Insurtech is one of the hottest topics of conversation in the insurance industry with executives and professionals of all types joining in. The insurtech startup movement began in earnest about three years ago and is still trending up in terms of startups, funding and activity. Early insurer participants were primarily the large Tier 1 insurers, but a new wave of activity is reaching companies in the middle and smaller tiers. SMA tracks insurtechs globally (almost 1,200 now); mentors and advises insurtech firms; and assists insurers with insurtech strategies. Our research and analyses include assessments by line of business and business area.

SMA’s recently released research report, "Insurtech and Personal Lines: Examples, Use Cases, and Implications,"analyzes the current state of the insurtech world for P&C personal lines insurers. There are over 600 startups that SMA has identified as relevant for this industry sector. Despite all the activity and investment in insurtech, the debate continues about its implications. Should insurers view insurtech as a threat or as an opportunity? Will insurtech disrupt the industry, or will the movement fizzle out?

See also: 3 Forces Disrupting Personal Lines  

SMA’s opinion is this: Insurtech is important. It is not going away. It will play a major role in industry transformation, and insurers of every size must have an active strategy (even if it is just a defensive one). Distribution is a hot area for insurtechs in personal lines and is already having an important impact. New capabilities for underwriting, claims and other areas of the business are widespread and have great potential to improve operations, the customer experience, products and the management of risks. It is true that many partnerships and activities are in the early stages, and the impact on business results is minimal in the context of the huge insurance industry. But insurtech has been a major trigger for new insurer strategies and will be an important part of the transformation of insurance over the next five to 10 years.

Regarding demographics, about 65% of the startups are tech companies with solutions for insurers or agents/brokers. The remaining 35% are organized as insurance entities: either insurers, agents/brokers or MGAs. About one in five are focused on distribution, either providing new tech-based capabilities for agents/brokers or as digital agents. The MGA model is increasingly popular among this crowd. Many more insurtechs are built around data, especially the real-time data being generated by connected things.

Perhaps more important than the demographics are the partnerships, investments and projects that are underway. Insurer-insurtech partnerships now number in the hundreds, and the direct investment by insurers is in the billions. The positive business results from projects are encouraging, but the full impact will come in increasing measure over the next few years. Ultimately, we expect the personal lines insurance industry to look quite different in 10 years than they do today, and insurtech will be one of the change agents. From an insurer perspective, insurtech partnerships represent a great opportunity to be leaders in the new era of insurance.

See also: Insurtech Takes Aim at Personal Lines  

Note: This personal lines research report is a companion to a recently released report, Insurtech and Commercial Lines: A Surge of New Activity.

The EU General Data Protection Regulation is set to bring far-reaching changes to Europe’s data protection and privacy rules. The GDPR, which will take effect in May 2018, establishes requirements governing how organizations around the world manage and protect personal data while doing business in the EU. The regulations are strict, and the potential penalties are high — fines up to 20 million euros ($23.5 million) or 4% of global turnover, whichever is greater. But new rules can also inspire positive change. Such is the case with the GDPR, which has prompted many companies to evaluate and improve on how they manage their overall cyber risk. With the GDPR deadline fast-approaching, some companies appear to be further ahead than others in compliance planning, according to a global survey regarding corporate cyber-risk perception conducted by Marsh. Marsh’s independent analysis of the survey’s findings highlight three key points: 1. Cyber risk is a top priority at organizations that report they are also preparing for GDPR. The regulation comes at a time when cyber risk is — or should be — on every company’s radar, a fact underscored by survey respondents. In an age of technology-driven disruption, the threat of evolving cyber risks is real. The WannaCry and Petya ransomware attacks in 2017 had an impact on the share prices of several global companies and did significant damage to a number of smaller firms. They served as one in a string of reminders that any company that is connected to the internet, that uses technology or that stores customer or employee data is at risk — a list that excludes almost no one. 2. GDPR compliance efforts are encouraging broader cyber-risk management practices. Organizations preparing for the GDPR are doing more to address cyber risk overall than those that have yet to start planning, according to survey respondents. And this is happening despite the fact that the GDPR does not showcase a “prescriptive” set of regulations with a defined checklist of compliance activities. Instead, GDPR preparedness appears to be both a cause and consequence of overall cyber-risk management. See also: Cyber Crimes Outpace Innovation   Survey respondents who said their organizations were actively working toward GDPR compliance — or felt that they were already compliant — were three times more likely to adopt overall cybersecurity measures and four times more likely to adopt cyber resiliency measures than those who had not started planning for GDPR. [caption id="attachment_28248" align="alignnone" width="570"] Source: 2017 Marsh Global Cyber Risk Perception Survey[/caption] Practices such as cyber-incident planning and cyber insurance are not explicitly required by the GDPR, but those respondents who said their organizations had high levels of GDPR readiness had also adopted these measures. This works both ways — organizations that have adopted a cybersecurity measure such as encryption also have a jumpstart on GDPR compliance because encryption is strongly encouraged. And, while cyber-incident planning and cyber insurance are not explicitly required, they still enable firms to quickly marshal the resources to meet the GDPR’s 72-hour data breach notification requirement. 3. Even organizations with a higher degree of GDPR readiness may not be fully prepared for a cyber incident. Consider third-party vulnerabilities. For years now we have known that weaknesses in suppliers, vendors and other third parties are prime entry points into a system for threat actors. The good news is that most organizations now realize this, as indicated by the 67% of respondents who said they assess the cyber risk of vendors and suppliers. However, digging into what such assessments entail shows a somewhat alarming lack of detail. For example, only 17% of respondents said they have assessed the financial strength of their suppliers/vendors, something that is at the heart of the ability to pay compensation in the event of a loss. With GDPR implementation just months away, among organizations subject to the GDPR, 8% said they were fully compliant, 57% were developing a compliance plan and 11% had yet to start. Given the effort needed to comply, this suggests many organizations will face challenges meeting all requirements by the time GDPR takes effect in May 2018. See also: 4 Steps to Achieving Cyber Resilience   Those who are ahead recognize the GDPR compliance process as a game-changing opportunity. Preparation has effectively focused executive attention on broader data protection and privacy issues, prompting related investments and commitment. In preparing for the new rules, organizations are strengthening their overall cyber-risk management posture and turning what is often viewed as a constraint into a competitive advantage.

Most observers would agree that the U.S. economy is largely composed of free market transactions. This generally means that prices for goods and services are determined by supply and demand with little interference from government forces. The U.S. is certainly not a pure free market or capitalist system, as various regulations at the state and federal levels influence the operation of various markets. The arena of healthcare presents some unique challenges for policymakers. Constructing and tailoring an economic system that reaps the rewards of free market systems (innovation, aligned incentives, continuous improvement) while recognizing the emotional and ethical nature of healthcare delivery requires striking a delicate balance. This challenge is aggravated by influential stakeholders who largely disagree on both desired priorities and the impact of various healthcare policies and who often have financial stakes or other biases shaping their views. Recently, the dialogue has become openly rancorous, with bold accusations implying nefarious motives of other stakeholders. The focus of this paper is to discuss the uniqueness of healthcare delivery in a free market environment, highlight various perspectives and provide some principles and insights regarding solutions to accumulated problems and current challenges. Healthcare in the marketplace: Different than other goods and services In a civil and empathetic society that values human life above all else, it is impossible to properly value a life-saving treatment. Ethical and financial considerations conflict when decisions are required to choose performance of heroic, untested and expensive procedures. In these scenarios, who should be granted decision-making authority? Who should be obligated to pay for these services? Should the payer determine which services should be performed? What role should the government play, if any? As this article is being written, a high-profile story of a dying British infant is circulating around the world and generating significant debate. His parents are advocating an experimental treatment in the U.S.; they have found a doctor willing to perform it, and have offered to pay for it themselves (partially through raised donations). It’s hard to argue, absent obvious cruelty, that parents do not have the best interests of their children in mind or that they should not have the freedom to purchase unconventional services and explore different healthcare solutions. Would anyone deny them the right to this experiment when there is no other life-saving alternative? Should the same choice then be made available for families that are not well-financed? If lines are not drawn, at some point we eventually run out of “other people’s money.” These ethical/financial dilemmas that exist today will become even more prominent in the U.S. as the population ages and new, expensive technologies rapidly increase our ability to prolong life. The ability of healthcare delivery to improve life and save lives in some circumstances places healthcare in a different category than other goods and services. There are constant reminders that healthcare is different and that it is perhaps inhumane to view healthcare through a market-oriented lens. At the same time, many of the advances in healthcare have spurred from free market innovation. This innovation has benefited the world — even economies without free markets. New cures and progress from experimental treatments are difficult to attain in government financed systems with strict protocols, prescribed procedures and limited budgets. See also: What Makes U.S. Healthcare Different?   The U.S. leads the world in medical and pharmaceutical breakthroughs, and Americans are the first to benefit from new treatments. Unfortunately, we also pay significantly higher prices. High prices are combined with overutilization of services because of improper incentives in the health system, resulting in the primary recognized and discussed problem of today: the high cost of health insurance. As most of the healthcare delivery in the U.S. is financed through various types of insurance mechanisms, the remainder of this article focuses on the free market challenges related to health insurance and the unintended consequences of insurance regulation. Health insurance overview: Different than other insurance products Insurance, in general, is a financial services product that allows individuals, groups of individuals or corporate entities to exchange some known amount of money (i.e., insurance premiums) for the guarantee of compensation for some future unknown loss (i.e., insurance claims). The specific dynamics of different types of insurance can vary greatly, however. For example, automobile insurance and health insurance share some of the same basic operating principles, but there are very important differences between the two that create unique challenges for each industry to be able to effectively regulate and price the products in a fair and equitable way. Automobile insurance products provide the insured with financial coverage in the case that their car is damaged in a collision or by some other means (i.e., collision coverage) or that their car causes harm to themselves, another person(s) or other property (i.e., liability coverage). Most states require automobile owners to purchase minimum levels of liability coverage (or prove that they are able to finance the risk themselves), but none require the purchase of collision coverage. There are many different levels of coverage and cost-sharing for the different types of automobile insurance products, which a car owner can then select based on their own financial situation and risk-averseness (i.e., no one plans to have a car accident, but some would rather pay a higher-known price upfront than risk a larger payment if an accident were to happen). These policies have clear maximum limits to what is covered in various situations. If a car accident occurs, the insurance company assesses the damage and identifies responsible parties. Then the insurance policy covering the responsible party will pay according to the limits and cost sharing the party purchased. If an uninsured car causes an accident, the owner of that car must pay for any repairs or liability out of their own pocket. Premiums for automobile insurance are, in simple terms, based on average expected costs over a population of people who have insurance. The frequency of car accidents has not changed significantly over time, nor has the cost of cars increased at significant rates, which has led to relatively stable average premium increases on car insurance over time. There is some differentiation in premiums based on age and other factors that have been correlated with higher frequency of accidents; ratable factors vary based on state regulation. Competitive pressures have led to a very competitive market in the automobile insurance industry. Health insurance is a slightly more complicated coverage with some important nuances. First of all, the individual who is covered under a health insurance policy is not always the one who selected or purchased that policy. In the U.S., many citizens get their insurance through their employer. The employer reviews various benefit options and insurance products and selects one on behalf of all of their employees. Insured employees are often not clear on the benefits they have or on what limits there are to their coverage. Even when an individual is the one selecting and purchasing benefits, the details of a health insurance policy are quite complex, and it is often unclear what is/isn’t covered for the many different types of medical services. Additionally, there is an element of known future costs in healthcare. Some of us know that we will incur costs in the future, whether because we take a medication regularly, have a chronic condition that requires regular care or are expecting a baby. Insurers do not have all of the information the insureds do as to known future claims — they must rely on looking at historical averages. Also, in health insurance there is no assessment of “fault” when it comes to treatment. In auto insurance, if an accident is not considered to be your fault, you typically do not have to pay (unless the at-fault party is uninsured). With healthcare, there is no assessment one way or the other as to why a condition came about, only that it needs to be treated and whether or not you have coverage for that treatment. Another important difference is the handling of the uninsured population. In automobile insurance, most states require a minimum amount of liability coverage, to make sure that if “un-ignorable” costs arise from an accident (for example, significant public property damage or personal injury), there is some coverage in place to pay for those costs. In health insurance, if someone without insurance coverage requires medical attention, they receive medical attention. If they cannot pay for their care, the costs fall to the system itself to absorb (which ends up being pushed back onto consumers as increased provider prices, which then result in higher premiums).

High costs create some questions around what should be covered under a health insurance policy and what should be left for a consumer to pay for themselves.

Finally, healthcare is very expensive, and many Americans would have difficulty paying for even moderate courses of treatment without insurance. These high costs create some questions around what should be covered under a health insurance policy and what should be left for a consumer to pay for themselves. Some argue that health insurance should be used for catastrophic coverage only, but often even basic services (such as having a baby) can be too costly for families to afford. On top of those concerns, some use of the healthcare system (e.g., diagnostic and preventive care) should be encouraged to potentially reduce the probability or cost of future health events. With catastrophic coverage only, many individuals would forgo the beneficial usage of the system. This high cost and broad coverage of healthcare directly necessitate high health insurance premiums. And because of the nature of health — that getting sick is often out of our control — there is a lot of sensitivity around what’s “fair” in terms of who pays what premium. Is it fair for healthy individuals to pay very low premiums and sick individuals to pay very high premiums? What if the sick individuals were born with expensive genetic conditions (i.e., are sick through no fault of their own)? What about the individual making poor lifestyle choices that result in higher-than-average healthcare costs? These questions are often the focal point of what healthcare legislation tries to influence. Impact of insurers on free market dynamics A downside of using insurance to fund virtually all medical costs (absent cost-sharing) is that it ultimately raises costs by insulating consumers from medicine’s real prices. Elisabeth Rosenthal, MD, editor-in-chief of Kaiser Health News cites “the very idea of health insurance” as being partially culpable for the high cost of healthcare, acting as a middleman that blinds the true healthcare consumer from the costs of the services they are consuming. Consumer insulation from prices creates more demand for healthcare services (because they feel cheap to the patient), at times wastefully, which leads to price increases. Rosenthal also argues that regulation of insurer profits can actually produce the opposite of the intended effect. Minimum Loss Ratio rules, which essentially limit the amount of profit and non-claim expenses an insurer can have relative to the premiums they charge, were enacted with the idea that reducing profit percentages would then reduce insurance premiums. Instead, the regulation created an incentive for insurers to “increase the size of the pie.” In other words, if an insurer was previously able to make 10% on a $100 premium ($10), after regulation limited their profits to 5%, they could make up the difference by charging a $200 premium instead (numbers are hypothetical for illustration only). And while insurers cannot easily double their prices, they are a critical party in negotiating prices with hospitals and physician offices. This incentive to increase premiums potentially conflicts, then, with the desire to negotiate lower prices (and, thus, lower cost). This view is not widely held in the insurance industry, but it does highlight potential unintended consequences of insurance market regulation. Additionally, it is interesting to note the price changes over time of medical services that are not generally covered by insurance (i.e., services that do not have price insulation). Consumers have much more “skin in the game” and shop wisely for services such as Lasik eye surgery and cosmetic medicine. Not only have prices dropped for these services over the past 10-15 years, but customer service generally receives higher marks as providers are focused on demonstrating value for the purchased services. Although Lasik eye surgery might not be considered an “essential” health service to the average individual, this example shows that increased price consciousness might create a similar outcome for other services. Not all health services will benefit from this transparency (emergency services where there is no time to shop around, or some of the more “invaluable” services such as cancer treatment), but price insulation absolutely dilutes cost as a consideration for patients/consumers in choosing their care. Federal health insurance regulation: A look back The challenge of effectively addressing the high cost of healthcare has been highlighted by the federal legislative responses over the past decade. The originally enacted federal solution, the Patient Protection and Affordable Care Act (ACA) reflects the first significant federal attempt to regulate the commercial market. While the legislation was comprehensive and had an impact on all markets, it primarily attempted to reduce the number of uninsured individuals by offering new and expanded federal funding to the individual and Medicaid markets. Essentially, the ACA provided various levels of financial support depending on age, income and geographic-specific premium levels for individuals to purchase their own insurance policies. At the same time, the ACA removed or altered some of the rating variables in the insurance system. Under ACA, insurance companies could no longer:

• Charge gender-specific premiums (based on cost curves, women were historically charged more than men at younger ages and less than men at older ages);
• Charge as much as was needed to be profitable for older members (highest vs. lowest age adjustment could only vary by a factor of three, whereas costs are typically five to seven times different);
• Adjust premiums based on health status (there are extreme differences in costs for healthy individuals vs. those with chronic conditions); and
• Deny coverage because of pre-existing conditions.

From an insurance company’s perspective, these regulations limited its ability to appropriately match up revenue to costs for its insured population, creating new challenges in the marketplace. These newly mismatched insurance prices disrupted normal market forces around the purchase of insurance. Young and healthy individuals were now being charged prices much higher than they felt they should be, based upon their personal use of the system — the insurance product then became one of low value for them. Alternatively, older and/or sicker individuals were paying much less than they were costing — the insurance product was of extreme value to them.

One of the key assumptions the ACA legislation made to operate successfully was that everyone must be insured.

The moral and political appropriateness of insurance premium subsidization can be debated, but it is difficult to disagree that the result of this regulation created a dynamic where lower-cost individuals saw less value in the insurance product than they did before, causing many of them opt out of purchasing it altogether, largely independent of their income. One of the key assumptions the ACA legislation made to operate successfully was that enrollment would reflect a reasonable demographic balance. Specifically, the architects of the ACA legislation projected that the age 18-34 population would need to represent 40% of the market for the market to function effectively. However, because of the loss of value described above and a too-weak mandate for coverage, the 18-34 proportion has hovered around 26-28%. See also: How to Move Into the On-Demand Economy   Federal health insurance regulation: A look forward The results of the 2016 elections put Republicans in full control of the White House and both houses of Congress, albeit without a filibuster proof majority in the Senate. This change allowed for a serious but measured response to repeal the ACA and replace it with a more flexible, market-oriented alternative. Several pre-election proposals have been compared to the ACA, focused on the impacts on rate changes by age and income levels. One of these proposals, authored by former representative Tom Price, now the Secretary of Health and Human Services, was closely modeled on the American Healthcare Act (AHCA) passed by the House of Representatives on May 4, 2017. The legislation provided age-based tax credits to most enrollees in the individual market as opposed to the ACA’s income-based credits, meaning that the financial assistance individuals receive in purchasing health insurance is fixed based on their age (which is correlated to their cost) and not scaled based on income or geographic premium levels. Interestingly and surprisingly, the early versions of the Better Care Reconciliation Act (BCRA) in the Senate did not follow the AHCA direction and largely maintained the ACA framework and its income-based subsidies. Notwithstanding the larger changes in the structure and amounts of Medicaid federal funding, the primary BCRA reforms to the ACA are in the form of:

• Rating age bands more aligned with actual costs (i.e., giving insurers back the ability to charge premiums by age that more appropriately match to average costs); and
• State waiver flexibility expanding the bounds of Section 1332 (essentially giving states the ability to waive some of the rules imposed by the ACA under certain conditions and develop their own more state-specific healthcare solutions).

In effect, many of the challenges in ACA markets would remain if the BCRA is passed in its current form. The Republicans in the House and the Senate have been criticized for not having a solution ready while seemingly having years to prepare for this opportunity. The nature of the legislation suggests that the technical characteristics of individual market behavior is challenging to grasp. The complications suggest the need for expert review of how regulatory changes to health insurance markets elicit free market responses. Conclusion Healthcare delivery and the associated financing is complex, involving human well-being and, potentially, human life. It simply cannot be viewed through a purely free-market lens. The role of the insurer as a middleman between the consumer and the provider of healthcare services stifles some of the free market impacts, both because consumers are often unaware of (and thus unmotivated by) the actual price of care and because insurance companies are profit-driven corporations that will find ways to maximize their revenue in any regulatory environment. Legislation crafted with a blindness of free market principles and the role of the insurer often will generate results that were not in line with the initial intent — for example, Minimum Loss Ratio laws. At a minimum, policymakers should consult with unbiased market experts to understand the implications of their various proposals. Will they truly accomplish what they are intended to accomplish? Unbiased reviews of this type would be valuable for all healthcare stakeholders to understand — without this expert assessment, the complexity of the healthcare system lends itself to a potential situation where we move forward with broad-reaching popular provisions without a solid understanding of what the aftermath would be for our health insurance system and our country.

The first step to managing risk is understanding it. That simple sentence gets to the heart of the opportunities and challenges of risk management. The concept of risk is pretty simple. The ISO 31000 definition of risk couldn't be much more straightforward: "the effect of uncertainty on objectives." But anyone who's been tasked with managing an organization's risk knows that identifying and managing business risks is complex. How organizations tackle risk varies from company to company based on their particular risk appetite. One business may be ready to push the envelope and look for competitive advantages through bigger gambles, while a more conservative firm may rely on established trends and avoid risk to the extent possible. For risk managers tasked with interpreting an organization's risk appetite and recommending a course of action, risk is something of a moving target. The risks themselves are constantly changing, and even within a single organization, the approach to risk may vary by department or individual. See also: Easier Approach to Risk Profiling   And risk managers' jobs are only getting more difficult. In fact, more than 70 percent of executives say that risks have gotten more numerous and more complex over the last five years, according to a recent report from the Enterprise Risk Management (ERM) Initiative at North Carolina State University and the American Institute of Certified Public Accountants. The report, "The State of Risk Oversight: An Overview of Enterprise Risk Management Practices," surveyed CFOs and other executives at organizations of varying sizes across a broad range of industries. While these executives said that risks were getting more complicated, only a quarter said that they have a "mature" or "robust" risk management process to address these escalating risks. Understanding risk at the enterprise level Those organizations that lack effective risk management processes have limited ability to assess emerging strategic, financial or operational risks and opportunities. Only a quarter of those surveyed considered their organization's risk management process to be an important strategic tool. The holistic approach of ERM, which seeks to actively manage all of an organization's risks instead of taking the traditional silo approach, has several benefits. It helps leaders establish an enterprise-wide appetite for risk and prioritize individual risks based on what's likely to have the most significant impact on the organization. Perhaps most importantly, it identifies the interplay of specific risks--circumstances that could originate in one area but have major implications for another. If flooding is likely to delay a delivery to a manufacturer, a robust ERM program would analyze that risk's effect on not just shipping and receiving but also sales, facilities, customer service and any other area that could be affected. As organizations take an enterprise-wide view of their risks, the skills risk managers need to be successful will shift as well. In one 2017 PwC survey, 63 percent of corporate officers said that giving frontline employees more risk management responsibilities enables their companies to better foresee and respond to risk, and about half will further this shift in the next three years. It's clear that organizations are increasingly relying on risk managers who can effectively communicate risk elements and strategy to both executives and employees. Understanding emerging risks Understanding your organization's risk appetite and addressing current risks is only part of risk management. New risks crop up all the time, and risk managers need to stay vigilant. Cyber risk, with its ever-increasing sources and severity, gets a lot of media coverage and is a top priority for most organizations, but even traditional types of risk are constantly shifting and evolving. Risks stemming from government action and regulations have been particularly difficult to predict of late, and organization-specific issues like employee malfeasance, reputational harm and operational risks continue to pose serious threats. More and more risk managers are turning to data analytics to quantify these risks, but many organizations still struggle to effectively use the data at their disposal. In fact, another PwC survey asked U.S. executives, "Which areas of risk represent the largest capability gaps for your company today?" The leading response: fragmented risk data and analysis. Risk managers have so much data at their fingertips, much of it unstructured, that they can't effectively use it to make risk-based decisions. Complexity scientist Francesco Corea points out that more information should lead to more accurate results, but it can also make things more complicated. See also: New Approach to Risk and Infrastructure?   Understanding what your risk managers need As organizations work to establish an ERM program and grapple with overwhelming amounts of data, let's take a closer look at three factors that will make risk managers and their departments more effective.

• Risk managers need education. A solid foundation in risk management principles and practices, as well as an understanding of the methods used to deploy ERM across an organization, is essential. The Institutes' Associate in Risk Management (ARM™) program provides that comprehensive overview, but ongoing education to keep up with evolving risks is just as important.
• Risk managers need access. Risk managers need to be able to secure buy-in from many individuals: executive decision makers, data scientists, frontline employees and more. Risk managers therefore need access to these collaborators, as well as training on the soft skills needed to be effective in their role.
• Risk managers need allies. An organization shouldn't rely on just one or two risk experts to deal with risk. If risk is to truly become a key strategic tool, individuals at every level of the company need to develop basic risk knowledge and a risk mindset.

This piece is based on one of several Institutisms, mottos to inspire risk management and insurance professionals to success through lifelong learning and continuous education. Knowledge is the path to managing your clients' risks. And in the world of risk management and insurance, The Institutes are the ultimate knowledge resource for professionals--at every level and in any discipline. From designations and continuing education to networking and research that informs public policy, our name is all you need to know. Learn more about the ARM designation.

Speaking of comparative rating…. I was just reading an Insurance Journal article about Compare.com where the CEO referred to the semi-startup as a “disrupter.” Disrupting what? Independent agents have been doing comparative rating for decades. There is nothing new or disruptive about doing it online. And, in either format, it’s a dangerous thing. Compare.com’s CEO says that what consumers want is choice: “If you come back to that as the fundamental premise, do you want to walk into your grocery store and be offered one option for soup? Do you want one option for fruit? No, you want lots of options. Do you want a simple way to shop for it? That’s what compare.com does.” See also: It’s Rush Hour in Telematics Market   For the nth time, “insurance” is not a product you buy off a store shelf. Why do these people keep making comparisons to consumer products? I guess the upside is that at least he didn’t throw Amazon into the mix, as I wrote about in the blog post “Insurance and Paper Towels.” And what “choice” does comparative rating provide to consumers? Would this premise work for buying, say, used cars? Let’s see what choices UsedCarComparison.com would give us: Ford       $4,167 Chevy    $8,246 Honda   $8,963 Toyota  $5,920 Kia         $6,743 Need a boat? Just go to BoatComparison.com: Bayliner            $48,450 Crest                 $27,248 Chapparal        $51,506 Regal                $86,727 Bennington     $34,999 Easy choices. I’ll buy that Ford and use it to tow my new Crest boat. After all, the only thing I need to know is the manufacturer and the price, right? Similarly, in the case of insurance comparative rating, all I need is the name of the “manufacturer” (aka insurance company) and the price (i.e., premium), correct? Needless to say, NOBODY would buy a car or a boat with only the information provided above. Then why should consumers be expected to buy insurance sold that way? The answer to that question is easy…because we’ve conditioned them to believe that the only thing that matters is price. Any true insurance professional knows that, but apparently few insurance professionals make decisions for insurers when it comes to advertising. See also: How Technology Drives a ‘New Normal’   Even in independent agencies, we are all too eager to simply plug some information into a comparative rating system, then tell the consumer which quote is the lowest, without any regard for which carrier, product and service is the best fit for their unique needs. If this practice continues, we might as well concede the industry to the startups (and entrenched carriers) that sell on price and/or convenience, as opposed to providing a real, professional service that helps consumers avoid catastrophic loss.

Using innovative strategies, some companies may be erasing employee security training’s reputation for ineffectiveness. Security training “got a bad rap, because it was so bad,” says Steve Conrad, the founder and managing director of MediaPro, a Bothell, Wash.-based security awareness training company with such clients as Microsoft, Yahoo and Adobe. Old training methods “usually consisted of slide presentations — or their online equivalent — that were super dull and could last an hour or two,” he says. “Employees were expected to sit through this, either at their desks or in a group and come away with knowledge gained. And that was it. Awareness training was once and done, and it just didn’t work.” See also: How Good Is Your Cybersecurity?   Stu Sjouwerman, founder and CEO of KnowBe4, a security awareness training company founded in 2010 and based in Clearwater, Fla., says “old-school security training” often stems from “classical break-room sessions where employees are kept awake with coffee and doughnuts and exposed to death by PowerPoint.” Those days are over, according to officials of the two companies. MediaPro — which was founded in 1992 and has focused on security awareness training programs as a product since 2003 — says it’s an e-learning company that bases its training on proven adult learning principles, providing educational content in a way that learners remember. “This concept extends beyond the training courses themselves,” Conrad says, “to our focus on consistent reinforcement of key learning principles through extracurricular content such as games, videos and posters, as well as phishing simulation exercises.” Phishing exercises help change behavior KnowBe4, Sjouwerman says, sends frequent simulated phishing attacks to train employees “to stay on their toes.” Both companies believe that employees’ most common security mistake is falling for an email phishing scam. “Bad guys have come up with all sorts of creative ways to convince employees to click on a link or send sensitive information via a spoofed (sender) address,” he says. Clicking on a link in a suspicious email and opening an infected attachment can be avoided, Sjouwerman says, “by recognizing red flags.” Red flags include receiving an email from a suspicious domain or address you don’t ordinarily communicate with, or one sent at an unusual time, such as 3 a.m. No company is immune to such scams, Conrad says, “but simulated phishing campaigns aimed at an organization’s employees teamed with comprehensive cybersecurity education can go a long way toward changing risky employee behavior.” Technical safeguards against phishing scams exist, “but no organization should rely on those alone,” he says. “Social engineering — the basis of phishing scams — is such an effective way into the sensitive data of an organization because it completely bypasses these technical safeguards and goes after what is most companies’ weakest link: the human.” Workers’ weak spot Why do employees engage in risky behaviors when cybersecurity threats are so abundant? “It’s likely a combination of being busy and being exposed to so many technological sources of distraction on a daily basis,” Conrad says. Sjouwerman mentions another reason: “No one ever took the time to enlighten them about the clear and present danger that risky behavior can really cause, especially in an office environment.” A 2016 study by PhishMe, a Virginia-based phishing threat management company, found that 91% of cyber attacks — and the resulting data breaches — begin with a spear-phishing email. Another study done last year by LastPass, a Virginia-based password management service, found that 91% of respondents know it’s risky to reuse passwords for multiple online sites, but 61% do it anyway. The study also found that the No. 1 reason respondents changed their password was because they forgot it, and only 29% changed it for security reasons. Employees’ risky behaviors have triggered an increasing number of companies to provide better security training. “I think this is a really exciting time in the market. Huge numbers of companies are committing to doing real education, and we’re seeing exciting innovations in the variety of content that is available,” Conrad says. “I like to think that the age of boring people about security is over and we’re entering an era where people are going to be motivated and engaged by education around these issues.” See also: Cyber, Tech Security Start to Merge   Repetition is key Employee training, Conrad says, needs to be more frequent than an annual affair. He says, “Learners need to hear something more than once for it to stick — just ask any ad executive or marketing jingle writer,” he says. “Think about what makes up an advertising campaign: a series of messages that share a single idea or theme, transmitted via different media channels on a regular basis, for an extended period of time — with the singular goal of influencing consumer behavior. “A great security awareness initiative should look like a great advertising campaign. Repeated, consistent messages delivered throughout the month, quarter or year — whatever cadence is appropriate for a given organization.” This post originally appeared on ThirdCertainty. It was written by Gary Stoller.

Instead of a short bio, let us know what are your top three books everyone working on digital transformation needs to read and top three tech gadgets one needs to have? "Zero to One." This is the best book on tech, and so many entrepreneurs don’t understand the key concept: Your tech better be 10X better if you want to win, "Moneyball." I love this book because it helped me see how someone can look at a problem totally different. In the case of "Moneyball," Billy Beane started looking at baseball stats in a different way. "The Dip." This is Seth Godin’s best book, and it’s super short. 10X better technology takes time. You will hit a new dip every single day. Pushing through the dip is key; 99% of people don’t get through the dip in some form or fashion. iPhone. I hate my phone and love my phone all at once. I saw some crazy stat that it’s still a better deal at $1,000 than most gadgets, based on the number of times you touch it in a day (versus everything else). Garmin Fenix 5. I was really disappointed with my Fitbit. So I ponied up for a Fenix 5 watch, and I absolutely love it. I love how well it is constructed. Calendly (or equivalent scheduling app). I would go insane without this app. Seriously. You are not only the CEO of RiskGenius but also a renowned influencer in the insurance industry. First, tell us more about your company. How far are you with becoming the Google of insurance? We are getting closer every single day. Users can now use our Google-like search to find and compare policy language instantly. Now we are moving to an analytics based approach — put another way, the computers are going to start showing insurance pros what is and is not important. See also: Why AI Will Transform Insurance   When you start a discussion - for example, on LinkedIn - a lot of experts from around the globe participate. What role does social media play in your work as CEO? What would you recommend to C-suites of incumbents who don’t have an interactive presence on the internet? Social media is our secret sauce. I have more than 100,000 followers on LinkedIn, and most of them are in insurance. That is crazy. I use LinkedIn to share wins, struggles and ideas. Some day, I would love to go back and read through all my crazy LinkedIn posts. Most corporate social media is so, so boring. I love the personal touch. And, I guess you have to be a bit controversial -- although I don’t really think my posts to LinkedIn are that controversial. For example, I recently posted that you can't fix your front end until you address your legacy software. I don’t see that as controversial; others did. Life is too short to be boring. How do you estimate the state of the industry inside and outside the U.S.? Honestly, we are in the first inning of a nine-inning transformation. There are major insurance corporations that are just now scanning in paper documents. Most insurance professionals can’t really find the digital information they need. We have so far to go. What do you think are the biggest chances for incumbents to use the digital transformation? What are the biggest hurdles in your opinion? The biggest opportunity and the biggest hurdle is tearing down information silos. I can’t tell you how difficult it is to get our hands on  an insurance carrier's forms sometimes. This occurs because (1) the information is not stored in a central location and (2) the information gatekeeper does not want to give up the information to a more efficient system. Herbert Fromme, maybe Germany’s most famous journalist on insurance topics, said a few weeks ago that insurers can reduce the majority of tasks in the future and, for the rest, need employees with different skill sets. What do you think about this? Absolutely, and this is no different than most other industries. I used to be a litigation attorney. I attained my billable hours primarily by reviewing large document sets on cases. Two years into my career, I started reading about outsourcing operations that would review litigation documents at a fraction of the cost. Two years after that, I started reading about technology-assisted review, which involved machines reviewing litigation documents. The same thing is happening in insurance. Insurance companies have just gotten comfortable outsourcing many jobs to other countries where labor is cheap. And now you are starting to see machine learning solutions that can do the outsourcing work (ahem, www.riskgenius.com). What are your top three do’s and don't’s for a C-suite that understands the need to act soon? Do's:

1. Spend most of your time on the problem.
2. Make sure you have buy-in from all employees — not just executives.
3. Avoid reading traditional tech press — do your own research.

See also: How Technology Breaks Down Silos   What would you advise young people who are thinking of entering the insurance industry? Go get a job in insurance and pay attention to all of the crazy, frustrating situations that you see. There will be a lot. It is the nature of the beast. Talk to your peers about the problems you are having. See which problems others focus on. Then figure out how to fix the problem you have selected. Thank you for your time.

It has been busy in insurance lately, as the industry continues to engage and consider the future — first at our customer conference, Convergence 2017, then at Insurtech Connect. Both conferences had record attendances, a sign that insurers are both grappling with change and committed to making it happen. It is a shifting future, one that is reinvigorating an industry that has decades of tradition. Players across the entire range of insurance industry segments are being confronted with permanent changes in consumer behavior, different employee expectations, rapidly evolving technology and a quickening renaissance of the business environment. Increasingly, opportunities will need to be discovered because technology alone does not constitute a strategy. It is also not a plug-and-play in the sense that a new tech overlay cannot compensate for a fundamental legacy infrastructure — whether that means in the business model, products, culture, technology, market boundaries or customers. Change is being forced on insurers — whether they like it or not — as several of the orthodoxies traditionally underpinning the industry are challenged and disrupted. Customer at the Center of the Renaissance At the heart of this insurance renaissance is the customer. The customer's expectations, driven by unrelated or adjacent industries, are reshaping insurance. The innovators, many coming from insurtech, are assembling new insurance products and services and are using customer-centricity as their value offering. Finally, the competition, which is heating up, is based on customers’ positive reaction to the new business models and products in the market. This is all happening regardless of whether incumbents choose, or are able, to play in this area. Majesco’s consumer and small-medium business research last year captured these views and expecta­tions of today’s customers in the midst of the disruption and change rapidly unfolding in the insurance industry. In our Future Trends 2017: The Shift Gains Momentum report, we underscored that the insurance business models of the past 50-plus years have been based on business assumptions, products, processes, channels, etc. for the Silent and Baby Boomer genera­tions. Things began to shift with the Gen Xers, with Millennials and Gen Zers putting tremendous power to move things forward at a rapid pace. The business models of the past will not meet the needs or expectations of the future. Unfortunately, Majesco’s research, Strategic Priorities 2017: Knowing vs. Doing, shows there is a gap between what many insurers know about the changes that are going on around them and what they are doing about them — the “knowing–doing” gap. The report highlights that turning awareness into doing, with actionable initiatives, is elusive, creating an ever-widening gap between leaders who are taking action and those who are not. And in a fast-paced era of change and disruption, the ability to be a fast follower is fading rapidly, putting insurers at risk of becoming irrelevant. Insurers should be asking themselves, “Are we acting upon our knowledge of the insurance industry and market trends? Or, are we simply educated observers?” See also: Insurtech: One More Sign of Renaissance   As Albert Einstein famously said, “We can’t solve problems by using the same kind of thinking we used to create them.” The Shrinking and Shifting Future The state of the industry in a widening “knowing–doing” gap suggests a need for increasing strategic and future planning, followed by actionable plans. Research, however, suggests an ever-shortening strategic planning horizon. The Harvard Business Review concludes that the focus on defending business models (rather than exploring new ones) represents a significant loss in future options. As we highlighted in our new report, Changing Insurance for the Digital Age (a collaboration with Global Futures and Foresight), investors value the future growth options of S&P 500 firms relatively less, by $1 trillion — for which there are 28 insurers, representing only 5% of the 500 firms. This would seem proof enough that a myopic focus generates less growth and value over the long term. So how can insurers prepare for change and participate in the rapidly unfolding renaissance?

• Insurers must look to customers — before technology — as the starting point for change.
• Insurers must modernize and optimize their existing business to stay relevant with existing customers, because it will fund the future business. In today’s world, replacement of legacy systems is just table stakes.
• Insurers must develop new business models that meet the digital-age needs and expectations and are the foundation of the future business.

Each of these paths are mandatory and increasingly necessary to ensure relevance and growth. In our Strategic Priorities 2017: Knowing vs. Doing report, Majesco found that companies that reported strong growth in the past year were 17 times more likely to also be developing new business models, compared to those that had lower growth. Nearly 90% of the higher-growth companies were also developing new products — three times higher than companies with lower growth. Those that adapt quickly will likely see new business heights, while those that do not will possibly experience dramatic market losses instead. The growth gap between leaders, fast followers and laggards will likely expand, creating an unbridgeable chasm with devastating business implications. The Digital Age is Powering the Renaissance The digital age — a revolution — is rewriting the rules of business and, with it, redesigning organizational and business model structures. However, as we noted in Changing Insurance for the Digital Age, only 11% admit feeling ready to craft more “future-proof” organizations. Many industry orthodoxies are increasingly irrelevant, yet most insurers have been reluctant to reinvent themselves, with less than 25% of insurance executives expecting their operating models to be disrupted by changes in consumer behavior. Technology and customer expectations are already radically rewriting models; almost half of insurers business models are already in the process of being disrupted by new competitors. We saw this onstage at Insurtech Connect this past week, with new insurtech startups and traditional insurers creating business models and offerings. As many companies stated at Convergence 2017 and Insurtech Connect, the perception gap of customer expectations to what we deliver cannot be addressed through the provision of technology alone. It must be aligned with strategic re-organization and customer-centricity, thereby using technology to help avoid the widening gap between own orthodoxies and customer expectations. In effect, insurers must disrupt themselves. As we have said before, “It is better to Uberize yourself before you are Kodaked.” Narrowing the Knowing–Doing Gap Are we acting upon our knowledge of the insurance industry and market trends? Or are we simply educated observers? Each and every day, we see the growing impact of change in the insurance industry — new products are introduced, new channels are established, new services are offered, new business models are launched, all which recalibrate customer expectations. Acknowledging the role and strength of changing customer behavior expectations and then acting upon that awareness across the organization is central to future success. Customers are increasingly demanding personalized, on-demand, digital insurance services. In many cases, these go beyond the realm of traditional products, into providing valuable services that range from reducing risk to engaging with a community of similar customers. These services — when added to a robust, relevant product offering — have the potential to reposition insurers within the market and give them a future-focused, customer-centric edge. See also: A Renaissance, or Just Upheaval?   Insurance companies must stop talking about opportunities and start doing something about them by using the disruption and change as a catalyst for real change. We are entering a new age of insurance. These efforts will carry insurers into that new age, where they will be prepared to capture the revenue growth presented by a market shift that will define a new ecosystem of market leaders. Are you taking knowledge and acting on it? Are you walking the walk? Insurtech Connect highlighted that your future competitors are.

In August, I wrote about “Lemonade’s Bizarre New Self-Service Approach.” This “self-service” approach is pitched by Lemonade as a benefit to customers who can apparently delete coverage for spouses, mortgage companies and others unilaterally — something that could create serious problems for consumers who are not counseled on the possible repercussions of such actions. In other words, Lemonade is reducing its workload, increasing consumers’ risks of loss and making customers thank Lemonade for it. Earlier this month, I posted on LinkedIn about “Lemonade’s ‘Zero Everything’ Policy.” Again, Lemonade touts something that largely benefits… Lemonade. And it does it in a way that makes consumers think they are getting the benefits. See also: Politics of Guns and Workplace Safety   Just this week, I learned of yet another odd Lemonade decision regarding a new coverage stance on guns and gun owners. This is from their web site blog: “Guns, And Why Lemonade Is Taking A Stand“ According to the blog post, Lemonade’s next policy form revision will include the following:

1. “We will exclude assault rifles altogether. We simply don’t understand why civilians need military-grade weapons, and we prefer not to insure them.
2. We will add requirements that firearms be stored securely and used responsibly, upon penalty of voiding coverage. We believe guns should be treated mindfully and soberly, not as a plaything, a status symbol or an ideological prop. Reasonable people, we believe, can agree on that.”

On the first point, Lemonade did not elaborate on how “assault rifle” will be defined, nor did the company indicate whether the exclusion will be for loss of the rifle itself or, more likely, liability claims for BI to others. If the latter, this policy sounds like it punishes victims as much as gun owners. Lemonade’s HO policies already exclude liability coverage for intentional losses like the recent Las Vegas shooting. So even if the perpetrator had an HO policy with the company (or most other insurers), the policy wouldn’t cover victims’ claims. However, what about an accidental negligent shooting or BI that arises when someone takes a gun owned by someone else and the owner is sued? Most HO policies would respond to such claims. However, it doesn’t sound like Lemonade wants any part of that. On the second point, Lemonade says that its revised policies will require that all firearms be stored “securely and used responsibly” or else there is no coverage. How do you determine what “securely” and “responsibly” mean if these terms are the ones actually used in the revised policy language? And, again, if such an exclusion is invoked, who is the loser? It sounds like the victim(s) of such negligence now have no insurance proceeds to access. So, who is potentially the primary beneficiary of these changes? It sounds like Lemonade is because it would not be paying claims to innocent victims of the negligence of their insureds. Insurance policies sometimes exclude BI or PD that arises from illegal activities, though most auto policies, for example, don’t exclude BI or PD that arises from driving under the influence. The reason is that one of the primary purposes of liability insurance, from a social aspect, is to benefit innocent victims of such careless actions. See also: Examining Potential of Peer-to-Peer Insurers   However, what we could be seeing with this change from Lemonade is that its insurance products may base coverage on what LEMONADE thinks is morally right or wrong. The company's blog post says it is being upfront about what it thinks is “good” and “not good,” and that Lemonade is not into “gun worship” or “vigilante” gun owners and is doing its part to “solve gun violence.” Sounds like what Lemonade is doing is simply taking away a victim’s source of financial recovery for the negligence of Lemonade’s customers. Does that benefit society, or does it benefit Lemonade?

The estimated prospective ROE for homeowners this year is 4.5%, down from 6.7% in 2016. There are three key themes to note regarding homeowners insurance in 2017: Growth The homeowners' line of business continues to grow; premiums increased to $91 billion in 2016 from $89 billion in 2015. The rate of growth has slowed from prior years, and slower growth is expected in the near future with less aggressive but positive rate change in the pipeline. Further, catastrophe losses are rising faster than inflation, and coverage gaps continue in perils (like floods), suggesting opportunities exist for carriers to find premium through coverage innovations. Divergent Markets From the macroscopic perspective of this study, there are at least three different homeowners markets: 1. Florida, a market unto itself. Eight of Florida's 10 largest carriers have limited name recognition outside the Florida market, though several are expanding to other coastal states. Remove Florida and US ROE increases to 9.1%, suggesting the assumptions of this study (nationwide carrier with A.M. Best “A” rating) differ from market reality in the sunshine state. 2. The hurricane-exposed coast, excluding Florida. Hurricane coast states posted an ROE of 6.7% in this year’s study. At present, these states are characterized by heavy regulation; strong competition between established brands vs. younger carriers; and sophisticated risk differentiation based on granular catastrophe-savvy rating plans. 3. Everybody else. The remainder of the U.S. owns a respectable 12.2% ROE with market share largely dominated by big-name national and super-regional brands. Regulatory considerations are easier to navigate than in coastal states. Catastrophe risk has unique challenges associated with less robust models for thunderstorm, wildfire and flash flood risks as compared to hurricane risks. California and Washington are unique because of their strict regulatory environment, but they otherwise resemble the other states in the cohort in terms of perils and players of note in part because earthquake endorsements are not required for home loans, show limited take-up and are ultimately excluded from this analysis because they roll up to the earthquake annual statement line. Technology This year’s study examines “one dollar of homeowners premium,” which highlights 8 cents of loss adjustment and 21 cents of policy acquisition costs (12 cents for commissions and brokerage plus 9 cents for other acquisition costs). These areas of the value chain are coming under attack from insurtech startups eager to test established carriers’ ability to adapt rapidly evolving technology. Aon’s Digital Monitor currently tracks over 40 startups, backed by nearly $2 billion in venture capital, that are attacking these areas of the property and casualty value chain (not all in homeowners, specifically). Mobile and software-as-a-service platforms, drone and satellite imagery and proprietary catastrophe-detection internet-of-things-enabled hardware promise to continue to apply pressure to traditional homeowners carriers’ approach to the business of insurance. ROE study methodology The basis of the prospective ROE estimate is industry, state and aggregate statutory filing data including reported direct losses, expenses, payout pattern and investment yields. We replace actual historical catastrophe losses as measured by property claims services with a multi-model view of expected catastrophe loss. On-leveling of direct premiums to current rates uses rate filings of the top 20 insurance company groups by state. Finally, estimated capital requirements and reinsurance costs consider a nationwide-personal-lines-company writing both home and auto business at a capitalization level consistent with an A.M. Best “A” rating. The ROE estimates exclude earthquake shake losses; the premium and losses for that coverage are recorded on a separate statutory line of business. See also: 10 Trends on Big Data, Advanced Analytics   The diversification available to a nationwide personal lines insurer impacts the ROE calculation. For instance, homeowners business in California diversifies Gulf and East Coast hurricane exposure for a nationwide insurer. A California standalone would incur higher capital and reinsurance costs than the California portion of a nationwide insurer with similar premium volume in the state. Similar results are to be expected for any other regional or single state insurer. The normalization of catastrophe by this study replaces the local impacts from large events — like Harvey, Irma or the first and second quarter hail and wind losses experienced in 2017 — with the modeled catastrophe average annual loss. The prospective impact to the line from these events remains to be seen, and future versions of this study may attempt to measure impacts to rate level and reinsurance pricing. The 2017 nationwide ROE estimate of 4.5% falls below our 2016 estimate of 6.7%. Profitability challenges to the line include: (1) a slowdown of rate increases (and decreases by some major carriers) that failed to pace loss and expense inflation, and (2) premium and exposure growth that pushed up the A.M. Best capital requirements to maintain the assumed “A” rating. Declining costs of reinsurance to capitalize the volatility inherent in the homeowners line were insufficient to offset the increased capital charges. Softening reinsurance costs cumulatively added over 210 bps of ROE in our study since 2013; after the catastrophe losses of 2017, the reinsurance and capital markets will be closely watched for pricing signals. The maps above and below show, in loss ratio points, the amount that catastrophe experience exceeds model average annual loss. Adjusting combined ratios for expected versus historical catastrophe loss is an important step to distinguish weather-related randomness from inadequately priced business. Historical catastrophes can distort measures of results at a state level, causing the noise to overwhelm the signal. While state level adjustments can be significant, the 10-year nationwide experience catastrophe loss ratio of 13 points is meaningfully lower than the modeled expected catastrophe loss ratio of 23%. 2016 ended the dearth of hurricane activity that was the boon of gulf coast carriers for nearly 10 years. The Gulf states plus Florida had 30 points of favorable results relative to expected from 2007 through 2016, and, as of the time of this publication (even with Harvey and Irma), that favorable experience is more than 24 points of performance lift. The five year retrospective comparing catastrophe experience to modeled expectation is favorable for much of the country. States on the eastern slopes of the Rockies into the plains (including Colorado, Nebraska and Montana) experienced pain primarily from hail-driven losses in several of the last five years. Texas is an interesting case study because the lull in hurricane activity drives overall favorable experience overwhelming thunderstorm losses that contributed to a five-point drag on the loss ratio. The five-year averages reflect the period from 2012 to 2016. Across the country, the first two quarters of 2017 experienced the highest thunderstorm-loss levels since 2011, and the third quarter included multiple major landfalling hurricanes. Taken together, this should partially erode the favorable experience of the previous five years. The percentages in the map above show the direct target combined ratios necessary to fund reinsurance costs and allocated capital for retained risk by state, including catastrophe and non-catastrophe risk. The targets are for a sample of nationwide companies only and will vary among individual companies because of state distribution of premiums, capital adequacy standards, target return on capital, allocation methodologies, reinsurance and other considerations. For a diversified insurer with a footprint similar to the industry, the target combined ratios fall into three main categories: (1) Florida, (2) other hurricane exposed states and (3) states not materially exposed to hurricanes. The map above shows average approved rate changes filed between January 2016 and August 2017 for the top 20 homeowners groups by state that made a filing in the period. Rate activity, while still positive, continues the slowdown observed in last year’s study. Notable decreases came from at least one large industry carrier, suggesting potential divergence in pricing levels that the averages fail to reflect. Rate changes on the coast, including Florida and Texas, ticked up significantly versus observations from last year. For Florida, in particular, rate activity was likely insufficient to on-level for assignment of benefits and claims adjustment issues facing the state’s carriers. See also: How to Drive More Quotes   Homeowners as a growth engine continues to be the headline for the insurance industry through 2016; the line has outpaced GDP and most other underwriting segments since 2010. Direct written premiums increased from $71 billion in 2010 to $91 billion in 2016, with a projected $93 billion for 2017 given prospective rate activity. A strong component of growth through 2015 was the emphasis on rate adequacy with indicated rate levels increasing over 30% since 2010. Policyholders changing carriers will prevent the industry from realizing the full aggregate benefit of the individual carriers’ rate actions. The “S” shape of the rate change curve suggests the line should be watched carefully. The rate activity through 2015 is now fully earned, and rates since 2015 show more modest increases. Time will tell if rate increases around 2% will be sufficient to track loss and expense inflationary pressures. Our study suggests that, at prospective 2018 rates and before income taxes, insurers keep slightly more than four cents of profit for every premium dollar they earn. The four cents of direct profit is shared between the primary carrier, reinsurance partners and the U.S. Treasury. The full report is available here.