The article below has been based on a keynote presentation delivered at the Euro Events Life Insurance and Pensions Conference in Amsterdam on Nov. 16 2017. This is part 2. Part 1 can be found here. Summary of Part 1 Most customers do not buy insurance because they like it. They buy it because they have to. This makes it difficult for providers to develop engaged and happy clients. The question is: Can you make the process of buying insurance something that customers actively engage in? Can investing in a pension become an urgent, relevant, integral part of our daily life? Can long-term financial planning become as quick and easy as shopping online? The answer is yes, but…. there are some important changes for insurers to make. Insurers need to offer a broader, more relevant solution--with insurance as a component. Examples included integrated solutions for risk management and safety, health, housing, mobility or personal financial planning. In this scenario, insurers can become participants in an extended customer and supplier ecosystem and offer integrated solutions with higher customer engagement. Part 2: Reconnecting with your customers In this second part, we focus on the challenge of how to reconnect with your customers – a key to transforming insurance into an urgent, relevant and sexy product. After the 2015 pension liberation in the U.K., some retirees could not handle their new financial freedom. There are even some reports that retirees were taking their newly available pension savings straight to the casino! Obviously, this was not the intended consequence of giving people more freedom in spending their pension money. See also: This Is Not Your Father’s Life Insurance   So how can you avoid these kinds of unwanted scenarios? How can you help your customers with highly complex financial products that may be not immediately relevant and often are without a direct benefit? It is not about giving freedom; it is about helping your customers make smart choices. Unfortunately, that is not as easy as it sounds. There is still a big engagement gap between insurers and their clients. What are the key challenges we have to overcome to close this gap and reconnect with our customers? We are going to take a psychological view on this and touch on a number of key concepts. The Theory of Planned Behavior Helping customers make smart decisions is not an easy job. How do we know if our campaigns and communications work? How do we respond to our customers' needs? The theory of planned behavior can help answer these questions by predicting and understanding how customers act. According to the theory, a person’s behavior is predicted by his or her intention, which is in turn predicted by the attitude toward that behavior. This theory can be used to evaluate customers’ general attitudes, their feelings about social norm pressure and their difficulty in achieving the desired behaviors. This theory is used in a wide variety of areas and can be particularly useful when the desired behavior doesn’t result in immediate benefits. One such example is the Dutch government's campaign to stimulate better health behaviors of young adults toward smoking. By using the slogan "Maar ik rook niet!" (at least I don’t smoke!) the government hoped to change general attitudes and social norms to drive more healthy behaviors. There may be similar benefits for financial planning. This task can often lack urgency, resulting in customers procrastinating over their decisions. However, providers can respond by creating better customer awareness and positive attitudes toward their financial planning products. Although this theory is already used in numerous fields, it surprised us that we couldn’t find clear-cut examples of its application in financial or pension planning. We are interested in exploring this is more detail and welcome you to share examples with us. The Dynamics of Inertia In psychology and economics, inertia refers to the tendency to remain passive, even in the presence of good reasons to become active. Several companies are well aware of this tendency: That is why we get the first two months for free at our internet provider and we pay 50 euros a month for a gym we never go to. These providers are very well aware that our inertia will prevent us from canceling the subscription. When you translate this thinking to retirement savings, there has been extensive research on the mechanisms underlying inertia/underlying mechanisms of inertia. Life and pensions insurance requires you to make long-term decisions under changing and uncertain conditions that do not result in an immediate state of happiness or fulfillment. This causes people to avoid or postpone retirement preparations for as long as possible. So even if you do understand and appreciate the long-term benefits of taking action, it is much easier to remain passive. So how do you beat it, this inertia? Aegon started in 2016 with its Future Fit Strategy. The purpose is to become the “customer-based company of the future" by enabling people to make self-conscious decisions on their financial future. For the organization, this means doing the right things in the best possible way for their customers. Alternatively, you can try to provide immediate incentives by addressing the individual. For instance, Nationale-Nederlanden challenges you to create an image of the future you and explains that to achieve the goals you’ve set for later you have to get moving now. The company effectively asks you to think about how you WANT your future life to look like, and what can you do about it NOW to reach those life goals. Financial anxiety The top source of anxiety, according to the Stress in America Survey, is money, followed closely by work and the economy. These three factors clearly are causes of financial anxiety. People who experience financial anxiety have a bias in processing information and are more likely to use avoidance mechanisms. See also: Thought Experiment on Life Insurance   One way to cope with financial anxiety is gamification. Gamification moves away from conventional enterprise communications toward personalized, easy and playful interactions. As an example, Mint.com is a tool that aims to demystify financials and future planning by incorporating simple and more entertaining elements to decision making. These include goal trackers, visual breakdowns on spending habits and budget allocation and simple charts displaying the same data as spreadsheets but in a much more appealing and easily accessible manner. This makes it simpler to understand exactly where your money is going every month. Another way to address financial anxiety has been created by U.K. pension communications agency Pension Geeks. The company started with an annual Pension Awareness Day, including a bus being driven across the country to inform and support the public with their financial planning. The company is using several techniques to make it fun and understandable with video’s animation, games and apps to make pensions accessible for all. Conclusion The second approach to turn insurance into a product customers actually want to buy is to reconnect with your customers. There’s still a big engagement gap between insurers and their clients. When trying to change people’s behavior, the most important thing is to understand people's needs, to listen to what they want and to respond to their current behavior. Then, you have a chance to  overcome the dynamics of inertia and financial anxiety. The third part of this series to change insurance into a product customers actually want to buy will bring the insights of Part 1 and Part 2 together.

While there has been a lot written over the years regarding the “brain drain” in the insurance industry, I think the industry as a whole has done a fairly good job of educating the next generation (no, this is not an article about millennials). The problem our industry now faces is even more insidious, as it is very apparent to me that we are losing sight of long-standing business relationships and, most importantly, the standards that all insurance professionals are required to apply in everyday practice. This is true for all insurance professionals, including agents, brokers, adjusters, underwriters, middle management and senior executives. It used to be that insurance companies always stood behind their agents (remember the phrase “agency accommodation”?). But I have been dismayed over the last number of years by a growing “us versus them” mentality in the agent-insurer relationship. I have seen many overzealous adjusters denying claims based on what they say is a late report and attempting to blame the agent for not promptly reporting the claim, while the agent was merely trying to balance the interests of the client and the insurer. I have also seen clerical errors resulting in coverage denials; rather than doing the right thing, the insurer took a scorched-earth approach and hung the agent out to dry. That never used to happen. See also: The Insurer of the Future – Part 12   I worry that civility in our industry is disappearing. It may be that a younger, less experienced, yet more aggressive work force is the cause. But I hope we can return to the days when we were “all in this together,” when the overriding consideration was the welfare of the insured/client. These are industry standards that all of you reading this have heard many times, include:

• Coverage should be evaluated with an eye toward providing coverage, not in an effort to exclude coverage
• The insurer must prove that an exclusion applies, to exclude coverage for a claim
• The insured should be given the benefit of the doubt when there is an ambiguity in the policy
• Any undefined term in an insurance policy should be given broad meaning (as long as it does not lead to an absurd result) in an effort to provide coverage, not a narrow interpretation to preclude coverage (“read in, read out”)
• All coverage available to an insured must be disclosed and the claim process clearly explained

All too often, overzealous adjusters attemp to manufacture claim denials. When I ask which particular policy provision they feel excludes coverage, I am many times met with the mantra: “We have sought a coverage opinion, and our attorneys feel the claim is not covered.” When asked to reconsider, their silence is deafening. When there is a response, all too often the response reflects that no real consideration was given to the request. We need to keep in mind that attorneys are trained to be “zealous advocates for clients” (here, the insurance company), and they therefore take an entirely different approach to coverage interpretation than that required of an insurance adjuster, which is to try to find a way to cover the claim. Therefore, adjusters need to make coverage counsel understand that the adjuster is actually looking to provide coverage, not looking to deny the claim. How many times do you think an adjuster has had that conversation with coverage counsel? Even when asking simple questions regarding pending claims, I am confronted by the adjuster, and sometimes the adjuster’s superior, as if I am the enemy and have no business asking questions about my client’s claim. At times, I have even been accused of crossing some non-existent line that somehow prevents me from trying to assist my client, even receiving a cease-and-desist letter on one such occasion. This is just the opposite of what should happen. We as agents have an obligation to our clients to advocate for their best interests. Likewise, the insurer has collected premium in exchange for a “promise to pay” because “in buying insurance an insured usually does not seek to realize a commercial advantage but, instead, seeks protection and security from economic catastrophe.” We are all in this together, and we should be working to explore ways to find coverage or resolve the claim with the best possible outcome. Likewise, we as agents are the insurance company’s sales force, and they should stand behind us. What has happened to our industry? Not to be completely gloom and doom: There are many very capable, well-trained and right-minded insurance adjusters out there. In fact, my interaction with one such adjuster at Travelers (to give credit where credit is due) this past week is what really prompted me to write this article. He and I have been working together in an attempt to find coverage for one of my clients' claims. That is the way it is supposed to be. While we may or may not succeed, the experience has been invigorating and given me hope. See also: Innovation: ‘Where Do We Start?’   I also know that there are very few (if any) insurance company executives who give standing orders that their adjusters should look to deny claims. Most executives will attempt to do the right thing if a contested claim is brought to their attention. I’m sure most would be appalled at the way some claims are handled by overzealous adjusters, if they ever became aware of what was really going on. I guess what I am trying to say through all of this is that we need to work as a team, and our overriding concern should be for the welfare of our client/insured. We need to recite our industry standards often, and they should be every adjuster’s mantra. Middle management needs to be our watchdog and make sure the adjusters working for them apply these standards to every claim. Senior management needs to ensure these standards are supported from the top down and should be available and visible should things go south. Here’s to a kinder gentler agent-insurer relationship in the years ahead.

The rise of robotic process automation (RPA) in insurance has coincided with many similar emerging technologies, such as AI and chatbots, but interest in RPA is more about fixing legacy integration issues than embracing forward-looking tech. It serves as a cost-effective, short-term solution for complex infrastructure issues – replacing manual integration points with a scriptable, automatable solution – and in the insurance industry that may be more important than the most advanced AI available. Novarica does have concerns about insurers relying too heavily on RPA as a permanent fix, and insurers face the risk of investing too heavily in RPA if they treat it as a long-term solution rather than a temporary fix. RPA won’t make problems from siloed legacy systems go away, and CIOs considering its use should make reasonable plans for true integration and modernization in the future. At some point, insurers need to tear off the Band-Aid and consider infrastructure optimization over cost. That being said, it’s also true that even as insurers modernize there will always be new legacy systems in the environment, and it’s likely RPA (or RPA-like technology) will have a place in future architectures, as well. There are two types of RPA vendors: those that offer RPA solutions (software providers), and vendors that resell solutions as well as offer assistance in developing RPA strategies and implementing RPA solutions (service providers). While many vendors are shifting the message about RPA from a tactical process automation technology to more strategic transformational use cases, this is not how RPA technology is currently being used in the insurance industry. Rather, most use cases are tactical, intended to solve specific problems of integration between systems. In a particularly interesting use case, Zurich – in collaboration with Capgemini – recently used Blue Prism’s RPA solution to automate the issuance of standardized international insurance policies. See also: 3 Ways RPA Enables Growth   By and large, RPA is used for sub-processes in billing, claims, finance, HR and policy issuance, among others, the goal of which is to automate data handoffs from one system to another rather than requiring humans to enter the information manually. This cuts down on the inevitable inaccuracies of manual data entry and frees human resources to perform more complex tasks. One drawback is that the bots have to be reprogrammed any time forms or processes change, or if there’s an exception that hasn’t been taken into account – a more strategic approach to RPA would involve developing an enterprise-wide platform, centralized governance and integration with AI-related technologies to not only mechanically execute processes but to learn, analyze and make decisions. For more on this, see my recent brief, RPA in Insurance: Overview and Prominent Providers.

It’s no secret that digital advancements have fundamentally changed the way consumers shop. The steps that a prospect takes from the first point of contact to making a purchasing decision have altered dramatically—potential buyers now visit websites and social media networks, considering all positive and negative reviews, before deciding to buy. In fact, according to Forbes Insights, the majority of customers (82%) conduct research online for major purchases. Insurance products are no exception, and savvy agents and brokers who are mindful of this evolution can take advantage of the opportunity it presents to digitally market to potential clients, without getting lost in the clutter. The Digital Marketing Landscape Digital marketing allows insurance agencies to better communicate with prospects on a large scale. Consider that 63% of smartphone users look at their devices every 30 minutes, according to a report from the Interactive Advertising Bureau. Among luxury shoppers, two-thirds say they prefer to shop via mobile, according to Content Square. Add the fact that 2.34 billion people regularly visit social network sites, eMarketer says, and it becomes clear that digital channels are a prime opportunity for insurance agents to reach prospects. See also: 5 Accelerating Trends in Digital Marketing   Digital marketing is a rapidly changing environment, and, for independent agents and brokers, who typically are not marketing professionals, keeping pace may feel daunting. Additionally, with increased investments in digital promotion, consumers are now bombarded with advertising across all digital channels—from search engines to social media, and everywhere in between—so more brands are competing for consumers’ limited attention. How can independent agents and brokers cut through the clutter and meaningfully use digital marketing to reach prospects? While many agencies are embracing social media and email to connect with prospects and clients and actively updating their websites, the language they use matters, as well. The “Successful” Market Opportunity According to research, while nearly 80% of consumers say they are satisfied with their current insurance carrier, only about 40% would actively recommend their coverage. With 8 to 10 million “successful”—or high-net-worth—households in the U.S. (an estimate using publicly available data from the U.S. Census Bureau), the pipeline of prospects for agencies specializing in high-net-worth clients is much richer than some may believe. The single largest growth opportunity for independent agents and brokers and insurers serving this market is in using digital marketing to make prospects aware of the service they can—and should—expect of their agent and carrier. This means elevating digital marketing language, so that prospects notice. Three Digital Marketing Language Tips for Insurance Agents and Brokers Chubb’s research with Maslansky + Partners is focused on teaching independent agents and brokers how to build trust with prospects and current clients through digital marketing that establishes an emotional connection with consumers. What are some practical changes that agents can implement now?

• Relate to Success, Not Wealth: Direct appeals to prospects’ socioeconomic status may have inadvertent consequences. To some, the phrase “high-net-worth” holds stereotypical status connotations that may be viewed in a negative light, unintentionally backfiring against independent agents and brokers who specialize in this market. Instead, agents should consider using words such as “successful” and “accomplished,” as prospects are likely proud of their achievements.
• Lead With a Better Experience: Because many consumers claim to be satisfied with their insurance, focusing on coverage is not an effective method of getting them to switch carriers or move to a specialty provider. Additionally, many prospects don’t define themselves by what they have—it’s about what they do. Agents should lean on the unique experience that prospects will receive by working with them, rather than focusing on gaps in property coverage or the negative experience they may have with another agent and carrier.
• Show the Differentiated Value: While knocking the competition may feel satisfying, it may make agents and carriers appear to have a hidden agenda. Instead of outright highlighting competitors’ shortcomings, agents should simply focus on their differentiated value, allowing prospects and clients to draw the conclusion for themselves.

See also: Future of Digital Transformation   Regardless of prospects' stage of life—retired, building a family or building a career—the research shows that successful prospects and clients react to relatable stories that demonstrate they will be treated with care and empathy, as people, not claims. Independent agents and brokers can evolve the way they market themselves to successful prospects by making simple changes to their digital marketing. Chubb aims to invest in agency partners’ growth by providing resources that help them do so, including educational opportunities, digital marketing guidance and content creation.

Following on from our previous post on analytics and AI, we now turn to digital innovation – with a focus on the digital, mobile and cross-platform strategies being pursued by insurers as well as by other ecosystem players. The following stats and perspectives are drawn 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. We saw earlier on, in our carrier priority tables (Insurance Nexus Global Trend Map #3: Insurer Priorities), how digital innovation came out on top both globally and regionally in North America, Europe and Asia-Pacific; this also represented the service area in which investment from insurers and reinsurers was increasing the most. The way carriers approach digital and mobile has far-reaching implications not just for marketing and distribution but also for customer experience more broadly (claims, renewals and complaints are three obvious areas that spring to mind) and, ultimately, the whole business.

"Digital innovation is not only about technologies and channels, multi- or omni-channel. Digital innovation means you have to develop your insurance company to an open and digitally enabled platform that can interface with everybody every time in real time - from customers to brokers, to other insurers, but also to fintechs and insurtechs." – Oliver Lauer, head of architecture/head of IT innovation at Zurich

In general, we see companies’ digital, mobile and cross-platform focus increasing the closer they find themselves to end-consumers within the overall value chain, from unsurers up above to distribution/affiliate partners on the ground. The overriding trend we encounter – and which we will encounter also in our future posts – is of insurers trying to get closer to their customers, moving from the back room to the front. See also: Global Trend Map No. 2: Insurtech   Does your organization have a digital strategy? The rise of digital channels and experiences has transformed many an industry already (just think retail), and insurance is not going to be an exception. Lacking a formal digital strategy is not the same as lacking digital capabilities, but it would appear a prerequisite for any company wanting to do more than just react to industry changes. As we see from the graph above, digital strategies are evenly prevalent across much of the ecosystem, with 78% of insurers, 81% of brokers and agents and 82% of technology partners indicating that they have a strategy. Every respondent in the distribution/affiliate partner category, which we include here owing to the strong trend of which it forms a part, indicated that they have a digital strategy. Does your organization have a mobile strategy? Most industries had barely begun to adapt to the strictures and opportunities of a desktop future, when the shift to mobile announced itself with a bang. We see this triumph of mobile reflected in many different measures, for example:

eMarketer recently announced that the majority of Google’s ad revenue in the U.S. now comes through mobile, not desktop.

While this new change has given rise to many mobile-specific functions within organizations, it is true that many have subsumed "mobile" within "digital" so as to avoid unnecessary silos in personnel and strategy. As we can see, formal mobile strategies are for the most part less well-established than formal digital strategies. Their prevalence is fairly even across much of the ecosystem, whereby 58% of insurers, 59% of brokers and agents and 69% of technology partners acknowledge having a mobile strategy. Once again, every distribution/affiliate partner respondent answered affirmatively, likely a consequence of their proximity to the mobile-touting end consumer.

"Whenever you switch on a device or use an app, huge amounts of data are generated about your behavior and lifestyle. These insights are critical because they can drive the overall business strategy and help companies design products to better meet the needs of our customers." – Dennis Nilsson, assistant vice president, head of advanced analytics, insurance, at TD Insurance

Does your organization have a cross-platform strategy? As we mentioned, organizations can approach desktop and mobile either with dedicated teams and strategies or under one broad digital umbrella, and neither approach necessarily reveals much about that all-important factor: how well these digital channels are coordinated on the ground.

"Whether it’s filing a claim through an app on their phone or receiving a claim payment electronically to an app or to their bank account, or even just exchanging information like adding another vehicle to an auto policy, today’s consumers don’t want to have to make phone calls, and they don’t want to send emails. They basically just want to exchange digital information as quickly and efficiently as possible." – Stephen Applebaum, managing partner at Insurance Solutions Group

Whichever strategy they have chosen (digital and mobile, separate or combined), companies will live or die in today’s multi-device world by their cross-platform capabilities. The world’s best digital experience optimized for desktop stands to be wrong-footed by the swing toward mobile; yet, at the same time, there are consumer segments and lines where "digital" genuinely still means desktop. The optimal approach, we believe, involves catering for both, led ideally by market segmentation. Cross-platform strategies appear similarly prevalent to mobile strategies, with no clear trends across the ecosystem: 54% of insurers, 59% of brokers and agents and 64% of technology providers acknowledged having a strategy (and 67% of distribution/affiliate partners). This solid result is certainly encouraging for traditional industry players. While digital, mobile and cross-platform are useful concepts, they are too crude to capture the full spectrum of digital strategy, which is spilling out into every operational nook and cranny (albeit at different rates) as insurers look to transform the way they do business. So while, as we pointed out, digital strategies are currently more prevalent at the front end of the value chain (affiliate partners) than at the back (carriers), digital will ultimately touch or subsume all aspects of the business.

"Both public and commercial consumers are increasingly digital, with many living their entire lives in cyberspace (commercial examples: AirBnB and Uber). Failing to address this with an equally agile proposition will result in the insurance sector's client base seeking alternative ways to transfer their risk. The market simply cannot live by the cliché 'it's worked this way for over 300 years...' if it hopes to retain relevance." – Gareth Eggle, head of insurance at Flint Hyde

In the past, the back end (the product) largely constrained the front end, but now that situation is reversed, with the digital needs of the front (the customer) driving transformation all the way through to the back. The distinction between front and back is therefore becoming increasingly superfluous (and often outright unhelpful) for insurers. Or, in other terms: If you treat your front-end digital, mobile or cross-platform strategy as somehow separate from your back-end systems and processes, then you are heading for disaster. To explore the broader ramifications of digital for carriers, we spoke to Denise Garth, SVP of strategic marketing, industry relations and innovation at Majesco. Garth points out the many facets of the insurance business that must feed, and be fed by, the overarching digital strategy – and believes that the future of insurance is not digital or mobile per se but ultimately an all-encompassing Amazon-like experience: :Today’s digital shift for insurance is moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line-of-business silos to customer-centricity and customer experience for all products across all lines; and from siloed solutions focused on transactions to a platform portfolio that bridges together real-time interaction for all products and services for a customer, giving them an Amazon-like experience. "To create this new customer experience, insurers’ digital strategy must be more than a digital front-end, website or portal. First, it must be customer-driven. Second, it must be influenced from outside insurance." See also: Key Considerations for Managing Innovation   What is clear is that digital strategy is about much more than just channels, necessitating back-end transformation as well as fundamental changes to company mind-set. To explore this further, we identified seven qualitative categories of digital strategy: consumer, efficiencies, re-platforming, product, customer journeys, agent integration and innovation, each one with a slightly different emphasis and different implications for the business as a whole.

"The value you hope to extract out of data will be stalled if you don’t have infrastructure. Many of us struggle because it’s hard to attach ROI to core infrastructure. You need a compelling vision for the future and some examples of current success to have the leadership fortitude to invest." – Catherine Bishop, head of insurance strategy and data at RBC Insurance

What flavor is your digital strategy? We asked carriers around the world to say which out of our seven qualitative statements best applied to their digital strategies; this allows us to see where the industry is currently focusing, as well as how this may evolve. The two stand-out flavors we see here are consumer (first place) and agent integration (second place). Efficiencies, product, customer journeys and innovation all find themselves in a similar range, with re-platforming lagging behind.

"We think it’s very important for insurers to exist in three timelines at the same time. They have to mitigate the limitations of their legacy systems, they have to address current business needs – short-term, tactical business needs – and then they have to keep an eye on the future in terms of how technology is going to change their business tomorrow." – Matthew Josefowicz, CEO at Novarica

We have categorized the present disruption of the insurance industry as being fundamentally consumer-led, so it's no surprise at all to see the overwhelming majority of carriers emphasizing the consumer. This is totally in keeping with the overall priority allocated to customer-centricity (second place on our carrier priorities table), the volume of third-party services being sought in the area of customer-centricity and the prominence of the chief customer officer role, all of which we saw in our earlier installments on global trends (Insurance Nexus Global Trend Map #3: Insurer Priorities; Insurance Nexus Global Trend Map #4: Services, Investments & Job Roles). More unexpected perhaps is the second-highest-ranked digital flavor, agent integration. What this tells us is that brokered channels are an integral part of being customer-centric and that, at least for now, customer-centricity is not all about the direct-to-customer channel. Many consumers in both personal and business lines continue to value indirect channels as part of their overall buying process – whether that be for researching the product, receiving expert advice or for sealing the deal. The insurer that wins will be the insurer that is able to adapt its channel blend to the market – not the other way around – and here we are talking not just about mobile versus desktop but the full range of physical channels, as well. Encouragingly in this regard, we can see that the whole industry is broadly aligned in terms of the tilt it is giving to digital strategy, with the same flavors being favored by the rest of the industry as by carriers.

"Sometimes we benefit from a ‘burning platform’ scenario, whereby a specific business problem accelerates the need for us to invest in technology. But normally, we find ourselves challenged in moving our data capabilities forward when the infrastructure costs are large and the benefits are uncertain or longer-term. It helps if you have a good strategy, and a good organizational culture around innovation." – Catherine Bishop, head of insurance strategy and data at RBC Insurance

Another point of interest is the relatively small focus on re-platforming. When the subject of digital transformation comes up, it is easy to think about mega-projects and wholesale system replacements. In reality, though, these are more often than not prohibitively expensive and high-risk, and carriers must proceed to a large extent via increments: there is plenty of low-hanging fruit to be had from rendering existing systems and processes more efficient and customer-centric... Our next key theme will be the Internet of Things (IoT), a natural path of exploration for those insurers that have laid firm foundations in analytics, digital and mobile. If you'd like to read on straightaway, and access all 11 key themes, simply download the full Trend Map free of charge.  

As cyber attacks increasingly threaten every aspect of business and grow in volume and scale, companies will be forced to take new measures to address cybersecurity risk holistically, integrating it more aggressively into their enterprise risk management, according to our cyber solutions industry specialists in the 2018 Cybersecurity Predictions report. The report outlines a number of specific actions that Aon believes companies will take in 2018 to address cyber threats, as well as other cyber trends that we anticipate in the New Year. "In 2017, cyber attackers created havoc through a range of levers, from phishing attacks that influenced political campaigns to ransomware cryptoworms that infiltrated operating systems on a global scale. With the growth of the Internet of Things (IoT), we have also witnessed a proliferation of distributed denial-of-service (DDoS) attacks on IoT devices, crippling the device’s functionality,” said Jason J. Hogg, CEO, Aon Cyber Solutions. “In 2018, we anticipate heightened cyber exposure due to a convergence of three trends: first, companies’ increasing reliance on technology; second, regulators’ intensified focus on protecting consumer data; and third, the rising value of non-physical assets. Heightened exposure will require an integrated cybersecurity approach to both business culture and risk management frameworks. Leaders must adopt a coordinated, C-suite-driven approach to cyber risk management, enabling them to better assess and mitigate risk across all enterprise functions.” The 2018 predictions look at the ways in which the increasing scale and impact of cyber attacks, coupled with companies having to accept more liability and accountability over cyber attacks, will lead to significant changes in the corporate landscape. The report predicts an expanding role for the chief risk officer (CRO), the importance of implementing multi-factor authentication, the increased threats from insiders and an expansion of bug bounty programs in new sectors. See also: How Good Is Your Cybersecurity?   Highlights of the report include:

• Businesses adopt standalone cyber insurance policies as boards and executives wake up to cyber liability. As boards and executives experience and witness the impact of cyber attacks, including reduced earnings, operational disruption and claims brought against directors and officers, businesses will turn to tailored enterprise cyber insurance policies, rather than relying on “silent” components in other policies. Adoption will spread beyond traditional buyers of cyber insurance, such as retail, financial and healthcare sectors, to others vulnerable to cyber-related business disruption, including manufacturing, transportation, utility and oil and gas.
• As the physical and cyber worlds collide, chief risk officers take center stage to manage cyber as an enterprise risk. As sophisticated cyber attacks generate real-world consequences that affect business operations at increasing scale, C-suites will wake up to the enterprise nature of cyber risk. In 2018, expect CROs to have a seat at the cyber table, working closely with chief information security officers (CISOs) to help organizations understand the holistic impact of cyber risk on the business.
• Regulatory spotlight widens and becomes more complex, provoking calls for harmonization. EU holds global companies to account over GDPR violation; big data aggregators come under scrutiny in the U.S. In 2018, regulators at the international, national and local levels will more strictly enforce existing cybersecurity regulations and increase compliance pressures on companies by introducing new regulations. Expect to see EU regulators holding major U.S. and global companies to account for GDPR violations. Across the Atlantic, big data organizations (aggregators and resellers) will come under scrutiny on how they are collecting, using and securing data. Under the burden of significant and ever-increasing regulatory pressures, industry organizations will push back on regulators, calling for alignment of cyber regulations.
• Criminals look to attack businesses embracing the Internet of Things, in particular targeting small to mid-sized businesses providing services to global organizations. In 2018, global organizations will need to consider the increased complexities when it comes to how businesses are using the IoT in relation to third-party risk management. The report predicts large companies will be brought down by an attack on a small vendor or contractor that targets the IoT, using it as a way into their network. This will serve as a wake-up call for large organizations to update their approach to third-party risk management, and for small and mid-sized businesses (SMBs) to implement better security measures or risk losing business.
• As passwords continue to be hacked, and attackers circumvent physical biometrics, multi-factor authentication becomes more important than ever. Beyond passwords, companies are implementing new methods of authentication – from facial recognition to fingerprints. However, these technologies are still vulnerable, and, as such, the report anticipates that a new wave of companies will embrace multi-factor authentication to combat the assault on passwords and attacks targeting biometrics. This will require individuals to present several pieces of evidence to an authentication instrument. With the new need for multi-factor authentication and consumer demand for unobtrusive layers of security, expect to see the implementation of behavioral biometrics.
• Criminals will target transactions that use reward points as currency, spurring mainstream adoption of bug bounty programs: Companies beyond the technology, government, automotive and financial services sectors will introduce bug bounty platforms into their security programs. As criminals target transactions that use points as currency, businesses with loyalty, gift and rewards programs –such as airlines, retailers and hospitality providers-- will be the next wave of companies implementing bug bounty programs. As more organizations adopt the programs, they will require support from external experts to avoid introducing new risks with improperly configured programs.
• Ransomware attackers get targeted; cryptocurrencies help ransomware industry flourish. In 2018, ransomware criminals will evolve their tactics. The reports predicts that attackers utilizing forms of benign malware—such as software designed to cause DDoS attacks or launch display ads on thousands of systems— will launch huge outbreaks of ransomware. While attackers will continue to launch scatter-gun-style attacks to disrupt as many systems as possible, the report predicts an increase in instances of attacks targeting specific companies and demanding ransomware payments proportional to the value of the encrypted assets. Cryptocurrencies will continue to support the flourishing ransomware industry overall, despite law enforcement becoming more advanced in their ability to trace attacks, for example through bitcoin wallets.
• Insider risks plague organizations as they underestimate their severe vulnerability and liability while major attacks fly under the radar. In 2017, businesses underinvested in insider risk mitigation strategies, and 2018 will be no different. According to the report, a continued lack of security training and technical controls, coupled with the changing dynamics of the modern workforce, mean the full extent of cyber attacks and incidents caused by insiders will not become fully public. Many companies will continue to respond to incidents behind closed doors and remain unaware of the true cost and impact of insider risk on the organization.

To download the full report, click here.

What is a fast way to sow distrust? Use words the general public does not understand. How good is the insurance industry at doing this? Excellent! We might set the bar if it wasn't for attorneys (but wait--insurance contracts are written by attorneys!). Think about how normal people view insurance terms. "Would you like blanket coverage, Mr. Jones?" "Blanket" may have significant meaning to insurance people, but I am willing to bet 90% of the American public think blanket coverage means having a blanket big enough to cover the bed. Just saying. Or take, "owned/nonowned auto." To a normal person, they own a car or they do not own a car. They do not simultaneously own and "nonown" a car. What does "nonown" even mean? "If I don't own that car over there, or even the car my buddy is letting me test drive, why do I need insurance? Are you wanting me to buy insurance for other people's cars? Insurance is a ripoff!" Most people look at it this way, even quite a few of the people who need the coverage look at it as if the term "owned/nonowned" is completely oxymoronic. In both cases, I see producers use the terms as if their prospects had full understanding. In reality, one reason they do this is because they don’t understand the terms adequately, so rather than learning the coverages well enough to articulate what protection each conveys, they stick to industry jargon hoping no one will ask them a question. It is the same reason many people do not use coverage checklists. Another "wonderful" coverage is DIC. I find many insurance people have not even heard of DIC coverage. They do not know what "DIC" even stands for. It is an acronym for "differences in condition." So how does buying a policy titled "Differences in Condition" provide insurance? I buy an auto policy for an auto. I buy workers' compensation for workers. Differences in condition is rather ethereal. See also: The World Is Flat; Insurance Is Round   Insurance language is often ancient. The origins of some terms are traceable to the 1700s, sometimes to property being insured then that does not even exist in our world today, at least not outside museums. For legal purposes, that history is important because we can trace case law specific to certain words and terms back 200-plus years sometimes. We cannot afford to abandon that case law by abandoning old terms. Simultaneously, relative to customer relations and sales, holding on to such terms is a trap. Who in America outside the industry knows intuitively that inland marine has nothing to do with water? (In fact, who outside insurance would ever even think of using the term "inland marine" to describe risks out of water?) Much future success then depends on using common language rather than insurance language. The resistance comes from a few places. The first is that quite a few insurance people do not understand their coverages/forms, so they insist on using insurance words to hide their ignorance. Or they use insurance terms to sound smarter than they are. One facet of this industry that has not changed in the last 10, 30 or 50 years is the need to read and understand forms. I am befuddled how anyone thinks they can competently sell or underwrite without knowing the forms. If you use insurance terminology to hide not knowing, go study the forms! Take quality CE classes. Another reason people insist on using insurance language is fear of being sued. The idea is that, by explaining a coverage using common language, a client may be unintentionally misled into thinking they have a coverage they do not possess. That fear is legitimate, but, to achieve success, one better figure out how to explain insurance in layman's terms because, if people do not trust you, they are far less likely to buy from you. An agent's job is to help people understand why certain coverages are important to their well-being. An agent is THE middle man. One reason the agent is the middle man is that you are paid to be the middle man. The middle man is paid to interpret the insurance language and translate it. The situation is no different from being paid to translate Greek at the U.N. Insurance language can be just as difficult. Underwriters cannot always explain what is and is not covered once you go through the exclusions, the add backs, the exclusions to the add backs and so on, so, if they cannot explain it, why should we expect the insured to understand it? Additionally, telling the insureds it is their responsibility to read policies that contain such terms, terms so many in the industry lack the ability to explain, is an awesome way to repel the public. I understand the purpose from an E&O perspective, but from a sales/marketing/public relations perspective, telling insureds to read their policies and call if they have questions is absolutely idiotic. It is disingenuous, too, because no one really wants insureds to call with questions. The nightmare is the retired person who actually reads a policy thoroughly and has nothing better to do than ask questions. See also: Insurance Coverage Porn   The opportunity truly lies in becoming knowledgeable, even an expert. Attend quality CE programs with other people who truly want to learn rather than sitting in a room of people more interested in reading a newspaper. You learn more in environments with better agents. If you know your coverages, or not, and really need help learning to discuss coverages, let me know. We have a first class program for teaching coverages in ways that simultaneously give you the tools for asking the right questions and articulating the exposures and coverages in safe layman's terms.

When food delivery services talk breathlessly about machine learning, feel free to roll your eyes: it’s baked salmon they’re dropping off, not Bayesian statistics.

Insurance is another kettle of fish altogether.

Sultans of stats

The birth of statistics is usually dated to 1662, when John Graunt calculated the probabilities of Londoners surviving to a given age. Lloyds of London started shortly thereafter, and advances in statistics and insurance have been inseparable ever since.

But in recent years, supremacy in statistics has moved to Silicon Valley – a bad omen for the insurance establishment. True, insurers still have some of the finest human statisticians, but the finest statisticians of all are no longer human. They’re machines.

Insurers, of course, have machines, too, but the machine’s secret power is its ability to extract prophetic insights from inhuman quantities of data. If the data isn’t "big," the machine will function as a calculator, not an oracle.

Which brings us to the crux of the problem: Insurance companies, born in the era of the horse-drawn carriage, were not built to capture big data.

Loss ratios are like testicles

Case in point: An executive at one of the largest insurers told me that “other” is the most common cause for a claim. People (unlike bots) lazily tick that catch-all-box, rendering their data useless.

See also: Strategist’s Guide to Artificial Intelligence  

Tons of useful data are lost, too: Often, they’re not machine-readable; other times, it’s the humans who can’t read them (swallowed by a system whose architect retired in the '90s).

The exec went on to say his loss ratio was 54% (in other words, if you paid $100 in premiums, he’d spend , on average , $54 on your claims). Among insurers, this passes for small talk, so he was a little taken aback when I countered that his customers have ,  on average, one testicle. I explained that knowing your customer "on average" offers little insight. Worse, under the guise of a statistical fact, a generalized average often paints a misleading picture.

A loss ratio  –  the gold-standard insurance metric  – is no substitute for deep, textured and rich data. The very kind insurance companies are ill-equipped to collect.

Digital divination

Some insurance buyers take time to understand their coverage, others don’t. Is that predictive? What do our tech choices say about our risk profile?

There are endless such questions, and in a fully digital lifecycle they all get answered. Unlike traditional insurers, tech companies won’t make do with a global loss ratio. They will monitor the loss ratio per device, browser and advertising campaign. They will compare the loss ratio of people who press hard on the screen, to those who don’t; the loss ratio of those who bought insurance from home, to those who bought it on their commute; those who bought it at 4pm, to those who bought it at 2am. Not only will the machine answer all these questions, it will answer a myriad more we didn’t know to ask.

Tech companies gather thousands of times more data than traditional insurers, producing nuanced profiles of their customers and remarkably predictive insights.

In recent years the insurance industry has paid close attention to insurance-tech startups. The industry notes how being digital transforms the user experience, appeals to younger consumers and removes costs, while expediting everything. That’s all true, but it is only Act 1.

See also: Lemonade’s New Push: Zero Everything  

While everyone is bedazzled by the tech of Act 1, these delightful apps are generating mountains of data. These will soon reach the billions of entries that machines go to town on, and that’s when Act 2 will begin.

Act 1 showcases the power of technology to transform any business by reducing costs, increasing speed and delighting consumers. But when Act 2 begins, we will see the power of AI to transform insurance in a uniquely powerful way. It will go beyond thrilling customers and driving efficiencies, to being able to quantify risk like never before. That day is nigh.

When it comes to digital transformation, the insurance industry lags woefully behind other industries, and it is not just a question of technology. Even as the industry advances technologically, developing digital capabilities that rival other industries–from chatbots to IoT–selling insurance direct to consumers (DTC) has proved a difficult code to crack. Even Geico, the darling of online auto insurance sales, still closes the majority of its new policies on the phone, via an agent. The retail ecommerce industry on the other hand has proven to us that there are very few things consumers are not willing to purchase on the internet. From buying groceries to booking airline tickets, consumers are comfortable conducting all kinds of transactions online, from the very simple to the most complex. Every day, millions of people even do their banking online. So what is the deal with insurance? At Cake & Arrow, we have conducted hours upon hours of primary research in the insurance industry, talking to hundreds of consumers, carriers, agents and brokers in an effort to help our insurance clients answer this question and, in turn design better products and experiences. Throughout this process, we have learned a lot about how customers think and feel about insurance, perhaps our most lasting insight being a lesson about trust. The main reason consumers don’t want to buy insurance online directly through a carrier? They don’t trust insurance companies. This is why, even in the golden age of digital commerce, consumers continue to opt to purchase insurance through brokers and agents. On the surface, fixing this problem may seem simple. All carriers need to do is to gain the trust of their customers, right? Easier said than done. While earning trust may seem like a simple enough idea, it is an issue most carriers don’t even know how to begin to tackle. In my experience, when you want to learn to do something well, the best thing to do is to emulate an expert. In the case of consumer trust, it’s the retail e-commerce industry that has, over the past two decades, mastered the art of consumer trust. Each and every day, millions of transactions happen online, and most consumers don’t think twice about ordering their groceries, electronics, clothing, books and everything in between over the internet. This hasn’t always been the case! Gaining the trust of consumers has been a hard-won battle, and those who have done it well (Amazon) are ruling the industry. If imitation is the highest form of flattery, what lessons can the insurance industry learn from the retail industry that can help them foster trust with consumers and drive a truly digital offering? 1. Establish consistent workflows. The retail industry has the benefit of a consistent process across products, stores and platforms. For the most part, everyone basically understands the standard steps in a checkout flow. Select your product, fill in your shipping and billing information and purchase. And while there are of course optimizations that can be made to make an experience better, in general, consumers know exactly what to expect when purchasing a product online. The same cannot be said for insurance. Unlike a book or an item of clothing, insurance is not a static product sitting in a warehouse with a price tag. Insurance products are complex. Coverage and prices are variable based upon any number of risk factors, and complex underwriting rules and changing regulations can make it difficult for consumers to understand what exactly they are buying and how it is priced. This leads to confusion in the process of quoting and buying insurance and to a lack of standardized practices across the board. From a user experience (UX) and design perspective, one of the first steps the industry can take toward gaining consumer trust is to simplify and standardize the quoting process so that consumers know what to expect when buying insurance online and understand each step of the process. And while underwriting rules and regulations will need to be streamlined to establish an effective industry standard, insurance companies can start by being more transparent with users about what to expect in the quoting process, including informing users about how their personal information is being used. This will help customers better understand the quoting process, feel more comfortable dispensing with personal information and give them general confidence in the process by establishing clear expectations. See also: Top 10 Insurtech Trends for 2018   2. Invest in quality visual design. Over the past two decades, we’ve seen retail ecommerce design evolve, following a general trend toward customer-centricity. Flash sites, cluttered home pages and flashy fonts have given way to clean, simple designs that streamline the shopping process, communicate the brand and are organized around customer needs, interests and behaviors. The insurance industry needs to follow a similar path, leveraging user-validated design to create trust with customers. A modern, usable, well-designed website is a signal of legitimacy. It tells customers that a real company is behind a product, and this company cares enough about its customers to invest in the experience. A strong visual design that implements best practices removes that cloud of doubt in the mind of a customer and builds confidence and pride in the end product. In the same way that a strong brand is a promise of quality, a great visual design is an early demonstration that a carrier cares enough about a customer to invest in a quality digital experience that will translate into a quality product. 3. Implement a killer content strategy. Content strategy is just for news sites, magazines and blogs, right? Wrong. Content is an important piece of the sales process. For our retail clients, we have learned that crafting and executing a killer content strategy is critical to helping customers learn about a product, understand occasions for using products and gain insight into the actual value of a product. Effective education about products and services demonstrates a company’s willingness to keep its customers informed. And the more a customer feels he understands what a company does and what its products are about, the more he will trust it. While we often see short marketing messages on insurance carriers' sites, few insurance companies invest in content on their website to help explain to their customers the value of a product or the differences between products, and to educate them on when and where to use the product so they feel empowered when making purchasing decisions. Educational and informative recommendations will help insurance companies establish a rapport with consumers as a trusted adviser. Companies must even be willing to tell customers when a product isn’t right for them and demonstrate that they care about more than a sale, but about helping their customers make informed decisions that benefit them. A killer content strategy will help insurance companies do this effectively. 4. Enable the right level of customization. The best retail experiences allow for just the right amount of customization. When buying clothing online, for instance, we can choose colors and sizes and have a choice of different delivery options. Subscription services like Trunk Club allow shoppers to input information about personal style preferences, including color and pattern preferences, set price points and decide on frequency to receive a custom selection of clothing recommendations when, where and however often they desire. This kind of customization breeds customer loyalty and, like a good content strategy, can help customers being to think of a company as a trusted adviser with their best interests in mind. Insurance companies should explore enabling similar types of customization. While easy packages are just that–easy–they don’t drive stickiness with customers. Giving customers the ability to modify and tweak plans according to their unique needs and circumstances will drive a connection between a customer and a product. In the same way that these types of customizations breed loyalty in retail e-commerce customers, giving customers more control over choosing the kind of coverage they need at a price they can afford is a powerful way of building loyalty and competing with other carriers on something other than price. And while enabling customization is important, it is really critical that companies don’t take things too far, allowing customers too much customization and, in the process, sacrificing the experience. In speaking recently with a carrier, I learned of a story of customization gone wrong. The carrier's data showed that customers who were able to customize a package were more likely to purchase a policy. Emboldened by this piece of data, they created a new quoting page that allowed customers to customize every aspect of their policy. Lacking the qualitative info on how and why people were more likely to convert when customization was enabled and without user testing on the new custom design, they missed some essential information. Allowing their customers to customize everything about their policy made the experience overwhelming, and conversions ended up falling off significantly. I tell this story as a reminder to companies that testing and validating every design decision with users is critical–and one of the reasons the e-commerce industry has been so successful at digital. 5. Play around with promotions. Promotions are one of the most reliable and time-honored means of staying competitive for retailers. Promotions can make or break a business. Free shipping on big orders, Black Friday sales and BOGO (buy-one-get-one) offers are all commonplace in the retail e-commerce industry, and are incredibly effective at creating consumer loyalty and trust. While, in the insurance industry, it is nearly impossible to offer dynamic pricing or let customers actually play with coverages to get a fully custom price due to regulations, discounting isn’t something to be overlooked. Bundling is a real thing, and customers are more likely to purchase a policy if they see a real deal–and understand its benefits. For example, I’ve seen many insurers combine rental insurance with auto insurance at a discounted price. When customers see deals like this, they oftentimes don’t understand the full benefits of the deal. For example, they may not know that rental insurance protects not only their property but also against liability and, considering the coverage, is incredibly affordable. Developing a robust content strategy to better inform customers about deals and the benefits of coverage will not only increase sales and stickiness, but help customers begin to truly appreciate the value their insurance company is bringing to their lives. 6. Leverage user-generated content. When shopping online and in store, we have come to rely on ratings and reviews to help us evaluate products and make purchasing decisions. User-generated content, such as Instagram posts of real customers wearing clothing or jewelry, can help us see how a dress might fit a certain body type or how a piece of jewelry looks in context. This level of transparency sends customers a clear message that as a company you have nothing to hide–further inspiring trust. See also: Sharing Economy: The Concept of Trust   Just like in retail, user-generated content can be integrated into your content strategy and can do the work of educating customers about your products–explaining the difference between certain coverage offers, for example, or why as a carrier you stand out from other companies offering similar products. Real content generated by other customers helps customers understand how a certain policy works--what the service is like, what the claims process is like, what kinds of scenarios are covered. It can be scary to leave your company and offering open to negative user feedback, but, if you are doing your job, it will end up being more useful than it is harmful. Insurance companies still face many hurdles to getting consumers to trust them and to earning the kind of rapport with customers that the retail industry has established over the years. Anything short of a truly standardized process across all carriers and products will continue to cause confusion and suspicion among customers. But there is nothing stopping insurance carriers from taking strategic steps toward customer-centricity, emulating more mature industries like retail e-commerce that have done it well. This article first appeared on the Cake & Arrow website, here.

I recently sat with Nick Gerhart to discuss the regulatory environment for U.S. insurance carriers. Nick offers a broad perspective on regulation based on his experience: After roles at two different carriers, Nick served as Iowa insurance commissioner and currently is chief administrative officer at Farm Bureau Financial Services. Nick is recognized as a thought leader for innovation and is regularly called on to speak and moderate at insurtech conferences and events. During our discussion, Nick described the foundation for the state-based regulatory environment, the advantages and challenges of decentralized oversight and how the system is adapting in light of innovation. This is the second of a three-part series. The first part focused on the regulatory framework insurers face. In this second part, Nick provides the regulator’s perspective, with a focus on the goals and tactics of the commissioner’s office. Finally, in the third installment, we will discuss the best practices of insurers in compliance reporting. In this conversation, we covered the tactics and process of regulation. In particular, Nick described the interactions – routine and targeted – between career and commissioner. How is a commissioner’s office organized? As I mentioned, the state of Iowa has a financial bureau and a market bureau. Within the market bureau is a fraud bureau. In addition, there is a securities bureau and regulated industries bureau. As commissioner, you have to rely on your staff. In Iowa, each analyst has 10 to 12 companies to cover for a first-level review. We have great people in the state of Iowa, and we had a process for elevating issues. So, if they detected an issue, they would raise it pretty quickly. My goal was “no surprises.” See also: Talking Insurtech With Regulators   Analysts develop a deep understanding of the companies they supervise. We were fortunate, as we had a lot of people who had been there a long time. I would often joke that some of the people in the division knew the company as well as the people within the company because, in a way, they grew up together. What are the touchpoints between a carrier and a regulator? It really varies based on the size of the carrier, to be honest with you. The larger, more complex groups are going to have more touchpoints. Some of the larger companies would come in every quarter to present financials, for instance. On the other hand, you might only see the smaller carriers at a conference. So, it really varies based on the size of the organization and issues within them. We also have other opportunities to interact, as well. For example, there are the NAIC meetings: three every year, including regulators and a number of companies, and there is often open dialogue between consumers, companies and regulators at those meetings. How do you stay current with a carrier’s operations? On the financial solvency side, you get to know a lot of these companies very well – reviewing quarterly blanks, annual blanks and financials. Also, every five years, you do a deep dive exam into these companies on the financial side, which is very cumbersome and, some would argue, burdensome. But, that’s why the system works. It’s important to remember that these companies are not static – you don’t just put the information in a file or in a drawer and forget about it. They’re more like living and breathing entities, unique and changing and, we hope, always getting better. One tool that regulators use to understand the risks of the larger groups is the ORSA. That provides a deep review of the carrier’s risk and is a very powerful tool for insurance regulators. So, the regulators approach each company uniquely? To some degree, yes. I’ve always said: “If you’ve seen one ORSA, you’ve seen one ORSA. If you’ve examined one insurance company, you’ve examined one insurance company.” They might all have a lot of similar issues, but they all have different issues, as well. Regulators need to regulate on risk basis. A number of factors such as size, market and product could lead you to a different approach. Due to resource constraints, it is important to regulate accordingly. In terms of the reporting that comes through, with respect to MCAS [Market Conduct Annual Statement], quarterly, annual, various data calls, how does that work? Those are all electronic now. It used to be paper-based and very laborious and time-intensive. Now, you get on your computer, and it’s just there. This is really a necessity based on the number of companies we regulate and the amount of data. How do you handle and evaluate such a large quantity of information? You can’t really have a formulaic, prescriptive approach; it’s got to be risk-based. What I mean by this is you’re really starting to look for trends and outliers. You tranche it out by line of business, or size of organization, etc. It’s more of trend analysis in the context of what is happening in the marketplace. You can’t say “we’re always going to look for one way to do it.” As you know, things trend differently: from year-to-year or quarter-to-quarter. If you see an anomaly, you start with context. If long-term care complaints spike, it might be simply because rates have increased – which, incidentally, the commissioner approved. You start to look for different trends on the consumer side, but you can’t really dive deep enough to every single thing you get on file to have a picture. How does a risk-based approach factor into your analysis of a carrier’s market conduct data? You look for trends, and I think MCAS [Market Conduct Annual Statement] is an example of how the regulatory system works pretty well. As an industry, we come up with what we think is an acceptable replacement ratio for annuities, or lapses for life insurance, or complaints per premium, etc. If companies fall outside of these benchmarks, you start asking questions. Sometimes, there’s a really good answer. Other times, you may have another issue. And this is really where the state-based system, depending on your point of view, either shines or has issues. Other states could have a different benchmark. Other states may say, “we’re just going to review the top ten because they are the biggest.” My point of view is, just because a carrier is a certain size doesn’t mean that I want to look at them every year. I want to look for risks and problems. You look at things differently with a risk-based approach. Take the ORSA [Own Risk Solvency Assessment], for example. Even though this is a solvency assessment, it also contains market analysis. Continuing the approach of applying context into the other areas that we regulate, and not just the big groups, works well. So, while a small or mid-sized carrier is not going to file ORSA, I think it’s a better regulatory approach than to say, “we determined that you just had too many complaints this year.” See also: How to Bulletproof Regulatory Risk   Is that a benefit of the state-based system? That Iowa might not be discounting the small carriers when they are looking at market conduct, while other states might look at just the bigger players? Absolutely. On the market side, there is definitely a check and a balance. I would say it this way: Commissioner Jones in California told me that he had 220 fraud investigators. Well, the state of Iowa has 115 employees in the whole department, and that includes insurance as well as securities. The state of Iowa has two fraud investigators. Iowa certainly doesn’t need 220, but it’s easy to see the disparity and the size of the market. His biggest issue is the size of the California’s market. It’s the sixth- or seventh-largest in the world. And, it doesn’t have a ton of domiciled carriers. So, Commissioner Jones has different issues and takes a different approach. He may look at annuity sales and complaints per $1,000 in premium, or another metric. California has issues that are more uncommon to them simply due to the size of the market. Are states more likely to identify different issues with a carrier? Yes. We may not see the same issue that another state would because our market is smaller. This is why the concept of checks and balances makes sense. And that is why it works pretty well. You have different states with different markets that identify issues differently from Iowa, or California, or Florida, or another state. Take Florida, for instance. They have a radically different population mix in terms of age and demographics, but also weather events. The issues unique to a state – hurricanes in Florida, earthquakes in California or Oklahoma, etc. – make for different issues and challenges that are best regulated locally. The system works well because it has a check and balance: Each state focuses on issues it identifies, which may not be as relevant elsewhere. Sometimes, it’s related to the size of the state’s market, sometimes it’s related to different risks in that state. Continued….