A few weeks ago, for my work outside of Daily Fintech, I attended the InsurTech Asia Association Roadshow in Japan and Singapore. During the roadshow, Pivot Ventures (the company I work with), together with the association, brought together 15 startups with 15 insurer/reinsurers. This was my first trip back to Asia since moving back to the U.S.  It got me thinking: What are some similarities and differences between Asia and the U.S. when it comes to insurtech? At a high level, I found two clear similarities between Asia and the U.S:

• Incumbents are trying to find the right balance between upgrading legacy systems/other operational efficiencies with innovative solutions (both in terms of identifying the right corporate strategy plus prioritization)
• They are also trying to identify how to do innovation when it comes to distribution (in Asia, many have issues expanding D2C because of large captive agency and exclusive bancassurance tie-ups)

When you get a bit deeper, though, there are some very clear differences between the two continents, which lead to differences in terms of pace of change/adoption of insurtech solutions as well as the actual solutions that are being put in place: 1.  Many times people talk about Asia as one place.  Yes it is one continent, but with many countries. I have grouped some of the countries below based on my experience in the region: a.  Northeast Asia – Korea, Japan and Taiwan b.  Emerging Southeast Asia (ASEAN less Singapore) – Malaysia, Indonesia, Cambodia,  Vietnam, Laos, Myanmar, Thailand, Philippines, Brunei c.  Mature Southeast Asia – Hong Kong, Singapore d.  India e.  China f.  Central Asia (Mongolia, Kazakhstan, etc.) I group these countries based on where I believe they are in terms of insurance/insurtech innovation as well as similarities in culture. India and China are kept on their own because they are so big and so different. "Others" would include Central Asia and some other parts of Asia not specified in a-e. 2.  Coupled with the differences in culture of the different countries above is that of the consumer. This can be two-fold – 1) in terms of their preferences/needs and 2) in terms of their disposable income.  In general, there are some similarities in terms of income/earning of consumers in the countries/groupings that I label above, but there will be some big differences in terms of what customers need/want when it comes to Insurance in each market. 3.  Regulation is different in each country. This means, for an insurtech startup wanting to expand to Asia, it will need to deal with multiple regulators (which could be entirely different regulations, language, cultural dynamics). U.S. startups have to deal with different state regulators, but, on the whole, it is the same language and overarching national guidelines (though the dynamics of each state could make it just as difficult as launching in multiple countries across Asia). See also: My 4 Ps for Investing in InsurTech   Also, on regulation, there seem to be more regulatory sandboxes in Asia (HK, Singapore and Malaysia all have one), which allow for startups to try their solution in a market without having to go through all approvals. I believe the U.S. could really value something like this. Any specific examples? A whole paper could be written on the differences between each country in Asia, especially as it relates to insurance and insurtech. So, I will include the top question/comment that I received/heard in each market, which may help to shed some light on some of the key differences (though I only attended Singapore and Japan, we had one colleague with us from China, and I have also included one from my experience in Malaysia):

• Singapore – "Who else is using this solution? We’d like to know that it works, but we want to adopt a solution that will be new and exciting to the market."
• Japan – "Who else is using this solution, in Japan? By the way, who is using you guys in Japan?"
• China – "Many times, the Chinese firms will have startups present to them just so they can learn the technology and then build it themselves."
• Malaysia – "What can we do to make our agents/banks happy while also doing something to expand our direct capabilities?"

Willis Towers Watson/CB Insights Quarterly Briefing Two weeks ago, Willis Towers Watson and CB Insights released their Quarterly Insurtech Briefing. This quarter’s focus was on Asia, primarily China, and the "shifting global balance of power" as it relates to insurtech. There are a lot of great things with the report and I encourage you to read the whole report when you have time. A few key themes/figures resonated with me from my recent trip to Asia and my experience working in Malaysia. All graphs/pictures below have been taken from the Quarterly Briefing. 1) Insurance penetration is low and populations are growing, meaning there are tons of opportunities in insurtech. Looking at the picture above highlights two interesting things:

• For countries like China and India, the two biggest countries in the world, the insurance penetration is one of the lowest, meaning there are hundreds of millions of people who need to be served/provided insurance
• In contrast, Japan and Korea are among the top countries in terms of insurance penetration. Hence, the needs for insurtech may be a bit more specialized, as the focus will not be as much on distribution/reach as it will be for China and India

2)  Products and distribution need an upgrade On the product front, just like everywhere in the world, there are opportunities for innovation. The products in each market in Asia will be primarily driven based on customer need and affordability. Hence, the offerings in each market will vary widely from country to country. Additionally, due to the massive amount of e-commerce in Asia, particularly in China, there are a lot of opportunities for new products in this space as well as insurance as a bolt-on (API) to web-purchased products. On the distribution front, things become a bit more interesting. I have mentioned this a few times above. In Asia, when it comes to agency distribution, in most countries, the incumbents operate on a captive agency model. Some of the agents/agencies will have been with the company for upward of 20/30 years, only representing that incumbent. On the partnership distribution side, many of the agreements with banks in Asia are exclusive agreements (particularly on the life side), whereby banks are the exclusive distributor of an insurer's products. What does this mean? The potential for channel conflict for incumbents, when it comes to new direct channel (i.e. online) sales, is very high. Both agents and banks will want the new digital tools/investment to be made in them, and will see any other distribution channel as a threat. Just look at the graph above. This is quite telling. This, however, means that there are lots of opportunity for new full-stack players that come into Asia (that doesn’t exist as much in the U.S. because the agents/financial advisers in the U.S. typically represent more than one carrier). Because of these captive agents/exclusive bancassurance deals, full-stack startups can offer a different proposition because they are not encumbered by legacy system or legacy distribution. 3)  Enter tech giants and APIs Leveraging partnership platforms is what has made Zhong An so successful. It has also opened the door for a lot of new types of products based on the needs and offerings from the e-commerce platforms that Zhong An partners with. This trend will not go away. Not in China, not anywhere else. There will be tons of opportunities for insurtechs to partner with insurers and non-insurers alike to find new ways to offer insurance directly to a consumer. I like the three points below that were in the briefing: There have been some write-ups recently about Apple and Amazon potentially entering the insurance space. How can you read Bullet B&C and not think of these two companies? Summary Asia is a fascinating place with different people, cultures and topographies. Aside from the similarities and differences outlined above, one thing for sure is that Asia is "always on." Every time I go there, I feel a certain buzz around me. It doesn’t matter what country I am in, I always feel that buzz, because almost everywhere in the continent is growing (albeit some places moreso than others). China is one market that is so intriguing. Geographically, it is so big. This means that each area is so diverse, as well. Things happen there at a pace much faster than anywhere else in the region. See also: Innovation: ‘Where Do We Start?’   As I’ve mentioned in a few articles before, cross-border collaboration and best-practice sharing is what is going to help make insurance and insurtech thrive. What is your experience of the difference between insurtech in Asia and the U.S.? Please share your knowledge in comments  or on the Fintech Genome. This article first appeared at Daily Fintech.

Disasters can happen in an instant, or they can come with some warning. There is usually some notice when there is an impending winter storm, but, all too often, people are still caught by surprise. When looking at the winters of 2015 and 2016, winter storms hit in some areas of the country that were not accustomed to such harsh conditions. This only proves winter storms can happen anywhere, no one is immune and, if you have a business, you need to be prepared. When people hear “winter storm,” they usually think about snow or blizzards — and that is certainly part of it. But winter storms can also bring high winds, ice and freezing rain. There could also be a combination of any of these conditions. This can result in power outages, downed trees, unsafe roads and other situations that make it dangerous to be outside. Statistics show nearly 25% of disaster-affected businesses never re-open. It doesn’t matter if that disaster is a winter storm, flood, hurricane or some other tragedy. Any business is vulnerable, but small businesses are especially at risk. They tend to have fewer employees who are able to get the business up and running again and assist in recovering losses. They also have less capital available to start over or even recoup losses. Creating a Business Emergency Plan A good business emergency plan could be the key to allowing your business to recover and resume operations after a disaster. This sample business emergency plan from Ready.gov is a good place to begin. First, identify the address where your business will operate, then identify a secondary location should the first become inaccessible. Next, appoint someone as the primary crisis manager for your business and designate a backup if that person is unavailable. Assemble a crisis management team and find other businesses that you can network or coordinate within a disaster. See also: Getting Beyond Risk in Insurance M&A After this, determine and prioritize your critical operations as well as who is in charge and what he/she needs to do when the emergency plan goes into effect. Also, list your suppliers, vendors and contractors — their contact information, what they supply and how to reach them. Then, identify an alternative for each, perhaps outside of the affected area or businesses that can get to you if the roads are closed. Include these elements in your emergency plan:

• Evacuation plan
• Shelter-in-place plan
• Crisis communications plan
• Cyber security plan
• Records backup
• Employee contact list

Your plan should be updated annually and after any emergency event. After a crisis, it is important to review your plan, assess its effectiveness and document any lessons learned — then make adjustments accordingly. Prepare Employees Most cities have text or SMS alerts for severe weather. Encourage your employees to sign up for alerts and download weather apps so they can keep an eye on the weather. Provide information on putting together an emergency supply kit, securing important documents in a safe place and creating a family communication plan so they can be prepared at home. Your employees are more than just workers in your business, and part of continuing operations means ensuring their personal safety. Make information about winter storms accessible to your employees, especially if you are in an area where winter storms are somewhat uncommon or if you have employees who are from such areas. Have a meeting to discuss these things with your employees and help them prepare. Review various scenarios, problems and potential resolutions for both work and home. Prepare your Business Use this 12-point checklist to get your business winter-ready:

1. Review your insurance policy and coverage. Some policies offer financial protection for business interruption because of severe weather. Also, make sure your policy adequately covers your business and the property it is on.
2. Replace old doors and windows, ensuring there are no gaps or cracks where cold air can seep in.
3. Clear your gutters of all debris.
4. Make sure your pipes are properly insulated, even if you live in an area that does not typically get severe winter weather.
5. Don’t leave any building unheated for any time, even if it is empty. The pipes can freeze, which has the potential to cause serious problems.
6. Check outside for dead trees or branches that are low-hanging or weak. Wind can cause a tree or branches to fall. Ice can accumulate on branches, creating what is called a “widow maker,” which is a deadly branch that can fall suddenly when it breaks under the burden of the ice.
7. Inspect your roof for any loose shingles for issues that could present problems during a storm.
8. Hire a pro to inspect your heating systems.
9. Invest in a good generator. Even if the power goes out, a generator can keep your business operational.
10. Create a plan for ice and snow removal. Ice and snow are significant liability risks as a safety hazard. They also have the potential to cause severe structural damage and can prevent your customers from being able to get to your business if you are able to remain open.
11. Teach your employees how to manually process credit cards and ring up customers. If you are a retail establishment, this is particularly crucial, but it can allow you to still make sales transactions even if you don’t have internet access. You will need to have a detailed inventory and make precise notes on what is sold so that the information can be entered once your business is back online.
12. Back up your data. Many businesses purchase cloud technology to back up their data, but if you have sensitive information you should get professional assistance. You can also back up offline as well using an external drive.

See also: Riding Out the Storm: the New Models Winter storms should be taken very seriously. Prepare your business and ensure continued operations or decrease your downtime. You don’t have to become a statistic. No business has to fail after a disaster if it is properly prepared.

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, we discussed the emergence of P2P insurance, which will formalize the three core functions of the risk markets that currently exist in a “black market,” unformalized state. These functions are:

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

This formalization will occur via the emergence of a platform that enables all of these functions to be accomplished by the users of the platform, bringing the existing P2P economic activity out of its black market state and into the light of day. Risk is the killer app for distributed ledgers! The focus of the blockchain community on banking has been an interesting side effect of the timing of the Bitcoin innovation that coincided with the collapse of the U.S. banking industry. The blockchain technology software went open source in January 2009, while the markets (DJIA, S&P 500 and NASDAQ) bottomed out in March 2009. The term “distributed ledger” is synonymous with blockchain. Both refer to the technology of a shared digital ledger, upon which transactions are validated by a distributed set of servers using chronological, public and cryptographically secure methods. I prefer the term “distributed ledger” because, at its core, this technology is an accounting tool that enables a set of capabilities not previously attainable. In a distributed ledger:

• All transactions — or, in accounting vernacular, “ledger entries” — are validated using a distributed method, without requiring users to trust in a central authority who has control over all entries on the ledger.
• There will be lower transaction costs — both in terms of less time and lower labor costs — because there will no longer be a need to coordinate a multitude of private, centralized corporate ledgers.
• It will create an ability for end users to publicly escrow value on a platform that enables them to connect directly with each other, creating a P2P distributed graph and enabling both the trusted communication of and individualized control over the reallocation of their escrowed value.

I would like to introduce the idea of a “risk ledger,” which is any ledger where value is escrowed as a hedge against a risk so that the risk can be safely carried through time. Currently, insurance carriers operate risk ledgers as they escrow money against a risk over a segment of time. (I wonder if this is why insurance companies are called “carriers.”) The same goal can be easily accomplished using distributed ledger technology, albeit with some advantages over private, opaque, centrally controlled corporate ledgers. See also: 5 Steps to Profitable Risk Taking   Distributed ledgers enable individuals to escrow value in the light of day against a risk, carrying the risk safely through a segment of time until a loss event necessitates the reallocation to the user who experienced a loss event and the removal of that value from the distributed ledger. Risk is the killer app for distributed ledger technology; as such, I believe the timeline for adoption in the risk markets will be shorter than observed in the banking markets, where the technology itself needed time to mature. Trust is a fundamental ingredient in all financial services, and trust is something that distributed-ledger technology has a unique ability to enable. Because all money that is escrowed on a distributed ledger as well as the movement of that money is visible to all, users can trust in the system without needing to trust any single validator, company or peer participating in the network. It must be understood that all distributed ledgers are, inherently, a network. There are many distributed ledger networks out there, but I will use Ripple’s to exemplify how a P2P distributed risk ledger platform may look. Thankfully, Ripple spearheaded acceptance by international regulatory bodies on issues associated with distributed ledger technology. Another reason I choose to use Ripple is because of its two technical features: 1) It has built-in “trust lines,” which enable individuals to create an explicit network of other peers whom they trust, and 2) it has the built-in ability of order books, which can be used to make markets between different stores of value. There are other technical advantages of Ripple, but these two elements combine to make a powerful and open-source solution. Trust lines function as roads upon which value can move around the ledger. If I trust you, then you can send me value. If I do not trust you, then you cannot send me value because there is no path for the value to travel upon. This capacity for individuals to control who they are willing to trust enables individual peers to self-assemble a “trust graph” mirroring and to document the reality of who is trustworthy. Because all financial services are predicated on trust, this can be thought of as the finance industry’s equivalent to Google’s link graph, Facebook’s social graph and LinkedIn’s colleague graph, etc. Whoever ends up building this “trust graph” will likely be capable of creating much more value for society than those other graph types because of the significant role that finance plays in society. Peers can extend trust lines to other peers they personally know, trust and are willing to help. These trust line connections create a trust graph in the same way as friend connections on Facebook create the social graph. In this way, a P2P distributed trust graph can be self-assembled and emerge out of the actions of the individual peers. Building a distributed graph of roads and creating many paths upon which value can travel across the distributed risk ledger network is an example of a distributed managerial process. To give some example of how escrowed funds would flow through this distributed trust graph, let’s look at a hypothetical loss event. When a loss event occurs, a user documents the loss, and other peers who trust that user can choose to send a small amount their own escrowed funds to help their friend. (There is a formalized financial model  I will not detail.) However, I was surprised to discover, after working out the model’s details, that the model actually existed 1,000 years before modern insurance methods came about in the mid-1600s. Order books — and the ability to make markets — enable agents and insurance carriers to retain their relative roles as they exist in the industry today. The platform can be set up in a way that agents can capture a fixed fee as a spread or a percentage of the money that flows through the users that trust the agent by extending the agent a trust line. This is akin to commissions. The platform can be set up in a way that carriers can manage the funds, which users put on escrow, and can control which agents are allowed to access the carrier’s gateway. This enables carriers to essentially mirror the same function that the appointment process accomplishes today. Carriers can do this activity without invoking the regulatory burden of insurance laws; they only need to comply with MSB regulations. This would also enable carriers to earn float income on the newly escrowed balance. Phase change innovations typically emerge to address an order of magnitude more complex than what preexisting methods could in the prior industrial age paradigm. Consider how much economic activity and the number of actors Uber can organize on a global scale versus the top-down methods of an industrial-age taxi company. In the risk markets, coming out of the industrial age, we can see many companies operating independently in each of the three graphs (which are intentionally siloed). To achieve an order of magnitude improvement, we must encompass and coordinate all three graphs structures onto a single platform. See also: Are Portfolios Taking Too Much Risk?   Currently, agents function as a hub of client trust. Agents enable clients to navigate the complicated insurance product space and achieve the distribution of insurance products backed up by carriers. On a Ripple ledger, the agent would be a centralized hub of trust lines, and the graph would show that many users trust the agent node. Currently, carriers function as an access point and product provider, lifting the burden of regulatory compliance, administration and product creation from agents. Engaging with the platform, each carrier can independently escrow client money without hampering the client’s ability to connect with other peers who they trust but who may not be clients of the same insurance carrier. With order books, the carriers can trade escrowed funds to enable a user who has experienced a funded loss event to receive a single check from the carrier that that user does business with, even though many of the peers funding the coverage are not clients of that carrier and do not have funds escrowed with the carrier issuing the check. Via these order book connections, carriers' relationships will create a decentralized graph on the platform. Combining the peer-to-peer distributed trust line graph, the centralized graph that is the hub of trust connections surrounding the agent and the decentralized graph of carrier-to-carrier order book connections, the platform can facilitate the coordination of all three graphs within a single system — all while relinquishing ultimate control of the flow of funds to the individual peers of the platform. This achieves a distributed managerial method of the reallocation process applied to the escrowed funds. This also alleviates the cost of adjusting claims and the exposure to fraud from the participating carrier’s perspective, as well as the distribution of the costs associated with the adjusting process across the peers participating in the network. As is explained in his book “Why Information Grows: The Evolution of Order from Atoms to Economies,” MIT’s Cesar Hidalgo argues that we are at a point when firms need to network if they desire to continue to create value for society in excess of what any single firm can create alone. Via a distributed risk ledger network, many carrier firms can run the servers that maintain the whole ledger. This gives each carrier an equal vision into the ledger and removes the need for any carrier to submit control to another carrier that is tasked with running the entire system. Most importantly, these methods function as a shared back office so that no single firm bears the burden of the costs associated with managing all of the small loss events. Additionally, the cost of the system’s management does not need to be duplicated and absorbed by each participating firm. This is essentially how Ripple is being implemented in the banking industry to reduce the costs of international payments and increase the speed of international flow of funds. Some examples:

• Firms in the home and auto insurance business can network to facilitate a ledger with other home and auto insurance firms, helping homeowners who experience losses that are under the deductible or excluded from the policy form.
• Life insurance firms can facilitate their own ledger networking with other life insurance firms, enabling coverage for clients who do not meet underwriting requirements, such as those over the age of 75 or with a terminal disease.
• Firms in health insurance can network to facilitate a ledger with other health insurance firms to better enable users to cover high deductibles, only invoking their traditional insurance contracts for unexpected, large incidents.

By networking, firms can enable the existing P2P risk transfer behavior to occur with less friction and bring this important economic activity out of its black market state and into the light of day on a formalized platform. Once the economic activity is occurring on a formalized platform, one would expect to see, like was observed with Uber and AirBnB, a resulting boom in the aggregate amount of the economic activity, growing the entire risk market’s pie and improving the risk market’s value add to society. See also: 4 Steps to Integrate Risk Management In the next segment of this series, I will consider possible changes to the risk market’s current equilibrium state and what that equilibrium may look like after the phase change has occurred.

What is a digital insurer? In my previous two blog posts we dived into the digital deep end. In Part 1, we looked at what a digital insurer is and what it is not. We examined the link between customer-centricity and digital readiness, and we attempted to resolve the paradox of being an insurer that is running core systems yet wants to use agile emerging technologies and insurtech capabilities. In Part 2, we likened digital enterprise to a three-chambered fusion reactor that includes apps, content and journey. The reactor safely conducts the molecular fusion of core transactional capabilities and innovative emerging technologies and insurtech capabilities to provide exponential energy to the enterprise. We discussed apps and content, and now we are at the moment of truth — Chamber 3. We MUST design our fusion reactor to use the full power of the customer journey, creating compelling and relevant experiences. The experience is the most vital chamber of our fusion reactor for building our new digital framework. Experience and Experimentation Experience is how we build the FINAL customer journey and deliver it to our intended customers. To experiment with new business models, new pricing models and new customer interactions, we need to employ the full power of speed to value, improved total cost of ownership (TCO) and rich ecosystems. This is the era of digital, and speed is analogous to digital. Think about it. Instant gratification is becoming the norm in our society, and the speed of innovations is exponentially increasing. For insurers, this means we must ensure that our new digital platform can provide the speed, agility and cost-effective mediums that will yield speed in the customer journey and speed in the implementation of innovations.  What is not possible with entrenched systems is now possible with cloud deployment as long as the platform is designed for the cloud and not just retrofitted to run on external servers with architecture designed for on-premises expensive deployment and upgrades. See also: Core Systems and Insurtech (Part 1)   Find and Bind Find and bind will become a “most sought” requirement in the near future. Because long and expensive integrations cannot keep up with accelerating growth in innovations, a new methodology is needed to stay on top of innovation. A find-and-bind platform reimagines how new capabilities can be quickly bound to existing apps and content for designing overall functions and customer journeys. Find-and-bind architectures may appear to be “nice-to-have” now, but they are increasingly becoming important for leveraging new capabilities to continually innovate. Majesco is investing valuable R&D funds in this next-generation digital platform. Find-and-bind platforms will revolutionize how insurers think of themselves because they will open the doors to a thousand timely opportunities. Customer Journeys — The Real Deal An organization will know that it has arrived at digital fusion when it has fashioned and is using capabilities to design, implement, deploy, measure and tweak customer journeys for the insured and intermediaries. Many companies are using their customer satisfaction numbers as evidence that they are either “digital enough” or that they don’t need to move forward quickly. For example, a company-wide goal of customer satisfaction of 95% or above is often translated as 95% of customer satisfaction by each silo owner. This is not a bad goal – 19 out of 20 customers will be satisfied and a promoter of the company. But there is a problem, pointed out in a study by McKinsey. The study revealed that that a typical claims process goes through five to seven silos – underwriting, claims adjustment, payment, etc. If we assume that the journey runs through five silos and each achieve their goals of 95% customer satisfaction, there is a 5% dissatisfaction possibility at each stage. It isn’t the same 5% of people who are dissatisfied at every stage. The net overall customer satisfaction drops to only 75%, which is terrible. How is digital involved in customer satisfaction and in improving satisfaction across the journey? By recrafting the customer journey and its processes, we can cut through silos and unify the experience so that satisfaction is reached throughout. We use journey maps to establish a customer-centric brand by feeding customer experience back into the design. In other words, we use data and analytics from IoT, social and other non-conventional data to custom fit the experience to the user, regardless of whether the interaction is initiated by customers, intermediaries or insurers. Then, we monitor effectiveness and continually use our knowledge to raise the bar of customer experience. Is your organization an aspiring digital insurer? I’ve created a list of questions that may help you to consider the importance of change.  

• Can our digital strategy for delivery in differentiated customer experience really be supported with traditional platforms, attaching analytics and digital systems to silo-designed core systems?
• Are we able to test customer journey maps and learn, to continually innovate the customer experience?
• Are we able to focus on innovations and not be distracted by infrastructure and IT operations?
• Do we have “first-mover” advantages when we roll out new products, new services and new customer experiences, leveraging innovative data sources and technology?
• Can we achieve acceleration and scalability to launch our digital strategy by leveraging an industry platform that is designed outside-in and continually invested with expert innovations?

See also: Change Accelerates in Core Systems  You can start small or you can start big but staying still is not an option. This article was written by Manish Shah.

Insurers often fail to embrace the cloud for three reasons—and all three are fallacies.

Accenture recently worked with a multinational insurer on its cloud implementation and helped it achieve an 80% reduction in costs of a particular environment of an application suite. However, many insurers have been reluctant to tap into the power of the cloud. In this Insurance Insight of the Week video, I’ll look at some of their most common hesitations—and how to overcome them. Three steps to help insurers capture opportunities unlocked by the cloud The cloud offers flexibility, agility and scale—key capabilities in a marketplace where traditional industry barriers have disappeared and customer expectations can change on a dime. In today’s digital economy, it’s a crucial technology that insurers can use to become more competitive. See also: Future of Digital Transformation   Learn more:

• Download Eighty percent reduction in insurance carrier costs? Cloud as rainmaker. (PDF)
• View other Insurance Insight of the Week videos.
• Email me to discuss how Accenture can help you embrace the cloud and become more competitive.

Innovation is critical for every organization, but it is complex and can be very confusing, too. Poor innovation management and ineffective execution are among the key reasons causing innovation failures in organizations. Many companies lack well-defined innovation strategy and alignment with business strategy, resulting in poor innovation delivery. While it takes time to build the innovation culture, companies must leverage the startup ecosystem, capabilities of partners to augment the innovation gaps and emerging technologies effectively to deliver innovation faster. Innovation silos within the companies are key impediments that dilute innovation and generate poor innovation results. It is the time for companies to get honest and acknowledge innovation gaps, prioritize top factors affecting innovation and develop clear innovation strategy and plans that are well-aligned with business strategy. This article covers key considerations, describes the current state of innovation within financial services and the insurance industry and provides recommendations for effective innovation delivery. Balancing Innovation, Startups and Emerging Technologies Today, there is lots of buzz on emerging technologies, startups and innovation. While the business environment, economic conditions, political situation and core capabilities of many companies have not changed dramatically over the past year, nevertheless the innovation agenda has taken the front seat in almost every organization. The big question remains: How effectively are companies managing innovation? Are companies focusing on business innovation or technology innovation or a combination? Which are the proven models for innovation that deliver results? Is partnering with startups sufficient to drive innovation? Which emerging technologies have higher potential for innovation? See also: Don’t Just Indulge in “Innovation Theater”   Well, there are no straight and simple answers to these questions. What matters today is: There need to be serious attempts of organizations toward driving innovation, commitment by senior stakeholders, collaborative culture across teams, alignment between top-down and bottom-up innovations, bridging innovation silos within organization and focus on customer-centricity. Business Values Are Driving Innovation Initiatives In my interaction with senior business and IT stakeholders of leading financial services companies in the last few months, one thing has emerged clearly: that business values and outcomes are the most critical element in getting innovation funding. I have met CIOs of leading insurance companies who have expressed concerns about getting buy-in from the business team for business cases as one of the key hurdles in delivering innovation. While a majority of innovation efforts are still technology-driven or technology-led, only a portion carries real potential to disrupt the business or push the organization to a rapid growth trajectory. Many organizations are still focusing on incremental innovation, while many others are burdened with operational priorities and legacy challenges. The good news is that financial services and insurance companies are not fearing experimentation. The partnership with startups, the pace of pilot projects using emerging technologies and the participation of companies in industry events, technology conferences and startup events has grown significantly in recent times. Many financial companies are sponsoring hackathons and are welcoming innovation of all types. A good number of companies within financial services and the insurance industry have already partnered with fintech and insurtech and are clearly finding value. The hunt for innovation is furious. The FinTech, InsurTech influence is pushing companies to innovate faster. Technologies Enabling Innovation Within Financial Services SMAC (social, mobile, analytics and cloud) technologies that were new a few years ago have become a new normal, with high adoption rate across industries. Emerging technologies include blockchain, artificial intelligence (AI), robotics process automation (RPA), Internet of Things (IoT), augmented reality (AR) and virtual reality (VR). However, companies are being pragmatic about adopting these technologies. For example, while it is true that in the last three years more than $1 billion of investment has gone into blockchain technologies alone, with 90-plus companies being part of blockchain consortia across 24-plus countries (according to recent World Economic Forum findings), many companies (insurers, banks and other financial companies) still struggle to identify suitable, viable use cases. The technical complexities and shortage of skills are another big hurdle for adoption of emerging technologies such as blockchain. While some of these technologies are still evolving, technologies such as AI and RPA are moving faster in terms of adoption within financial services and the insurance industry. For example, AI-enabled chatbot and robo-advisers are moving beyond delivering basic conversational response to enabling channel expansion, enabling cross selling, targeting new segments, delivering training and enabling end-to-end transaction processing within the financial services industry. RPA technologies are also gaining popularity and are in use within financial services and insurance companies, helping companies automate mundane, repetitive, manual, rule-based tasks or processes. The adoption rate and focus on IoT technologies has been hampered by increased fear of companies toward cyber security risks after various ransomware attacks in the recent past. AR and VR technologies are still hunting for viable use cases within the financial services industry amid the changing shapes and characteristics of AR/VR devices. Emerging technologies are the key enablers for delivering innovation and cannot be ignored any more. Bridging the Gaps and Making a Balance With Innovation While every company has a well-defined business strategy and IT strategy that are reviewed periodically, many lack a well-defined innovation strategy. It is time for companies to revisit their innovation strategy, align it to business strategy and make it an integral part of the operating model. The innovation silos, poor governance, complex organizational structure, lack of funding, talent gaps and organizational politics are a few known elements that hinder innovation delivery. Only a few innovation-driven companies take tangible actions to overcome these challenges and work toward building an innovation-centric culture. Agility, experimentation, customer validations, pivots, failures and talent development are integral parts of innovation delivery, and companies that understand that, will measure innovations regularly, reward teams and encourage open innovation. See also: Pursue Innovation or Transformation?   While corporate venturing, partnership with startups and acquisitions are some methods to fast-track innovation efforts and mitigate risks, without addressing the root cause that hinders innovation, companies are just postponing the real problems. Startups are a good catalyst for innovation, but many companies merely leverage them as a reference model or mitigation element, which they think they can mimic, buy or obtain through partnership using brand and financial muscles. If companies find many gaps with the existing innovation model, they must explore partnership and acquisition of appropriate startups seriously and integrate them effectively into the companies' ecosystem to ignite innovation delivery. Business model innovations that are market- or industry-driven typically deliver successful innovations that are disruptive. Companies that bring together the best elements of business and technology (talent, people, vision, insights, partners) at the right time, collaborate effectively internally and externally, learn from failures and involve customers in every stage of the innovation life cycle are the ones that are most successful in innovation delivery. In addition, emerging technologies offer numerous opportunities for companies to fast track innovation efforts when coupled with the right business case. Companies must balance the innovation, startups' influence and the power of emerging technologies for competitive advantage and market leadership.

How can you grow in a market that is flat or shrinking? This is a common problem faced by businesses. whether they are in insurance or manufacturing. It was the challenge my team faced immediately after I was promoted to lead Stryker’s EMS (ambulance) equipment business in 1999. The lessons we learned apply across a broad spectrum of businesses. Stryker EMS had grown aggressively following its 1994 launch by taking share from a monopoly competitor. But, as our slice reached 50% of that market, it was mathematically unfeasible to expect that the pace of expansion could continue meeting our parent company’s 20% growth requirement. We had to find other avenues to expand. The first prong of our approach was to extend globally. Nothing particularly original in that approach, but the second prong would challenge every bit of our ingenuity as we created three new market categories. The situation we faced is similar to that of many insurance companies. Industry experts believed that there was little opportunity for innovation in the EMS patient handling equipment space—resembling what many believe about parts of the insurance space. We proved the skeptics wrong; you can, too. The valuable lessons we learned while inventing three breakthrough market categories have direct analogies in insurance, where finding game-changing innovations brings unique challenges. First, we took a broad, strategic view of the issues facing our customer and partnered with industry leaders to uncover significant costs that were hidden in their financial statements. Simply put, we did our research. Insurance companies seeking to innovate could leverage their financial experts and actuaries in similar endeavors. Second, we focused on the root causes of those hidden costs, constantly asking what could be done to reduce or eliminate those causes. This is a mindset that the best insurance companies follow. Third, we invented technologies that enabled several of the breakthroughs; gaining patent protection and exclusivity in the process. In many of these inventions, we brought to bear crucial technologies that were being developed in unrelated markets but had application to what we were attempting to accomplish. This is similar to those in insurance looking to enhance quoting, claims processing, risk management and a host of other functions by applying burgeoning innovations in augmented reality and machine learning that are taking place in the computer, smartphone, and tablet markets. See also: 4 Hot Spots for Innovation in Insurance   This extract from the new book Commanding Excellence: Inspiring Purpose, Passion, and Ingenuity through Leadership that Matters tells the EMS story. While the challenges in insurance are distinct, applying similar thought processes and fundamental approaches from this innovative leader in medical devices could be the secret sauce to innovative breakthroughs. From Chapter 22: Purpose-Drive Creativity at Stryker The second prong was focused on solving significant problems facing EMS providers around the globe. Over the next decade, we developed three new product categories that dramatically improved patient handling in prehospital treatment. After several years in the business, my team realized that an emerging employee-injury crisis was facing our customer base. As patients were getting heavier, and the average EMTs lifting the patients were aging and included a higher number of females, on-the-job back injuries were soaring. In addition, the many safety issues that arose in the event of an ambulance crash were gaining awareness. Stryker EMS set off on a determined mission to provide technological solutions to these challenging issues. We worked closely with internationally recognized EMS services to identify the sources of injury, developed strong partnerships with ambulance manufacturers and regulatory bodies working on crash-worthiness, and dared our engineering and marketing talent to devise breakthrough answers to these difficult problems. First we launched the category of tracked EMS stair chairs. These were foldable/storable wheeled chairs that had an innovative friction-based track system that users could deploy to provide considerable assistance when transporting people down the stairs. The StairPRO was a game-changing product. Smaller EMTs gained the capability to safely transport patients down the stairs, dramatically reducing the risks of back injury to themselves while also improving safety for the patient. As we developed the product, many focus groups loved demonstrations of the prototypes but thought such a product would be far too expensive. To do it right, the chair would end up being three to five times more costly than the seldom-used, simple folding chairs most ambulances carried at the time. We knew the injury-reduction benefits were real, and the costs of such injuries far exceeded the cost of a fleet of tracked chairs. As it turned out, the StairPRO chair saw the fastest market uptake rate of any new product Medical Division had ever launched, even at the high price. Our second major breakthrough was a viable powered ambulance cot. Lifting patients from the ground to the upright position for moving the cot and then loading the cot into the ambulance was another source of heavy back strain driving high rates of injury. Stryker launched an innovative battery-powered, hydromechanical cot that allowed EMTs to lift patients with great ease with the press of a button. The product was a particularly challenging engineering feat, because it had to have the power and strength to assist lifting up to a 700-pound patient yet still be light and maneuverable and have no compromises in the time it took to load and unload from the ambulance. Several patented new technologies allowed all of these requirements to be met, and PowerPRO was another runaway success. The final major breakthrough was, perhaps, the most demanding and complex product Stryker Medical ever developed. We found it odd that in most of the developed world, the process of loading garbage from a customer’s curbside into a truck had converted from a physically intensive, back-injury-prone, manual operation to one where the sanitation companies issued customers customized wheeled containers that could be rolled out to the curbside and then picked up and hydraulically dumped into the garbage truck. This conversion involved a multimillion-dollar infrastructure investment all over the globe. Yet critically ill patients were still being loaded into the backs of ambulances by skilled EMTs and paramedics using simply their own brute force. It was an operation riddled with significant injury risks for the providers and patients. Not infrequently, patients were dropped or tipped over during loading or unloading, resulting in injuries and lawsuits. The situation begged for a technology solution. As with the PowerPRO, there could be no compromises. Load and unload times had to be equal to current methods; a complete and seamless manual back-up had to work in the event of power loss; battery management had to be automatic; crash-worthiness had to be best in class; operation had to be simple; and the device needed to be easily cleaned. In the process of addressing all these often competing requirements, the team invented and patented multiple technologies for the loading and unloading method, near-field communication techniques between the stretcher and the loading system, inductive charging between the trolley and the cot (to recharge the batteries) and a host of other mechanisms. At launch, the PowerLoad system was well received, and it is still in the process of transforming the industry’s infrastructure today. We look forward to the day when no patient has to be loaded by brute force. With the international expansion and three breakthrough new-product categories, the EMS business was a significant growth engine, delivering a combined annual growth rate of over 25% during the years through 2012, when I retired. There was nothing more rewarding than to have seasoned paramedics come into our booth at trade shows and ask to hug the engineers, thanking them for creating technologies that allowed them to do their jobs without injuring themselves or patients. The purpose-driven atmosphere unleashed creative energies to go after these game-changing innovations. Success continues in EMS. In 2016, Stryker acquired the world’s leading manufacturer of EMS defibrillation for over $1.2 billion to complement the company’s global market position in the prehospital market. See also: Innovation Executive Video – Pypestream’s Donna Peeples 

New technologies like blockchain, artificial intelligence (AI) and the IoT offer insurers a better way to engage customers. One crucial enabler? The cloud.

It would be an understatement to say that insurers have many more tools at their disposal today: new technologies, advanced analytics, access to broader data sources, for example. But these new tools aren’t possible without one crucial technology: the cloud. In this Insurance Insight of the Week, we’ll look at how the cloud makes digital happen. The cloud makes digital happen New technologies like blockchain and connected devices can help insurers improve customer service, speed to market and the bottom line. Insurers that tap into the cloud—and the capabilities it can enable—can take advantage of these technologies to become more competitive. See also: Blockchain: Basis for Tomorrow   Learn more:

• Download Eighty percent reduction in insurance carrier costs? Cloud as rainmaker. (PDF)
• View other Insurance Insight of the Week videos.

In our last blog of our two-part series on the gig and the sharing economy, we looked closely at how the gig or “on-demand” economy will open up new markets to group and commercial insurers. You can read that blog here. In today’s blog, we look at the sharing half of the gig and sharing economy. How will a radically shifting market, where borrowing and lending are more prevalent, open doors for commercial and specialty insurers? More importantly, how can insurers fuel the growth of this market by making borrowing and lending more palatable? Is the Sharing Economy real? The sharing economy is not only real — it has enormous potential for insurers. RVs make a great example. Recreational vehicle owners use their RVs an average of 28 days per year. With 8.9 million U.S. households owning an RV, that’s nearly 2.9 billion unused RV days per year. RVs are remarkably underutilized, making them a prime market for sharing. RV sharing sites, such as Outdoorsy, help owners to profit from their RV, while helping non-owners to gain access to RV use. Multiply this idea many times over. ATVs are underused. Boats, chainsaws and generators are underused. Cars, homes, cabins, campsites, hunting property, musical instruments, bicycles, hockey rinks and electronics are all commonly underused. The only thing standing in the way of sharing them all is… insurance to cover a new type of risk. See also: Opportunities in the Sharing Economy   While some personal lines insurers are making a case for insuring some of these risks by adapting their personal lines products, it is commercial insurers that may have a leg up when it comes to understanding how to price risk for niche risks or groups and how to offer innovative products to these “small – medium” business owners. Majesco’s forthcoming consumer research report finds that the consumption of ridesharing and home- and room-sharing services has a strong and growing appeal. The year-on-year growth of these activities was between 5% and 15% depending on the activity, highlighting a growing interest and use across all generations due to the digitally enabled capabilities driving ease of use. (For a further look at sharing economy trends, read Changing Insurance for the Digital Age, a collaboration between Majesco and Global Futures & Foresight.) Experience is a factor The sharing economy is related to the experience economy. As millennials enter the middle class, they are owning less “stuff” and putting more emphasis on having greater experiences. The sharing economy is fostering their desire to do more by owning less. With less of their income tied up in ownership and maintenance, they have more to spend on borrowing and renting. They are concerned about risk, but they don’t want a confusing transaction to sit in the way between them and the experience. So, insurers must find ways to build simple insurance experiences into the front end of the overall experience, or hide purchase experiences within the usage itself. Insurance is the answer to some of the sharing economy’s most pressing issues. Before "sharing economy" was even a term, sharing was at the heart of insurance. So, it would make sense that insurance would fit well into the sharing economy. Insurance, however, has had a product focus, reflected in the organizational silos based on risks and products, by separating personal versus commercial, rather than a customer focus that shifts between different risks (i.e. personal vs. commercial) based on the behaviors or use. This is why sharing economy insurance incumbents may find themselves disrupted by Slice, Cover Genius and Metromile and similar entities that are popping up everywhere. Optimistically, however, the sharing economy is igniting an insurance renaissance with traditional insurers like Geico, Admiral, AXA and others asking themselves how they can serve people in the on-demand sharing economy … both personally and as a “business.” In the sharing economy, it’s all about protection for the shorter timeframes and meeting the uncommon, on-demand need … allowing the customer to fluidly switch back and forth from personal to “commercial” needs. And, it’s all about giving owners and businesses incentives to lend property or assets. Insurance can answer these issues. Insurance will fuel the sharing economy if insurers can build compelling value propositions Rental companies are familiar with the risk of lending. They understand what is at stake, and they price insurance into their products or create contracts to handle damage. A new round of entrepreneurs is arising, however, who are using technology to match peer-to-peer lending. Websites such as MyTurn are enabling anyone to launch asset-sharing organizations. These types of companies are unfamiliar with how insurance can offer them protection and how coverage should be handled for a broader segment of products and users. This is an area where insurers can fill a growing gap. The insurance value proposition in the sharing economy is to make both the lender and the borrower comfortable that the transaction can occur without the threat of loss. All that remains for insurers, then, is to determine where sharing is creating insurance gaps and how they can build, sell and service sharing products. Data is critical Consider how data is currently used in underwriting most products. For the most part, insurers pull from traditional data sources for underwriting purposes, and, though they may have reduced underwriting time, it is rarely real-time data. The sharing economy is different. It will require hyper-short underwriting loops based on real-time data because many aspects of sharing happen quickly and in a non-uniform pattern. The whole concept of on-demand insurance assumes the flip of a switch between being uninsured and insured. On-demand insurance products should have the capability to score based on evidence analyzed from many reliable sources. Sharing economy insurers may want at least some scoring related to social profiles and common pastimes and behaviors. These aren’t easy data points to collect, but the further down the road on-demand insurance progresses, the greater the demand will be for every type of character-based data. Cloud platforms are necessary In essence, sharing economy insurance requires on-demand micro duration insurance coverage and blurs the boundaries between personal and commercial insurance.  But insurers face challenges including: creating a micro-duration insurance business model; real-time pricing determination based on micro-segmentation and varied factors; mobile-first user experience; low transaction value but high transaction volume; and low-touch, end-to-end operations. See also: 4 Mandates for Agents in Sharing Economy   To support these new coverages requires a next-generation core platform that is a complete architecture redesign with an alchemy of data, analytics, digital and processing components; customer-journey-focused solutions; significant reliance on AI for pricing and underwriting; and a light footprint and auto-scale capabilities for high volume support on cloud.  Furthermore, there has to be a strong “find and bind” integration architecture to tap into an ecosystem of innovative services. As we highlighted in our Cloud Business Platform: The Path to Digital Insurance 2.0 thought leadership report, many of the new insurers providing these innovative products have such core platforms in the cloud to allow them agility, speed and innovation in a continuously changing market. Agility is (no surprise) highly necessary For insurers to grab the opportunities as they arise, they will need to understand what new technologies can do to facilitate sharing relationships. They will need to use a next-generation core platform that is scalable and allows for real-time data and agile product development. Cloud platforms will lend themselves to many of the necessary features, but expert data integration and “find and bind” ecosystems will also be vital. For a better look at growth opportunities within the sharing economy, don’t miss Majesco’s report, A New Age of Insurance: Growth Opportunity for Commercial and Specialty Insurance in a Time of Market Disruption.

What I want to explore today are application programming interfaces, or APIs, but the term is off-putting—technical and perhaps even intimidating. So, let's start with two maxims from Silicon Valley that frame the issue in a friendlier way. Then, we'll look at how a radical approach to APIs has helped Amazon be a mega-success, how they are leading to redesigns for car makers and how they could drive broad innovation in insurance. Lemonade—surprise, surprise—offers an early example of what's possible.

The two maxims:

"Software is eating the world." — Marc Andreessen, a prominent venture capitalist who created the first commercial internet browser more than 20 years ago. 

"No matter who you are, not all the smart people work for you." — Bill Joy, a co-founder of Sun Microsystems who wrote the version of the Unix operating system that made it widely popular and who is now a venture capitalist. 

Looked at from an insurance perspective, I see Andreessen saying: If you want to be the eater, not the eaten, you need to turn your business into software. Stop thinking about having factories that churn out paper full of legalese and imagine insurance as software. I see Joy saying: Figure out how you can fit into an ecosystem and draw on all those smart people who work for somebody else.

Those two maxims lead to APIs, because they are the technical expression of how you turn your business into software and how you coordinate with all those other smart people. Get the API issue right, and other problems fall away.

APIs are really just definitions of how pieces of software will work with other pieces of software. You're writing an app that needs to include a calculator? You check the API for that calculator object and make sure your app talks to that object in the way it specifies. You don't talk the equivalent of English if the object speaks the equivalent of Spanish. You don't spell "favor" as "favour" if the object speaks the equivalent of American English, not British English. 

The magic of APIs is that they're so detailed that all the complexity behind them is hidden. If I want to collaborate with you on something related to software, I don't have to get into long conversations about governance or coordination. I can just say: "Here is my API." You then make sure that you meet the specs, and we're good. You get to draw on all my smart people, and I get to draw on yours.

That's the Joy's Law piece of the puzzle. The Andreessen piece requires specifying APIs for as much of your business as possible. Set up underwriting so that someone with a great bit of software for understanding some type of risk can just plug in once you share your API with the company. (Many APIs are public, but they don't need to be.) Set up claims so that someone with a new way of spotting fraud can just plug in.

Rethinking your business as a software platform or operating system will take some serious effort but will pay huge dividends. Just look at tech giants like Microsoft, Google and Facebook to see the benefits of being able to absorb others' innovations.  

Amazon may have taken the most radical approach to APIs. From its early days, Amazon had all parts of its business express themselves as APIs. In other words, they specified, in software, how they would export information and how they would import it, what capabilities they offered and what they needed, etc. All communication had to happen through these interfaces. The specificity simplified coordination both inside Amazon and with outsiders. And the approach seems to have worked out okay....

Car companies, which have always struck me as insurance-like in their determination to do everything in-house, are finding that they can no longer deny the power of APIs. For instance, historically, car makers designed every single detail of the dashboard -- the entertainment system, perhaps mapping, etc. Now, they are finding that people increasingly want an Ox Cord (a term that I assume began as "auxiliary cord," or "aux cord"). Customers want to be able to plug a smartphone into the dashboard to run their own entertainment, mapping, etc. Car companies are responding by designing dashboards that function more as a screen and speakers and by publishing APIs that define how those smartphone connections can happen. The companies will lose some control but wind up with far more robust systems -- and happier customers.

Lemonade is publishing APIs that will let it cross traditional insurance-industry boundaries and easily collaborate with outsiders that might help sell its products. Why just rely on agents or a website when you can have realtors, for instance, seamlessly direct people to you as part of a rental or purchase? 

What Lemonade is doing should be just the beginning of more fundamental innovations—at least, if I'm right that lots of the boundaries between traditional product lines will blur or even go away. For instance, life insurance has historically been sold as a separate product to protect a family if the primary breadwinner died but increasingly will, I believe, be incorporated into financial planning. Thinking of life insurance, investment vehicles, benefits programs, etc. as software, not products, and specifying APIs will greatly simplify the sort of combination and innovation that I believe must happen. 

If you develop an API-based strategy, you will greatly improve your chances of being the diner, not the dinner. 

Cheers,

Paul Carroll,
Editor in Chief