Another country that currently boasts plenty of IoT buzz is Italy. Our influencer Matteo Carbone, of the Connected Insurance Observatory, draws attention to the telematics leadership shown by the Italian market, citing the nation’s 2.4 million connected cars (as of the start of 2016), compared with 3.3 million in the U.S. and 0.6 million in the U.K. However, to compare IoT progress in blanket fashion across different national markets and insurance lines can be like comparing apples and oranges with pears and plums, given the uncategorizable variety of the problems IoT solves and the sheer number of different business models it enables. In Italy, for example, telematics boxes have been mandatory in all new cars for several years now, as a result of legislation aimed at reducing fraudulent whiplash claims. Such legislation does not currently exist in the U.K., but, as we have pointed out, the U.K. telematics market could be considered a front-runner in other respects.

"Italy is recognized as the most advanced auto insurance market at the global level for telematics. Leveraging the experience of the auto business, the country is affirming its position as a laboratory for the adoption of this new paradigm by other business lines." — Matteo Carbone, founder and director at Connected Insurance Observatory

Leaving aside the question of who leads and who trails, one thing is certain: that IoT-based solutions for insurance, both within the auto line and beyond, are only going to become more prevalent as the unit cost of sensors comes down and the demonstrable savings from the technology rise further. "The cost of technology is coming down all the time, and customer understanding is going up," Halkett says. "So the business model becomes easier and easier for a wider portion of the market. Consumers in other countries will more readily adopt these sorts of technology-led products, and insurance markets are becoming more sophisticated, as well." To continue with our auto focus, we can see how the advantages of in-car telematics – whether we are talking road safety, lower premiums or counter-fraud – are advantages for people of every age in every market, so there is no fundamental limit on the applicability of the technology.

"At some point in time, everyone is going to get connected. People will feel more empowered as they have a greater control on preventing risk events. This will be the origin of the new business model. In some countries, insurers don’t have a high level of trust because they are establishing conditions and changing prices, and the relationship is only one way. This is going to change, because in the future clients will have their data as an asset." — Cecilia Sevillano, head of partnerships, Smart Homes, at Swiss Re

This is not to say that the specific use cases will be the same everywhere. Halkett believes that the technology will bring about a bigger quantum leap, from a road-safety and world-health point of view, in those countries where infrastructure currently lags. "I think when you stand back and start looking at the benefits of telematics, there’s an awful lot that could be used in different markets for very different reasons," she says. "For example, if you look at the accident alert service and it tells you when someone has had a serious road accident – that would be so useful in rural areas in poorer countries which perhaps do not have the same infrastructure or the same emergency services as we do in the U.K. And to have that pinpointed alert would be even more valuable in countries where not everyone has a mobile phone and hospitals are perhaps less accessible." This is a classic case of high-end technology bringing the full benefits of insurance to the lower-end market, a recurring theme across our other regional profiles, as well; underdeveloped markets, especially when they lack the burden of legacy systems, have a chance to catch up with and even leapfrog more established markets. Margaris believes that this will be the case, not just for IoT adoption but for innovation more generally, in those parts of Europe that are currently less developed. "The truth of the matter is that in less affluent countries you will see a faster adoption of insurtech because it’s cheaper and more personalized than what the incumbent insurance players offer," he says. "Furthermore, I believe that the richer the countries, the less there is a need by consumers to adopt the cheaper business models that are offered by fintech and insurtech startups. So, therefore, I would say, the more developed the country, the longer it will take for innovative technology and business models to be adopted." Looking beyond Europe for other emerging markets with leapfrogging potential, Margaris points to Africa as a ready-made example, referring specifically to mobile technology: "Look at Africa, where with a normal phone – not even a smartphone – you can already transfer money, you can do anything," he comments. "Because with low incomes, you will find a greater need for innovation." This forms an unfavorable contrast with some established markets, and Margaris sees his native Switzerland as a case in point: "In Switzerland, where I live, there is a lesser need for innovative business models because people have enough money. Not everyone is well-off, of course, but in general, there’s such a comfort level that people say, the status quo works well, so we don’t need to go for fintech or insurtech solutions that are or might be cheaper or better." Margaris picks out insurtech and AI as two growth areas towards which sizeable investments are currently flowing, with London and Berlin being the premier European hubs. As for how the insurer-insurtech confrontation will play out, he points to the case of fintech – which has a couple of years’ lead on insurtech – as a likely indicator of how things will go here as well. See also: Global Trend Map No. 16: Regions   "If we look at fintech, which is in a more advanced phase than insurtech, you see a clear trend of cooperation, meaning partnership or outright buying by incumbents. I think this will also happen to the insurtech space," he explains. While this prognosis (cooperation winning out over competition) is generally positive for insurers, Margaris believes that in some ways insurers have it more difficult than banks: "Banking has the same issues, but banks are much more experienced with customer interaction on a daily basis, while, with insurance, usually you talk to an insurance agency once a year, like when you have a claim. So legacy technology and the insurtech industry as a whole is worrisome for the insurance industry, but it’s also an opportunity."

"Insurtech will offer new ways to harness IoT potential, with use of AI and machine learning. Through partnerships with these startups, incumbents can definitely accelerate their modernization. And this is a win-win situation as insurtechs have technological expertise and, in return, insurance leaders can provide them the one resource which they lack: money." — Minh Q Tran, general partner at AXA Strategic Ventures

This compromise between incumbents and new entrants, at least for now, stems from the fact that neither has all the ingredients to win outright. While we pointed out the two trump cards of insurtechs in Part I our our Europe profile (price and personalization), let’s now examine the advantages enjoyed by incumbent insurers. "Insurers have the customers, they have the money and they have the brand," Margaris says. "They can adapt quickly and say: OK, let’s take the cutting-edge technology, and we can make it happen." He gives the pharma industry by way of an analogy: "The pharma industry spends billions on R&D and innovation. At the end, most of them – the big pharma players – who have much more experience in this field of innovation, they buy biotech companies and integrate. Because what the big guys do well is selling and distribution. If you give an insurance company a great product, they know how to make the most out of the potential. Incumbents and insurtech startups have to play to each other’s strengths.’ Halkett agrees that traditional insurers have plenty to offer as part of any insurance model of the future, in particular the sheer volume of data, insights and expertise that they have at their disposal. However, she questions whether today’s incumbents are structured in such a way as to make the most out of these assets. There may need to be a move away from a centralized model toward more of an ecosystem play, with the insurer overseeing different components of a technology stack. Insure the Box is itself an example of this, being owned as it is by Aioi Nissay Dowa Insurance Europe, which is the ultimate bearer of risk and also has a long-standing partnership with automotive OEM Toyota.

"The insurtech discussion all too often centers on the premise that shiny new startups will win at the expense of the tired old incumbents. Many see the battleground between them being at the distribution end of the customer journey. For me, the insurtech opportunity extends all the way along the value chain." — Nick Martin, fund manager at Polar Capital Global Insurance Fund

At the end of the day, it is not a case of either/or with the partnership and insurtech-domination models, and we are likely to see some insurtechs eventually make it big alongside insurer-insurtech tie-ups. "It will happen. We’ve seen the Googles, Amazons, Facebooks of this world, and we’ll see the same thing occur in insurtech, whereby some will become huge players. However, I believe we will see more partnerships or acquisitions because it’s very hard to scale," Margaris concludes. As ever, you can read ahead straight away and gain access to all our global trends, key themes and regional profiles, by downloading your complimentary copy of the full Trend Map whenever you like.