The devastation of Hurricanes Harvey, Irma and Maria is a stark reminder for individuals and organizations about the importance of emergency preparedness. But while most of us think of emergency preparedness in terms of natural disasters, the fact is that organizations today face a multitude of man-made threats, including mass casualty and active shooter/active killer scenarios. While it is important to be ready to face these new threats, the preparation is very different. An Emergency Operations Plan (EOP) is the foundation upon which all incident and emergency management components are built. It is the foremost part of the preparedness phase of the emergency management cycle. Whether hazard assessment, specialized training, exercises or other incident-specific elements, all are based upon a realistic and practical EOP, which is as much about the process as it is about the EOP itself. See also: Hurricane Harvey: A Moment of Truth   The new face of emergency preparedness for many organizations today includes worldwide threats related to terrorism and other acts of violence. Training as a critical aspect of emergency response, continuity of operations and recovery capabilities following a disaster/mass-casualty event are imperative for both public entities and private companies alike. At a minimum, this training should include:

• Active Shooter/Active Killer — preparedness/response including facility design/layout considerations and post-event management/reunification/recovery
• Threat Awareness — situational/operational security training
• De-escalation Training — non-violent verbal intervention
• TaPS Assessment (threat and physical security)
• Theft/Vandalism Assessment

The key to making this training effective is to personalize it to meet the needs of the individual organization. The unique aspects of various entities and organizations must be considered in terms of content and adapted to the entity’s geographic and demographic makeup. To accomplish this, active shooter/active killer training should take place in the actual work environment, allowing site-specific questions and issues to be addressed. Training small groups in their work environment also provides greater participant confidence and organizational readiness. Whether they work for a public entity or a private company, people want to feel confident they will be prepared to address any emergency or threat. They are not interested in high-level, generic information. They want detailed, tangible information and hands-on training for their own workplace. A personalized and comprehensive emergency preparedness program is a vital component of any organization’s overall risk management solution. In response to this demand, Keenan recently launched IMReady (Incident Management Ready), a new suite of security and emergency preparedness resources designed to prepare any entity or organization for a disaster or mass casualty event occurring at its facility, including active shooter/active killer scenarios. See also: Test Your Emergency, Continuity, and Disaster Recovery Plans Regularly, Part 2   What would you do if an unthinkable event began to unfold around you? The more people who are prepared with a clear answer to this question, the more they are able to provide a greater level of security for both themselves and the public they serve.

Many insurance carriers love insurtech because it can help them become more operationally excellent. A growing number realize that this is not sufficient and that they should deploy insurtech to reinvent the way they engage with customers, as well. Leveraging what insurtech enables and combining even more operational excellence with a next level of consumer engagement is not a gradual development; it requires insurance carriers to develop new talents. Leveraging insurtech is basically a new competence to most organizations. Furthermore, it is not easy. It transcends channels, products and departments. It is about working methods but also about changing decades of routines, beliefs and company culture. And last but not least, to know how to deliver it is the real challenge. To quote Morpheus, the character in “The Matrix,” “There's a difference between knowing the path and walking the path.” Here, we will distinguish 10 talents that are more important than ever to leverage insurtech for new ways of customer engagement. 1. Hang out with your customers A different level of customer obsession is required. Because new technologies redefine behavior, we need to know a lot more. All sorts of connected devices offer insurance carriers unprecedented entry in the lives of customers and all sorts of possibilities to help them on all kinds of occasions. To capture this opportunity, insurers have to have much better knowledge of the wishes, expectations and behavior of consumers regarding financial services. Insurers have to understand even better what requirements new customer engagement strategies have to meet. Which ways are best to maintain a dialogue with the customers, increase the contact frequency, be of value all the time, develop pull platforms and stay interesting over time? Which events or themes cause customers to go looking for content? In what way can banks and insurers best help them with that? What part can banks and insurers play in customers' lives? Which role will be accepted by the customer? Insurers have to know better than they do now what customers expect from them when it comes to the use of data. Insurers need to be aware of how customers weigh privacy against convenience and added value as well as what reciprocity is expected, where the absolute limits are and insurers can familiarize customers with the use of data. This is not about briefing a customer research agency. Insurers need to immerse in the life of customers. Hang out with them and observe them. 2. Develop leading-edge data analytics skills and turn data into winning propositions A key challenge for insurance carriers is building new capabilities to take full advantage of the data they collect from connected devices, pull platforms and smart phones. Unfortunately, the enormous amount of data that insurers preserve makes them think there is a lot of knowledge. But all too often it's just a lot of data used for risk assessment, pricing and targeted marketing. In reality, most insurers have not yet succeeded in translating all that data into new customer propositions with new advantages. All these new data streams only become interesting when new, innovative propositions and revenue streams can be based on them — and by translating the data into actionable insights/new offerings and getting these new products and services to market quickly and efficiently. Most insurers are simply not creative or enterprising enough to get the most from their data; neither for the customer nor the company itself. Insurers need to step up the plate. 3. Build relations where the value proposition is alive and personal Building relationships — with customers, insurtechs and partners that are part of the same ecosystem is a core competence. Developing customer relationships is a something most insurers have outsourced in the last 100 years to brokers and other distribution partners. These talents have to be restored and be translated to digital. Insurers have to think about a few things regarding relationships: With whom do we want a relationship? Who would we pass on? What kind of relationship? How do we develop that relationship? How do we give our best? See also: Core Systems and Insurtech (Part 1)   Insurers have to deal with several new aspects. They have to live up to what consumers have grown accustomed to in the mobile world: perpetual updates and improvement, new functionalities and capabilities. Products and services must now be alive and personal. New products and services should take that into account from the conceptual stage on — and there should be longevity. Any concept should be able to sense how consumer needs are changing over time and be able to adapt seamlessly. There should be a constant stream of upgrades and iterations that anticipate the endless consumer desire for continuous product renewal and innovation that will keep motivating customers over a longer period of time. Apart from relationships with customers, other relationships have to be developed and maintained — with all kinds of parties that play a part in the ecosystem or in the customer's context and with insurtechs that innovate a part of servicing for a insurer, insurtechs that come up with new ideas based on the data and infrastructure of the insurance carrier, etc. Building relationships is a core competence. 4. Keep an open mind and leave room for unsupervised learning New entrants venture to question industry conventions. Established insurance carriers should do that, too. As a colleague Eduard de Wilde (VODW) puts it, “If you want to play the game, you need to change the rules.” It’s all about questioning eroded conventions regarding customer expectations and positioning the business model, the products and services, the role of the broker and the importance of channels. Don't start out conforming to conventions, look for ways to break them. Keep an open mind. The high rate of the developments demands that we have to deal with uncertainty. You have to let it happen. That is against insurers' nature. This is where we can learn from adjacent and similar industries such as banking. MobilePay, Danske Bank’s mobile payment solution, is now used by almost every Dane. But Mark Wraa-Hansen (Danske Bank) says, “If you listen to the MobilePay success story, you may think we had it all  figured out, but we definitely didn’t. Of course we had made a business case, but it didn’t stick at all. We outperformed on a lot of parameters, but, at first, we did not make any money. However, with MobilePay we created a huge user base and it enabled us to build an ecosystem. And there is a lot of money in that ecosystem. The business case is quite different to when we started. It is actually better looking ahead than what we thought initially. There is just a lot of stuff  that you cannot foresee. It turns out that MobilePay is ‘first reach, then rich’. For a bank, this sounds very risky.” Remember your empathy,  flexibility and improvisational skills. There should also be some open ending — room for unsupervised learning — to use whatever is derived from the data and learning experiences to take the next step and continuously match changing needs. We are shifting from product to constantly evolving services. 5. Be agile and improve the time-to-decisions This is where we need to distinguish agility in adapting to change and an agile way of working within organizations. They are related yet very different. An often-heard reason for digital transformation is that it speeds up the time to market. That's true, of course. Time to market of small banks is six months. Large banks need twice this time. By the way, that is not unique for financial institutions. It takes fast-mover Proctor & Gamble about 300 days to go from a new product idea to a supermarket shelf. But in many large organizations, the time-to-decisions is the main problem. Decision-making takes ages, and it’s losing possible profit opportunities because a possible profit is bigger when you can bring it to market earlier and benefit from it longer. This way, you lose momentum. The longer you wait, the less relevant the idea will become. Agility will become the standard. Who would have thought that Spotify would eventually be more renowned as an organization model than as a music service? 6. When experimentation is perfect, it's too late Fostering opportunities that new technologies offer requires experimentation. We never could have guessed all the things that the internet has made possible, let alone what smart phones have made possible. It's just as hard to foresee what can be done with, for instance, connected devices. Insurers need to use techniques such as the lean methodology to experiment with new ideas and processes and constantly tweak these with fast feedback loops. Of course, that is also a culture issue. The challenge is to get people to be more ambitious. Again, insurers can learn from the banking sector. At DBS Bank, they have changed the word “no” to the phrase “let’s experiment.” But it definitely can be done, even on a massive scale. Part of agile working and experimentation is thinking in terms of minimal viable products and improving these on the go. Mark Wraa-Hansen (Danske Bank) says, “We actually launched MobilePay before it was finished. People told us ‘Don’t launch this until you have solved this or that.’ Of course it made us insecure. But we just didn’t want to lose the first-mover advantage. We’re building a plane while it flies. But when it’s perfect, it’s too late.” 7. Be creative and hire strange animals Collecting and modeling data is one thing; translating it to new concepts, ideas for features in pull platforms, dialogues with customers or added value is quite another. In building advanced data analytics skills, financial institutions suffer from some sort of anemia when it comes to this particular kind of creativity. Put customer experience design in the hands of design experts, not in the hands of workers who have been working in insurance carrier for ages. Hire strange animals who feel comfortable asking the questions nobody else dares to ask, people with completely different backgrounds (from the gaming, e-retail and online gambling industries, for example). 8. Regarding orchestration: Respect all nodes, cooperate and compromise Orchestration is required at different levels to get the most out of agile teams, break down silos and create an ecosystem where every party has added value. Terms such as “ecosystems” and “marketplaces” suggest that these are more or less autonomous. That is not quite the case. Theo Bouts (Allianz) says, “A key function in smart ecosystems is orchestration. And the most important factor for success in orchestration is a genuine belief in the significance of connectivity — and you must be prepared to live by it. There is a shift in roles between insurer, consumer and distribution partner. That means that you have to understand and respect the needs of all nodes in the network and that you keep granting access to nodes that may not be of value to you but are valuable to the ecosystem as a whole. This part of orchestration requires a certain level of maturity and a different mindset. If all is well, parties in an ecosystem are all convinced that value is added for the network and for each of the parties. Because of that, there can be no room for practices such as hard selling techniques. Orchestration requires specific talents: content, people and process skills. When you think of a network, you may conclude that process skills are the most important in establishing an ecosystem and continuing to give it new impulses. I think that the other two — content and people — are much more important. If you want to successfully play the part of an orchestrator, you have to master content 100%. Cooperation and, if necessary, compromise, have to be in your blood. 9. Gather the right people and change your DNA The previous eight talents make clear that leveraging insurtech to the max is perhaps one of the most difficult challenges a company faces, primarily because it often requires the company to change deeply rooted corporate cultures. It's not about drawing up a new organigram but gathering people around you that feel comfortable with. People who are agile, dare to take responsibility, are willing to keep an open mind, have the right skills (for instance, data creativity), can handle a certain level of uncertainty, enjoy developing relationships with other parties and are obsessed with customers. See also: What’s Your Game Plan for Insurtech?   Often, people with these talents are already inside the company — they only have to be found and empowered. But it's not like the traits we just summed up are present in the genes of every financial institution. It has taken quite some time before insurers invested substantial amounts of money in innovation. Peter Maas, professor of insurance management at Sankt Gallen University in Switzerland, argues that this is caused by the DNA of the whole insurance industry. The core of the business model of insurance is to look backward at risk figures. It is not about painting future horizons, customer obsession and building relationships. Innovation and customer engagement is unnatural. 10. Get in the trenches to instill change The people at the top are the most important agents of change. So to really get the most out of what insurtechs have to offer, you must have motivated board members who love customers. Furthermore, you need a vision that sees new engagement strategies, informed by new technologies, as the primary source of differentiation and profit. The IT infrastructure is often an important hindrance in renewing and challenging the existing business. But, in our experience, the management culture may be an even larger barrier. The more management layers, the more bureaucratic processes there are and the more that politics come into play. More agile working calls for resistance, especially by the most powerful part of the organization: the middle management. Everything stands or falls with the C-level having sufficient strength and power to break this — all while getting the remaining management layers to give the vision their unconditional support. To really bring about change, leaders must make time to get into the trenches to instill change. Interested to read more? Check our latest book “Reinventing Customer Engagement: The next level of digital transformation for banks and insurers” (LID Publishing, 2017) here or here. You can find the original article published here.

Winning teams — in sports, business and all areas of life — have deep benches. Even if your company is fully staffed, taking your eye off the ball when it comes to recruiting is a sign of complacency, the kryptonite of success. What if one of your stars decides to take another job? What if one of your top executives experiences an unexpected health crisis or family tragedy and decides to leave the company? Did you know that two-thirds of those reported to be misusing painkillers in the U.S. are currently employed and are thus susceptible to declining performance or medical leave? More than ever before, companies must be ready to replace employees at a moment’s notice. The time it takes for you to fill a vacant position has increased. Glassdoor reports that, since 2009, interview processes have grown from 3.3 to 3.7 days, and data from DHI Hiring Indicators shows that the average job opening remained unfilled for 28.1 days on average in 2016, an increase from 19.3 days in 2001-03. That is why it is critical for companies to build what is called a deep virtual bench. The world’s most innovative human resource leaders are vigilantly focused on recruiting 365 days a year. See also: Is Talent the Best Defense?   Having helped world-class companies recruit B2B sales executives for decades, I can offer four ways to build a strong virtual bench:

1. Aggressively Target Passive Job Seekers: LinkedIn reports that 70% of the worldwide workforce is composed of passive candidates who aren’t pursuing new employment opportunities but may be open to listening. Passive recruiting is important because most high-performers are already gainfully employed. To effectively recruit passive B2B sales job seekers, you must have a great reputation within the industry; have a seamless and optimized application process (companies such as Netflix and Facebook allow you to apply with one click of the mouse); and consider using an outside recruiting company to maintain a safe distance and avoid being accused of poaching.
2. Leverage Cutting-Edge Technology: Since implementing artificial intelligence into their recruiting process, Unilever saw the average time to hire an entry-level candidate reduced from four months to four weeks. Instead of visiting colleges, collecting resumes and arranging interviews, the company made the jobs known via social media and then partnered with an A.I. company to screen the applicants. This took place in 68 counties in 15 languages with 250,000 applicants from July 2016 to June 2017. Recruiters' time spent reviewing applications decreased by 75%. LinkedIn also just recently announced TalentInsights, a new big data analytics product that enables HR leaders to delve more deeply into data for hiring. This helps employers identify which schools are graduating the most data scientists, engineers or history majors; helps analyze your recruitment patterns versus those of your competition; and provides information about growth of skills in certain areas of the country.
3. Become an Employer of Choice: Glassdoor reported that 84% of employees would consider leaving their current jobs if offered another role with a company that had an excellent corporate reputation. Great candidates, millennials especially, value a commitment to employee wellness, sustainability and initiatives that cater to gender and diversity equality. Having a strong culture, values and clear company mission are critical to building a strong talent pipeline. Top companies such as Bain & Co., Google and Facebook offers perks such as free meals, onsite gyms, massages, free laundry services and generous parental leave. Given that Americans currently carry a record $1.4 trillion in student loan debt, student loan repayment assistance has become one of the hottest new benefits being offered by companies such as Fidelity and Aetna. The size of your company will dictate how many perks you can offer, but adoption of policies that are thoughtful toward employees will turn them into your biggest brand ambassadors. In addition to generating that organic positive publicity, submit applications for the “Best Places to Work” lists offered by most publications. These are now offered by most national publications as well as local business journals.
4. Appeal to Diverse Candidates: To build a strong virtual bench, you must widen your search and appeal to candidates from different backgrounds. A PwC study found that 71% of survey respondents who implemented diversity practices reported that the programs were having a positive impact on the companies’ recruiting efforts. The previously mentioned Unilever case study resulted in their most diverse entry level class to date, including more nonwhite applicants and universities represented increasing to 2,600 from 840. To build your virtual bench, consider implementing diversity-friendly policies such as floating holidays. These allow people to take off for Good Friday, Yom Kippur or Ramadan or for a yoga retreat, if that is their preference.

See also: Secret to Finding Top Technology Talent   Building your virtual bench 24 hours a day, seven days a week and 365 days a year will help position your company for success, including increased profitability and improved company reputation.

One of the hottest topics in insurance industry forums, the news and many prognosticators/speakers' commentary is that there could be a threat to the insurance industry because of insurtech — that the insurance industry will be revolutionized and that incumbents should be in defense mode to retain their business. That threat carries some credibility, but there is some issue with many of the forecasts out there. I think the thought process is somewhat flawed, for two reasons:

1. Rarely is anyone putting a time-frame on their predictions. Anyone can predict something with no time-frame and, hence, have no accountability if they are wrong. This is like the fortune teller stating, “You will die in the future.” Although that fortune is accurate, you might feel ripped off if you paid for it.
2. The predictions seem to be coming from a vacuum and don’t include thoughts on game theory. Some predictions rarely account for or think about incumbents; the incumbent insurer advantage and reaction; and how long the insurtech investor can realistically wait for outcomes/results.

Let’s focus on No. 2. Game Theory Game theory is the branch of mathematics concerned with the analysis of strategies for dealing with competitive situations where the outcome of a participant’s choice of action depends critically on the actions of other participants. Game theory has been applied to war, business and biology. But this art/science isn’t discussed when predictions about the industry are presented. A basic thought is, if insurtech is going to threaten incumbent insurers, how do we think the incumbents will react? Incumbent Insurer Options Incumbents have a few options regarding insurtech:

• Imitate — recapture market position once insurtech has revealed that an approach works. Each company can develop new technologies to improve operating efficiencies, source risk quicker, understand exposures better, etc.
• Wait Longer– for the success of an approach to be revealed. If customers don’t react to a new technology or the advantage is not apparent in results, no resources were wasted. If you’ve read Good to Great in insurance or “Good to Great,” the book, think about the flywheel or the Walgreens example. The ability to wait is greater for incumbents in insurances, as insurance markets are not a winner-takes-all.

See also: Complexity Theory Offers Insights (Part 1)   Incumbent Advantage Incumbents have a huge advantage; they have customers, capital, track record for sourcing risk, systems, platforms, regulatory framework aligned, etc. Newcomers have to take riskier strategies to move into the ranks of the incumbents. If incumbent insurers use simple game theory strategies, they have a lot of benefit. A defensive position by incumbent insurers can affect timing, forecasted results, market share, etc., ultimately delaying insurtech investors from seeing the gains or traction they were hoping for or predicted at the time of the investment. This delay could change exit strategies for investors. Venture Capitalist business model Many of the funds coming into the insurtech space are from venture capital firms. An investment from a venture capitalist typically is a form of equity financing — the VC investor supplies funding in exchange for taking an equity position in the company. According to Harvard Business Review, “Venture money is not long-term money. The idea is to invest in a company’s balance sheet and infrastructure until it reaches a sufficient size and credibility so that it can be sold to a corporation or so that the institutional public-equity markets can step in and provide liquidity. In essence, the venture capitalist buys a stake in an entrepreneur’s idea, nurtures it for a short period of time and then exits with the help of an investment banker.” The investors in VC funds expect a return of between 25% and 35% per year over the lifetime of the investment. This is because of the nature of the risk. For every deal that doesn’t go as planned, VC firms need those with great hockey-stick-returns to meet this expectation from investors. Insurtech investors/Market Cap Other questions would be around the market multiple given to an insurance company versus a technology company. Are those companies that are positioning themselves as the “future of insurance companies” taking a prudent approach in trying to unseat incumbents? Is it better to be a servicing company over a disruption startup? Given the timing and investor strategy, would insurtech companies be better off positioning themselves as technology services companies for the insurance industry versus insurance companies with great technology? At least it’s safer for the investor at the time of sale… If an investor is looking for an exit strategy, would it prefer a multiple of earnings similar to an insurance company or a publicly traded tech company? Capital Into Insurtech Despite the influx of capital into insurtech recently, funding to this sector may be flattening in 2017. (There are a few articles written about this at Insurance thought Leadership and others.) Based on funding patterns, it appears at least $2-3 billion a year is now going into “Series B” and “Series D” funding — meaning into existing companies that have been around for at least a couple of years. Margin Compression Who is better suited for margin compression to be removed from the system? If you look at Uber, transportation services companies were loaded with debt (NYC medallions cost around $1 million) and insulated by a regulatory framework that supported that debt. In addition, the downward pressure on the cost of a ride to the airport was immediate and seen in real time by both the consumer and the seller. So, transportation was ripe for disruption driven by consumer demand With insurance companies, the pressure will take time to shake out. Because the cost of goods sold (or losses) is unknown at the time of sale, the ability to decrease costs is somewhat limited to expense savings. Again, advantage incumbent — at least until you can prove that technology works and has passed savings to the customer through enhanced loss-cost prediction and risk selection. With incumbent insurers sitting on mountains of cash/bond portfolios as insulation to the margin compression, some companies can achieve low single digit ROEs just on their investment portfolio alone, even before underwriting results. So, who is better suited for the decrease in margin? Where should investors be putting their capital for the long term? See also: Einstein’s Theory on Work Comp Outcomes   Thoughts Incumbents are going to react and defend their positions and acquire teams or technology that have proven to help (lower expenses, acquire customers, etc.). VC investors are going to push for exit strategies or sales to incumbent insurers over the next five to six years and will look for new investment opportunities. This article isn't intended to make incumbents feel warm and cozy about the state of the market. There definitely will be some disruptions of certain sectors of the industry. However, if you're looking to compare the disruption of Uber to the insurance industry, I believe it will be an uphill battle to disrupt insurance in a similar fashion. (Thanks, McCann-Ferguson). But anything is possible. Don’t get complacent and disregard the consumer. The insurance industry is in need of a technology shakeup — and one would benefit the customer, the insurers, the insurance incumbent investors and many of the insurtech founders/VC firms.

There is no mistaking that, by now, most consumers have at least a passing awareness of cyber threats. Two other things also are true: too many people fail to take simple steps to stay safer online; and individuals who become a victim of identity theft, in whatever form, tend to be baffled about what to do about it. A new survey by the nonprofit Identity Theft Resource Center reinforces these notions. ITRC surveyed 317 people who used the organization’s services in 2017 and had experienced identity theft. The study was sponsored by CyberScout, which also sponsors ThirdCertainty. A few highlights:

• Nearly half (48%) of data breach victims were confused about what to do.
• Only 56% took advantage of identity theft protection services offered after a breach.
• Some 61% declined identity theft services because of lack of understanding or confusion.
• Some 32% didn’t know where to turn for help in event of a financial loss because of identify theft.

Keep your guard up These psychological shock waves, no doubt, are coming into play yet again for 143 million consumers who lost sensitive information in the Equifax breach. The ITRC findings suggest that many Equifax victims are likely to be frightened, confused and frustrated — to the point of acquiescence. That’s because the digital lives we lead come with risks no one foresaw at the start of this century. And the reality is that consumers need to be constantly vigilant about their digital life. However, cyber attacks have become so ubiquitous that they’ve become white noise for many people. See also: Quest for Reliable Cyber Security   The ITRC study is the second major report showing this to be true. Last fall, a majority of computer users polled by the National Institute of Standards and Technology said they experienced “security fatigue” that often correlates to risky computing behavior they engage in at work and in their personal lives. The NIST report defines “security fatigue” as a weariness or reluctance to deal with computer security. As one of the study’s research subjects said about computer security, “I don’t pay any attention to those things anymore. … People get weary from being bombarded by ‘watch out for this or watch out for that.’”

Cognitive psychologist, Brian Stanton, who co-wrote the NIST study, observed that “security fatigue … has implications in the workplace and in peoples’ everyday life. It is critical because so many people bank online, and since health care and other valuable information is being moved to the internet.” Make no mistake, identity theft is a huge and growing problem. Some 41 million Americans have already had their identity stolen — and 50 million reported being aware of someone else who was victimized, according to a Bankrate.com survey. Attacks are multiplying With sensitive personal data for the clear majority of Americans circulating in the cyber underground, it should come as no surprise that identity fraud is on a rising curve. Between January 2016 and June 2016, identity theft accounted for 64% of all data breaches, according to Breach Level Index. One reason for the rise was a huge jump in internet fraud. Card not present (CNP) fraud leaped by 40% in 2016, while point of sale (POS) fraud remained unchanged. It’s not just weak passwords and individual errors that are fueling the rise in online fraud. Organizations we all trust with our personal information are being attacked every single day. The massive breach of financial and personal history data for 143 million people from credit bureau Equifax is just the latest example. Over the past four years, there have been a steady drumbeat of major data breaches: Target, Home Depot, Kmart, Staples, Sony, Yahoo, Anthem, the U.S. Office of Personnel Management and the Republican National Committee, just to name a few. The hundreds of millions of records stolen never perish; they will continue in circulation in the cyber underground, available for sale and/or to be used in the next innovative fraud campaign. Be safe, not sorry Protecting yourself online doesn’t have to be difficult or complicated. Here are seven ways to better protect your privacy and your identity today:

• Freeze your credit rating at the big three rating agencies so scammers can’t use your identity to take out loans or credit cards
• Add a website grader to your browser to avoid malware
• Enroll in ID theft coverage with your bank, insurer or employer —it could be free or surprisingly inexpensive
• Get and use a password vault so you can create and use hard-to-guess passwords
• Be knowledgeable about common cyber scams
• Add a verbal password to your bank account login and set up text alerts to unusual activity
• Come up with a consistent way to decide whether it’s safe to click on something.

There is a bigger implication of losing sensitive information as an individual: it almost certainly will have a negative ripple effect on your family, friends and colleagues. There is a burden on consumers to be more active about cybersecurity, just as there is a burden on companies to make it easier for individuals to do so. See also: Cybersecurity: Firms Are Just Sloppy   NIST researcher Stanton describes it this way: “If people can’t use security, they are not going to, and then we and our nation won’t be secure.” Melanie Grano contributed to this story.

Insurers are full of economy-speak these days. We have the gig economy, the digital economy, the data economy and the sharing economy. There is the economy of one, the economy of the many, the service economy and, of course, the experience economy. These concepts are all real and vital considerations for insurers, yet most deal with the implications of external impact, asking, “How will the world affect our business?” In one striking case, however, we are faced with an alternative question: How will our operations affect our world? We are in the midst of the digital age race where survival and winning will require rapid adaptability and innovation. The digital age represents a seismic shift in the insurance industry, pushing a sometimes slow-to-adapt industry by challenging the traditional business models and assumptions of the past 30-50 years. The business models of the past will not meet the needs or expectations of the future for digital insurance. So insurers will be drawing upon the strengths of a new type of economy that will provide internal energy to the organization and competitive drive to the industry. This economy is the platform economy. Cloud platforms are the future because they are the core of revolutionized business models. They are proven. They are intelligent. They combine sought-after technologies. Best of all, they fit an industry that has been trying to become consumer-centric. Of course, there is an issue. The cloud-based, digital-ready platforms within the platform economy are easiest to plant in uncultivated environments. Most established insurers are in the thick of modernization of a different type and scale. When faced with the options, many will choose digital answers that are painted over modernized frameworks. At the same time, they will be flirting with the idea that a real platform shift may represent a hyper-jump into insurance’s agile future. The Rise of the Platform Economy In our new thought leadership, Cloud Business Platform: The Path to Digital Insurance 2.0, we note that the use of big data, artificial intelligence and cloud computing is changing the nature of work and the structure of the economy. Companies such as Apple, Amazon, Netflix, Facebook, Google, Salesforce and Uber are creating online structures that enable a wide range of activities. They have opened the doors to radical changes in how we work, socialize, create value in the economy and compete for profits. This is why a digital platform economy is emerging. See also: Busting Myths on the Cloud (Part 2)   Cloud business platforms represent a new era of impact and industry upheaval. A cloud business platform is one that can run key business applications and services to match the reality and requirements of the current business environment. That environment is characterized by constant disruption, heavy competition and growing market demands. Insurtech entrants are embarking upon business and technology initiatives that exploit untapped markets and address under- or un-met needs. Incumbents with outdated technologies are at a huge disadvantage because they are unable to respond with the flexibility, agility and speed that has become the hallmark of companies that are digital natives. With investments in this market subset being tracked at just under $16 billion since 2010, insurers need to immediately take notice. Successful companies across all industries leverage technologies such as mobile, social and cloud to make better decisions, automate processes, strengthen their connection with customers/partners/channels and pursue innovation. They do all of this at an increasingly rapid pace, positioning them as “digital first” companies. The acceleration in the uptake of digital technologies and cloud foundations is a crucial first step to entering into the platform world and the shift to a new era of insurance we call Digital Insurance 2.0. The implication from all this is that the digital age economy is powered by the platform revolution. Digital Insurance 2.0 Traditional insurers must have digital daydreams now and then. What if we could have started like Amazon instead of like a traditional insurer? What if we had a digital native architecture like Netflix? Why couldn’t we have turned an app into a multi-billion-dollar business as Uber did? Google was disruptive because its framework and model were created to meet the future head on. How do we do what they have done while we are shackled to the constraints of insurance? The advantages these companies enjoy compared to the challenges faced by insurers can make digitalization of insurance seem like an impossible task. The reality is, however, that insurers now have every opportunity for freedom within traditional insurer constraints utilizing a Digital Insurance 2.0 framework. What are the attributes of Digital Insurance 2.0? In every aspect, digital platforms are driving toward business models with fewer barriers and greater data access with improved flow. Digital insurance  platforms share these traits:

• Maximized effectiveness across the entire customer journey with deeper, personalized engagement;
• Process digitization that improves operational efficiencies and customer experience;
• The ingestion and use of digital data-driven insights for better decision-making and to actively identify customer needs;
• The ability to rapidly roll out new products and capabilities while expanding into new markets or geographies; and
• Quick adaptation to rapid changes.

The crucial technology underpinning digital insurance platforms is cloud-based. The idea that a 10-year old technology like cloud computing could provide new opportunities for insurers seems far-fetched. Cloud platforms, however, have become the option of choice for Greenfield or startup operations that are offering digitally-enabled traditional insurance products — like Lemonade, Slice and TROV. Cloud platforms are the basis of a new generation of core systems based on a micro-services architecture that is needed for innovative new insurance products like on-demand and micro-insurance offerings. Shifting from Products to Platforms Since the beginning of automation, the insurance industry has seen fundamental design, architecture and technology shifts in insurance core software solutions. First, we had the monolithic solutions running on the mainframe from the 1960s to early 2000s. This was followed with the best of breed components in early 2000s for policy, billing and claims based on J2EE and service-oriented architecture — but with each still using different business, data and technology architectures. Next, beginning in the early 2010s, came the loosely coupled “suites,” inclusive of the policy, billing and claims components but with a consistent and common business, data and technology architecture. Yet, through these transitions, they maintained a product-focused business architecture view, emphasizing policy and billing and claims capabilities and with implementation primarily on-premise or in a private hosted environment, often a “pseudo cloud environment.” Today’s digital shift will require cloud-based platforms that provide a great promise to address new challenges and opportunities that enable insurers to disrupt their markets before they are disrupted. This requires a new thinking of our solutions… one that makes the transition from products to platforms and is underpinned by three key attributes: ecosystem-friendly, centered on customer experience and enabled by cloud computing. Unfortunately, too many insurers are taking a page from their old business transformation playbooks and are expecting it to work in today’s digital age. They are forging a new path by “paving the old cow paths,” which is simply creating greater complexity while moving in a direction that will not serve them well in the future. Instead, insurers need to look outside their companies to a new cadre of digital leaders and imagine the art of the possible. What can insurers do now that they could not do before because of technology, customer and market boundary changes?  Today’s emerging new competitors are answering these questions ahead of traditional insurers, positioning themselves as the new generation of market leaders in a time of significant disruption and change. See also: ‘Core in the Cloud’ Reaches Tipping Point   Fundamentally, to succeed in the digital age, an insurer’s strategy must focus on the following attributes:

• Customer experience and engagement is priority No. 1 (People)
• Business innovation is mandatory (Technology)
• Ecosystems extend value (Market Boundaries)
• Speed-to-value is the differentiator

For an effective digital transformation, it is important that core, data and digital capabilities are broken out into micro-services. They are then integrated back into the platform to provide a digital experience. Innovative, “digital-first” companies like Google, Amazon, Salesforce, Workday, Uber, Airbnb and Netflix have successfully used this architecture and technology that is disrupting industries. In the case of insurance, digital experiences are enabled by cloud economies of scale — an advantage that many digital-first companies do not have. Why is this important? Because it will allow insurance companies to more rapidly position themselves in the digital era of Insurance 2.0 and enable them to:

• Accelerate digital transformation to become digital era market leaders;
• Accelerate innovation with new business models and products;
• Accelerate ecosystem opportunities and value; and
• Avert disruption or extinction by new competition within and outside the industry.

At the heart of this disruption is a shift from Insurance 1.0 to Digital Insurance 2.0 and a growing gap where innovative insurtech or existing insurers are taking advantage of a new generation of buyers with new needs and expectations and are capturing the opportunity to be the next market leaders in the digital age. The path to a cloud business platform will evolve differently for each insurer undertaking it. Being open to operationalize around the cloud platform’s promise as a new business model paradigm acknowledges the role innovation will continue to play as insurers encounter future insurance ecosystems. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing. Will established insurers suffer at the hands of tech-savvy, culture-savvy competition, or will they turn their digital daydreams into dynamic realities? In a rapidly changing insurance market, new competitors do not play by the traditional rules. Insurers need to be a part of rewriting the rules, because there is less risk when you write the new rules.

This is the sixth in a series. The other parts can be found here. The Insurer of the Future's customer won't have to buy individual products. Instead, she'll buy a total risk management solution that flexes to her needs month-by-month, day-by-day and hour-by-hour. She'll be billed according to her actual usage, so she'll never be under- or over-insured. When the Insurer of the Future's customer leaves her house, the accidental damage element of her home cover will decrease — because she's no longer there to damage anything. But her flood and fire cover will go up, as she's less likely to spot such events early. If she buys a TV, her insurer will know that and will add it to her policy. The insurer will also ask what's happening to the old one and will remove it if no longer relevant. If the customer goes hiking in the wilderness, the Insurer of the Future will pick that up and increase her life cover. If her hiking is abroad, travel covers will kick in automatically. And once the customer is back home safely, her cover, and her premium, will go back down. See also: A New Way to Develop Products   Once the Insurer of the Future has earned its customer's trust, she might choose to open up her current and future search history and social media accounts to its systems. That way, the Insurer of the Future can monitor what she's thinking about doing (bungee jumping, getting married, having a baby?) and step in with timely advice and support. Some of the Insurer of the Future's older employees remember when “customer lifetime events” were the elusive holy grail. Not any more — now, the insurer knows about all of these events, often before they even happen.

Progress!

In recent weeks, I've seen a series of announcements of reductions in worker's comp premiums because of improved safety in the workplace. For instance, Colorado approved a 13% reduction in the loss costs portion of workers' comp rates for 2018; there was a nearly 30% decline in the rate of claims in the state between 2001 and 2015. 

While reductions certainly aren't happening across the board, and while safety isn't improving so noticeably everywhere, the fact that safety is leading to some rate cuts lets me hope that the industry is making progress on a theme that we've been sounding for some time now. That theme is the need to get away from a product mentality, where "factories" are churning out policies, and to a service mentality, where the focus is on using our hard-earned experience and access to volumes of data to help customers minimize risks in the first place. 

The workers' comp reductions will need to just be the start, of course. There are still all sorts of costs that can be driven out of the insurance process as digitization spreads, driven by the insurtech movement. As a senior brokerage executive says in this article, "Some 42% of premium is taken up with costs, according to the London model, and 30% of that is us.... We have to address that cost." And that's just on the brokerage side of the equation.

But I'll take progress where I can find it. Let's all congratulate ourselves—then get back to work. 

Cheers,

Paul Carroll,
Editor in Chief 

“The smart money bets against tax reform — always and everywhere. But every once in a while — usually a long while — the smart money is wrong.” –Joseph Thorndike, noted tax scholar. On Nov. 2, the House Ways and Means Committee released the “Tax Cuts and Jobs Act,” a major overhaul of the U.S. tax system. The proposal is a significant step forward in a years-long effort to reform our nation’s outdated tax code. While the House legislation is only the beginning of the proverbial “sausage-making” process, it is important to understand the bill’s effect on the insurance industry, because (1) the effect is significant; and (2) the chances of tax reform actually happening are as high as they’ve been in many years. Summary Tax reform is always an exercise in trade-offs, and this time is no different. At a high level, the House proposal would lower the maximum corporate tax rate to 20% and move the U.S. to a territorial tax system. Pass-through entities such as partnerships would be subject to a maximum tax rate of 25%. While the most significant provisions in the bill apply to businesses, the proposal also consolidates the seven tax brackets for individuals down to four, maintains the highest individual rate of 39.6%, doubles the standard deduction and curtails popular individual deductions such as the state and local tax deduction and the mortgage interest deduction. As with every previous tax reform proposal, the House legislation creates, or is perceived to create, winners and losers. At the highest level, the legislation poses a trade-off between lower corporate tax rates and a more globally competitive tax regime for U.S. businesses and the elimination or reduction of popular tax breaks on both the individual and the corporate side. The House bill costs $1.5 trillion in foregone revenue over 10 years. This is likely the outer limit of the deficit spending to fund tax reform. In other words, the need to identify “pay-for” provisions that increase taxes on one group to pay for cuts in another area will only grow as the bill moves through the legislative process. As detailed below, the tax bill raises almost $40 billion in revenue from the insurance industry via changes to its corporate tax treatment. This basic approach is not likely to change significantly during the legislation process. Insurance CEOs considering whether to support this effort will ultimately need to answer the question of whether a 20% corporate rate and territorial tax system is worth the trade-off in terms of changes to key insurance corporate tax provisions. Life Insurance The current tax treatment of insurance companies reflects their unique business model and state regulatory regime. Perhaps owing to the complexity of life insurance product and corporate taxation, life insurers have sometimes been subject to a misperception of being too lightly taxed. The current House proposal arguably reflects that perception. On balance, life insurers (and insurers in general) were affected to a larger degree than other sectors through negative changes to their corporate tax treatment. In fact, with the exception of a single provision hitting banks' deductions of their FDIC premiums, insurers were the only segment of the financial services industry specifically singled out via pay-fors to finance the proposal’s tax reductions. To provide a glass-half-full perspective, prior tax reform proposals included negative changes to certain life insurance and retirement products. In a win for the life insurance industry, the current House legislation does not reflect those prior proposals and makes no change to inside buildup, the tax treatment of corporate-owned life insurance or the tax treatment of retirement plans and products. Having said that, the corporate tax changes specifically targeting life insurers raise significant revenue (almost $25 billion in total) and bear close watching. See also: Why Fairness Matters in Federal Reforms   Most notably, the House bill would clip the life insurance reserve deduction by requiring that life insurers take into account a prescribed percentage of the increase or decrease in reserves for future un-accrued claims when calculating taxable income. This provision alone is estimated to increase the taxes life insurers would pay by $14.9 billion over 10 years. In fact, this estimate may dramatically understate the true effect of this provision on the industry. In a provision that raises $7 billion, the bill would change the expensing rules for life insurance policy acquisition costs. The bill would also restrict the timing of when reserve increases or decreases are taken into account and would limit the dividends-received deduction by prescribing a flat 40 % company share. The proposal would change the net operating loss rules to restrict the number of years that life insurers’ losses can be carried back (from three to two) and forward (from 20 to 15). The legislation would also repeal the special tax rules for distributions to shareholders from pre-1984 policyholder surplus accounts. Congressional revenue estimators believe that these life insurance company taxation provisions would raise more than $24 billion in additional tax revenue over 10 years, and, as noted above, the reserve deduction restriction alone would raise $14.9 billion, and the expensing rule change would raise $7 billion. This revenue estimate, while inherently inexact, indicates the magnitude of the effect on the industry. Property and Casualty The draft legislation also targets property and casualty corporate tax. The proposal modifies the discounting rules for P/C companies, reducing the tax value of unpaid losses. It also restricts the reserve deduction by modifying proration rules. The change to discounting rules alone raises $13.2 billion over 10 years, and, in total, the P/C corporate tax changes raise over $15 billion in the budget window. All in all, the corporate tax changes specific to insurers would raise almost $40 billion. It’s clear that insurance has been identified broadly as a source of pay-fors to fund tax reductions in other parts of the overall package. International Provisions Much of the animus behind the tax reform proposal lies in the drive to make the U.S. tax system more globally competitive. While all multinational insurers would be affected by the bill’s international tax provisions, two provisions in particular would specifically affect insurers and reinsurers. First, the bill would impose a 20% excise tax on U.S. domestic corporation payments to foreign affiliates. Importantly, the purchase of reinsurance by U.S. insurers from foreign reinsurance affiliates would be subject to this tax, which is being interpreted as partly a shot across the bow at offshore reinsurers. In addition to the 20% excise tax, the House bill would restrict the insurance business exception to the passive foreign investment company (“PFIC”) rules. The PFIC exception would apply only if the foreign corporation would be taxed as an insurance company were it a U.S. corporation and if certain other company-specific conditions were met. The 20% excise tax provision raises a whopping $154.5 billion over 10 years, and while it’s being discussed a great deal in the reinsurance world, it is not specific to reinsurance transactions and would have significant implications for many non-insurance multinational corporations. The PFIC provision, which obviously is specific to insurance, raises a much more modest $1.1 billion in the budget window. Lastly, multinational insurance companies should watch the “deemed repatriation” provision, which would subject foreign earnings to a one-time U.S. tax. Prognosis As this legislation winds its way through the House and the Senate, we can expect some changes as a result of the inevitable onslaught of lobbying and strong policymaker preferences. However, the basic approach this bill takes to reform is not likely to change. In terms of timing, the House, with its comfortable Republican majority, is likely to pass some version of the current bill this year with fairly modest changes during committee consideration but likely no amendments permitted during the full House vote. In other words, there is a very narrow window (weeks, not months) to change the provisions in the House bill before it gets voted out of committee, passed by the full House and kicked over to the Senate. See also: Outlook for Taxation in Insurance   The prognosis in the Senate is murkier, because even under the expedited 51-vote process Republicans will use pass tax reform, the GOP can only afford to lose two votes. To get there, leadership has to satisfy divergent voices within the party in what is almost a Goldilocks (“not too hot, not too cold”) exercise. Any “just right” legislation, to garner 51 votes, must placate deficit hawks (McCain, Corker, Flake), moderates (Susan Collins, Lisa Murkowski) and staunch conservatives (Mike Lee, Tom Cotton, Ted Cruz) — not a group that typically treads on common ground in tax reform. Another wild card to watch is Roy Moore, who won the Republican primary for the special election in Alabama to replace Sen. Jeff Sessions. Moore is widely expected to win the December 12 election and, once elected, will be the most far-right member of the Senate and a true wild card vote in tax reform. To sum it up, the path is clear, but the margins are slim. Most insiders believe that the legislation must pass both chambers by June of next year — at the latest — lest the effort collapse under its own weight. So, the billion-dollar question: Will it happen? Prognosticating about tax reform prospects has long been a favorite parlor game in Washington, and, as Joseph Thorndike said, smart money almost always bets against it. This time, it’s a close call, but the desire among Republicans to get tax reform done is at a near all-time-high, particularly after the failure of health care reform. My money (smart or not) is on the passage of a tax bill — with significant reform elements. In short, insurers should watch this space.