Just sixteen years ago, Tropical Storm Allison struck Houston, killing 23 people, dropping more than three feet of rain in some areas, flooding 73,000 homes and causing $5 billion of dollars in damage. For people whose homes were flooded in 2001, it is hard to imagine a more tangible or compelling argument for flood insurance. Surely, someone who suffered catastrophic flood damage would protect themselves with optional flood coverage, right? Yet, when Hurricane Harvey hit on August 25^th, Houston's Harris County had 25,000 fewer flood-insured properties than it did in 2012. Across Houston, the number of flood insurance policies fell from 133,000 to 119,000 – an 11 percent drop in the past five years despite a 4.5 percent increase in population. All of this is a succinct lesson for the investors and innovators who told me at last year’s Insuretech Connect conference that they were frustrated by the lack of real product innovation. Indeed, if Insuretech 1.0 focused on new distribution strategies, such as online aggregators; and Insuretech 2.0 included new internal competitive advances, such as new approaches and tools for underwriting, claims, and risk management, including IoT advances; then, if Insuretech 3.0 is product innovation, it will need to be more thoughtful than product innovation in non-insurance sectors, at least for personal lines. Indeed, successful insurance product innovation is about picking your battles. At OneTitle, for example, we leveraged an existing mandate (title insurance) and maintained accepted policy forms and coverages, but innovated on virtually every other lever. See also: Harvey: First Big Test for Insurtech   Insurance startups, innovators and early stage investors will face a battle if they focus on optional, creative or expanded personal lines coverage options targeting more than a niche population. Tropical Storm Allison already tried—and failed—to convince Americans to buy optional coverage by dumping four feet of water into 73,000 living rooms. It is hard to imagine an insuretech coming up with a more compelling argument than that. Before you howl about the value of risk avoidance or peace of mind: consider the transaction from the consumer’s perspective. For most, buying insurance is the only commercial transaction that amounts to paying money and receiving nothing in return. As Harvey shows, even making a large claim just 16 years ago is not enough to counteract the consumer’s view that, absent a claim, they receive nothing in return for their premium dollars. Absent government or third-party mandates, aggregate insurance premiums paid directly by consumers would shrink dramatically. The vast majority of consumers don’t buy insurance – regardless of whether it’s in their best interest – unless they are forced to do so by law or by a third party like a mortgage lender or a landlord. And they don’t show any signs of changing their behavior. Most consumers vastly underweight risk avoidance and peace of mind, even when the risk is as obvious as a flood experienced only 16 years ago. P&C call center veterans tell stories of policyholders who call to request a refund since they didn’t have a claim that year. Insuretechs, insurance startups and investors would be wise to understand this as they rush to bring more consumer-friendly insurance products to market. There are important opportunities for insurance innovation, but product innovation in mass market personal lines must be viewed through the lens of legal or other mandates. Without that mandate, a new product category or expanded coverage is unlikely to appeal to more than a relatively niche market. The lack of flood insurance in Houston is only the most recent example of consumers’ willingness to give up valuable coverage in order to avoid spending money on insurance. In 2015, for example, 6.5 million taxpayers paid an average penalty of $470 rather than purchase required health insurance under the ACA. Viewed a different way, the ACA requires most consumers without employer-paid or other forms of health insurance to select from a menu of insurance choices. The penalty is effectively the least expensive “plan.” It costs $470 and offers no coverage. In the metallically-named ACA plans, this one ought to be named “Lead.” The next least expensive option—Bronze—cost an average of $1,746 after tax credits in 2015. But, 6.5 million adults placed so little value on health insurance that they selected the least expensive “plan” despite an explicit understanding that they would actually receive nothing more than legal compliance in return. See also: Getting to ‘Resilient’ After Harvey and Irma   Auto insurance tells a similar story: 32.6 percent of drivers have either no liability insurance (12.6 percent) or carry only the state minimums which, at $25,000 or less in coverage in most states, offer only a veneer of coverage. As an aside, this may be unintentionally rational given that 30.2 percent of American households have a total net worth of less than $10,000, making them effectively judgement-proof. Of course, there is real opportunity for innovation in insurance, including product innovation. At OneTitle, for example, we started with a mandated product—title insurance—and formed a full stack insurer specifically to ensure that we had the control and flexibility to innovate on price, service delivery, distribution model and efficiency levers.

Insurers have been masters of data for centuries. But the digital age has ushered in dramatic changes in the types and volumes of data available as well as the tools and techniques to extract insight and real business value from that data. Once the leaders in data-driven decisions, many insurers now find themselves behind the curve. They are aware of the promise and potential of these advances, but stuck in their traditional methods made up of silos of internal data and dated analytic techniques suitable for limited, repeated decisions but not capable of making new discoveries, optimizing business decisions or uncovering strategic opportunities. In many ways, it is similar to the now famous story of the Oakland A’s in the book Moneyball: The Art of Winning an Unfair Game by Michael Lewis. Similar to insurers stuck in centuries-old business assumptions, Moneyball shows that the collective wisdom of baseball insiders, including players, managers, coaches, scouts and the executive office was subjective, flawed and did not keep up with a 21^st century reality. Traditional data analytics (statistics in baseball terms) such as batting average, runs batted in and stolen bases were used to assess a player’s value and potential, and influenced baseball teams’ investments in and acquisition of players. However, the Oakland A’s’ executive office, led by a forward-thinking data analyst and statistician, uncovered better indicators for success, such as slugging percentage and on-base percentage, that could be acquired and invested in more cost-effectively. While these new data insights contradicted long-held business assumptions and historical beliefs, they proved to be an organizational winner … helping the Oakland A’s assemble a competitive team that took them to the playoffs against teams who spent far more money on players. Why is this relevant for insurance? Because we are in the midst of the shift from the information age to the digital age, realigning fundamental elements of the insurance business that require major adjustments in order to survive, let alone thrive. One of those adjustments is around data and analytics. See also: How to Land on the Winning Side  Mastery of Data and Analytics Just like mastering the game of baseball with data and insights about your team and competitors, insurers must master data and a range of analytics to compete in today’s new age of insurance, particularly with so many Greenfields and startups “shaking up the game”. New Greenfield and startup competitors are the Oakland A’s of the insurance industry. They are rising from within and outside every industry, including insurance. They are capturing the post-digital age business opportunities of the next generation of buyers by leveraging new sources of data and using sophisticated analytics to reinvent insurance. Insurers who stick to the traditional, pre-digital age formula of relying on internal, historical data used only for pricing and underwriting, will put their businesses at risk … both in terms of retaining profitable customers and in capturing new markets and new customers. Companies that make the shift to leverage new data and analytics are positioning themselves to be the market leaders in the post-digital age.  Those who do not make the shift, risk not only the loss of customers, but also market share and relevance in a new age of insurance. Factors for Winning in the New Age of Insurance Just like the Oakland A’s in baseball, in today’s new age of insurance there are some key winning factors … some old and some new. We look in depth at these factors in Majesco’s recently released report, Winning in a New Age of Insurance: Insurance Moneyball. Here are some of the factors we consider. The customer. The next generation of buyers, Millennials and Gen Z, have a very different view of the world, how they expect to engage with companies and what they consider “value” for their money.  These and other factors are driving their view of “what is insurance” and when they need it — on-demand, short-period needs versus ongoing, long-term needs. While their views and behaviors underpin this shift, the breadth of new data makes these new products possible. The talent. Just like in baseball, there is a fight for talent in today’s data and digital-laden world.  Many insurers are challenged by staff capability, the ability to source new talent, and management bias toward traditional business practices that restrict insurers from leveraging new data opportunities. The market shift. A shift from risk products to risk prevention services is creating market changes. To put this in Moneyball terms, a walk is as good as a hit. Both put a runner on base. Risk prevention can provide new sources of revenue that will mitigate the decline of traditional premium revenue due to the reduced risk environment. This applies pressure on traditional insurance players by creating and offering innovations and alternatives for customers, which are often driven by data, to minimally match the competition in order to continue to win and keep customers. The technology. Emerging technologies (including analytics) are creating new capabilities, and they are bringing with them an explosion of new data sources. New data contains unique insights regarding asset-related risks as well as consumer behavior, attitudes, and preferences. Insurance products and services of the future will utilize these insights extensively in design, pricing, risk understanding and consumer engagement. Can we use data to select and choose segments and niches that are missed by traditional product development philosophies? This is another Moneyball concept. The analytics spectrum.  “Analytics” is a term with a very wide spectrum of definitions both within and across insurers, from Excel reports to cognitive computing and everything in between. Insurers require all the different types of analytics from the simple, informative “what happened” data analysis to the proactive, contextual-based analytics at the other end of the spectrum. Each of these varying analytic types requires different approaches or solutions but must first be grounded in data governance and strategy driven by business goals and objectives. The New Stadium – Data Lakes Just like baseball, insurers need to rethink their “stadium” … from a data warehouse to a data lake. The abundance of data that proliferates the world of insurance has always been difficult to centralize effectively for distribution to users across the enterprise. The old stadiums (aka data warehouses) were touted as a single version of truth where all data would come together to give a holistic view of the business. Unfortunately, the promise of the data warehouse has repeatedly been found to be elusive. The reason for this was simple; today’s version of “all of your data” is not the same as yesterday’s and will not be the same as tomorrow’s. The constant evolution of business makes the promise of a perfect data warehouse the goal you reach for, but never meet. We create data lakes to address that. A data lake, by its design, does not set a finish line that you will never hit. Instead, it sets a framework in place to consistently acquire “all of your data” but allows you to deliver that data on a use case by use case basis so that you win not only the inning and game…but the series. Change your Game to Win in a New Age of Insurance The insurance industry is in the midst of profound change fueled by trends that are converging and pushing a sometimes slow-to-adapt industry into the digital age. The insurance industry’s historical business model primarily rests on the two pillars of gathering and using information regarding risk and deciding which large bucket of similar risks are consolidated; then acquiring capital to manage risk. These two pillars, combined with a bifurcated and inconsistent state regulatory system and the heavy investment in marketing brands for personal lines (such as the Gecko, Flo and others), have consistently conspired to keep new competitive entrants out of the traditional insurance ecosystem. However, the digital shift is creating leaps in innovation and disruption, challenging the traditional business assumptions, operations, processes and products of the last 30-50 years. The fast growing field of new entrants and investors eyeing the insurance industry see it as a “prime opportunity” for disruption. Increasingly insurers are seeking paths to grow their businesses by capturing the next generation of customers with new engagement models, products and services. The increasing transparency and empowerment afforded by data, the Internet and digital technologies is leveling the playing field. For traditional insurers to rise to the competitive forefront, it will require them to rethink their business models and realign them with the digital age and the massive sources of new and innovative data that will redefine the business for the next 10-20 years, not those sources from the past 10-20 years.  Insurers must rapidly recognize the relationship to game theory regarding their risk models.  In short, insurance companies are the house taking bets from their customers. Those customers are betting on winning a game whose rules they will never fully understand while playing against a constantly changing cast of characters they don’t know. See also: The New Age of Insurance Aggregators   Yesterday we automated existing processes, and we continued to battle underwriting — thinking in terms of “intangibles” that couldn’t be automated. Tomorrow we need to start thinking coverage by coverage / game by game, “How do we win? Can we re-engineer our formula for growth?” How do we find value in the market that others can’t see? In this new age, value is not just in underwriting the right customers, but also in underwriting the right risks, under the right constraints and in the right markets. It is a new game of Moneyball … are you ready to join? This article was written by Kris Moniz. It originally appeared on Majesco.com.

Following on the heels of the two globe-spanning ransomware worms, the HBO hack—with its distinctive blackmail component—rounds out a summer of extortion-fueled hacks and destruction and theft of valuable data at an unprecedented scale. WannaCry and Petya raced around the planet demanding ransoms after locking up servers at hundreds of organizations. The HBO hackers pilfered 1.5 terabytes of intellectual property and business documents from the television giant. Next, they heaved samples into the internet wild and demanded $7.5 million to halt disclosures of even more highly perishable intellectual assets. See also: New Approach to Cyber Insurance   These high-profile cyber attacks have sent shockwaves through the insurance industry. Inga Goddijn, executive vice president at Risk Based Security Inc., a Richmond, Virginia-based supplier of risk management services, agreed to supply some context and discuss the implications. Here are excerpts from our conversation, edited for clarity and length. ThirdCertainty: How common is it for big media companies to hold cyber liability policies? 3C: Is it likely HBO held a cyber liability policy? Goddijn: Cyber insurance is largely accepted by large organizations as an important and necessary part of their overall coverage portfolio. That’s not limited to just the big entertainment companies, that applies across the board to most large enterprises. Where we see a drop-off in the adoption rate is with small to midsize organizations. It is likely there is some element of cyber coverage in place for HBO. It’s important to keep in mind it was HBO’s intellectual property that was compromised, not personally identifiable information. It’s not especially common to find cyber coverages that respond to the value of the policyholder’s creative content. So even with cyber insurance in place, it may not apply to this type of data compromise event. 3C: How do you expect the HBO hack to impact the emerging cyber insurance market? Goddijn: We have already seen an uptick of interest in cyber coverage post-WannaCry and Petya malware events. This is yet another high-profile breach that highlights the fact that data has value. Attackers will go after what has value, which in turn can have a real financial impact on the breached organization. Cyber insurance is still the best option for addressing that monetary fallout. 3C: Could this accelerate wider implementation of third-party best practices; or, perhaps, smarter and wider use of encryption? Goddijn: It’s hard to say. We’ve seen so many high-profile breaches come and go with little visible impact on security practices. Certainly that’s not true for all—as there is an argument to be made that the Target and Home Depot breaches accelerated the adoption of chip-enabled credit cards. What we can say is that each event like this does highlight just how important data security is to practically every business. 3C: Do you anticipate that the HBO hack will help give focus to cyber insurance? Goddijn: Each breach that makes headlines the way the HBO event has puts more focus on cyber insurance options. What will be interesting to watch unfold is how the cyber market will address the increasing number of attacks targeting intellectual property. 3C: So what is being discussed in the insurance community with respect to extending coverages to include loss of intellectual property? Goddijn: Traditionally, the insurance market has shied away from covering events like theft of trade secrets or damage to intellectual property. Perils like trademark or copyright infringement arising out of content created by the insured is widely available, but events such as the HBO breach—and more specifically the compromise of proprietary works—is not an area most carriers are comfortable entering. Unlike a car or a building, it’s difficult to determine the value of something like a secret formula or an unreleased episode of a popular show. The actual value of the intellectual property itself is subjective and can change over time. Anytime there is that level of uncertainty around pricing a risk, it’s sure to cause hesitation for the underwriters. See also: How to Shield Your Sensitive Data   3C: How far off on the horizon is wide availability of intellectual property coverage? A year or two? Beyond that? Goddijn: The diligent buyer that is interested in third-party coverage for a compromise of the I.P. of others can find this in today’s marketplace. It may take some looking, and specific circumstances may prevent any carrier from offering the coverage to a specific buyer, but it can be found. As for first-party coverage for intellectual property, that is a very rare product. There are only a handful of carriers willing to offer this, and it comes with its own host of coverage caveats. Given the nature of the exposure, it’s not likely we’ll see insurance carriers jumping into this area anytime soon. This article originally appeared on ThirdCertainty.

Most folks accept that their funeral is not a good place to do a deal. Nonetheless, they don’t plan! Twenty years ago, at a PIA convention at the Grand Hotel we were having a discussion about the future of agencies, maximizing their value, planning for contingencies and timing an exit strategy. I was being provocative. One business owner stated proudly that he had made so much money in his agency through the years that, even if he didn’t get $1 for his book, it didn’t matter because he and his family were fine. I believed him because his agency was his wife, him and one administrative person effectively managing a large book of marine business. I didn’t doubt his description of his agency as an “asset” – it had and continued to throw off more cash than needed. See also: Future of Digital Transformation   I asked: What if you and your wife were killed and the agency had to run itself for months? Could “legal problems” (read E & O) result from these complex accounts being unmanaged following your deaths. He realized that both his assets and liabilities need professional management. With an audience including more agency owners comfortable with “yesterday” than agency leaders and managers right for  “tomorrow,” I asked the Big Question: “Would your death, disability or retirement increase or decrease the value of your agency? The oldest agency principal in the room said, “Boy, you’ve done gone from preaching to meddling.” Our comfort zone is a most dangerous place. We are lulled into a false sense of optimism. We start to read our own press clippings and financial statements. We believe we are in control. We are in control until we are not. Unfortunately, we don’t know when the merchant of misery will visit us and if we can recover. Don’t assume your own readiness – until after you have recovered from a challenge. Changing others is hard – changing yourself is often impossible! In 1996, the nationally syndicated columnist Robert Novak was speaking at LSU. He told about a friend of his who was furious with Bob Dole because he wouldn’t change, and his inability to be flexible was going to cost him the 1996 presidential election. Novak asked his friend, “Are you married?” His friend replied, “You know I’m married.” Novak inquired further, “How long have you been married?” The friend said, “50 years.” Novak asked if he loved his wife. The friend answered, “Of course, I love her. We’ve been married for 50 years.” See also: To Predict the Future, Try Creating It   Novak asked, “Can you change your wife?” His friend quickly said, “NO.” Novak closed the discussion with this simple advice, “Love Bob Dole.” For most of us, change is difficult. Maxine (the cartoon character) says it best, “Change is good as long as I don’t have to do anything different.” Love your friends who live in the past but don’t stake your future on them. If you’re one of these “yesterday dwellers” – take action now, even if it scares you to death!

If there is one aspect of business building that has confounded even the smartest of entrepreneurs, it’s developing the team. The reality is that we simply don’t have the skills to develop their skills, and that can have a long-term and negative impact on the business. Where Are You Today? In 2015, we conducted research for the FPA’s Research and Practice Institute and Financial Advisor IQ that focused on team compensation and benefits. As part of that study, we examined team development, and I was impressed to see that almost all respondents support their team members’ personal and professional development, through training, financial support or continuing performance reviews. At the same time, I noticed that most development initiatives were informal. Although 60% of respondents administer formal performance reviews, development activities such as new-employee training are overwhelmingly informal. The same is true for mentoring. Have Your Considered Mentoring? Mentoring is one development option that is generally considered very effective. Like all such development tools, of course, it’s only effective if it’s done well. Remember that mentoring can mean you being a mentor to the team, someone else on your team being a mentor to others or simply helping your team find outside mentors. It isn’t just an option for large businesses. The reality is that mentoring doesn’t have to be a “time-suck” for you personally, despite its reputation for being exactly that. Today, I want to help you think about taking the first step to understanding where your team needs help and the role that mentoring might play in helping them maximize their potential. See also: The Keys to Forming Effective Teams   What Are Your Gaps? An obvious first step is to figure out what gaps mentoring (or any development activity for that matter) is going to bridge. A performance review process is clearly an important first step. You may opt for a formal tool (such as DiSC, Predictive Index or any of a range of tools) or you may opt for a good old-fashioned conversation with a team member. Whichever approach you take, consider the following in evaluating your team members, ensuring that you cover three potential types of objectives. 1. Performance Objectives

• Success in meeting specific, measurable objectives based on role
• Joint accountability: the ability to work well with and support the entire team
• Attention to detail within sphere of role
• Timeliness in completing work
• Initiative: goes above and beyond defined role

2. Competency/Development Objectives

• Customer service skills
• Sales
• Time management
• Public speaking
• Business writing
• Leadership
• Software skills
• Graphic design
• Financial planning

3. Personal Development Objectives

• Personal improvement goals that the team member sees as important to moving career forward, for example:
• Professional designations
• Training courses
• Advanced Business Training

You might also consider skills assessment tools, which differ substantially from performance review tools.  These tools can be helpful when you are thinking more about getting the right people in the right roles – or who to hire in the first place. Consider the following: Kolbe. The Kolbe A Index is designed to measure the conative faculty of the mind — the actions you take that result from your natural instincts. The index validates an individual’s natural talents, the instinctive method of operation (M.O.) that enables you to be productive. VIA Strengths Test. VIA has identified 24 character strengths that are universal across all aspects of life: work, school, family, friends and community. Whereas most personality assessments focus on negative and neutral traits, the VIA Survey focuses on what is best in you and is at the center of the science of well-being. Strengths Finder. Based on research from Gallup, you access this assessment by purchasing the book. It’s designed to help uncover your talents and incorporates strategies to leverage the strengths you identify. Mentoring Options Mentoring is an option (whether delivered formally or informally, internally or externally) that I believe has a strong potential to have significant impact. Of course, it’s not always easy to get moving. In an interview with Rebecca Pomering for our Spotlight program, we reviewed the three types of mentoring available at Moss Adams. This is a helpful way to think about what you are trying to accomplish and highlights that mentoring can be more or less involved depending on your needs. At Moss Adams, Rebecca explained that there were three types of mentoring available: 1. The Buddy A buddy might be assigned for a new employee. That individual may or may not be involved in the actual job training, but is there to help navigate the office and company. The buddy is someone a new employee can ask any question of and not feel judged in any way. 2. The Mentor A mentor is more traditionally defined as supporting the team member either on a specific topic or skill or on a longer-term basis. Employees may be asked to identify a mentor or go to management if they are looking for support on a specific issue. On some teams, mentors are assigned, but the jury is out as to whether relationships that are not explicitly chosen are as effective. 3. The Sponsor A sponsor’s objective is to actively support and promote the individual in career advancement and development. Sponsors are typically individuals who have the political and organizational connections to make that sponsorship effective. Sponsors may or may not be mentors and vice versa. See also: How to Pick Your Insight Team   Talk to Your Team (First) If you’re considering implementing a mentoring program, ensure you start with clear direction from the team on what will work and what won’t. Below are a series of questions that could form the basis of a survey or a conversation:

• Have you had experience with any form of mentoring? If yes, what form did it take, and how would you describe the impact?
• Do you think it would be valuable for us to consider implementing a mentoring program, which we’ll jointly define?
• How do you think a mentor could help you?
• How would you describe your ideal mentor? What skills, experience or personality traits would he/she have?
• Specifically, what kinds of issues would you hope to address with a mentor?
• Would you prefer to be assigned a mentor or to have support/guidance in finding someone yourself?
• How would you describe the outcomes of a successful mentoring program for you? What would have to happen for you to describe the process as successful?
• Is there anything that you feel definitely wouldn’t work when it comes to implementing a mentoring system?

Talk to Yourself (Not Literally) You’ll also want to get clear on your own goals and objectives for providing or facilitating mentoring. To that end, consider the following questions if you are thinking about finding your own mentor. Or, if it’s for your team, ensure both the mentor and mentee clarify exactly what they’re hoping to accomplish and how they know if they’ll be successful.

• Exactly what are you trying to solve for? Are you looking to develop a specific skill, gain general insights into a specific topic or have someone you can go to for continuing advice?
• How long do you anticipate the mentoring relationship to last?
• How often will you meet, where and for what length of time?
• How will you both prepare for those meetings?
• How do you define success?

Personally, I consider team development one of the most challenging aspects of running a business. We surround ourselves with these incredibly talented people, and it’s easy to feel like you are letting them down. Ultimately, development is about prioritizing and booking the time to do something, even if that something isn’t perfect. Thank for stopping by, Julie

In reading recent reports on insurtech, it was heartening to see the number of insurers that have chosen to gain the market-leading capabilities and tools they need to succeed by partnering with innovators. Many of the major insurers on the list are seeking differentiation, focused on augmenting their product lineup with a new offering, such as State Farm’s and Allstate’s partnerships with Openbay to provide non-collision auto repair services. Others are expanding distribution through a new channel such as an app. In our experience, insurers that start a partnership with an insurtech that focused on a narrow goal, such as gaining homeowners coverage to enhance their existing auto, inevitably expand the relationship, because the right insurtech partnership rapidly positions insurers for greater growth and prosperity. Banking on the Power of an Insurtech Partnership Banking on the digital savvy of an insurtech innovator can deliver powerful results, but in our experience focusing on the following three areas produce the greatest overall outcomes:

• Empower agents: In the initial talk about digital distribution, many assumed that agents would be ousted from their traditional roles and forced into a position of obscurity. We don’t see this happening, and neither do leading insurers, as 50% of consumers still want to speak with an agent when they have questions or concerns.

The problem is, when you put an agent up against the Amazon experience, the agent comes out as woefully inefficient, taking too much of the consumer’s time to manually plug reams of information into multiple back-office systems to generate a quote. See also: What’s Your Game Plan for Insurtech?   Agents are still a powerful force in the industry, but to keep their competitive edge they need the ability to speed the quote-to-issue lifecycle. One leading insurer stands to improve premiums by $100 million to $150 million by the end of this year because it streamlined the agent’s tasks to offer seamless product bundling in a single transaction. Overhauling legacy systems won’t get other insurers there fast enough, but partnering with the right insurtech will.

• Add product and channel choice: I mentioned the Amazon experience above, because it has shaped so much of consumers’ shopping preferences and expectations. As we see by following insurtech funding and partnerships, traditional insurers are realizing the direction that consumers are pushing the industry and, in an attempt to get ahead of the game, are differentiating themselves and the service they provide by partnering with insurtechs to add channel and product choice.

We see tremendous benefits for insurers that focus on meeting more of the customer’s needs. Consider a leading insurer that introduced coverage options by selling other carriers’ products to augment the insurer's auto lineup and added 72,000 policies in less than 10 months. Another gave agents access to additional home products and grew policies sold from less than 8,000 a month to 57,000 a month. Of course, product choice isn’t complete without giving consumers the ability to engage with insurers through their channel of choice. One top-five insurer, well known for digital prowess, has been reported to own quote conversion rates of 35% through agent channels and as much as 53% through direct purchasing. The problem for most insurers comes in attaining digital capabilities and the extensive range of products they need to acquire and retain customers. Developing products can take a year or more, and overhauling legacy technology to add digital channels of engagement and efficiently distribute new offerings is an arduous task. Neither course of action will make traditional insurers competitive before leading digital rivals pass them by. Partnering with insurtech innovators to bundle products from other carriers with their own and distribute them with top-tier digital capabilities, can.

• Streamline the quote-to-issue lifecycle: During a recent advertising campaign, one client generated 3,000-4,000 quotes a day, but not by simply cranking up advertising power or frequency. Instead, the client supported the extended marketing campaign by digitizing the quote-to-issue lifecycle for 80% of desktop traffic and 100% of mobile users. Smart app capabilities and automation allowed consumers to enter minimal information and automatically generate rapid quotes. The experience is similar to Amazon’s product purchasing environment, where customers search for a product, are immediately presented with options and click to buy the items they want. This is the future of insurance, and, by partnering with a leading insurtech provider offering a SaaS-based digital distribution platform, this insurer is providing the future today.

Coming Back for More Insurers that focused on a simple goal, say of improving product selection or extending delivery channels, often expand the relationship to include more offerings and new distribution capabilities. One top-five insurer partnered with a leading innovator to enhance product selection for in-house agents by bundling products with those from other carriers through a digital distribution platform, and three years into a five-year contract signed up to offer additional product options, added 367 agents and extended the relationship to also offer the insurer's products and carrier appointments direct-to-consumer via digital channels. See also: 3 Misconceptions on Insurtech   Why? Because within the first two years, the company found itself presenting 70% of customers with an offer, converting 35% of those quotes and doubling sales year-over-year. With outcomes like these, who wouldn’t expand the relationship? To learn more about selecting the right insurtech innovator to power your growth, download our infographic: InsurTech Innovators Arm Incumbents to Meet the Customer-centric Imperative.

It seems as if everything in the world is becoming “smart” – with intelligent devices and artificial intelligence automating activities and providing new capabilities. There are thousands of examples of “things” that contain embedded sensors or chips that generate information and enable control through apps or automated actions. These come together as part of the Internet of Things (IoT) in various ecosystems – such as smart homes, connected cars, smart farms, and many others. One of the most significant new ecosystems developing has to do with smart cities. The concept of smart cities is gaining momentum, and many cities around the world are developing smart city strategies and implementing specific projects. In fact, it is becoming evident that smart cities are catalysts for the movement to a connected world.

See also: Smart Things and the Customer Experience  

SMA’s recent research report, Smart Cities and Insurance: Exploring the Implications, provides a definition for a smart city. It also profiles leading smart cities around the world, identifies specific benefits and projects underway, discusses how each insurance line of business will be affected, and identifies insurers that are already involved in smart city initiatives. Since the concept means different things to different people, SMA has developed a broad definition:

“A smart city is one that is leveraging connected world technologies to gather, analyze, and act upon real-time data to improve the lives of citizens; enhance mobility; create safer environments; optimize energy consumption and waste management; and contribute to the urban center of the future.” Strategy Meets Action 2017

The findings of the SMA research reinforce the potential for smart city solutions:

• As the global population continues to migrate to cities, smart city solutions will become more and more essential.
• The smart city movement is in full swing in many cities around the world, with hundreds of use cases that have important implications for insurers.
• Mobility, sustainability, and public safety are today’s top areas of focus for the smart city movement.
• Global insurers such as AXA, Allianz, Zurich, and Swiss Re are already engaged in smart city initiatives.
• Every line of business in insurance will be affected as new risks emerge, existing risks are amplified, and opportunities for new insurance products increase.

See also: How Smart Is a ‘Smart’ Home, Really?  

Smart cities may seem like a far-off dream with limited implications for insurance in the next few years. It would be a mistake to take this view. Over half of the world’s population already live in cities, and that percentage will inevitably increase. Some cities already have dozens or scores of smart projects underway, many of which are aimed at reducing vehicle accidents, thwarting crime, improving health, avoiding or mitigating losses to property due to a variety of perils, and many other areas that will result in reduced risks. At the same time, the introduction of new technologies may introduce new risks or increase certain existing risks (like cyber-risk). All in all, it is imperative that insurers take active roles in collaborating with cities and smart city organizations in the reshaping of the modern city.

A major part of Healthcare Consumerism (HC) is related to stress and depression in the workplace. Stress and depression costs (including co-morbid costs) for U.S. businesses are over $200 billion per year according to a 2015 study by the Journal of Clinical Psychiatry. Recognition of the need for stress management can link healthcare, consumerism, and organizational quality, safety, and error reduction programs. In addition, improved product quality and productivity can result with focused efforts to address areas such as stress and depression in the workplace. One thing is certain – if an organization does not have a structured stress management program for employees, it is 100% certain that employees will deal with their stress in other ways (e.g. comfort food, alcohol, drugs, smoking, etc.) U. S. Surgeon General David Satcher once said, “There is no health without mental health.” Similarly, there is no effective program of HC without mental healthcare consumerism. It is a basic requirement for any employer implementing HC plans to deal with stress, depression, and more serious mental illnesses. It is important for employers to understand the clinical and cost inter-relationships between “mind care” and “body care.” Studies show that stress affects an organization in many ways: 1. Healthcare - 21.5% of total health care costs 2. Turnover - 40% of the primary reasons that employees leave a company 3. Impaired Presenteeism - 50% of impaired presenteeism is a function of stress 4. Disability - 33% of all disability and workers’ compensation costs 5. Unscheduled Sickness - 50% of the primary reasons that employees take unscheduled absence days To work for everyone, HC must help the sickest and most vulnerable. Mental illnesses present a unique challenge. Depression is a sickness where patients tend to push away care givers. Many with depression and co-existing physical illnesses will deny their need for care, ignore treatment advice, skip appointments, and are highly non-compliant with medications. A 2014 Kaiser poll showed 48% of employers offer wellness in the workplace. But, a 2013 survey by the American Psychological Association's Center for Organizational Excellence found that despite growing awareness of the importance of a healthy workplace, fewer than half of employees said their organizations provide sufficient resources to help them manage stress (36 percent) and meet their mental health needs (44 percent). See also: How to Improve Stress Testing   Stress has a distinct correlation with medical issues in other body systems. Stress Directions, a leading consultancy on stress, found: “44% of all adults suffer adverse health effects from stress; 75 to 90% of all physician office visits are for stress-related ailments and complaints; stress is linked to the 6 leading causes of death - heart disease, cancer, lung ailments, accidents, cirrhosis of the liver, and suicide.” Stress Directions, Inc. outlines the following relationships: If your plan is not properly dealing with member stress, you will increase the cost of treating the manifestations of stress in those body systems where health costs are covered. These correlations are why well-being is a growing area of interest. Providing support programs for the whole person whether at work or at home will lower health costs and improve productivity. The Occupational Safety and Health Administration (OSHA) has declared stress a "hazard of the workplace.” There are at least three separate, but related costs of stress in the workplace: 1. Direct Mental Health Costs – as separate diagnoses these costs can range from low to high costs. 2. Co-Morbid Condition Costs – many times the more obvious physical health symptoms are treated, but the underlying mental health issue is ignored. 3. Indirect Corporate Costs – these are costs from absenteeism, disability, unscheduled sick days, loss of teaming, relationship conflicts, etc. With the assistance of many national mental health experts and organizations, Healthcare Visions, Inc. has organized a chart showing the relationships among the three types of corporate costs. Companies can no longer treat stress, depression, or any mental illness as a single diagnosis. Because of coexisting mental illnesses, many employees will not effectively recover from or stabilize chronic and persistent conditions such as diabetes, asthma, heart conditions, hypertension, or cancer unless an effective stress management program is implemented. A 2005 study for Dupont Company by the University of Pennsylvania showed that depression, when measured by its impact on total costs (direct and indirect costs), was the highest corporate cost medical condition. The second highest total cost was from musculoskeletal issues that likely also involved stress related costs. See also: Consumerism: Good, Bad, Future   Medical, clinical, and medication therapies have advanced such that clinical depression and other mental health conditions have cure rates equal to and greater than many medical conditions. Clinical depression can be cured. Treatments work. Medications are effective. No company, large or small, can avoid the costs of depression. Divorce, disability, and violence in the workplace can hit anyone at anytime. According to the Institute of Medicine 30,000 people die each year from suicide, and 90% had diagnosable and treatable depression. For a small employer the results can be devastating if a key employee or executive suffers from clinical depression. Tom Johnson, former CEO of CNN News, likes to say, “If a company’s computers crashed and corporate production ground to a halt, the CEO would demand immediate action to re-establish the “corporate brains.” In developing a “knowledge-based” workforce, it is just as important for CEOs to take care of mental health and the “central computer” – the brain - within each employee.” Most employers do not understand the complexities of clinical mental health diagnoses. They do not know what it means to have schizophrenia, a somatoform disorder, a factitious disorder, or get a multi-axial assessment. Tom Johnson understood as he often suffered from serious bouts of clinical depression. Tom has dedicated his life to helping others deal with the debilitating effects of depression. Case Study As an actuary and mathematician, I was trained in numbers and actuarial science. Many of you may also be analysts, doctors, lawyers, CEOs, economists, or researchers. Let’s throw away the numbers for a moment and look at the lives of real people. Let me tell you about a young man, age 30, who suffered multiple inherited physical problems: a blood disorder, clotting concerns, pulmonary hypertension, and other unfathomable sources of pain and suffering. Combined with depression and the stigma of an emotional disorder, this young man was frequently non-compliant with care and treatment. Unlike other physical illnesses, depression typically causes the patient to avoid care. He pushed away the very help that was needed. He pushed away family support and friends that cared. No young strapping 6’5” 260 pound young man wants his forehead stamped with the stigma of mental illness. He was not going to be classified as “crazy”, see a “shrink”, or go to a “nut house” for care. No, he was a high school basketball star with the athletic promise most boys just dream about. In his mind, he didn’t need care, he was who he was. He didn’t accept or understand chemical imbalances. In his mind, "Real men are strong enough." In 2005 the years of depression and physical decline took its toll. The death certificate read pulmonary hypertension. But, I can tell you the real cause was stigma and major depression that prevented this young adult from seeking or accepting the medical and life saving care that he needed. Chris Golden was my step-son. His mother and I buried Chris on May 5, 2005. Look at all the ROI numbers, but never forget. This is not about numbers. It’s about people and saving lives. It’s about the Chris Goldens of the world.

As companies become more data-driven, so have their employee performance metrics. Yet the very metrics that are often used to gauge employee performance might actually discourage the behavior those companies want to promote. This common workplace pitfall is grounded in two basic realities. What gets measured gets managed. Employees tend to behave in a manner that is aligned with how they are evaluated and rewarded. What’s easy to measure isn’t necessarily what’s right to measure. Organizations often gravitate toward easy-to-measure performance metrics, even though the behaviors they wish to cultivate are relatively complex. Examples abound of how organizations fall victim to the “folly” of employee performance metric design:

• Service centers that measure how quickly staff handles calls then wonder why employees don’t spend ample time to completely resolve a customer’s issue.
• Companies that obsess over quarterly sales targets then are surprised when executives make short-sighted decisions which compromise the business’ long-term health.
• Organizations that focus on individual performance to assess employee success are then dismayed when they observe a lack of team work and collaboration.
• Manufacturing firms that measure workers on the volume of product they deliver then struggle with widespread quality issues on the finished goods.
• Sales divisions that measure employees purely on top-line growth are then surprised to see how unprofitable newly -acquired accounts are.
• Human resources departments that measure recruiters on candidate “yields” from job fairs then find many unqualified applicants in their interview pipeline.

See also: Risk Performance Metrics   Without careful and thoughtful design, metrics that are meant to manage employee performance can actually sabotage business success. To avoid that outcome, keep these three points in mind: 1.  Think about what employee behaviors are most valuable to your customers. What do your customers care about most? Perhaps it’s how long they have to wait in line, or be on the phone with your staff. Even more likely, it’s getting their issue resolved on the first try. Make sure your employee performance metrics are aligned with your customers’ interests. If customers value speed of service above all else, then put that at the center of your measurement methodology. If other considerations are just as critical to them (such as the quality of the product, or the efficacy of the staff), then gauge performance on those dimensions as well. For example:

• Conduct post-purchase customer surveys to assess overall satisfaction with product quality (and, indirectly, the performance of those making the product).
• Track the number of employee-submitted product enhancement suggestions, thereby encouraging staff to translate customer feedback into constructive improvement ideas.
• Or measure how frequently customer inquiries are resolved on the first contact, indicating the staff’s effectiveness at understanding and addressing customer needs.

2.  Use metric “checks and balances” to avoid over-rotating on any one measure. A singular focus on a particular performance metric can be counterproductive. The behaviors that businesses try to encourage among staff can rarely be tied to just one metric. Doing so usually ends badly. Employees become obsessed with outperforming on that single metric, regardless of the consequences. Guard against over-rotation on any single metric by creating a balanced system of measures. For example, let’s say you want to encourage a sales-oriented culture, but want to avoid misconduct. Rather than measuring staff only on sales generated, complement that metric with ones that gauges account profitability and customer satisfaction. Then, only reward salespeople for achieving revenue targets while also meeting those other performance thresholds. See also: New Way to Evaluate Captive Performance   3.  Consider unintended consequences and perverse metric-driven behavior. This is perhaps the most important element of good employee performance metric design. Look at your employee performance metrics through a critical lens. Carefully consider all of the ways by which a metric, engineered with the best intentions, might nonetheless promote undesirable (or at least customer-unfriendly) behavior. Based on how detrimental and probable those unintended consequences are, tweak your approach accordingly. That might mean abandoning some metrics in favor of new ones. For example, consider a call center that chooses to measure customer satisfaction instead of call handle time. (The latter metric often leads service representatives to rush callers off the phone.) It may also mean adding “check and balance” complements to existing metrics. For example, an organization that uses 360-degree evaluations to ensure that individual achievement does not come at the expense of collaboration and collegiality. The development of effective employee performance metrics requires a delicate touch. Success measures, and the reward systems they support, shape employee behaviors in meaningful and sometimes subtle ways. A thoughtful approach to performance metric design can help companies use metrics to their advantage. The result is a powerful “behavioral current” that steers employees in the right direction. And the value of that is…  immeasurable. This article was originally published on Monster.com.

In the wake of Hurricane Harvey and now Hurricane Irma—and with Hurricane Maria now pummeling the poor Caribbean again while Hurricane Jose looks likely to lash Long Island—it's becoming clear how much people have avoided buying flood insurance and how expensive their decision may be. The question is: Why don't people buy insurance?

The answer seems to be that people often don't think they need insurance and find it expensive. For good measure, people complain about the complexity of insurance and how unpleasant it can be to deal with insurers.  

The problem isn't just with flood insurance, either. Far from it. Life insurers, in particular, face dwindling interest, but the lack of demand for insurance is widespread. Some are now saying that flood insurance should be required, and I've heard others suggest that life insurance should be mandatory. Those ideas may or may not make sense—but shouldn't the insurance industry aspire to producing products that people want to buy, not ones that, like auto and home insurance, they only buy when forced to do so?

That's a bit of a roundabout way of saying I think insurtech can solve many of the broad problems facing insurance, slashing costs while reducing complexity and smoothing interactions with insurers. Exhibit A is chatbots.

The bots use artificial intelligence to answer routine questions, generally through some form of texting. Customers don't need to sit on hold for minutes listening to sales pitches, be chastised because they don't have all their documents in front of them, then get transferred twice because it's not clear which department they should be calling. So, customers are happier. Insurers get to save gobs of money because a call center rep can handle five to 10 times as many customers as a rep can now. Insurers are increasingly using chatbots to simplify purchasing, not just service or claims processing—attacking what Brian Duperreault, now CEO of AIG, identified in an ITL article a year and a half ago as the "massive cost of doing business...[that] puts our industry at risk."  

An article in the past week by three senior partners at McKinsey identifies the sorts of efficiencies that are possible—a British broker that automatically processes 3,000 claims a day, managed by four employees; a department of 250 employees turned into 110 bots and 11 human supervisors; 160 bots that process 500,000 transactions a month. Remember, the changes make life simpler for customers and come at a time when the insurance industry faces a talent shortage. 

At the risk of being repetitive: An article I highlighted last week provides a host of additional examples of how chatbots are ready to take on a huge role. 

In addition, Pypestream, the company that we believe is the leader in chatbots in insurance, is announcing that it has received a round of financing from W.R. Berkley and will have a Berkley executive join the board. Pypestream, which raised $15 million in Series A funding in February, isn't disclosing the amount that Berkley is investing. "We will use this additional investment to fuel growth across more industries and use cases, and to help more businesses provide 24/7/365 experiences that their customers not only love but expect," said Richard Smullen, CEO of Pypestream. 

Chatbots, alone, likely won't be enough to get people to buy flood insurance, I'm sorry to report. But they can get us started on the sort of radical reduction in expense and improvement in simplicity that will lead the charge for insurtech. Perhaps the industry can even get to the point where people look to buy insurance, rather than only doing so when a regulator or mortgage bank forces them to do so.  

Cheers,

Paul Carroll,
Editor-in-Chief