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 last installment of a three-part series. The first focused on the regulatory framework insurers face (link). In the second part (link), Nick provided the regulator’s perspective, with a focus on the goals and tactics of the commissioner’s office. Here we discuss the best practices of the insurers in compliance reporting as well as future trends in compliance reporting. From my experience in speaking with carriers, I’ve been struck by the challenges of reporting data in various different reports to so many different entities. A lot of carriers struggle just with the process, and the quality of the data reported suffers. So, to dive into the quality of the filings for a moment, what are you looking for? Garbage in, garbage out, obviously. The most obvious issues start with the outliers. And it would come back to the state catching the company filing some bad data. So, for instance, on the life and annuity side, how you define “replacement” can trigger a percentage up or down that maybe you shouldn’t have in there. If you think about it, from the company side, a lot of MCAS data is probably gathered on an Excel spreadsheet, or in Sharepoint, or a shared drive, and it’s someone’s job to pull the data. And, he or she is often not the subject expert of the report to be filed. Overall, companies make a commendable effort in terms of timeliness and accurate data. But, to the extent that a carrier does not pay close attention to what’s going into the file, it can be a problem. You really don’t see the output very well from a 30,000-foot view; a carrier is far more likely to have issues unless it has a really solid data entry process in place or someone who owns it on the executive team who actually knows what is going into the report. Any examples you can share? One that comes to mind was a company that reported an unbelievably high replacement ratio. And when we dove into it, we realized they had pulled the wrong file to calculate the rate. Now, it worked itself out, and the ratio was actually much lower, which is a good thing, but again I think companies need to pay more attention to how they are filing this data and where they’re pulling it from. And that’s where every company could do a little bit better job. I’ve had roles in three insurance companies now, and you can look at something as a check-the-box exercise, or hey-let’s-do-it-right. In my view, if you’re a bigger company, all of this does build into your ORSA filing in some respect. See also: Why Risk Management Certifications Matter   Your Own Risk and Solvency Assessment is just a picture of where you are on a risk basis. But a lot of your risks are related to market issues. Every company can probably do a little bit better job of making sure the data you submit is timely, relevant and the right data. And, when you’re looking at specific data with a report, the replacement rate within MCAS, for instance, how do you come up with that benchmark data? Are you looking at trending analysis in the context of industry benchmark data or trending within the company? That’s a really good question. It’s more art than science; there isn’t one right way to do it. If you had a 75% replacement ratio, but you only sold four annuities, that may or may not mean anything. If you have a 75% replacement ratio, and you sold 25,000, that’s a different issue. You start to look at it from a benchmarking of industry, a standard across the industry. Whether you can get that data from LOMA, LIMRA or WINK. Regulators have all of those same data points and benchmark studies, so you have a gut feel for what is an industry number. Then beyond that, to your point, you’d have to dig down for context. For example, Transamerica sells a lot more life insurance and annuities than EMC National Life. A benchmark is a benchmark, but it doesn’t differentiate from a small mutual carrier or small stock carrier. This is why context is really important. If you see a disturbing relationship or ratio develop on complaints, you have to look at the line of business, how much business they write, whether or not it’s an agent issue, or a producer issue, or home office issue, or a misunderstanding issue. You really have to dig in. Benchmarking is a start, and it’s certainly helpful. Iowa has 216 carriers, and the vast majority are small or midsize, sometimes just county mutual carriers. You have to look at each carrier on its own, as well. The benchmark helps, but it’s not the end all and be all. Did you look at consistency of data? For instance, premiums written is a component, in some form, of the financial reporting, market conduct and premium tax filings. Certainly. Our team would look for consistency of data across filings. Our biggest bureau at the division was on the financial side. And that’s really where I spent a lot of my time to develop staff. If we start to realize that a premium tax number doesn’t line up with premiums written, they start to ask questions. And sometimes there are good answers, and, other times, it’s a miss. And so, again, it’s data consistency and quality across all the reporting to make sure we have a clear picture. Because oftentimes, it’s something we didn’t understand, or the carrier filed but didn’t pull the right number. The sophistication of the models that the companies use – as well as the sophistication of the reporting – varies greatly from small carriers to big carriers. Some have home-grown systems; some have ad hoc processes. It’s all done differently. Do you have a sense – both from your time in industry as well as your role as insurance commissioner – how feasible it is to have a meaningful review process? To put this question in concrete terms: If you’re the CFO, you’re signing off on a lot of reports. Based on the volume of reports you’re signing, are you truly reviewing the data that’s being reported? That’s a great question. You’ve got reporting requirements for Sarbanes-Oxley if you’re public. You’ve got other reporting requirements under corporate governance at the state level. It’s impossible to dig into every single report for every single data point. So, you do have to rely on your staff, on your auditors and your chief accounting officer. And that’s why you have those controls in place leading up the reporting structure of those organizations. That being said, a CFO would want to have a clear picture from a benchmarking dashboard. There are a lot of tools for people in the C-Suite for tracking and visualizing data that call out for attention when a metric is out of place or not reported. The CFO relies on the team and the controls in place for the data to be correct in order to sign off. But, having a snapshot that showed what is filed, and when, and different data points and sources would be of immense help. What are the consequences, from a regulator’s standpoint, of poor quality or inconsistent data? Is it reputational? Does it add to question marks around a company? There are several things. Yes, it’s possibly reputational. But that’s in the longer term. Most immediately, the carrier is going to have to commit resources to resolve the issue. If a commissioner’s officer is asking questions, he or she has found something. You’ve got to commit resources to adjudicate and resolve the issue. And, it could very well lead to a targeted exam, which, in turn, could end up as a full-blown market conduct exam. It could also create a number of other issues during the triennial exam or the five-year deeper dive exam, which would require additional resources. These exams can cost quite a bit of money. And so, that’s a hard dollar cost. But, there is also the soft dollar cost of staff time, resources expended and opportunity cost in that it kept the carrier from have done something more productive. How does this work in practice? I can think of when I was commissioner once or twice when we had targeted exams based on filings that ultimately led us to say, “Okay, there is a problem here.” Both times were out-of-state companies. To your point earlier, you can call an exam on any company that is doing business in your state, certainly on the market side. On the financial side, you’re going to have more deference. But, on the market side, every commissioner’s office is reviewing the data, as well. Often for us, we would start with the complaints that are coming in, and then identify a trend with a carrier. And if you start to see a number of complaints, then you pull the data. Some insurers have a cynical view of regulators, particularly in some states. I’ve heard them refer to this as “the cost of doing business.” They feel that, if you’re going to write policies in some states, you’re going to get fined from time to time. And then, if you get fined by one state, then you’re going to see fines from other states as well. How does this work in practice? A carrier has an obligation to report a fine in all states in which it’s licensed. On top of that, there is this thing called the internet. When a state issues a fine – Commissioner Jones or Director Huff was famous for this – it would be followed by a press release, as well. So, there is some truth to the idea that if an insurer has trouble in one state, it might have it in multiple states. But there is some right to have a level of cynicism. There are some states where you’re much more prone be fined. Whether this is a cost of doing business, that’s a decision for that management team. But, if there is a fine in one state, the chances that of it in multiple states is high Our view of the world, in the Iowa division, was not necessarily to gang tackle but rather how to resolve the issue in our state. If there was a problem, we asked, “Did you make customers whole?” I would look at a systems issue with billing differently from an issue in which someone was ripped off. We tried to use judgment and look at the issues based on the facts and circumstances. Currently, data flows from carriers to commissioners in a defined cadence. What do you think of the promises of regtech – the concept that software and system automation will allow for data to flow to regulators seamlessly, in real time and without the need for insurers to prepare and curate data for filings? Right now the NAIC is the hub of a lot of this. And the idea that a state would get this directly from the insurer is a stretch. What about through the NAIC? Through the NAIC, I could see it happening. They’ll go to a cloud-based system, I’m guessing. As they make that shift, could that happen? Possibly. I always joke that for the state of Iowa, and most states, you have the best technology from 1985. Some states are ‘95. It is a stretch to think that this could happen without the NAIC leading. See also: The Current State of Risk Management   The NAIC really is the hub. If you’ve been to Kansas City, you’ve seen how impressive their system is, and their folks are. NIPR, for instance, I would always joke, is a technology firm. It’s not a producer licensing firm. The NAIC has tremendous resources. Their CTO has ideas on how to streamline it further. I could see this happening in 10 years or less. The reality is that a state could never do this. So, a state has to rely on the NAIC. Going back to why this system works, well it works because you have an association - the NAIC - that has the ability to upgrade and transform quicker than any state ever could. Is it possible that the states could innovate on their own, outside the NAIC? It would be hard, at best. If you think about the state-based system, if Iowa doesn’t transform as quickly as California, or Montana as Wyoming, that starts to be a problem. The NAIC can take care of that in one fell swoop and we, as state regulators, all benefit from that work. I could see data delivery and reporting being quicker, more meaningful, real-time. I could even see, down the road, machine learning processes put in place to help on policy review form, financial review form. I think you could get there. I don’t know if it’ll be five years, 10 years or 15 years, but it will certainly happen in my career, where it’s going to be a continuously improving process. The NAIC is the best way that regulators keep up with the demands that are happening, through leveraging the NAIC tech and personnel.

While we often emphasize that we're about thought leadership, not news, this week I'll focus on two items in the news.

The first is about an investment in and partnership involving...ITL. We don't often look for headlines about ourselves, but we hope this partnership will turn out to be the most important thing we've done since our founding.

We are announcing today that The Institutes have made an investment in ITL as part of a strategic relationship. I trust you're all familiar with The Institutes' continuing education courses and their offerings of professional designations, including the CPCU. I hope you also know about their RiskBlock consortium, which is leading the way for the industry on developing blockchain applications in insurance. If not, you should—assuming you would benefit from blockchain in your future.

We will help The Institutes broaden the creation and distribution of thought leadership on innovation and technology, supporting the industry's transformation goals. At the same time, they will help us spread our wings among their members, both in terms of ITL and in terms of our Innovator's Edge platform for tracking insurtechs and our Innovator's Studio strategy coaching services.

As you might imagine, we're in the very early days of coordinating the new relationship, but there will be plenty more to say both from our vantage point and theirs in the coming weeks and months. Stay tuned.

Second news item is the story about Spectre, Meltdown and the flaw in Intel microprocessors that opens up a whole new attack vector that the bad guys can use to get to information they shouldn't have. The issue reads like rocket science—a whole series of illicit commands can be slipped into the work stream of the processor, but only if they are timed to the billionth of a second—and it just so happens that we have a rocket scientist on staff: Joe Estes, our Chief Technology Officer, who is a veteran of the NASA Jet Propulsion Lab. 

Joe has written an article that I want to call to your attention because it provides a timely explanation on a complex but important topic. (I feel smarter already.) The article also draws on research in our Innovator's Edge platform, where we are tracking 250 insurtech startups focused on cyber issues. Joe lays out the three main approaches that insurtechs are making and recommends a few to check out. I recommend the piece highly. 

Cheers,

Paul Carroll,
Editor in Chief

With Meltdown and Spectre very much in the news, raising the possibility of major data breaches, here are answers to some common questions about the flaws that can be exploited, about what the vulnerabilities are and about how insurers can use insurtechs to protect themselves. Meltdown and Spectre relate to a 20-year-old design flaw in Intel microprocessors, the sorts of chips that function as the brains for laptops, mobile phones and just about every other electronics product these days. It’s now clear that other microprocessors likely have similar flaws, but the Intel flaw has drawn attention both because Intel chips are so widely used and because Meltdown and Spectre have shown exactly how the Intel issue can be exploited. The vulnerability has been known for months by Intel and the largest tech companies, but, despite the knowledge of the vulnerability and the recent scramble to patch it, there is still much uncertainty about the precise implications. Who Discovered the Flaw? An engineer with Project Zero, a team at Google that looks for flaws that cyber criminals can exploit, found the vulnerability in the Intel microprocessors. Jann Horn discovered the problem while developing a processor-specific application that required deep access into the chip hardware. Since then, several other researchers discovered the flaw from a different angle, while looking at a technique where, to increase efficiency, processor operations are run out of order. Research papers were published in the microprocessor community about this technique and the possible implications. Several groups created simulations and discovered the obscure flaw in the Intel chip. One prominent group of researchers out of Graz University of Technology in Austria reported the flaw to Intel. Intel had already known for seven months at that point, but the discovery was now breaking news and came to light last week. How Does the Flaw Work? A computer’s processor executes code out of order to circumvent bottlenecks and speed the work. The CPU doesn’t just read code like a book, from front cover to back cover. The process is more like preparing a complicated recipe, where parts of the process need to be started at different times to keep the work moving smoothly. This technique is referred to as “speculative execution” – the CPU is taking its best guess about what work needs to be started when. Speculative execution has been used for 20 years. Spectre exploits the technique. Developed by Horn to show the Intel flaw, Spectre intervenes in the speculative execution to have an application store sensitive or private data in the processor’s cache – the memory that is built into the processor itself. (As fast as the speed of light is, a processor simply takes too long if it has to grab all its information from separate memory chips, even inches away, rather than from elsewhere on the processor chip.) Spectre has the private data stored in particular places in the cache where an attacker can retrieve it later. Data can be accessible within several nanoseconds (billionths of a second). Meltdown is the process of retrieving the sensitive data. Meltdown uses incredibly precise timing – remember, we’re operating in billionths of a second here – to grab the sensitive data. Meltdown does so in between the processor’s reads and writes – in other words, between the times the processor is reading data from cache and the times it is writing, or storing, data in cache. The operating system kernel provides the clock that allows events to be coordinated with such precision. See also: Cyber: The Spectre of Uninsurable Risk?   The particularly alarming aspect of this vulnerability is that it can be exploited from front-end Javascript code, which is used just about everywhere. This means that browsing web pages is one of the attack vectors that could be used to extract otherwise-secret data from your session. What Is Being Done? Spectre and Meltdown work hand in hand, so browser companies have removed application access to interfaces that measure precise timing intervals. FireFox has published steps to limit and remove access to the timing function. However, removing access is only a temporary fix. The underlying flaw still exists. A fundamental change in chip design is required for a truly secure solution. Companies like Amazon, Google and Microsoft have recently been rebooting so-called virtual machines (VMs) to clear the cache. VMs act like separate pieces of equipment as far as customers are concerned but, in fact, share hardware with other customers. (Software defines the boundaries of the “machine” within the physical piece of equipment. VMs make data centers far more efficient: Machines no longer sit idle simply because a particular customer doesn’t have work to do at that moment; someone else grabs the CPU time.) Sharing of physical hardware between customers could mean that your secret data was left in the processor cache, to be extracted through this process of speculative execution and precise timing from another company’s front-end apps. After all, you’re sharing the same physical processor. Who Does It Affect? The chip vulnerability affects all modern microprocessors, including those in desktops, laptops, mobile phones and IoT devices. Speculative execution is a technique used throughout the chip industry. Besides Intel, other chip manufacturers like AMD and Arm Holdings are implementing similar patches that are also focused on limiting access to cache timing. How Does the Insurance Industry Respond? Despite the panic, the insurance industry should stay the course. Providers of insurance services should follow the same cyber security methodologies they follow in times of certain vulnerabilities as they do in times of uncertain vulnerabilities. First, implement all security patches and updates for all hardware in your organization. This should be done with caution because logic in the patches could significantly slow hardware. Second, rely on the products and services of leading cyber security insurtechs. According to ITL’s Innovator’s Edge, there are 250 cyber security insurtechs globally, and many are making good progress. The insurtechs fall into three main categories: Threat Prevention Threat prevention, as the name implies, stops an attack before it occurs. This typically includes services like penetration testing, simulated attacks and system hardening. 30% of the cyber security insurtechs in Innovator’s Edge are assisting insurance providers with these activities. RiskIQ, for example, uses big data, analytics and simulations. The company’s RiskIQ Digital Footprint maps all your IT assets and determines if they are hardened from a security standpoint. Threat Detection Threat detection is the process of being alerted when a breach does occur. Detection is most often made possible by security monitoring. Monitoring varies from conventional network monitoring to sophisticated machine-learning-based monitoring. 42% of cyber security insurtechs tracked by Innovator’s Edge mitigate cyber risk through threat detection. For instance, TesseractGlobal’s Peerlox EDR focuses on detecting targeted cyber attacks through machine learning. The strategy for leveraging artificial intelligence and data analytics is an ideal second line of defense for an organization. See also: Cyber Threats: Big One Is Out There   Threat Management Threat management most often relies on consulting. Threat management is applied when a breach occurs, there is damage done, and there is a mess to clean up. As you can imagine, this is highly specialized work. According to Innovator’s Edge, 14% of the cyber insurtechs have these capabilities. SeraBrynn, for one, assists insurance providers after they have become the victims of a breach. The team consists of industry leaders in cyber security who have assisted the NSA. The combination of the strategies that insurtechs offer can help minimize the reverberations created by something like Spectre and Meltdown. The capabilities are a hedge against the negligence of the technology industry, whose insatiable pursuit of Moore’s law has come at the expense of security. Luckily for the insurance industry, there is an Insurtech for that.

Agents have a crucial role protecting their clients, but not just by providing the right coverages. Do not get me wrong, selling the right coverages is of paramount importance for professional agents (and I don't know what amateur agents are even supposed to do). Another key service professional agents can provide clients is protecting them from insurance companies. A great example is reading forms, yes--actually reading forms, to distinguish whether coverage actually exists! I think cyber might be an excellent generic example of verifying true coverage is actually being provided or if true coverage just appears to exist. See also: 5 Predictions for Agents in 2018   Another example, and a great way to prevent E&O claims, is careful policy checking on E&S policies. By and large, surplus lines does not have to provide the coverages promised in their proposals. Neither do they have to notify agents or insureds at renewal if they reduce coverages. This is why they include their disclaimer stating they do not have this responsibility. It is one reason this is surplus lines and not an admitted market. An insured will not know the coverages have been stripped without careful review, and, even then, they may not understand. I know far too many agents who do not understand, so I don’t know why anyone should expect the normal insured to understand. This is a job for professional agents! A third example is provided by a recent court case. Joseph Beith provided the details in his blog (and if you care about insurance companies treating insureds fairly, I highly recommend you subscribe to his blog). A long-term care (LTC) provider included a sentence (used by at least one other carrier, too) that, "Your premiums will never increase because of your age or any changes to your health." My bet is that 95 out of 100 insurance veterans would not recognize the problem with this "guarantee." Beith recognized and pointed out the problem. The guarantee does not prohibit the company from raising rates on a class basis (and, as people age, their class ages). If an agent has a choice of selling two policies, one with this tricky language and another without it, then, all else being equal, even if the policy without this language is more expensive, a professional agent will point out this crucial language issue. Insurance policies are, after all, legal contracts, so policy language matters, A LOT! This is maybe an extreme example of arguably (and it is arguable since it is part of a large lawsuit) crafty language, but important differences exist between carriers' policies in virtually every instance. Whether it is simply a material difference in ordinance and law limits between two homeowners policies or huge contractual liability differences between two policies, professional agents will point out the differences. Doing so is crucial to helping insureds understand that insurance IS NOT a commodity when sold by professionals (again, I don't even know what to call insurance when sold by amateurs other than disasters waiting to happen). Pointing out differences in coverage shows clients you are actually working to help them rather than just working to make a buck. Pointing out differences gives clients the power, and, if they have the power, your relationship will likely be much stronger over time. Conversely, when they feel screwed because they were not educated and given the opportunity to choose, they are more likely to sue you or at least tell everyone they know not to do business with you. See also: 4 Ways to Improve Agent Experience   A problem with LTC and life insurance is that, when the events that trigger a claim occur, the agent may be long gone. P&C policies typically have a shorter lifespan, meaning more ramifications, good and bad, for professional agents. A good professional agent who makes these distinctions with good clients can achieve considerable success. I am not sure about the future of people selling coverages they do not know and do not communicate to clients. The future for absolute professionals is, however, so bright they will need shades.

Could AI be used by regulators to test how committed insurance executives are to building trust with policyholders? Artificial intelligence is transforming the relationship between insurer and insured. And it’s now being used in ways that could transform the relationship between insurer and regulator. It has implications for public trust and executive careers. It has emerged that a large investment management firm has been using an AI-based form of voice analysis to test the confidence of the chief executives of the firms in which the firm has significant holdings. Called "affect analysis," it’s being used to detect any disconnects between what the chief executive is saying and the level of confidence with which she's saying it. The feedback could be used to pinpoint weaknesses around which further questions are raised, or to just automatically adjust an investment or research recommendation. See also: Strategist’s Guide to Artificial Intelligence The idea behind this approach should not be something new to insurers. They’ve been using it for some time to analyze how claimants describe the circumstances of their loss, looking for indicators in their voice of a potential fraudster. I experienced such analysis in 2016 while making a claim for a lightning strike on my home. So what has this to do with the ethics of insurance, then? Well, if an investment manager can analyze the voice of a senior executive in this way, why shouldn’t the regulator do something similar with the same people? The regulator could ask senior executives to talk about their plans, activities and achievements relating to ethical issues like integrity and fairness. Given that senior executives and key decision makers in U.K. insurance will soon be subject to new regulations that emphasize their individual accountability for ethical culture within their firms, this step would simply be taking an established practice within the sector and applying it to new ends. A lot will, of course, depend on the questions you ask. If these focus on belief and commitment, then scores could be quite high, but if they focus on actions and outcomes, then some people might struggle. And remember that U.K. insurers needn’t wait for the regulator on this. The Senior Managers and Certification Regime requires insurers to undertake their own integrity assessment of senior managers and key decision makers. Perhaps affect analysis could form part of that assessment? The results could then be used to configure personal performance plans and learning schedules. I wrote about the rise of panoptic regulation back in 2015 (link), in which regulators access and analyze real-time decision data in a continual stream from insurers. Putting artificial intelligence to use in this way would be a small but significant part of that wider development, providing regulators with critical insight into the tone from the top in a particular firm. See also: Why AI Will Eat Insurance   Perhaps the biggest signal the insurance market could take from developments like this would be that of a regulator becoming more sophisticated, prepared to get more under the skin of those they’re dealing with. Just like insurers are, some might say, in their relationships with policyholders and claimants. One word of warning, though. It is particularly important that the algorithms underlying this branch of artificial intelligence are properly trained. If that training has been carried out on the voices of the white, male executives who have largely dominated the board rooms of insurance firms to date, then this sort of AI-based analysis would turn into a barrier for the various diversity initiatives underway in the insurance sector at the moment.

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.