To begin on a dreary note, I feel like I am beating a dead horse discussing agencies' standard of care. This would not even be a valid topic, except: 1. Too many attorneys are involved who cannot see the forest for the trees. They look at every situation with the idea that, if the agency had not done this or that, they would have an easy time winning the suit. Their ability to win a suit easily should not be a factor in advising agencies to shirk their standards. Telling an agency to not advertise that they are professionals so that when they are accused of failing to provide services at a professional level they can win a case more easily is horrendous advice. Agents do not need attorneys who cannot win hard cases. See also: Are P&C Insurers Failing Agents?   Furthermore, advertising is not the issue. To even bring it up is evidence the attorney or other adviser is completely missing the point. The real point should be to act as a professional so that the agency can advertise as a professional. By acting as a true professional, the agency does not have to worry about using better advertising. It does not have to worry about being called out as a hypocrite for advertising one thing while doing something less. 2. A preponderance of agencies seems to want to be considered incompetent. A low standard of care is evidence of incompetence. At the very least, a low standard of care encourages amateurism. This combination of advice from on high, attorneys and advisers, with a willing audience that WANTS TO BE TOLD to act amateurish, is a death knell for independent agencies because NO ONE NEEDS AMATEUR AGENTS! The need for professional agents is stronger than ever. With so many new distributors of insurance, including ones that do not seem to think insurance licenses are even important, existing amateur agents are being made redundant. Some of these new distributors are going one level of dumb further, but cheaper. Other new distributors are far cleverer because one has to read their advertisements carefully to understand that they create the impression of professionalism but not the promise of professionalism. They are using the difference between implying and inferring. They have larger budgets to hire more professional advertising experts that can craftily navigate between appearance and reality. I do not agree with their approach, but I understand it, and I expect some will be successful. This group's success further negates the value, whatever value ever existed, of amateur agents. The space that is left, which is largely uncontested, is the space of a true professional agency. This requires closing your ears to those advisers and attorneys who incompetently cannot understand the difference between a professional agency’s E&O exposures advertising professional services and an amateur agency's E&O exposures created when they advertise professional-level services or images. A true professional agency will incur far less E&O exposure because its clients are far more likely to buy the coverages they need! What is the cause of most E&O claims? The client not having the right coverage. If the agency sells clients more coverages, then the odds of a client not having the right coverage decreases. E&O is not that complex. The #1 way to avoid E&O is to sell clients the coverages they truly need, no more and no less. Executing at a professional level is harder than the strategy, which is why this space is open. It is difficult, and, if it was easy, the space would not be available. Here are a few key points for becoming a true professional agent:

1. Learn your coverages.
2. Use a coverage checklist with your clients. No single better tool exists, by far, than a checklist for determining coverage applicability other than my proprietary exposure training process.
3. Read your forms. I flat do not understand why anyone would assume what coverages exist or do not exist in a non-ISO form without reading it and without regard to how well someone knows the ISO form. If one is not selling an ISO form, then one has to read the proprietary form to know what is or is not in it. This is work. This is what you get paid to do as a pro. Amateurs take short cuts.

Why do more agency personnel not take these three basic steps? To date, they've learned to make a living being partially ignorant, so why start now? Please understand, I am not trying to be cynical, satirical or facetious. The fact is, based on the E&O claims I have seen and the hundreds and hundreds of interviews I've conducted of agency personnel, ignorance and incompetence is not an overstatement. People with 10, 15 or 20 years' experience cannot describe basic coverages, and yet they have made a living. Hence, they have made a living while remaining ignorant. See also: Insurtechs: 10 Super Agents, Power Brokers I can't argue about past success, but, going forward, I do not see how this business model has much opportunity. The new disrupter agencies can achieve the same level of amateur knowledge for much lower commissions. If an agent knows the coverages, identifies the coverages the client actually needs, sells the client those coverages and obtains the client's sign-offs on the coverages he or she needs but will not purchase, and then reads the forms to determine whether the coverages actually exist, the odds of a client having an exposure is quite limited. Additionally, the agency's sales will increase, and the agency can have more fun by advertising more powerfully. I think a smart agency owner would build the entire sales strategy around identifying other agents' mistakes, which should be like shooting fish in a barrel. Hiding behind an attorney's caveats is no way to go through the world, and it is not much of a business strategy. Be bold by doing what your clients truly need you to do, enjoy your success and sleep better at night.

In the past five years, three technologies have laid the foundation for remaking entire industries:

1. Advances in IoT technology have burst open the floodgates of real-time data.
2. AI can process this massive amount of new data to identify previously unknown correlations between inputs on risk.
3. Distributed ledger technology has obviated the need to either, (to borrow from a Russian proverb), trust or verify data provided by a third party.

Though use of these technologies in insurance applications is still in the early days, it is clear they will have profound impact on the industry. This paper will explore how these three transformative technologies might be woven together to create a single platform, enabling insurers to mitigate claim events, slash operating costs and improve the customer experience. Successfully implementing such a platform will require a significant change to the insurance business model. Insurers will expand their role beyond just that of a counterparty to whom risk is transferred and become a critical business partner providing operational, logistical, and business process services to their clients. Thesis IoT and sensor data provide granular data in real time on processes and conditions that were previously detectable only through post-production Q/A processes or manual checks. Distributed ledger technology (DLT) allows the reporting of this data to become immutable. Large amounts of “shenanigan-proof” data can be run through an intelligent rules engine to create smart insurance contracts. There has already been considerable interest in using DLT and IoT data to create smart contracts to insure objects that are the sources of that IoT data. Aigang has a proof-of-concept application for insuring mobile phone batteries. The transformative opportunity lies in putting data from disparate sources onto the blockchain and running that data through linked applications. Such a platform will permit the creation of sophisticated integrated smart insurance contracts to cover complex risks and processes. Insurers will replace multiple policies (with often-overlapping or gapped coverage) with a single, closed-form risk mitigation and claim adjudication solution. For ease of reference, this paper will refer to these agreements between insurer and insured as Highly Integrated Smart Contracts (HISCs). HISCs' holistic approach to risk identification and mitigation allows insurers to become integral partners to their clients by offering a comprehensive solution that extends beyond risk transfer. Prevention of loss events will reduce costs and eliminate distractions, freeing insurers’ clients to focus on their core businesses. The HISC platform will also allow insurers to help clients optimize their operations, resulting in increased efficiency, improved margins and greater operational certainty. Let’s look at an example to see how this might work in practice. Use Case: Semiconductors Our use case will look at an application where sensors are already extensively used and tolerances are very tight: semiconductor fabrication. Platform Overview Figure 2 is a high-level illustration of the HISC platform components shared by an insurer and a foundry, and some key points of interface and data exchange.

1. Sensor data related to the manufacturing and testing process as well as dynamic data on the physical and IT infrastructure of the facility are collected and sent to the blockchain.
2. Static data elements that factor into evaluating risk and potential liability – including licensing requirements, certifications and equipment specifications -- are also sent to the blockchain.
3. The dynamic and static data are used in conjunction with the foundry’s internal limits, terms and specifications contracted with customers and regulatory requirements to form the rules of the HISC.
4. The engine evaluates all the data against the HISC rules and sends alerts when limits are approaching or breached, and similarly confirms when inputs and outputs conform to rules of the HISC. The AI layer of the engine would learn over time how the inputs affect one another in ways not previously recognized so that tolerances might be tweaked and interventions can occur ever earlier, further minimizing both risk and waste.

Platform in action Let’s look at two scenarios to see how the HISC platform would work in practice. The first will look at risk mitigation, the second at claim adjudication. Example 1: Risk mitigation In a process as complex as semiconductor fabrication, there may be thousands of data points, but we will look at just one to get a sense as to how the platform might be used. See also: 2018 Predictions on Cybersecurity   For the semiconductor to function properly, suppose each wafer must have a thickness of 525 millimeters with a tolerance of +/- 20 micrometers. However for one of the foundry’s customers, the manufacturer of implantable medical devices, a wafer more than 535 millimeters causes excess heat buildup and interferes with other critical components. The foundry has agreed to a tighter tolerance: +10/-20 micrometers. Figure 3, illustrates the process for reporting the data on wafer thickness, evaluating the data against the rules and ordering and logging required actions.

1. Sensor data on thickness is sent to the blockchain and evaluated by the engine
2. The engine confirms that Chips 1-4 are within tolerance and sends that confirmation to the ledger. The engine determines Chip 5 is approaching the tolerance limit. (At this point, in optimized systems, relevant equipment would be re-calibrated before an out-of-tolerance wafer is even created.) Chip 6 is flagged as out of tolerance and is ordered destroyed. If Chip 6 completed the fabrication process and was shipped to the customer, a defective product may result. (The terms of the HISC may be such that product liability and other claims resulting from shipping that chip would not be covered.)
3. Chip 6 is destroyed, and a record of its destruction is sent to the blockchain.

Example 2: Claim adjudication Arsine is an extremely flammable, explosive and toxic chemical used in the semiconductor fabrication process. After bringing a new machine into the plant with his forklift, Bob accidentally runs his forklift into an arsine storage vessel. There is a small fire that knocks the foundry offline for a week, and three employees are injured, including Bob. Figure 4 illustrates the claim process through the HISC platform.

1. The foundry submits the claims to the insurer through the platform.
2. The claim triggers a request for the data related to the coverage requirements.
3. The engine evaluates the claim against the coverage requirements. It looks at Bob’s licensing and certification, maintenance records of the forklift, the specs of the storage container, the facility temperature and the performance of the fire-suppression equipment. The engine determines the claim is payable.
4. The insurer pays the foundry’s claim, a record of which is sent to the ledger.

HISC Benefits These two hypothetical examples provide a sense of how these technologies will benefit insurers. Exactly how these benefits are realized will vary, but the benefit themes will be the prevention of loss events, reduction of operating costs, increase in efficiency and evolution of the insurer to an integrated services provider. Below is an overview of the primary benefits we can anticipate from the HISC platform. Fewer loss events The HISC platform is designed with the express purpose of reducing loss events, which of course increases margins. The impact of loss events often extends far beyond the cost of the claim, so there is even greater value in avoiding them than is immediately apparent. Lower operating costs for insurers As even complex claims are auto-adjudicated, many of the costs associated with the claim process – investigation, audit, legal, sign-offs and disbursement – can be eliminated, significantly increasing margins. Lower costs and greater efficiencies for clients An optimized platform will let stakeholders know a problem is coming before it arrives. Alerts like approaching tolerance thresholds allows calibrations to be made before a breach, reducing waste and increasing margins. Over time, the AI layer will provide new insights, enabling the engine to identify previously unknown correlations between inputs. For example, the engine may be determine that, if two particular specs both reach 90% of tolerance, failure is likely for a certain application. This insight will decrease returns and associated costs and increase customer satisfaction. Increased customer satisfaction and higher retention A less-than-smooth claim experience leads customers to move their business. HISCs provide friction-free claim payment, increasing customer loyalty. Customized coverage HISCs allow insurers to create customized coverage, fully capturing the insurance expense, while clients are protected from coverage gaps without paying for products or features they don’t need. New revenue opportunities for insurers As insurers move beyond risk transfer and into other services, there will be new revenue opportunities for insurers. There are three broad opportunities in ascending order of complexity:

1. The massive amounts of data and insights from companies across their books can be sold to customers and service providers in benchmarking reports and industry studies.
2. Insurers will be well-positioned to provide operations and business process consulting services to their insurance clients.
3. Over time, small to mid-sized companies in certain industries may find it attractive to outsource manufacturing logistics management to insurers, akin to UPS’s move into supply chain logistics and management and Amazon’s into retail order fulfillment and cloud services.

Each of these additional revenue opportunities has the added benefit of increasing the stickiness of the customer relationship. See also: Collaborating for a Better Blockchain   Critical Success Factors There are several non-inconsequential hurdles to be overcome before HISCs transform commercial and specialty insurance. Below are just five of the critical success factors necessary to implement HISC platform. Included is high-level estimate of the relative technical and implementation challenges of each. 1. Additional IoT data Some operational and business processes may have dozens of data points to analyze, others thousands. The closer to 100% of the data that is brought on to the blockchain, the more effective HISCs will be. IoT data has grown significantly, but total capture rates vary widely. As sensor costs continue to fall rates will continue to increase. (Technical challenge: low to medium; implementation challenge: low) 2. Interoperability between different IoT platforms Like any new technology, adding IoT to operational and business processes will be an iterative process. Within a single company, there are likely to be several different platforms for different processes (e.g. manufacturing processes, data security, equipment monitoring). IoT data from all of these different systems will need to be brought onto the blockchain and incorporated in to rules engines and other applications. (Technical challenge: medium; implementation challenge: medium) 3. Implementation of DLT standards Neither HISCs nor the platform can be deployed on a public blockchain, so there must be some DLT standard broadly adopted by the industry. Corda (R3) and Hyperledger (Linux Foundation) are two consortium-led DLT platforms in development. JPMorgan (Quorum, built on Ethereum) and Monax have also created smart contract platforms. Companies are unlikely to support multiple standards, so getting agreement around one (or building a solution that is DLT-agnostic) is imperative. (Technical challenge: high; implementation challenge: very high) 4. Intelligent engine development Putting data on the blockchain is simply readying the inputs. The data must be routed to a (likely) off-chain rules engines that must do more than provide a simple binary outcome. These engines will need to trigger actions, in some cases requiring human intervention, but still reported on the ledger. AI technology currently in broad use today is sufficient for the activities required in HISCs. The data integration, using ETL, data visualization, EDWs, etc., will be complex, but can all be accomplished using existing tools. (Technical challenge: low to medium; implementation challenge: low) 5. Integration of off-chain processes Not every required action determined by the engine will necessarily be able to be executed on the platform. This may include backup communications between stakeholders, transferring funds and certain operational actions. These off-chain actions and their results will need to be cleanly brought back on-chain. Early on, there will likely be misses on some handoffs, but those challenges will be more due to planning and communication issues than technical shortcomings. (Technical challenge: low; implementation challenge: low) Final Thoughts The HISC platform described in this paper is closer to the end state than it is the next step of how these disruptive technologies will affect P&C insurance. The takeaway is that these (and surely other) technologies are an opportunity for insurers to not only change how they do business, but also the very nature of their business. They can become more than risk transfer counter-parties and create new revenue streams by offering high-value services, making them indispensable partners to their clients. Getting there will not be easy. It will necessitate insurers becoming embedded, to a certain extent, with their clients. Successfully deploying HISCs will require insurers to expand beyond current competencies and develop expertise in other domains. These will include technology platforms, operations and logistics generally, as well as more specific subject matter expertise in the industries they serve. This need to provide more integrated services to their clients may lead to strategic partnerships between insurers and consulting firms, or perhaps acquisitions of one by the other. Exactly how and how soon this unfolds is anyone’s guess, but, once change begins in earnest, momentum will build quickly, and insurers that are ill-prepared will find themselves unable to compete.

In December 2016, the Department of Labor issued final regulations under ERISA governing claims procedures for group disability plans, which became effective Jan. 1, 2018. The new regulations govern employee benefit plans subject to ERISA that offer disability benefits, not just disability plans. ERISA plans must strictly comply with the new regulations for all claims filed on or after Jan. 1, 2018, including any necessary amendments to plan documents and internal claims-handling procedures. However, some parts of the regulation took effect Jan. 18, 2017. Although the DOL announced on July 20, 2017, that the new regulations might be amended or delayed, they were scheduled to take effect for all claims for disability benefits filed on or after Jan. 1, 2018. These new disability claims regulations would not apply if a plan does not make the determination of disability, but instead relies on a third party’s determination of disability, such as a determination of disability made by the Social Security Administration or the employer’s long-term disability plan. Further, the new regulations do not apply when parties to a collective bargaining agreement have agreed to use a grievance and arbitration process to adjudicate disability claims. For claims filed between Jan. 18 and Dec. 31, 2017, the DOL is imposing the following additional standards (as applicable) on denial notices to ensure a full and fair review has occurred.

1. The notice either needs to provide (i) the specific rule, guideline, etc., that was relied upon in making the adverse determination relied; or (ii) a statement that that such a rule was relied upon and notice that a copy will be provided for free upon request.
2. If the claim is denied based upon medical necessity, experimental treatment or a similar exclusion or limit, the notice must provide (i) an explanation of the scientific or clinical judgment for the determination, applying the terms of the plan to the claimant’s medical situation; or (ii) a statement that the explanation will be provided for free upon request. (Note: this standard will continue to apply in 2018.)

See also: How to Win at Work Comp Claims   For claims filed on or after Jan, 1, 2018, these are the new requirements:

1. Loss of discretionary authority. If a plan violates any of the rules for disability claims, the claim is deemed denied without the exercise of discretionary authority. This gives the claimant the right to file a lawsuit without further delay and will allow a court to decide the merits of the claim de novo, without any deference to the fiduciary who violated the rules. The only exception to this rule is if the plan’s violation was: (i) minor; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of a continuing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. In addition, a claimant may request that the plan explain in writing any violation. The plan must respond within 10 days by specifically explaining the violation and why it believes the claimant should not be permitted to file a lawsuit at that time.
2. Impartiality. A plan’s claims procedure must be designed to ensure impartiality. This means that a plan cannot make hiring, compensation, promotion or termination decisions based on the likelihood that a claim adjudicator or supporting expert will support the denial of disability benefits. This rule also applies to vocational experts, medical consultants and in-house medical reviewers.
3. Disclosure Requirements. Denial notices must include the following:
   1. Disagreement with Experts. A discussion of the basis for disagreeing with any healthcare professionals treating the claimant or any medical/vocational experts who evaluated the claimant. The discussion must include an explanation of why the plan disagrees with any medical/vocational experts whose advice was obtained in connection with the determination process, regardless of whether the advice was relied on when making the determination (This is designed to prevent “expert shopping”).
   2. Disagreement with SSA. If the Social Security Administration (SSA) has determined the claimant is disabled for Social Security purposes, the plan must discuss why it disagrees with the SSA’s determination. If the plan’s definition of “disabled” is similar to the SSA’s definition, the plan must provide a more detailed justification.
   3. Medical Necessity/Experiment Treatment. If a denial is based on medical necessity or experimental treatment, the notice must include an explanation of the scientific or clinical judgment used for the denial, or a statement that such explanation will be provided free of charge upon request.
   4. Internal Guidelines or Standards. If internal rules, guidelines or standards were relied on in making the plan decision, the plan must provide such rules, guidelines and standards. This disclosure requirement is more onerous than the requirements applicable to group health plans. The claims decision maker must affirmatively provide the rule, guideline or standard (or state that none was relied on). It is not sufficient to simply state that it will be provided upon request.
   5. Relevant Documents. For claim denials, the notice must provide that all documents relevant to the claim denial will be provided upon request. This requirement already exists for appeal denials.
   6. Contractual Limitations for Bringing Suit. All appeal denial notices must describe any time limit for filing suit in court set forth in the plan documents (any contractual limitations), and must include the specific date by which a lawsuit must be filed to be considered timely.
4. Right to Respond to New Evidence or Rationales. A claimant must be given the right to respond to new evidence or rationales relied on or generated during the pendency of an appeal (even if supportive of the claimant). The plan must provide such evidence and rationales to the claimant as soon as possible and sufficiently in advance of the date on which the plan will reach its determination, so that the claimant has the opportunity to respond prior to the plan’s appeal decision.
5. Rescissions of Coverage. Rescissions of coverage (the termination of coverage with a retroactive effect) must be treated as a denial of a claim. As such, a participant is entitled to use the plan’s claims procedure to appeal a rescission of coverage. This does not apply to retroactive termination of coverage for failure to pay premiums.
6. Translation Requirements. If a denial notice is being mailed to a county where 10% or more of the population is literate only in the same non-English language, the denial notice must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide an oral customer assistance process (i.e., telephone hotline) in the non-English language and provide written notices in the non-English language upon request.

See also: Claims Litigation: a Better Outcome?   PLEASE NOTE - On Oct. 6, 2017, the Department of Labor signed a proposed rule “to delay for ninety (90) days – through April 1, 2018 – the applicability of the final rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits.” There is a 60-day period to submit comments providing data and other relevant information regarding the merits of rescinding, modifying or retaining the final rule. The DOL has received many complaints about the added costs to benefit plans (estimated at 6% to 10% increase in premiums, according to several insurance carriers). In light of these complaints, the DOL believes it is appropriate to seek additional public input and additional reliable data. I believe there will be some changes to the final rule and do not believe they will just scrap it.

The pressures the insurance industry is facing seem to keep coming like an unending stream of tsunamis, beginning with changing customer expectations with millennials and Gen Z and gathering momentum with blurring industry boundaries and the wave of insurtech startups. The ability of the industry to invest large sums of money into creating opposing forces to fight these tsunamis is withering due to a triple whammy … the triad:

• Increased claims costs
• Soft market
• Operational costs that challenge the existing business models

2017 turned out to be a record-breaking year of major catastrophes, including wildfires, hailstorms, flooding, snowstorms and hurricanes, to name a few. It has been reported that, in the U.S. alone, there was $306 billion in total damage in 2017, with 16 events that caused more than $1 billion in damage each. Much of this would be reinsured by the London market or reinsurers. The financial impact is being felt in profitability and the potential for increased risk that needs to be addressed. The soft market is continuing, with no change soon, given the excess capacity in the market. The excess capital is fueling many new startups in insurtech. In addition, the low-interest-rate environment continues to challenge returns and is intensifying insurers’ focus on underwriting and claims fundamentals. But the pressures to optimize the organization do not necessarily move the organization forward innovatively to compete effectively in a fast-changing market. See also: Changing Business Models, ‘New’ ERM   How are insurers responding? Our Strategic Priorities – Knowing vs. Doing research highlights a growing gap between insurers that know about the changes and insurers that are doing something about them. There is an awareness of the pace of change that is signaling unheralded challenges and opportunities. Unfortunately, turning awareness into doing, with actionable initiatives, is elusive, creating an ever-widening gap between leaders who are taking action and those who are not. If you look at parallels with other industries, it is clear that inaction or traditional approaches will not be enough. Consider the media, taxi or music industries. The traditional models were significantly disrupted by new entrants or existing companies entering their industry. Just putting the business online or making it accessible via an app is not necessarily enough. Why? Because the fundamental business model did not change to adapt to the broader market change. You just “paved the cow path.” While incremental steps may optimize your existing business and buy time for the organization, they do not fundamentally change the business model to enable growth and to capture a new generation of buyers with different needs and expectations. We are seeing new models underway with recent entrants like Lemonade, Tapoly and Meet Mia, embedded insurance by Tesla and the potential for Amazon and Apple to enter the insurance market. All of these new products will be constructed on unique customer experiences that are compelling, consistent, engaging and seamless. The new definition of insurance may mean that you reach far outside of tradition to launch supplemental services you may never have considered. But, no matter how you grow, you’ll need to first shift into Digital Insurance 2.0 — a step that will make flexibility and growth viable. See also: 4 Tech Impacts on Business Models   With today’s pace of change, the path of least risk will include taking some risks. The risk to invest in new business models, new products and new channels can, at minimum, keep insurers competitive. Even better, taking these risks could allow insurers to leapfrog the competition. Because the new competition does not play by the traditional rules, insurers need to be a part of rewriting the rules for the future. There is less risk in a game where you write the rules. This article was written by Viyesh Khanolkar.

The conventional wisdom in the healthcare industry for decades was that emergency room use is often unnecessary and a waste of expensive resources. This view was firmly supported by a 1996 study reported in the New England Journal of Medicine that stated that it is widely believed that 50% of the 90 million emergency room (ER) visits each year were unnecessary. In addition, the study reported that 50% of ER charges went unpaid. Many healthcare experts, including me, felt that uncompensated care resulted in major cost shifting to health insurers and employer paid health plans. As a result, the unnecessary use of emergency rooms by the uninsured and the working poor had been a major emphasis in healthcare reform efforts for decades and was a major driver for enactment of the Affordable Care Act, and the individual mandate just recently overturned by the GOP tax plan. See also: Opioids: Invading the Workplace Today, one of the major national health insurers has a policy to charge higher out-of-pocket costs, or actually deny payment, to insured claimants who use the emergency room unnecessarily. The president of the health insurer stated that the ER should only be used for the purpose for which ER departments were created, “for life-threatening conditions and not common medical ailments.” This policy is vigorously opposed by healthcare consumer rights organizations and many emergency room physicians. Now, a seven-year federal study reported by the University of California at San Francisco stated that, today, only a small fraction of ER visits, or 3.3%, are “avoidable.” Laura Burke, an emergency room MD and researcher at Beth Israel Deaconess Hospital in Boston, stated that, “sore throats and runny noses are not bogging down the system.” She firmly believes only a few visits are truly preventable and the reason that patients come to the ER are “usually for reasons that make sense. Maybe they work two jobs and at 2 a.m. was the only time they could come for care.” Many emergency room physicians agree that ER visits are not the best option for minor infections and sprained ankles but worry that the crackdown by health insurers will result in patients avoiding the ER when they, in fact, have a serious health problem. If the health insurers’ goal is to save money, retrospective claim denials could have the opposite effect. Chest pains that someone thinks are indigestion due to the pepperoni pizza they had for supper may be the onset of a heart attack. ER visits in the U.S. are escalating and expected to reach 150 million visits per year. Researchers believe the aging population and the opioid crisis are driving up recent utilization. Last year, there were 64,000 fatal opioid overdoses in the U.S., a 22% increase from 2016. A local EMT stated to my friend that half of all their calls now involve heroin/fentanyl/opioid overdoses. This is a national nightmare with no end in sight. On top of this national opioid crisis, the Centers for Disease Control and Prevention (CDC) has just issued a flu emergency that has spread to 49 states. This is the first time in 13 years that the flu has hit all 48 continental states and is particularly dangerous to children and the elderly. According to NBC News, there have already been 20 pediatric deaths due to this strain of the flu, versus three pediatric deaths this time last year. This year’s flu season started early, took off quickly and is now peaking as a full–fledged epidemic. CDC officials estimate the epidemic could turn bad to worse and run another 13 weeks. The national flu emergency is now complicated by a shortage of Tamiflu, which can dramatically reduce the symptoms if administered within 48 hours of the onset of symptoms. In addition, there is now a widespread shortage of IV bags in ERs, because a major manufacturer based in Puerto Rico was devastated by recent hurricanes. Some ERs are now using Gatorade instead of IVs to help treat dehydration due to flu symptoms. Otherwise healthy people with mild cases of the flu should be treated by their primary care provider within two days of the onset of symptoms. But high-risk patients, including the elderly and children under 14, and anyone having trouble breathing, who can’t keep fluids down or who runs a fever over 100 for more than one day should seek immediate medical attention. Maybe it’s time to revisit health insurance policies by state and federal health officials about retroactive denial of payments due to all the “unnecessary” use of ERs based on a myth and outdated 20-plus-year-old studies that are no longer valid. At the same time, even if only 3.3% of ER visits are “avoidable,” that still results in roughly five million unnecessary ER visits per year in the U.S. Health insurers want patients to consider alternatives to the ER such as drugstore walk-in clinics, urgent care centers, nurse 800-number health line services and telemedicine. I also highly recommend the use of 100% credible free resources such as the CDC and Mayo Clinic websites. See also: The Real Problem With Healthcare in U.S.  The American College of Emergency Physicians (ACEP) recommends people be familiar with symptoms of common illnesses and injuries. Minor medical conditions such as colds, low-grade fevers, cuts and sprains should be treated by primary care providers and walk-in clinics. Serious conditions such as loss of consciousness, signs of stroke, heart attack, major bleeding, trauma, sudden severe pain and coughing or vomiting blood should immediately result in a 911 call. The amazing people who work in ER departments, the physicians, nurses, technicians and support staff are overwhelmed across the country right now. In California, triage tents are being set up outside ER departments. One EMT unit in Dallas is reporting a 600% increase in calls. Let’s hope and pray they will have the resources available to prevent this public health crisis from getting worse and can stop preventable deaths, especially if it as simple as someone fearing that their ER bill won’t be covered by health insurance.

As 2018 begins, what key trends will shape the coming year, and how can you position yourself to capitalize on them? 2017 was a tumultuous year for the reinsurance industry, so, which reinsurance themes will carry over into 2018, and how is the industry positioning itself? 1.  Cyber: software is eating the world With the relentless invasion of software into every aspect of our lives, you see businesses, governments and consumers all wanting to cover their cyber risks through comprehensive reinsurance policies. The issue is that the pervasiveness of software exposes many more lines of reinsurance to cyber risk than is first apparent. How then can the reinsurance industry be more dynamic in understanding and pricing these aggressive and fast-evolving risks in a timely and efficient manner? See also: The Dawn of Digital Reinsurance   PCS made an important step in September by launching a Global Cyber Index to provide industry loss estimates for international cyber events. The creation of the index is the first step to developing cyber-focused insurance-linked securities (ILS) products. 2. Alternative capital will continue to be important to the reinsurance market Although the 2017 hurricane season is projected to be the costliest in U.S. history, the demand from capital markets for reinsurance risks is unlikely to diminish. Trapped collateral and ILS losses may put off some existing investors, but new investors looking for uncorrelated returns will continue to enter the marketplace. With around $30 billion of outstanding catastrophe bonds and ILS, 2017 saw historic levels of catastrophe bond issuance. This has encouraged the U.K. government to support the growing market by approving new Risk Transformation and Tax Regulations last week. The impact of these regulations will be fully tested in 2018, but, as the market grows, increased transparency and the ability to trade ILS products on a secondary market will be aided by the appearance of electronic marketplaces. 3. Technology developments will continue to improve the reinsurance industry  The pace of innovation and change, driven by technology, across the reinsurance industry gathered momentum in 2017. At AkinovA, we continue to work with a number of the leading re/insurance market participants to build an independent third-party marketplace for the transfer and trading of risk.

CES (formerly known as the Consumer Electronics Show), has become the biggest tech event in the world. CES2018 was so massive that there could probably be 50 different Top 10 lists. Here are just a few of mine that I hope you will find interesting and useful.

1. 5G and AI are the top enabling technologies for the connected world of the next decade.
2. Voice assistants are everywhere – incorporated into every smart device possible.
3. Everyone is talking about mobility (driverless vehicles, the sharing economy, smart cities reshaping transport).
4. The next big user interface (UI) trend will be Augmented Reality for All (AR for All).
5. Cutting the cord is a big trend (wireless power, untethered virtual reality (VR), wireless audio, etc.).
6. Biometrics gain steam for security (facial recognition, fingerprint, voiceprint, iris scan, etc.).
7. Smart Cities are gaining more visibility (they even had a special agenda and exhibit focus this year).
8. AI is not only an enabler for the next decade, it is becoming dominant today.
9. Specialized chips and sensors abound – for LiDAR, AI, visioning, and many other applications.
10. Smart-home tech continues to proliferate, and winning platforms and companies are starting to emerge.

1. BYTON vehicle: New car company with an awesome vision for a “smartphone on wheels.”
2. Flexound: Sensation of touch added through sound waves.
3. Bellus3D: 3D modeling of human face/head to create avatars, etc. (To see mine, click here).
4. Aflac robotic duck: Cuddly animatronic, AI-based duck given to kids with cancer.
5. IV-Walk: Vest to administer IV fluids and enable patients by providing more mobility.
6. Foldimate: Automatic clothes-folding machine.
7. LG Display’s roll-up TV: Ultra-thin 65” OLED TV display that can be rolled up.
8. SapientX: Movie quality avatars for conversational AI.
9. Monuma: Blockchain-based app to record and estimate the value of costly objects.
10. Guardian by Elexa: Water monitoring system with leak detection and automatic shut-off capability.

1. Tennibot: Autonomous tennis ball collector.
2. Robomart: World’s first self-driving store.
3. Phrame: Smart license plate frame.
4. 90Fun Puppy 1: Self-driving luggage (yes, it follows you around).
5. B-Hyve: Smart yard (monitors watering systems).
6. Milliboo: Smart couch.
7. Kohler: Connected, talking toilet, enabled by Alexa.
8. Somnox: Small robot that you can cuddle and sleep with.
9. Velco: Connected handlebars.
10. Kuri: Robot that acts like a digital pet.

See also: Collaborating for a Better Blockchain  

What, you may ask, does this have to do with insurance? It turns out that many of these are relevant for insurance in one way or another (okay, maybe not the talking toilet). But overall, these lists give a small glimpse of the era of unprecedented innovation that is sweeping the world. The things that the insurance industry insures, the way insurers communicate with prospects and policyholders, the nature of risk and how insurers improve operations all are being affected by the trends in emerging technologies, and we are only at the beginning of the digital, connected world.

In our earlier post on Analytics and AI, we pointed to the growing volume and exploitation of (big) data at every point in the insurance value chain. But where is all of this data coming from? The old data sources and data-gathering methods have not gone away, but they cannot on their own explain the continuing boom in the data-analytics industry. The critical factor is the recent mass proliferation of sensors in the real world, capturing data on millions of connected objects, from toothbrushes to oil tankers. The Internet of Things (IoT) has arrived, and insurers are taking notice. The possibilities of the IoT for insurance are boundless, from turbocharging underwriting models and using sensor data for preventative messaging to usage-based products and dynamic pricing. In this installment, we explore:

• where IoT technologies stand to produce the greatest benefit, both across the insurance lifecycle and across different insurance lines
• new IoT-enabled models like usage-based insurance (UBI) and insurance-as-a-service
• IoT platform implementation across different insurance lines and regions

Our stats and perspectives derive from the extensive survey we conducted as part of our Global Trend Map; a full breakdown of our respondents, and details of our methodology, are available as part of the full Trend Map, which you can download for free at any time.

"There is a big shift from today’s protection to tomorrow’s prevention. New technologies using sensors and devices are becoming more widespread and can prevent incidents from happening. Broadly speaking from an industry perspective, it has potential for better risk understanding and creates happier customers." – Dennis Nilsson, assistant vice president, head of advanced analytics, insurance, at TD Insurance

While other technological advances often represent the optimization of an established insurer capability (as with many applications of analytics, for instance), IoT in theory enables insurers to rewrite the rules of the game by moving from risk protection to risk prevention. For many use cases, this remains hypothetical, and many questions around business/monetization models, as well as the precise role of insurers in the nascent IoT ecosystem, remain unanswered. However, IoT is, in one form or another, increasingly part of carriers' strategic horizons. Do you have an IoT strategy? 54% of all respondents had an IoT strategy, and we see that this is fairly uniform across the ecosystem, insurers and brokers and agents scoring 49% apiece, and technology partners 65%. This solid showing by technology partners is not surprising – in many cases, insurers’ IoT platforms are being developed by third-party service providers. Given the upward trend in platform implementation, we expect that the proportion of insurers with formal IoT strategies will sharply rise in this timeframe, as well. Assessing the Impact of IoT: Insurance Lifecycle IoT is such an open-ended technology that we further asked our respondents to specify those areas of insurance they thought would benefit the most. The areas that come out on top were analytics (81%), customer-centricity (68%), pricing (64%), digital (61%), claims (60%) and underwriting (59%). The clear lead for analytics is understandable given the symbiosis in which these two technologies stand. No IoT means limited data for analytical models; no analytics substantially weakens the business case for IoT.

"Drones, which are also IoT devices, are being used by property and casualty companies to examine property damage after catastrophes and storms, saving them a lot of time and money, so people don’t have to climb up on the roofs, which is dangerous and time-consuming." – Stephen Applebaum, managing partner at Insurance Solutions Group

Before checking out the impact of IoT on different insurance lines, let's now explore some of these key IoT beneficiaries in a bit more depth and observe how they mesh as part of today’s emerging UBI model: analytics, customer-centricity, pricing, digital, claims and underwriting. See also: Insurance and the Internet of Things   IoT does not affect all these areas separately; rather, they are all co-beneficiaries of the paradigm that IoT enables, in which the underwriting and claims components of the insurance lifecycle are increasingly fused. On the one hand, the massive volume of data being generated by connected devices is feeding analytics and algorithmic models, increasing carriers’ understanding of risk and the accuracy of underwriting models. On the other, this data is not a static mountain; it is accessible in real time. This means that underwriting models can be continuously updated by way of dynamic pricing. This new model, often called UBI, means that policyholders can be judged on their actual behavior – which they can feel motivated to change – instead of being subjected to the tyranny of averages. So instead of charging high premiums for bad risk and then being hit with the claims bill, insurers can offer incentives for less risky behavior on the part of their policyholders through the prospect of lower premium prices (or benefits in kind) and thereby reduce their claims burden. This model is established in the auto line – with help from in-car telematics – as pay-how-you-drive, and we have also seen similar innovations in health, in particular Discovery Health's Vitality Program.

"Technology used well can change the current customer proposition. The traditional insurance model has the opportunity to move from post-loss reactive reimbursement to proactively managing down customers' risks. The latter model is significantly more valuable to the customer and can change insurance from the grudge transaction that many view it as today into an ongoing value-enhancing relationship. Incumbents working with insurtech startups can accelerate this evolution" – Nick Martin, fund manager at Polar Capital Global Insurance Fund

IoT does not just enable insurers to tailor policies to actual behavior; it also allows insurance-as-a-service, with flexible policy spans. Rather than taking out an annual policy, which may overshoot the mark, customers can take out insurance in real time on a case-by-case basis, precisely when they need it the most. In the auto world, this has crystallized as pay-as-you-drive, but the applications are potentially much broader, for example insuring your car against theft for the duration of a trip into town or your airport luggage against loss at the point of check-in. In the longer term, the ability to sustainably offer lower premiums – which relies on reducing claims costs or premium spans – opens up to carriers segments of the customer base that were hitherto under- or un-insured, expanding the scale at which they can operate. As we have indicated, IoT innovation can be particularly significant for claims departments, and this is not just by reducing payouts but also by allowing insurers to work out exactly what has happened when a claim event does occur (for instance, with car crashes). To further investigate the impact of IoT on claims, we spoke to Minh Q Tran, general partner at AXA Strategic Ventures: "IoT could have a huge impact on claims by preventing accidents from happening or warning so that the damage doesn’t get worse. "In the car industry, the development of connected and autonomous cars should prevent accidents and decrease dramatically linked damages, changing at the same time insurance intervention. Car insurance startups are using auto-tracking devices to teach newer drivers how to stay safe (Marmalade Insurance) and help locate cars if they are stolen (Insure The Box). "Many insurtechs are being created to more accurately analyze drivers’ attitudes and data, so that insurers can adapt their offer to customers and new ways of driving." Stay tuned for our dedicated post on claims, in which we explore further the impact of IoT on claims departments. Or, if you'd prefer to read on immediately and access all 11 key themes, simply download the full Trend Map free of charge here. However, if it is to be successful, insurance IoT requires more than just devices and back-end analytics: Insurers also need to radically reevaluate the relationship with the customer. In the past, policies were renewed infrequently (in many cases as rarely as once a year); the behavioral science inherent in IoT-empowered models requires more frequent interactions and a larger number of (digital) touchpoints. Insurance needs to change its perception in the eyes of consumers if it is going to gain firstly their trust and secondly their data, by becoming fundamentally more customer-centric and making its value proposition clearer (we go into these themes in more detail in our later installments on marketing and customer-centricity and distribution – read ahead here). We can see then that IoT is not, and cannot be, a siloed technology for the new-age insurer; it directly affects, and is affected by, all work being done in analytics, customer-centricity, pricing, digital, underwriting and claims. Assessing the Impact of IoT: Insurance Lines We didn’t just ask respondents to indicate which aspects of insurance they saw benefiting the most but also which insurance lines. Auto, home and health came out on top, while P&C/general, commercial and life were relatively behind.

"Technology is having an impact. In the P&C space, we are seeing a real focus on IoT and how devices can give better information and be part of an insurance program. Wearables are going to make even more inroads into health and wellness products." – Cindy Forbes, EVP and chief analytics officer, Manulife Financial

The new UBI model enabled by IoT has clear implications for our three leading lines (and for personal lines, in general). In health, we can point to connected wearables to monitor an individual’s health and to price accordingly; in auto, to in-car telematics that monitor driving behavior; and in home, to smart security devices. We see a whole host of commercialized solutions in these areas already. We asked Sam Evans, managing director at Eos Venture Partners, for some more detail on the impact of IoT in home insurance: "There are a multitude of applications ranging across motor, home and health. One key application where we have seen significant progress in insurance is combining smart home technology with a traditional home insurance policy. "There are multiple benefits for both the insurer and the policyholder. The technology, including smart cameras, motion sensors and water-leak devices, has the potential to significantly reduce claims experience by providing early warning and notification. As an example: In the U.K., where the largest cause of damage is water leakage, a device that allows the water to be shut off when a leak is detected will therefore significantly reduce claims costs and ensure a happy homeowner. "One of the leaders in this area is a U.K. insurtech called Neos, which is pioneering the move to preventative home insurance leveraging the latest IoT devices." As we see in the graph above, there is a substantial gap between our leaders, auto (80%), home (71%) and health (64%), and our stragglers, P&C/general (44%), commercial (33%) and life (29%). However, the current primacy of the personal lines should in no way blind us to the potential of IoT for commercial lines, which, despite not attracting quite the same media attention to date, remains huge. See also: Coverage Risks From the ‘Internet of Things’   IoT can transform the insurance proposition attaching to any kind of valuable commercial asset – provided that it can be monitored. For example, opening up data streams from industrial equipment for algorithmic modeling enables preventative maintenance, reducing the burden of failure for both equipment owners and insurers alike, and the same applies to sensitive cargoes in transit. As with UBI for the personal lines, the carrier is transformed from insurer to assurer:

"Connected insurance is a big opportunity in commercial insurance, but it won’t come overnight. It’s the less mature use case today because it’s more difficult to figure out the commercial or industrial process, how to put sensors on that process and how to get at the data. But the opportunity to change the product’s structure, the paradigm you are using to insure that kind of risk, is really large; it’s impressive." – Matteo Carbone, founder and director at Connected Insurance Observatory

Our stats on implementation (which we examine below) show that commercial & P&C/general currently exhibit a lower level of platform implementation than our other lines. However, in line with the strong all-round potential we have indicated here, we find minimal difference between our different lines when we look forward to anticipated levels of implementation in the near future. IoT Adoption by Region It is one thing to establish in which lines and areas of insurance the potential impact of IoT is greatest – but where are we on the adoption curve? 22% of all concerned parties have already implemented IoT platforms; within 12 months, this is set to rise to 47%; and within 24 months we will be at 72% implementation. What this tells us is that we are in the midst of an IoT rush, which will see it become a majority-practical phenomenon within two years for those players today still predominantly at the theoretical stage. Regionally, we detected a relative lead in implementation for Europe versus the rest of the world, with 30% of respondents having already implemented. However, the scores for these two groups quickly align, as we can see above. You can read more about our notion of Europe as an early adopter in our dedicated Regional Profile, by downloading the full Trend Map below here. Stay tuned for our next post, in which we look at that all-important field, especially for the success of IoT products: Marketing & Customer-Centricity.

The reward for showing your wellness program works is now $3 million!

As almost everyone in the wellness industry knows, we have offered a $2 million reward to anyone who can show that conventional annual “pry, poke and prod” wellness saves money. I’m feeling very generous today, so let’s make the reward $3 million. Even more importantly, let’s loosen the rules — a lot —  to encourage applicants. You’ll find the $3 million reward is not just more generous but also far easier to claim than the previous $2 million reward. Loosening the Rules Except as indicated below, the rules stay the same as in the previous posting, but with the following relaxed standards. Most importantly, I’ll now accept the burden of persuasion. It is my job to convince the panel of judges, using the standard civil level of proof, that you are wrong, as opposed to you having to convince them that I am wrong. Next, let’s expand the pool from which the judges can be drawn. It wasn’t very nice of me to allow you to choose from only the 300 people on Peter Grant’s exclusive healthcare policy listserve, because obviously no one invited into a legitimate healthcare policy listserve thinks wellness saves money. See also: Should Wellness Carry a Warning Label?   In addition, you can also choose among the 100-plus people on Dave Chase’s email list and the 70 people on the Ethical Wellness email list. (www.ethicalwellness.org)  To make things totally objective, we will add as judges whatever two bloggers happen to be the leading dedicated lay U.S. healthcare economic policy bloggers at the time of the application for the award, as measured by the ratio of Twitter followers-to-Twitter-following, with a minimum of 15,000 followers. So judges are chosen as follows: two bloggers chosen by objective formula, plus we each choose six people from among the other 460, with the other party having veto rights for five of them. That gives a total of four judges, who will choose a fifth from among those roughly 500 people. The original rules included the requirement of defending Wellsteps’ Koop Award.  After all, the best vendor should be exemplary, right? A beacon for others to follow? A benchmark to show what’s possible when the best and brightest make employees happy and healthy? However, now you have another option. You could instead just publicly acknowledge that the Koop Award committee is either corrupt or incompetent, as you prefer, because that possibility cannot be ruled out as a logical explanation for Wellsteps winning that award. Your choice…. Next, you may bring as many experts with you to address the adjudication forum as you wish to bring. I, on the other hand, will be limited to myself. Further, you no longer have to defend the proposition that wellness as a whole has saved money. You can, if you prefer, simply acknowledge that most of it has failed…except you. Meaning that, if you are a vendor that has been “profiled” on this site in the last two years, you can limit your defense to your own specific results. You don’t have to defend the swamp. That new loophole allows companies like Interactive Health, Fitbit, Wellness Corporate Solutions, etc. — and especially Wellsteps — to get rich…if what I have said specifically about them is wrong. I have $3 million that says it isn’t. Special Offer for HERO Ah, yes, the Health Enhancement Research Organization (HERO). The belly of the beast. Let me make them a special offer. Paul Terry, the current HERO Prevaricator-in-Chief, has accused me of the following  (if you link, you’ll see they had enough sense not to use my name, likely on advice of counsel, given that I already almost sued them after they circulated their poison pen letter to the media): I’m convinced responding to bloggers who show disdain for our field is an utter waste of time. I’ve rarely been persuaded to respond to bloggers [Editors note, in HERO-speak, “rarely” means “never” — except for that intercepted Zimmerman Telegram-like missive], and each time I did it affirmed my worry that, more than a waste, it’s counter-productive. That’s because they’ll not only incessantly recycle their original misstatements, but worse, they’ll misrepresent your response and use it as fodder for more disinformation.* Tell ya what, Paul. let’s debate disinformation, including your letter. Aside from the standard 10% entry fee (used to pay the judges honoraria, reserve the venue and compensate me for wasting my time with your THC-infused quixotry), all the economic burden falls on me. The only catch: I have asked you on multiple occasions to clue me in as to what my alleged disinformation actually is, if any. That way, I can publicly apologize and fix it, should I choose to do so.  Before applying for this award, you need to disclose this alleged disinformation. You can’t just go around saying my information is made up, etc. without specifying what it is. By definition, “disinformation” is deliberate misrepresentation. To my knowledge, as a member of the “integrity segment” of the wellness industry, I have never, and would never, spread disinformation. On the other hand, if I did spread inadvertently incorrect information by mistake, it seems only fair to let me fix it — especially given that I have been totally transparent and generous with my time in explaining to you what yours is, and how to correct it. (I might have missed some. Keeping up with yours is a challenge of Whack-a-Mole-meets-White-House-press-correspondent proportions.) See also: Wellness Vendors Keep Dreaming   So perhaps it is time to man up, Mr. Terry.  You and your cronies claim to have been collecting my “disinformation” for years, without disclosing any of it. I’m offering you a public forum and $3 million to present it. Otherwise, perhaps you should, in the immortal word(s) of the great philosopher Moe Howard, shaddap. A couple other mid-course corrections to the previous award offer.  Someone wondered if this offer is legally binding, so if your attorney’s knowledge of contract law matches your knowledge of wellness economics, they can voice their likely spurious objection. I will publish the objection and address it if need be, to make the reward a binding offer. Another commenter whined that maybe I just won’t pay the reward. I’m sure that’s the reason no one has applied. (Not.) So, put 10% of the entry fee down, and I’ll attach a lien.

In the opening segment of this series on complexity, I discussed the three network graphs that have emerged in the risk markets and which business models embody them. For quick reference: In the second segment, I discussed the emergence of peer-to-peer insurance, which will accomplish the three core functions of the risk markets that currently exist in a “black market” unformalized state by using distributed managerial methods, which are:

• Risk transfer;
• Escrow of funds for a defined purpose; and
• Management of reallocation of escrowed funds.

In the third segment, on distributed ledger technology, I looked at how it can be configured as a cohesive platform that would embody all three network graphs. I discussed how the roles of individual peers, along with carriers and agents, can work together to formalize the P2P methods in the risk markets. For a quick reference: In this final segment, I will look at the current balance of the market share of each graph type in the risk markets, how the balance may change and what the new equilibrium state might look like in the risk markets. Before doing that, I would like discuss an important idea that emanates from the blockchain and cryptocurrency communities: the idea that there could be “one ledger to rule them all,” or, asked another way, “Could a single ledger be an all-encompassing ledger, accounting for all value?” The simple answer here is “no.” No single ledger, technology or network will ever be all-encompassing. That would be silly, as it would reintroduce the systemic weakness inherent in centralized system structures, namely the risk that by taking out a single central node (or ledger, in this case), the whole system could collapse. See also: 4 Marketing Lessons for Insurtechs   Just as was realized in the blockchain and cryptocurrency communities, the idea of a “risk ledger to rule them all” is not a desired structure; in the risk markets, a single distributed risk ledger to account for all funds escrowed against all risk types is not a desired structure. Because of the nature of risk and the diverse set of risk exposures in the world, there will need to be a diverse set of risk ledgers. We may see something materialize that looks like the following as an example of four distributed risk ledgers, each for a specific category of risk exposure. Hold on to that thought for now…. I would like to again reference some of the work done by the Ripple team and their thought leadership toward a solution to address the concern of “one risk ledger to rule them all.” The Ripple team has introduced a protocol that will enable value to move in a cryptographically secure way between two or more distributed ledgers. It is called the Interledger Protocol, and more information can be found on their site here. Using the Interledger Protocol, the Ripple team has articulated how various types of distributed ledgers, each engineered for a specific strength, can be networked together to create a term they have coined the “Internet of Value.” Without a single shred of doubt, it is a true statement that “finance is getting its internet,” and it is already here, albeit in a state of maturity similar to the internet circa the late 1990s. Unlike the slow pace of the internet’s growth, however, finance’s internet will not take as long to mature — mainly because it received an advantage from the preexistence of the internet itself and all that has been learned. Insurance and the risk markets of all the various financial services are the lowest-hanging fruit. This might seem like a stretch in today’s environment, but it is not hard to imagine that by connecting many risk ledgers (each escrowing funds against a specific risk type) and using the methods outlined with Interledger protocol, that we will see the emergence of an internet of risk. Just like with the internet of value we see emerging today, the internet of risk will be made of many different distributed risk ledgers networked together. I would define the internet of risk as a network of distributed risk ledger networks. The technical name for a “network of networks” in complexity science is a “multiplex.” Risk markets have been operating with an informal and non-digital multiplex structure for some time. Because each insurance company manages a risk ledger and because reinsurance companies function to connect insurance companies' risk ledgers together, the reinsurance industry effectively embodies a decentralized network of insurance companies — and both graphs combine to embody a multiplex of risk ledgers. In all likelihood, over the coming years we will observe the digitization of the existing multiplex of risk ledgers that is the risk market into a network of digitally connected distributed risk ledgers, with each individual risk ledger serving the specific needs of a specific risk exposure. KarmaCoverage is intended to be this “multiplex of risk,” organizing the connections between the risk ledgers of all types of P2P risk sharing. And it aims toward the goal of insuring that, as the P2P segment of the risk market grows, it maintains a high degree of resilience, enabling society to transfer risk efficiently among individual peers, successfully addressing the various risk exposures of those peers. You would expect to ultimately see this play out and create an internet of P2P risk ledgers that looks something like this: ' To be fair, it is not possible to know the ultimate structure (or graph) of this multiplex of risk. It will emerge by a process of self-assembly. It must employ distributed managerial methods to avoid reintroducing the fragility inherent with its centralized structure. That said, many portions of it can (and should) be centralized for efficiency purposes. Distributed systems have weaknesses, as well, one of which is the introduction of some degree of inefficiency. We would not want to act out that behavior where “if all you have is a hammer, everything looks like a nail.” The functions that should be centralized combine a make the business case for something like KarmaCoverage. Now, let’s take a look at how this may have an impact on the existing balance of market share where each graph serves as a percentage of total risk. Using data on the currently formalized methods of total risk and by assigning a percentage to each graph in the risk markets, you find that the graphs settled at roughly these percentages:

• Reinsurance: 40%
• Insurance: 60%
• P2P coverage: 0% (This does not account for all the risk transfer activity that occurs informally in the black market of P2P risk transfer.)

There are two factors to consider when thinking about how the equilibrium state of the risk markets will balance out in the information age. To answer this, first we need to consider market growth and look at how the size of the risk markets will grow as a result of formalizing the P2P black market activity. Second, we need to consider the market share split among the three graphs, given that P2P will no longer continue to be 0% of the formalized market. Let’s look at Uber and the taxi market for a benchmark. Uber CEO Travis Kalanick, speaking at the 2015 DLD conference in Munich, said the taxi market in San Francisco was about $140 million per year, while Uber’s revenues in San Francisco were running at $500 million per year and still growing at 200% per year. Ignoring the continued growth, these numbers indicate roughly a 350% growth in market size. See also: How to Outfox Our Brains About Risk   Approaching this question about the growth in market size from another angle, and after reviewing various sources, the global formalized taxi market size is roughly $20 billion in revenue per year, while Uber’s annual revenue is only about $5.5 billion. These numbers would indicate roughly a 25% growth in market size. While this is a simple and quickly obtained benchmark, it would be easy to conclude that the process of formalizing the P2P segment of the risk markets will drive somewhere between 25% and 350% growth to the size of the risk markets. This would take the roughly $5 trillion in global annual premiums of the combined insurance and reinsurance industries and, after adding the P2P industry segment, bring the size of the risk markets to somewhere between $6.35 trillion (on the low side) and $17.5 trillion (on the high side). Reality check: There is a big difference between risk and taxi rides! Taxi rides are more prone to growth in market demand because of economic activity and population growth than the risk markets are. Risk, on the other hand, is more prone to shrinking demand because of improved mitigation of actual risk because of safer technology and other factors driving the reduction of risk. As one example, let’s look at auto risk as we make the transition into driverless cars, which stand to make a very significant dent in auto risk exposure. We are already seeing a 40% decrease in accident rates from mere “accident-less” cars equipped with accident-avoidance technologies. Using these benchmarks (and my crystal ball), the fact that the frequency of small loss events is much higher than large and catastrophic loss events leads me to predict that the formalizing of P2P methods in the risk markets will result in the doubling of the size of the formalized risk market at some ambiguous point in the future. I will also assume that the ratio between insurance and reinsurance shown above does not change. This would end up with risk markets growing to nearly $10 trillion, with the market share being split among the three segments like this:

• Reinsurance: 20%
• Insurance: 30%
• P2P coverage: 50%

Surely these assumptions and predictions are wrong, but this is more of an exercise in trend observation, not an attempt to actually predict the state of the risk markets at some specific future point. There will be other drivers that will have an impact on the shifting balance. One easy-to-understand but powerful and potentially market-driven force would be consumers voluntarily choosing significantly higher deductibles. This trend is already in motion. One indication of this trend on home insurance policies is that in California, on policies covering more than a million dollars, the lowest deductible that is compliant with regulatory rules is for $10,000. While that example is imposed on the industry, here in Florida, we saw the industry self-impose an increase in deductibles from hurricane losses after the 2004-05 seasons — while, at the same time, many large carriers simply pulled out of the state, leaving a vacuum to be filled by newer, smaller Florida domestic carriers. Using formalized P2P “networked self-insurance” methods, it is possible for consumers to achieve an average of $10,000 in coverage on an annual basis for less than $100 per month and to simultaneously fill the deductible gap all the way down to the first dollar of loss, fully addressing total risk exposure. That could easily lead to enabling consumers to request $10,000 deductibles on all their insurance policies, which would have a material impact on gross premiums. On home and auto insurance losses, more than 90% of claims are less than $10,000. If the consumer behavior of requesting ever-higher deductibles on their traditional insurance policies occurs, it becomes easy to consider that premiums on traditional insurance may currently be at or near their historical high. See also: 4 Steps to Integrate Risk Management   Obviously, this process of formalizing the P2P segment of the risk markets will face headwinds, but since I entered the industry with an eye on the intersection of risk markets and crowdfunding methods back in 2013, we have seen the number of P2P insurance companies grow from one to dozens all over the world. It seems like the moment for the formalization of P2P methods in the risk markets is here. Because of the convergence of factors discussed in this series (and a few others), I believe we will see a Napster-, an Uber- or an AirBnB-type of service emerge for the risk markets in the coming years. I have started a LinkedIn group for discussion on blockchain, complexity and P2P insurance. Feel free to join here. The whole mini-series is available for download at KarmaCoverage.com.