There is a culture clash in the construction industry. Employers and lenders want their contractors on the hook for any insurable losses as long as possible, whereas insurers want to switch from the construction phase to operations, where they usually have rights of subrogation against the contractor as soon as the facility has achieved commercial operations date (COD). This can cause a mismatch where either a project may be uninsured but does not realize that is the case, or the employer is in breach of its contract with the contractor. Both these potential situations can produce an excellent payday for lawyers, with a cost to the litigating parties far higher than the premium and advisory expenses to ensure it didn’t arise in the first place. See also: Strategies to Master Massively Big Data   Most construction underwriters aim to have their policies cease once the project insured is able to operate and thereby achieve its (COD). Part of their desire for this is that they can then issue operational policies, which exclude some parties previously insured during the construction phase and thus ensure that insurers have rights of subrogation against those parties, primarily the engineering, procurement and construction (EPC) or turnkey contractor and major original equipment manufacturers (OEMs). This approach may resonate and align with a concession agreement or power purchase agreement (PPA)-type contractual structure because these agreements often allow commercial revenue generation at the earliest possible time to facilitate usage of the project by the public, whether it be a hospital, power station or road, etc. But the employer, which has the exposure to the availability and efficiency risks, wishes to receive a project of unquestioned quality, so many modern construction contracts demand a more stringent process for reaching a point where the employer will accept risk of loss back from the EPC contractor. These policies require the contractor to perform numerous tasks beyond simply helping achieve commercial revenue generation before a form of "completion" is awarded to the contractor and risk of loss reverts back to the employer. Indeed, terms such as COD are rarely found in construction contracts. A recent example from a project where Aon is the broker involves a contract where the contractor is required to provide confirmation of the successful finalization of more than 20 items in addition to completing a testing regime to allow for the COD to be issued. Therefore, the issue is essentially about a disparity between insurance industry practice and the risk allocation in the main contracts that create and drive projects and especially in public-private partnership (PPP, or P3), build-operate-transfer (BOT), build-own-operate-transfer (BOOT), build-own-operate (BOO)-type deals where greater lifecycle risk remains with the private sector stakeholders even during operation. The disparity can lead to a situation in which:

• COD has been awarded under a concession-type agreement, and therefore commercial revenue is being generated,
• So the construction-period insurers are looking to come off risk,
• But the EPC contractor still has risk of loss (for at least a part of the project), which, contractually, is still considered as being under construction,
• And the owner has agreed within the construction contract to maintain insurance on behalf of the contractor until completion, however defined, in the construction contract
• Which can create confusion as to the date of commencement of any defects liability or maintenance or warranty period insurance cover.
• Plus, there are situations in which through this initial period (i.e. until the contractor has demonstrated that the project can meet the performance criteria required by the EPC contract, which may have some differences to the owner’s agreement with their client), it is the EPC contractor that operates the plant, thus ensuring the need for that entity to remain an insured.

See also: Why to Refocus on Data and Analytics   Therefore, it is essential that your construction risk and insurance adviser is:

• Involved early enough in the procurement process to become fully versed in the contractual terms, clauses and nuances of all the project agreements (i.e. not just the construction contract),
• Able to engineer an insurance solution that both meets the contractual requirements that the employer desires (or has agreed to) and leaves no stakeholder exposed to an uninsured loss that could result in legal action against the employer and even become an event of default under the loan agreement, and
• Able to explain the contracts and their ramifications to the insurance market to ensure that no gaps in coverage are created and that no insurer can subsequently say: “we weren’t told about that.”

Policy administration systems (PAS) replacements and expansions remain top of mind for property/casualty insurers. Carrier goals include: improving time to market, advancing business intelligence and analytics capabilities, improving customer and distributor service, increasing operational efficiencies and eliminating technical risk and debt. To reach these goals, insurers are investigating and considering the impact of several trends on core systems: the increase of SaaS/cloud, advances in microservices, the rise of insurtech and shifts in implementation strategy. Software as a Service Increasingly, insurers are willing to consider or implement core PAS in the cloud through a software-as-a-service (SaaS), or cloud, model. The adoption of cloud for ancillary services is commonplace in the insurance industry, and within the past few years the trend has expanded to include core systems, as well. These numbers are expected to rise even more now that some high-profile Tier 1 insurers are migrating to a cloud model. Novarica expects that 50% of insurers will license a PAS for new books of business though a cloud-based or partially cloud-based approach within five years; many are considering cloud for their existing books, and we expect to see more migration to the cloud over the next few years. Numerous vendors and insurers are using different but overlapping definitions for hosting and SaaS. As the line between the two grows increasingly blurry, vendors are trending toward offering more robust options with some level of enhancements and upgrades included, in addition to operations and basic maintenance services that are expected with every cloud offering. Microservices and Headless Core Systems “Headless” implementations entail implementing core systems capabilities by leveraging an underlying, commercially available core system with a carrier’s own user interface built on top of it. Therefore, instead of relying on the core system for the end-user experience, it is reduced to a set of services, transactions and business logic. Headless implementations offer carriers the flexibility to develop a differentiated user experience for internal and external users while leveraging core transactions that are configured and maintained in a single core transaction engine. Some solution providers are building out microservices to enable this flexibility, improve reuse within their own solution set and address concerns voiced by carriers over the difficulty of accessing functions with more limited Web services. There are few offerings with a full set of proven microservices, but the availability and granularity of the services is rapidly increasing. This modern architecture approach will bring future core system implementations flexibility and longevity as back-end transaction platforms. See also: Policy Administration: Ripe for Modernizing   Insurtech Silicon Valley’s insurtech investment boom (with outposts in insurance hubs like Des Moines and New York) is inspiring both excitement and fear in insurers across the country. Insurtech startups include software, data and service providers that could be invaluable partners to carriers, as well as new industry entrants that may become competitors. Whether viewed as a threat or an opportunity, insurtech is teaching the industry important lessons on how to optimize and prioritize the customer experience and how to make the most of underserved markets. Despite insurtech developments, insurer IT budgets are still mostly dedicated to the maintenance, modernization and replacement of core systems. Many insurers are still busy laying the modern, flexible core system foundation necessary to take advantage of many emerging technologies. There is little movement in the vended core systems market to incorporate insurtech capabilities within core. Instead, vendors and insurers should consider how the architecture of a new core system can provide the flexibility needed to take advantage of future technology and allow integration with future partners. Implementation Strategies Until recently, a typical PAS implementation involved an initial release that addressed two to three lines of business, a handful of states and renewal on conversion. Subsequent releases would deliver the remaining lines of business and states in a multi-year program. Today, insurers are reacting to the perceived extended time frames, large scope and significant investment by taking an approach to accelerate delivery of the first release. It is becoming more common for insurers to implement PAS with a greenfield line of business in the first release, adding in legacy lines and data conversion in later releases. It is also becoming more common for insurers that implement legacy products to go live with new business only for a significant pilot period before introducing conversion on renewal. Finally, extended full-suite implementations (PAS, billing, claims, reporting and portals) are becoming a more standard approach for smaller insurers, where they deliver more within the traditional implementation timelines. See also: Microinsurance: A Huge Opportunity   As major portions of IT budgets are dedicated to PAS and the surrounding core components, insurers need to keep these trends in mind when considering PAS providers from the increasingly rich vendor market. While challenges still exist with conversion and with managing overall project risks, insurance carriers are realizing benefits in time to market, efficiency of operations, improved functional capabilities and better data management. PAS replacement projects are extremely complex, risky and all-consuming, but they are also extremely necessary.

An agent received the following email from a customer: “A few people are telling me to save money on car insurance by NOT telling the insurance company who is driving my cars. I have a 23- and 16-year-old – the older one had two accidents, but her premium is reasonable at $2,300 per year for good coverage. These people are telling me that the cars are covered no matter who is driving so don’t tell them about your kids.” These “people” are allegedly other agents bidding on her personal lines account. I don’t know about you, but I call this email insurance fraud. I suspect most regulators and state attorney generals would concur. For example, here is just one of many fraud statutes from Florida: 817.236 False and fraudulent motor vehicle insurance application:  Any person who, with intent to injure, defraud, or deceive any motor vehicle insurer, including any statutorily created underwriting association or pool of motor vehicle insurers, presents or causes to be presented any written application, or written statement in support thereof, for motor vehicle insurance knowing that the application or statement contains any false, incomplete, or misleading information concerning any fact or matter material to the application commits a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084. See also: How Bad Is Insurance Fraud Really?   A felony conviction is not an inconsequential thing, nor are the civil penalties and possible incarceration associated with insurance fraud laws. In addition to the fact that insurance fraud is illegal in every state, those that have adopted the NAIC’s Insurance Fraud Prevention Model Act or their own version of that law make reporting of such fraud mandatory. For example, the model act says: "A person engaged in the business of insurance having knowledge or a reasonable belief that a fraudulent insurance act is being, will be or has been committed shall provide to the commissioner the information required by, and in a manner prescribed by, the commissioner." The industry and state regulators encourage the reporting of insurance fraud. States with mandatory reporting requirements usually have mechanisms for confidentiality and immunity. If you’re an agent who is aware of this market conduct, have you reported it? If you’re an underwriter or adjuster who is aware of an agent who has engaged in this practice, have you reported it in addition to terminating the agent? In my blog, I often give “big data” a hard time, but this is an example of how it can supplement underwriting and claims. In a recent blog post, I expressed my distaste when my personal lines carrier sent me an additional auto insurance bill for almost $600 because it apparently learned that my son, who moved out three years ago, still gets his vehicle registration renewal mailed to our house. The presumption, without verification from us, was that he still lives here. I don’t have a problem with this practice, just with the execution and presumption (from my viewpoint) that I’m dishonest. There is nothing wrong with verifying information provided by an insured or agent, and ‘big data,” without misplaced overreliance, can be a viable tool for that purpose. This is one reason why an agent who engages in the fraudulent behavior described above is being foolhardy. With the growth of data analytics, more and more agents are going to get caught engaging in this type of fraud. And I hope that carriers will have the backbone to report them and get them out of the business. See also: 3 Major Areas of Opportunity   This is not a singular or unique tale. I’ve heard it from agents before. Too many agents compete unethically, and some do it illegally. Whether it’s the personal lines agent deliberately underinsuring a home with a “guaranteed replacement cost” provision or the commercial lines agent undervaluing property insured on a blanket basis without a margin clause, the offender needs to be reported and driven out of the insurance industry. Are you willing to do your part in cleaning up the insurance fraud swamp?

It is not unusual to hear someone use Google as a verb in ordinary conversation: "I googled….” Being part of building a company that becomes so prevalent that your name is used as a verb is no small accomplishment. A company I'm working with, Groundspeed, may be on its way to achieving verb status. In October 2016, I reconnected with Jeff Mason, the CEO of Groundspeed (he was part of a management team at a company I had endeavored to acquire earlier in my career). In all my dealings as a strategy consultant, a P&C executive and now in an investment capacity, I have maintained that for any new tech businesses to get real traction in the insurance sector, particularly in serving the incumbents, you had better be laser-focused on solving important industry (economic) issues, and Jeff had a vision to solve a very important industry problem. In the ordinary service of clients, brokers receive multi-page client loss (runs) information from their carrier partners in the form of PDFs and other not particularly consumable forms. On the flip side, when larger (loss-rated) business is submitted to carriers for quoting, the claims, exposure basis and other relevant information used for rating is provided in unstructured (frequently PDF) forms that are costly to interpret and input into systems. In both cases, the current process to prepare this information is completely manual, involving days of work, sifting through hundreds of data sources and thousands of document formats. In the end, 90% of the data is lost. Although this problem is less visible than some, the financial cost is substantial — Groundspeed estimates that agents and brokers spend 3% of revenue, or $4.2 billion a year, on manual processes to ingest and analyze unstructured client data and that carriers spend approximately $2.7 billion a year manually processing and analyzing unstructured files attached to inbound application “submissions.” Groundspeed is singularly focused on solving this problem – bringing down costs, improving accuracy and, most importantly, providing dramatic strategic benefit by unlocking information that goes to the core of underwriting performance. Groundspeed has built a one-of-kind solution that transforms the unstructured information to the exact specifications of its clients through machine learning, natural language processing and data pipeline as a service. Brokers and carriers submit unstructured loss run, policy and exposure documents and receive structured information back — effectively getting any view of underwriting performance they require (client loss performance over time, portfolio profitability, performance by loss attachment point, etc.). For brokers, the benefits are obvious; they have far better information to serve their clients without the quality issues and costs of endeavoring to do the most basic analysis manually. They also get the strategic benefit of better understanding their portfolio in terms of the underwriting profits they are creating for their carrier partners. For carriers, the benefits, too, are obvious. Tactically, the Groundspeed approach is simply a better, faster, less expensive process to get loss experience data into their rating systems, converting statement of values to forms ingestible by cat modelers, etc. Strategically, carriers get the benefit of building a “data lake of structured information” of all submissions they receive, from which discrete analysis and insight on growth opportunities and market underwriting performance can be gleaned. (Most carriers don’t retain the information on accounts they choose not to quote, or quote and lose.) See also: How to Embrace Insurtech Culture   Fast forward to 18 months after I reconnected with Jeff: February was a milestone month. Now working with eight of the top 15 brokers (all C-suite relationships), Groundspeed was given the ultimate compliment when a partner at a major strategy consulting firm shared with us that a client stated that “all we would need to do is Groundspeed our data.” Groundspeed may have a ways to go before it joins Google as an official verb in the Oxford English Dictionary, but even to be used as a verb by one prospect is an important success.

Risk management competencies can significantly improve decision making in any profession. The bad news is that these competencies do not come to us naturally. They have to be developed. Even if you do not operate in a high-risk, uncertain environment, you should consider the extensive research into what is referred to by scientists as heuristics and biases, cognitive psychology and psychometric paradigm, collectively called risk perception. The History of Risk Perception The study of risk perception originated from the fact that experts and lay people often disagreed about the riskiness of various technologies and natural hazards. The mid-1960s experienced the rapid rise of nuclear technologies and the promise for clean and safe energy. However, public perception shifted against this new technology. Fears of both longitudinal dangers to the environment and immediate disasters creating radioactive wastelands turned the public against this new technology. The scientific and governmental communities asked why public perception was against the use of nuclear energy in spite of the fact that all the scientific experts were declaring how safe it really was. The problem, as perceived by the experts, was a difference between scientific facts and an exaggerated public perception of the dangers (Douglas, 1985). Researchers tried to understand how people process information and make decisions under uncertainty. Early findings indicated that people use cognitive heuristics in sorting and simplifying information which leads to biases in comprehension. Later findings identified numerous factors responsible for influencing individual perceptions of risk, which included dread, newness, stigma and other factors (Tversky & Karneman, 1974). See also: The Current State of Risk Management   Research also detected that risk perceptions are influenced by the emotional state of the perceiver (Bodenhausen, 1993). According to valence theory, positive emotions lead to optimistic risk perceptions whereas negative emotions incite a more pessimistic view of risk (Lerner, 2000). The earliest psychometric research was performed by psychologists Daniel Kahneman (who later won a Nobel Prize in economics with Vernon Smith “for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”) (Kahneman, 2003) and Amos Tversky. They performed a series of gambling experiments to understand how people evaluated probabilities. Their major finding was that people use a number of heuristics to evaluate information. These heuristics are usually useful shortcuts for thinking but may lead to inaccurate judgments in complex business situations of high uncertainty – in which case they become cognitive biases. Cognitive biases are just the beginning Besides the cognitive biases inherent in how people think and behave under uncertainty, there are more pragmatic factors that influence the way we make decisions, including poor motivation and remuneration structures, conflict of interest, ethics, corruption, poor compliance regimes, lack of internal controls and so on. All of this makes any type of significant decision-making based on purely expert opinions and perceptions highly subjective and unreliable. Risk management can provide clarity and assurance to decision makers anywhere within the organization, not just the risk management team. Risk management provides a set of tools to help management see risks, understand their significance to each decision and determine the best course of action with these risks in mind. Risk management may seem simple enough in theory, yet many employees not part of the risk team still do not have the necessary skills and competencies to apply it successfully in practice. The following are some practical ideas to bring risk management competencies to life, regardless of where you are in the organization (based on the free risk management book “Guide to effective risk management”):

• Risk management competencies should become an important attribute when hiring personnel – HR teams should include risk management requirements in all relevant position descriptions when hiring new personnel for the organization. The level of detail will of course depend on the risks associated with each role. Any finance, accounting or investment individual should possess a basic understanding of risk.

• Risk-based decision-making in induction training for new employees – New hires come from a variety of educational and experience backgrounds, and, most importantly, each new employee has her own perception of what is an acceptable risk. It is important for risk managers to cooperate with the HR team or any other business unit responsible for training, to jointly carry out training on the basics of risk-based decision-making for all new employees.

• Risk awareness sessions for senior management and the board – Executives and board members play a vital role in driving the risk management agenda. Nowadays, many executives and board members have a basic understanding of risk management. Auditors, risk management professional associations and regulators have been quite influential in shaping the board’s perception of risk management. It is important that risk management training focuses less about risk assessments and more about risk-based decision-making, planning, budgeting and investment management. The paradox is that risk management training should not teach management how to manage risks; instead, it should show them how to carry out their responsibilities with risks in mind. Click here to order training for your company.

• Advanced training for “risk-champions” – Additional risk management training may be needed for the risk management team and business units responsible for internal control, audit, finance, strategy and others. In-depth risk management training should include: risk psychology and risk perception basics, integrating risk management into culture, basic knowledge of ISO 31000, risk management and decision-making foundations, integration of risk management into core business processes and decisions. Click here to order risk management training for your risk/audit team.

• Passive learning techniques – Make risk management information available to employees, contractors and visitors. Place the risk management policy on the intranet and the corporate website. Record and publish risk management training or awareness sessions videos on the dedicated risk management intranet page. Invite guest speakers (risk managers from other companies) to speak to the audit committee or risk management committee and give all employees the opportunity to participate. I have used this in the past, and it worked very well.

• Risk management as part of everyone’s responsibilities – It helps to include risk management roles and responsibilities into existing job descriptions, policies, procedures and committee charters. The common approach of capturing risk management information in a single risk-management framework document does not work well.

• Risk management integrated into day-to-day work – My experience shows that updating existing policies and procedures to include aspects of risk management works much better than creating separate risk procedures or methodology documents.

See also: 4 Steps to Integrate Risk Management   Risk management is a valuable tool to help employees make business decisions under uncertainty. It works equally well with strategic, investment, financial, project or operational decisions. However, consistent application of risk management requires good knowledge of risk-management standards, risk psychology and quantitative analysis.

Brian Solis, a digital analyst and anthropologist, studies the effects of disruptive technology on business and society, calling it “digital Darwinism." Solis borrowed Darwinism to describe how organizations adapt to changing customer behavior (anthropological view) and rapidly changing technology through digital transformation. As Solis says in various articles, the effect of digital Darwinism on business is real, and it’s enlivened through evolutionary changes in people in their views, expectations and decision-making. And we are seeing it rapidly unfold in the insurance industry. The pace of disruption and dramatic changes are truly evident when we look at Majesco’s first Future Trends report from February 2016 to the second one in March 2017…and now in 2018. This year’s Future Trends report takes a deeper look at the current state of insurance disruptors across people, technology and market boundaries, and how they are pressuring insurers to adapt, pushing them out of their traditional orbits and toward new models and opportunities — “digital Darwinism” — to Digital Insurance 2.0. The Insurance Darwinian Shift Majesco’s consumer and SMB surveys show that customers seek “ease in doing business” across the research, purchase and service aspects of insurance. In addition, they are rapidly adapting to the digital age, and they have a rising interest in innovative products and business models emerging in the market, posing a threat to existing insurers. See also: Digital Playbooks for Insurers (Part 1)   Startups like Lemonade, Slice, Zhong An, Haven Life, Bought by Many and Neos are embarking on Digital Insurance 2.0 business models using digital platform capabilities and ecosystems that exploit untapped markets and address under- or unmet needs that strengthen customer relationships. New business models are serving different markets, have different products and services and use different strategies. While customer demographics and expectations, emerging technologies and data, and insurtech have had a majority of the focus, one area that has been a catalyst for these companies to shift to Digital Insurance 2.0 is platform solutions. Platform solutions provide these innovative companies speed to value, unique customer engagement, a test-and-learn platform for minimal viable products and value-aligned optimized costs. Their platform solutions also catalyze digital technologies and processes, AI/cognitive, cloud computing and an ecosystem, into a powerful new force to expand capabilities and reach well beyond those of the traditional Insurance 1.0 model. They are creating new paths, energizing the market and lowering operational costs. Digital Adaptation is Just Beginning As a result, incumbent insurers must aggressively begin to define their vision and path to Digital Insurance 2.0, leveraging today’s catalytic lever, platform solutions. And Digital Insurance 2.0 is just the beginning. The catalytic effect of platform solutions in the shift to Digital Insurance 2.0 is rapidly evolving, gaining momentum and laying the groundwork for future reactions. Will the next catalyst be blockchain or some other trend that will propel us toward Insurance 3.0? See also: Digital Insurance 2.0: Benefits   Insurers’ abilities to adapt and rapidly move to Digital Insurance 2.0 will likely define their future. As such, insurance executives and leaders should ask themselves the following:

• Are we appealing to customers’ motivations, making our processes simple and creating compelling triggers to act?
• What is our business strategy, and how are we incorporating a platform and ecosystem approach?
• In which markets and with what customers will we find our future growth? What will they expect?
• What is our partnership approach today, and how will it need to change to extend to a broader ecosystem?
• Is our technology platform the foundation for our growth?

The future is still unfolding. New technologies and ecosystems will continue to emerge. And with those changes, over the next decade, we will likely see the beginnings of Digital Insurance 3.0 emerge.  Organizations will need agility to adapt and respond, a keen focus on innovation that encourages experimentation, and a priority on speed to value to succeed, or even survive.

This is the fifth part of a five-part series. The previous articles can be found here, here, here and here. If you’re just tuning in to this series, here’s a brief recap of what we’ve discussed so far: Insurance is ripe for disruption, and insurers must balance two measures to respond. They need to get the Brilliant Basics right, and they need to innovate with Cutting New Ground initiatives. Both are necessary, as Brilliant Basics enable core transformation, which in turn frees up investment capital and enables the agility needed to innovate. It’s about this point in the conversation when insurance leaders start looking uneasy. That’s when the elephant in the room starts knocking over the furniture. The elephant is legacy: legacy thinking, legacy processes and, most definitely, legacy systems. Legacy is a legitimate concern. Chronic underinvestment in IT and growth through acquisitions has left many insurers facing high technical debt—the amount of money it would take to get legacy systems to a state fit for today’s business environment. Digital decoupling for an intelligent enterprise Insurers can look to new digital architectures to help address the issues of legacy. For example, cloud services, data lakes, microservices, open APIs and robotic process automation can not only reduce dependency on—and the cost of maintaining—legacy systems but also help them execute business strategy more quickly. See also: Innovation Is Really Happening Accenture calls this digital decoupling. Digital decoupling is a way to release an organization from its dependency on legacy systems. In many cases, we can rebuild the capabilities needed for the back office in the cloud, without the convolution of the legacy system. Robots and cognitive processes can help identify where the cloud-based system needs to plug into the legacy system. Digital decoupling can deliver savings to release capital for investments. It also contributes to the stable foundation required to underpin agility and support innovation. Let’s look at a few ways that digital decoupling can help insurers. Case study 1: Buy a car…while you’re in the car One global bank was mired in legacy systems but wanted to grow its car financing market. Accenture helped it launch the capability to have customers buy a car when they’re in the car. Think of it: You’re immersed in the new-car smell, fresh off a test drive. With the push of a button and a digital signature, you can buy the car, along with the financing, insurance and extended warranty. Talk about delivering a knockout customer experience at the moment of truth. Accenture made it happen in just three quarters. We used cloud-based digital tools to rebuild the bank’s back office, enabling almost exclusively straight-through processing. Next, the cloud-based back office was integrated into essential enterprise systems, but otherwise bypassed the legacy system. The cloud-based office is 50% cheaper to run, creating an immediate cost advantage over the competition. And in this particular market, where the economy declined by 8% over the past two years, the bank’s car sales are up 30%. Case study 2: Robots enable Sunday mortgages This particular bank had a mortgage office with typical office hours: Monday through Friday, 9 am to 5 pm. But when do people buy houses—and, therefore, when do they need mortgages? The weekend. But in this region, weekend mortgages weren’t possible. Accenture worked with this banking client to develop an AI-backed mortgage capability. Robots worked beside people to learn how to make mortgage decisions. When the people go home for the day, the robots keep working. Today, if you want a mortgage on a Sunday, you can get one—and, more important, you can buy your dream home. Accenture tapped into new technologies to bypass this bank’s legacy systems to deliver the AI-backed mortgage capability in just 20 weeks. What’s notable about these digital decoupling efforts is that they tend to be self-funded, especially when data lakes are leveraged. For example, using data lakes and other technologies, Accenture was able to create an entirely new bank in about six months—and eventually, as the business shifted to the data lake from the mainframe, the project became self-funding. Using data lakes, in particular, tends to result in a new architecture that is more efficient and cheaper to run than the legacy system. See also: Linking Innovation With Strategy   With digital decoupling, insurers can innovate without being shackled by their legacy systems. Think of it as two-speed IT. You can move fast with innovation by decoupling the back end. Meanwhile, you have time to move slowly later as you start shutting down parts of the legacy system—a process that releases even more trapped value.

This is the fourth in a four-part series. The first three are: Investment in Insurtech Continues to Surge, Insurtech Presents Major Opportunities and Key Insurtech Trends to Watch. In this series, I’ve been discussing the continued global rise in insurtech investment and innovation and the potential benefits to both traditional insurers and insurtech startups. I’ve highlighted some significant emerging players in this exciting new space. Insurers understand that now is the time to innovate. On the whole, successful companies have evolved into thriving ecosystems, offering digital platforms that bring together diverse products and services into a community. Think of Amazon and Uber as examples of these leaders. Insurance also needs to move to this model to thrive in the new economy. Insurtech can help you connect with your customers Understanding where the gaps are, both in the current insurance market and in the customer experience, will be key. Fortunately, technologies are emerging that can help insurers understand their customers’ needs, and, in turn, customers are increasingly open to purchasing insurance in non-traditional settings, especially via smartphone platforms. Insurtechs can offer tools to help incumbents become digital insurers, but they are not a solution in and of themselves. Conventional enterprises must innovate across the organization, from the C-suite to the front line, to derive maximum benefit from a collaborative partnership with insurtech. The technologies in question—whether they use artificial intelligence (AI), the Internet of Things (IoT) interfaces or big data and analytics—can’t be quick fixes. See also: Insurtech: An Adventure or a Quest?   Successful insurers will learn quickly from the insurtech trend and will do more than just experiment with new technologies. They will need to embrace innovation at all levels, company-wide, across their everyday business. Those insurers with a strategic innovation agenda and a clear plan for where insurtech fits into that agenda, will be in a better position to lead in the new environment. Read our full report: The Rise of Insurtech: How young startups and a mature industry can bring out the best in one another.

Even Popeye needs some help from spinach. In this post, I look at the importance of the insurance agent and some insurtech startups providing tech spinach to the Popeye agent. I started out my career in this industry as a financial adviser. Being a financial adviser was always my fallback plan if my entrepreneurial ventures did not work out (which, in my late teens/early twenties, they didn’t). My father has been a financial adviser since I was about two years old. I have always been around the business, from interning for him, meeting various clients of his and even getting to attend some top producer trips. So, maybe I am biased about how I see the future of the agent, which in my definition is an agent, financial adviser, broker or any other intermediary selling insurance face-to-face. But, as the headline indicates, I do feel that insurtech is going to make agents stronger, rather than displace them. Winnie the Pooh needs to weigh in I got some food for thought at a recent Plug and Play event focused on digital solutions that can help to strengthen the broker and agent proposition. The panel comprised Jason Storah, executive VP of Aviva Canada; Chip Bacciocco, CEO of TrustedChoice.com; Kim Opheim, president of Opheim Consulting; and Aaron Schiff, founder & CEO of Matic Insurance. The panel was moderated by Richard Cagney, managing director of KBW. It was a diverse panel with varying views, which led to a exuberant discussion. See also: Insurtech: An Adventure or a Quest?   In terms of the Winnie-the-Pooh analogy I've used, none of the panelists fully fit into the Tigger, Eeyore or Pooh buckets, as, at times, they each shared views that could be categorized into different ones. I label the three characters this way:

• Tigger is the excitable cat, full of enthusiasm for every new technology, which will surely change the world for the better and do it right now. Tigger could be a direct-to-consumer digital insurance carrier.
• Eeyore is the old grey donkey who thinks it is all rubbish, that all this change will only end badly or won’t happen at all. Eeyore could be an insurance carrier with an established agency force and no D2C capabilities.
• Winnie-the-Pooh is a humble “bear of little brain” who somehow gets to the right answer by asking good questions. We all want to be that insightful bear, but in the tech world the market is the only judge of what works or does not work. Winnie-the-Pooh is asking – what is the right thing for the industry and customer?

A quick personal story My first role overseas was working on a project team where we set up an insurance carrier in Poland. My role was to set up the target operating model of the agency force for our Polish business, which included everything from recruitment of agents to the sales process with customers. I was nervous because, up until that time, I had only been a financial adviser and wholesaler and was not sure if I could deliver. I had the following conversation with my former boss a few weeks after joining the project (he was running the project and is a qualified actuary by trade): Me: "I know nothing about back-office operations, actuarial/product pricing, how to set up a branch. How am I supposed to define the requirements of what the agents need when I have never actually worked in these areas?" Boss (with a smile): "You have quoted and sold policies to customers, right? You’ve spoken to them about how the underwriting works and then worked with operations people to make sure the policy issued correctly, correct? You’ve walked a customer through a policy document, helped with a claim, dealt with multiple servicing issues and back office people on their behalf, right?" Me: "Yes." Boss: "Then you know a lot more than most of the people you are going to be working with on this project…as a lot of them have only seen one area of the business, whereas sales people have to interact with all areas of the business. I will always say, the sales person is one of the smartest people in the whole company and typically will make more money than most of the CEOs, too!" In our next meeting, in which every workstream lead was present (product, operations, actuarial, etc), my boss stood up in front of everyone and said, "This business will only succeed if the agent is successful. The agent is the heart of this business and will drive our growth. As such, we need to put all of our efforts in place to support the agent in our business model, which also means giving Stephen the support he needs to be able to build the best operating model he can for our success in Poland." (Thanks, ML, for giving me the confidence in those days. FJ, you, too.) Some start-ups enabling rather than replacing the agent There were many startups that presented at the Plug and Play event, some of which focused on enabling the agent/broker, including: Wellthie – Wellthie is an insurance marketplace and sales optimization platform for brokers and carriers to help with the end-to-end sales process to small businesses. The platform offers live quoting from top medical and ancillary carriers nationwide, contribution modeling, customized proposals, an integrated CRM and more. Hello ZUM - Hello ZUM is a startup out of Latin America that aims to "organize the world’s insurance information in one click." The management team is made up of veteran insurance industry professionals. Their solution is a SaaS platform that was born out of looking at two areas: 1) the different roles in the insurance industry and how they will evolve in a new digital environment and 2) how they interact with each other and exchange information. Hello ZUM helps to provide all the different stakeholders within the insurance ecosystem with consistent information, which helps make operations and distributors more efficient and ultimately provide a better customer experience, while generating significant cost reduction. Client Desk – Client Desk is a Canada-based software startup focused on giving tools to brokers and carriers, focusing on engagement, self-servicing and claims management. They provide a white-labeled policyholder web portal and mobile app, as well as a management dashboard used internally by brokers and agents. HazardHub – HazardHub has two goals: (1) to create the best geographic hazard data available and (2) make it free for every person in the U.S. to see the risks around their property. This can help individuals and their brokers to identify the specific risks that may be around their property. You can try it for free here and sign up for the API here, which will give you as many as 10 inquiries a day for free! For carriers and brokers that want to incorporate HazardHub data into their quoting and rating routines, HazardHub offers a novel pay-on-the-bind approach to pricing. acuteIQ – acuteIQ is an AI platform that helps brokers and agents with customer acquisition and prospecting by searching a database of 21 million small/medium-sized businesses. Summary A few weeks ago, I wrote about my experience of buying health insurance this year. After doing all my research online, I also spent time talking to two different agents. I was amazed at the information that they shared with me that I couldn’t find online; which included information on the evolution of ACA and how it’s affected their business and their clients' experience with different carriers, as well as many other general tips on what I should be looking at for my own insurance needs as a repatriated entrepreneur. I was reminded about how the role of the agent is much more than only selling and servicing, but about knowing continuing trends, regulations and being able to ask the right questions to individuals to determine what the most appropriate route is to go with the advice they want to provide. Can AI and a chatbot provide for this? Possibly. But for people like me (and I know I’m not the only one), I prefer talking to a real, live person, who is paid for knowing all the complexities of the market and industry to guide me. As I used to say in my financial planning days to prospective clients, "Just because you can use WebMD to diagnose your problems doesn’t mean you will perform the surgery on yourself, right?" See also: How to Augment Agent Channels   That’s not to say that agents don’t face a risk. Some of the simpler personal and commercial lines may be able to be sold direct (though, in my opinion, there will almost always need to be a live person to be a backup to answer questions for a customer who purchases online). The more complex lines and individual circumstances, specifically when it comes to estate/legacy planning, tax sheltering and comprehensive solutions for businesses (both small and large), will need to be assisted by agents. Further, I can’t see super-high-net-worth customers using digital only as their means for buying insurance. Agents need to start eating their spinach. They need to invest in educating themselves as well as in digital tools that can enhance the customer experience. In the digital age, customer experience is going to the key differentiator. I personally use an agent because I want to have the expertise of a live person to bounce ideas off. But, if the agent I am working with as well as the carrier he is representing both have tools to make my experience with them more engaging (and back office systems that also run smoothly), then I will be a happy policyholder. In posts here and in conversations I have daily, I keep saying that insurtech startups need to have an insurance person on their team (either as an adviser or part of their management team). I’m going to take that a step further; they need someone who has done insurance sales. If they really want to learn the business, this is going to be the best way for them to do so. You can find the original article published here.

This is the fourth part of a five-part series. The first three are: here, here and here.   It’s time to take a long, hard look at the insurance industry. Customers see insurance as a grudge purchase, not as something they buy eagerly to gain peace of mind so they can live boldly. Customers don’t think about insurance in between transactions and have no qualms about switching providers. But there is the flip side. Insurers haven’t done a good job at communicating insurance’s true value proposition, nor have they cultivated effective customer relationships that reward loyalty. By and large, the insurance customer experience is lacking, particularly given that customer expectations aren’t informed by their interactions with insurers—they’re comparing insurers against Amazon, Apple, Netflix and other customer-centric organizations. See also: Digital Insurance 2.0: Benefits  Here are some of the basic capabilities that customers expect from their insurers—and where insurers generally fall flat.

• Answer the phone. Insurance is generally ranked as one of the worst industries for its customer experience. Just 20% respond to questions via Twitter and email, and only 30% answer questions satisfactorily.
• One-size-fits-none. In designing and selling products, insurers focus on risk, rating and products rather than customers. Customers expect tailored service—and most are not getting it.
• Multichannel is hardly a reality. Customers expect to be able to have a seamless experience across all channels. Having to repeat information with a representative who has no record of previous interactions is frustrating, to say the least.
• Get a single customer view. Customers have a single view of their providers, but few providers have a single view of their customers. It’s difficult for customers to understand why they have both auto and home insurance with the same provider, but that information isn’t shared between them.
• Online self-service is limited service. In principle, online self-service can be a way to empower customers and reduce loads on call centers. In practice, a customer may have to log in through multiple portals. Or, insurers may have limited capabilities through online self-service, requiring customers to contact the call center anyway (and, even more galling, incur administration fees).
• The claims process is flawed. Claims payments are often drawn out and require multiple follow-ups. Though insurers regard this as the “moment of truth,” many do not provide satisfactory or transparent service at this crucial point in the customer relationship.
• Customized policies are difficult to obtain. Many customers cobble together multiple policies to amass the coverage that they need. A better option would be for a single provider to tailor one insurance policy—and that provider would also obtain better insights into that customer’s needs, and be able to offer living services to strengthen the customer relationship beyond the transaction. 

The list above isn’t exhaustive, but it’s a good place to start. Yes, it’s long. Yes, it shines a light on some of the flaws that insurers have ignored for decades. Yes, fixing them will take work. But, rather than view it as a list of challenges, you should see it as a to-do list of digital opportunities—it’s a way to begin your core transformation efforts to deliver more value to your customers. It’s easy to get distracted by shiny innovations when we talk about digital transformation. But as I’ve been emphasizing throughout this blog series, it’s irresponsible to look at how artificial intelligence (AI) or blockchain fits into the enterprise if your customers can’t easily see the status of their claims. What’s more, successful core transformation supports a strong foundation and releases investment capital—which, in turn, funds innovation and fosters the agility needed to effectively pilot and scale new projects. See also: Global Trend Map No. 6: Digital Innovation