I have tracked insurer IT budgeting and planning for more than a decade. During that time, there has been one major shift: Core systems replacement went mainstream as fear of inaction surpassed fear of change. Otherwise, I used to joke that I could republish a prior year’s study and no one would notice. This year, however, we may be starting to see some real evolution in insurer IT spending and planning. Security issues and innovation are breaking into the list of top concerns and challenges as multi-year core systems projects started in previous years are being completed. While average spending patterns haven’t yet changed significantly, there is a shift in priorities and challenges — and an increased variability in the sample of the nearly 100 insurers who participated in Novarica’s 10th annual study. Property/Casualty: Analytics and Speed to Market For property/casualty insurers, business intelligence and analytics are the most frequently cited areas of need; more than half of P/C insurers put it in their top three needs (followed by distributor ease of doing business and speed to market for product changes). Note that if the responses for speed to market for product changes are combined with the responses for speed to market for true new products, that becomes the most common area of priority for P/C leaders. Large P/C insurers are generally more optimistic about the capabilities of their key applications, except for CRM and portals. Core systems replacement activity is significantly lower this year than in previous years — partly because of variations in the sample, but also reflecting the effects of prior investments. Midsize P/C insurers are more conservative in their self-assessment than their larger peers, with more than 30% rating their own capabilities as “poor” or worse in customer portals, CRM, UW workbench, BI and predictive analytics. More than half are currently engaging in core policy administration system replacement or are planning to start a new replacement in 2018. See also: My 4 Ps for Investing in InsurTech   Life/Annuity: Digital For life/annuity insurers, the most commonly demanded business capabilities are digital marketing and customer engagement, surpassing even the combination of speed-to-market for product changes and true new products. Other common high-priority areas for life insurers include optimizing internal workflow (also a digital capability) and reducing operating expenses. In aggregate, large life/annuity insurers are most confident in their distribution and compensation management and CRM abilities and are least confident in their abilities in analytics, digital engagement, underwriter workflow and core policy administration. This correlates with significant replacement and enhancement activity in portals and core admin, as well as significant enhancement activity in analytics. Midsize life/annuity insurers judge their customer portal capabilities harshly, with half rating them “poor” or worse and 40% planning replacements for 2018. Additionally, 30% of the participants in this group are also engaged in core policy administration and claims replacement projects. Innovation and Insurtech While not as high priority as short-term needs, about 20% of respondents did note that the demand to support innovation and leverage insurtech was among their top three business priorities for the coming year. None had it as the business’s top priority, however. Tactical concerns continue to dominate. Security One significant change from last year is the increased citation of security as both a priority and a challenge, with 30-40% of insurers placing it in their top three compared to less than 20% in previous years. Although aggregate security spending levels haven’t changed significantly over the past year, remaining at close to 10% of total spending, security is consuming a much greater proportion of CIO mindshare than in previous years. One CIO said recently that the amount of time he spends on security issues has doubled every six months. More than 60% of insurers are planning to expand their capabilities in key security areas, including device security, application security, intrusion detection and data encryption. Similar numbers are also improving their audits and procedures. Insurers will need to continue to devote additional resources to security in 2018 and beyond. Unfortunately, taking those resources out of insurers’ traditional IT budgets of 3-4% of premiums would mean hamstringing their abilities to develop and deploy new capabilities. Insurers that have not already done so are likely going to create a real IT security organization and budget in addition to, not replacing, their current IT spending if they want to continue to move forward safely. See also: Security Training Gets Much-Needed Reboot   General Outlook Once again, the outlook for insurance IT in the coming year is very similar to the current year — with the notable exception of an increased focus on security. Business leaders are demanding additional capabilities in analytics, digital and speed to market; IT organizations are responding with enhancements of existing systems and replacements of legacy. While replacement activity is still significant, it seems to be ebbing somewhat among property/casualty insurers as the investments of the past decade are going into production. But overall, spending levels will remain essentially consistent, with some insurers spending slightly more, some holding steady and a smaller number making cuts. This consistency itself represents a risk. With security demands growing at the same time as business demands for digital and data capabilities, insurers are not going to be able to meet these concurrent demands within a traditional IT spending framework. Insurers need rethink their approach to IT budgeting. Rather than asking how little they can spend on IT next year, insurers should be asking themselves two key questions: What is the real price of maintaining a robust security program, and how much can I afford to invest in technology to remain competitive now and in the future?

If I were a young actuary or underwriter, I’d be worried — because the Insurer of the Future won’t have much need for my skills. What do these professionals do for a living? They rely on their personal experience and various data sources to understand and price a risk more accurately. Sometimes they carry out complex statistical calculations in support. See also: How Underwriting Is Being Transformed   But the Insurer of the Future will have its experience data captured on its internal systems. It will also tap into vast amounts of additional data available from external sources, some structured, some unstructured. And it will channel all of this data — far more than a human actuary or underwriter could ever handle — to its artificial intelligence (AI) engines. These AI engines will examine the data for patterns, apply multiple statistical models and add their own experience from previous analyses to come up with a much more accurate price, massively quicker than a human ever could. And for the Insurer of the Future, the AI engines will be wired directly into the sales and underwriting processes, which will operate “straight through,” with no involvement from humans. There will be room for some human oversight roles to ensure that the AI engines don’t “go rogue” and generate crazy pricing — but the vast majority of actuaries and underwriters will no longer be required. See also: Strategist’s Guide to Artificial Intelligence   Please see “Part 3 – Claims Handling” for further predictions.

I’m an analog dinosaur in a digital world. In the 1970s, I participated in an organizational planning process that lasted for nearly a year, concluding in an excellent document with many dozens of pages that came to rest on the “bottom shelf” and not the “bottom line.” Then, ours was a Father Knows Best World – driven from the top down, operating at a snail’s pace compared with today, where we live at the speed of thought – where opportunities happen within the blink of an eye. Planning is still critically important, but the process now must be “fast, hot and cheap!” Real fast. To convert this concept of planning to a concrete “Tweet” (fewer than 140 characters), I offer the following formula/framework: Planning includes purpose, passion, perseverance and precise performance creating a personalized and positive client experience. (128 words) This planning can be completely researched in less than an hour or two. I offer the process as “framing your future” – not the pyramid (top-down hierarchical model of yesterday) but rather a square framework capturing the part of the world marketplace that you wish to define and serve. The base (foundation) of this framework is PURPOSE. This is the “why” of your future. Simon Sinek in his video – “Start With Why” –explains this as well as it can be done. If you are serious about the process of planning, start with the first 10 minutes of his presentation. If you don’t have time to do this, quit the process now and “continue to do what you’ve always done.” See also: Go Digital… but Don’t Change Who You Are   The left side of the frame is about PASSION. It is about the drive needed to live your purpose. Check out Susan Boyle’s audition on "Britain’s Got Talent." Watch the audience as she introduces herself – the skepticism of some and the contempt of others. In my mind, they were pre-judging the age, shape and condition of the “jukebox” from the outside and not the excellence of the “sounds (music) and passion” that was inside the “box.” In about three seconds, she won her skeptics over. Passion is needed for success. The top side of the frame is PERSEVERANCE. It is about never quitting. It’s what (I believe) drove our troops onto the beaches at Normandy. It was about prevailing against all odds or to die trying. Check out online – Nick Vujicic, the limbless preacher. After watching about five minutes of any of his presentations, tell me about your problems or why you can't-do something. Perseverance and quitting are choices. One will sustain you; the other will “restrain” you. You choose. Your results will be dictated by the choices you make. The right side of this “planning” model is about performance, precision, and perfecting your product and delivery. It is about standing above the mediocrity that is most markets. It is about exceeding the expectations of your clients and the markets you serve. It is not about being perfect in everything for everybody but is about being relentless in your pursuit of perfection. It is about becoming the “choice” of those individuals and populations that you choose to serve while recognizing they have many, if not unlimited, options. It’s more than “standing out in the crowd” – it’s about your clients and prospects searching for you and the experience you provide TO THEM in a very crowded global marketplace. Sunday morning, my wife and I stopped at Starbucks. She loves the place and its drinks – I visit to observe the culture. I drink a small decaf coffee – she chooses a grande drink defined by words I don’t understand. She’s hip – I have an artificial hip. Although I’m not a fan of Starbucks, I am envious of the marketing genius that was their creation. In 1970, a cup of coffee cost three cents at home and 25 cents out. Coffee was a commodity if you bought it by the pound at your supermarket. If you enjoyed coffee after a meal in a fine restaurant, it could be considered a “service.” Starbucks leapfrogged all these distribution options and made coffee an experience. Today – for its devotees – it remains what some might consider an addiction. As I sat in the Starbucks last Sunday, I watched people stand in line to order their drink du jour and occasionally a “treat” to eat, then stand in line again to await its preparation. Many would grab and go with their drink – others would then move to a small table in a crowded room alone or with their posse – trying to talk loud enough to be heard and soft enough to not be overheard. Get the picture? See also: The Challenges of ‘Data Wrangling’   What caught my eye were the “splash sticks” that were being inserted into the cover of the filled coffee cups. I don’t know if they are there to keep the coffee hot or to keep it in the cup. To me, it was Starbucks' never-ending pursuit for the “perfect experience” for their customer or more correctly their “followers.” Starbucks has been successful – it is the “little things,” the endless pursuit of perfection, that will assure their future. Does your organization live its Purpose, with Passion, Persevering regardless of the circumstances, and constantly monitoring and demanding Performance, Precision and innovating to assure Perfecting the client Experience?

When disaster strikes, organizations can face significant losses—not only from damage to physical property but also from the business interruption caused by the event. Here are five key tips to keep in mind when filing an insurance claim after a disaster: Disaster Response Checklist: 1. Communicate with employees and external stakeholders. Following the activation of an emergency preparedness program, it is critical to communicate with employees and business partners about their well-being, as everyone will be dealing with potentially significant, or even devastating, personal and professional issues. 2. Review your insurance policy. Even if a business does not suffer physical damage, it may have coverage for business interruption losses. For example, if a business’s customers or suppliers have been flooded and cannot receive the business’ goods or services, the insurance policy may include what is referred to as “Contingent Time Element coverage.” Non-physical damage coverage for business interruption losses can also include lack of access to facilities (road closures), government declarations of emergency, cancellation of events or loss of utilities, among others. See also: 6 Reasons We Aren’t Prepared for Disasters   3. Maintain contemporaneous documentation. To say that the hours and days after a disaster are hectic is an understatement. This is a trying time for businesses as they try to rebuild and recover. However, keeping careful records even during this time of disruption is critical. Email traffic around current market conditions, cancellations of sales or suppliers/customers being affected is critical to preserve as it is extremely valuable to a business interruption claim. 4. Get the right team on your side. A major property claim can take several months to resolve, and the complexity of the issues that may arise requires external experts to look out for a business’s interests while management focuses on what is important—rebuilding and recovering. Additionally, the fees paid surrounding disaster recovery services are often reimbursable by the insurance carrier, resulting in no out-of-pocket costs to the affected business. 5. Establish milestones for claim recovery. Following a catastrophe, resources are often stretched thin. It is important to create milestones and hold all members — from the adjusting team to internal stakeholders — accountable for achieving those goals.

Open enrollment for individual health insurance policies is coming up. It is important to be aware of significant changes that will affect those applying for new coverage or changing coverage. Being familiar with these changes will help you successfully keep your health insurance and enroll. Since January, there have been multiple attempts to formally repeal the Affordable Care Act, which all ultimately failed in the Senate. Unfortunately, there is a clear trend that steps are being taken to weaken the ACA. The Affordable Care Act remains in place. Any claims that the ACA or Obamacare are failing or dead are not true. Due to the hard work of multiple state insurance commissioners, as 2018 Obamacare deadline nears, U.S. states believe every county is covered. There is no further pretense: It is Trump vs. the Affordable Care Act. Failing to work with Congress, Trump has through executive actions and the announcement to terminate the payment of cost-sharing subsidies, thrown the entire health insurance ecosystem into greater chaos. The termination of the cost-sharing subsidies is a short-term issue while the executive actions are slightly longer-term. These actions will cause further instability in the health insurance marketplace as it is almost certain that fewer people will enroll in health insurance plans this year. The reduction will mostly come from younger, healthier people, which will lead to a pool of people who have health issues and will have higher claims. Higher claims mean higher premiums. And higher premiums will lead to fewer enrollees leading to a tougher, but not failing market. Michael Che of Saturday Live summed it up accurately with the comparison of Trump tweeting: “The Democrats ObamaCare is imploding. Dems should call me to fix” to Godzilla tweeting: “Tokyo is totally imploding right now. I alone can solve!” Here’s what you need to know about the termination of the cost-sharing subsidies: Insurance companies must continue to offer policies with subsidized premiums to those who qualify (58% of the 11.1 million Americans enrolled in ACA plans). The ACA requires insurers to charge lower out-of-pocket costs to low-income consumers, and the CSR payments compensate insurance companies for doing so. So, CSR payments are not a bail-out for insurance companies. And insurance companies are suing the government to make these legally obligated payments. Insurers have already filed their premium rates for 2018. Insurance companies can still attempt to raise rates or even pull out of some markets. The loss of the CSRs is a huge cost for any insurance company that didn’t price in the possibility of the CSRs being eliminated. However, given that Trump has consistently threatened to not make the CSR payments, insurance companies have for the most part taken this into account; in other words, they were not surprised. Insurance companies can terminate their contact with the federal exchange if cost-sharing reductions are terminated. However, they are still subject to state laws on withdrawing from the marketplace. They can only terminate their exchange enrollees if they fail to pay their premiums, which many people would likely do if an insurance company left the exchange and they no longer received the advance premium tax credit (APTC). A number of states allowed insurance companies to file dual rates, with one set assuming CSRs and the other set assuming no CSRs. Some states had already ordered insurance companies to add a surcharge to cover the potential loss of CSRs. For example, California required an additional 12.4% surcharge on silver plans. To find out how your state is allowing insurance companies to deal with the uncertainty over cost sharing reductions, check out this compilation of data. In fact, Trump’s action would lead to an increase in enrollments in ACA plans in many states, including California, where about 90% of enrollees pay subsidized premiums. Covered California, the state’s Obamacare exchange, calculated in January that the reduction in net, or after-subsidy, premiums in gold, platinum and bronze plans resulting from the higher subsidies would lead to an enrollment increase of 20,000 people, or 1.4%, in subsidized plans. That’s good. What’s not so good is that the change would batter the unsubsidized population — those with income higher than 400% of the poverty level. Bottom line, insurance companies will get less money from the government for helping low-income people with out-of-pocket costs on silver plans, causing silver plan premiums to increase to compensate. That will then trigger the federal government to increase all APTC-based subsidies to make sure people can still afford insurance. And to take advantage of the ATPC and avoid the higher-priced silver plans, people will move to bronze, gold and platinum plans. In fact, Trump's health subsidy shutdown could lead to free insurance. See also: How to Save Individual ACA Market   According to a report by the Congressional Budget Office released in August, “The Effects of Terminating Payments for Cost-Sharing Reductions,” this will result in about 1 million fewer people covered in 2018. However, by 2020, the effect on coverage would stem primarily from the increases in premium tax credits, which would make purchasing non-group insurance more attractive for some people. As a result, a larger number of people would purchase insurance through the marketplaces, and a smaller number of people would purchase employment-based health insurance. The CBO report does not take into account the other changes made by Trump and his administration. Here’s what you need to know about open enrollment: Increased tax credits for those who qualify (84% of enrolled): The ACA includes an additional subsidy that is designed to reduce the cost of premiums, ensuring that family budgets are largely unaffected — it's called the Advance Premium Tax Credit. CSR payments are applied only to silver plans. Insurance companies will add a premium surcharge, then, to the silver plans. Silver plans are the basis for the amount of the APTC that consumers receive. So, for most consumers, an increase in the silver premium will be offset by an increase in the APTC. Because of the application of the CSR linked premium surcharge to silver-tier plans, nearly four of five consumers will actually see their premiums remain the same or decrease as the amount of premium assistance they receive will rise. To qualify for the APTC, your income must be between 133% and 400% of the federal poverty level. The premium increase impact will be heaviest on those who do not qualify for Advanced Premium Tax Credits. Because more people qualify for APTCs, the net cost to the federal government will actually rise. Find out if you qualify for the APTC here. If you are in one of 19 states that did not expand Medicare, your premiums will be higher because there will be a larger number of enrolled who qualified for the CSRs. This will be offset by higher Advanced Premium Tax Credits. Increased premiums for those in silver plans in 2018: Silver plans are the only plans that qualify for cost-sharing subsidies. Without the CSRs, silver plans may no longer be the best choice for many people. The individual mandate remains in place, and there is a minimum penalty ($695 for adults and of $347.60 for children under age 18) for not having health insurance. The maximum tax penalty is $2,085 per household. The IRS has announced that it will not accept a return that does not have the health coverage question completed. There will be a shorter open-enrollment period of six weeks, rather than the 12 weeks in previous years. Open enrollment starts on November 2017 and ends on December 15, 2017. It is important to act quickly and to be aware of this much-earlier deadline. Open enrollment is the only time when you are able to change to a completely new plan on the public marketplace or switch cover tiers, with changes taking effect on January 1. There are special enrollment periods for those who meet certain criteria, such as losing group health insurance coverage. Certain state exchanges have longer open enrollment periods:

• California: runs through January 15, 2018
• Colorado: runs through January 12, 2018
• District of Columbia: runs through January 31, 2018
• Massachusetts: runs through January 23, 2018
• Minnesota: runs through January 14, 2018
• Rhode Island: runs through December 31, 2018
• Washington: runs through January 15, 2018

Note: Insurance companies were in favor of this because the hope is it will encourage healthier people to enter the risk pool. This was also a recommendation in my Health Insurance Roadmap in conjunction with limiting special enrollment periods, which encourages people to keep their policies throughout the year (and keep their paying premiums) rather than hopping in and out of the risk pool. Reduced access to healthcare.gov: HHS has announced it will shut down the federal exchange site for 12 hours for all but one Sunday during the open-enrollment season (December 10) as well as on the first day of open enrollment (November 1). More than 36 states use healthcare.gov for their marketplace.

• HHS has reconfigured its website to make enrollment information harder to access.
• This limited access could have a secondary impact because of additional website outages with greater numbers of people using the site at one time, compounded by the shorter enrollment period.
• Website key point: More than 12 million people enrolled on the state and federal marketplaces for 2017 coverage — with nine million of those enrollments being on the federal exchange.

Marketplace outreach funds have been significantly reduced by 90% (from $100 million to 10 million). Budgets have been restricted to mostly being online — so no television, radio or print ads. So don’t wait for any advertising for healthcare.gov .

• Earlier this year, the administration pulled paid advertising for sign-ups on HealthCare.gov.
• HHS has, instead, produced videos designed to undermine public support for “Obamacare” with funds that were intended to help promote enrollment in the ACA. These “testimonial videos” feature individuals claiming to have been harmed by the ACA.
• These actions have prompted an inquiry by a federal inspector general into these decisions and regarding whether they have had a negative impact on sign-ups.

Less help with open enrollment, cuts of 90% to navigators — this reduces the ability to get advice to review different plans. For the most recent open enrollment period at the end of 2016, navigators received over $62.5 million in federal grants while enrolling 81,426 individuals for an approximate cost per enrollee of $768. For this open enrollment period, CMS plans to spend $10 million on education activities. (Source: CMS Policies Related to the Navigator Program and Enrollment Education for the Upcoming Enrollment Period.) Funding for in-person outreach has also been cut in half, from $62.5 million to $36 million. The Trump administration has ended contracts with firms that have provided in-person assistance to states using healthcare.gov. Regional representatives from the HHS will not be participating in open enrollment events in states and with health advocacy groups as it had done in the past so to reach uninsured populations by helping with sign-ups in terms of explaining, enrolling and shopping. Here’s what HHS press secretary Caitlin Oakley had to say last month: “Marketplace enrollment events are organized and implemented by outside groups with their own agendas, not HHS. These events may continue regardless of HHS participation.” She went on to say, “As Obamacare continues to collapse, HHS is carefully evaluating how we can best serve the American people who continue to be harmed by Obamacare’s failures.” Navigators from multiple states are reporting issues with the online training certification videos. See also: 10 Ideas That Could Fix Healthcare   According to Sheila Quenga, director of the Palmetto Project, software programs are occurring more frequently than in the past, and it can take weeks before CMS resolves an issue. This is the Latest Snag In ACA Sign-Ups: Those Who Guide Consumers Are Hitting Roadblocks. What to consider when reviewing your options:

• If you are getting a subsidy, it is recommended that you review alternatives on healthcare.gov or your state health insurance exchange.
• Find out if you qualify for the APTC here.
• Review the total costs of premiums and deductibles and estimate co-payments and coinsurance.
• Make sure the plan covers your medical providers and medications.
• Use the optimal insurance deductible calculator to find the deductible that provides the most value to you.

Here are some resources to help you with open enrollment:

• healthcare.gov — Check it out before open enrollment to review your options so you can be prepared.
• State insurance departments. Find a link your state insurance department here.
• Private groups, consumer advocacy groups and insurance companies. For example, a new campaign, “Get America Covered,” is going to run digital advertising and will partner with employers, community organizations and other entities. Its staff and co-chairs draw heavily from people who worked on ACA enrollment in the Obama administration's HHS. The campaign draws on a mix of health-policy wonks, celebrities and political figures: Democratic activist Van Jones, actress Alyssa Milano, actor Bradley Whitford, ousted health insurance CEO Mario Molina and former Obama health care official Andy Slavitt. Other advocacy groups include Out2Enroll, Young Invincibles, Community Catalyst and the Get Covered Coalition. Unfortunately, HHS is the only entity that has access to records of who’s insured, so the lack of data will lessen the impact.
• PolicyGenius has put together the comprehensive “Your state-by-state guide to the 2018 health insurance open enrollment period.”

If you have group health insurance through your employer, be aware of your open enrollment period and options. What’s next? The best outcome is that this might finally spur a true bipartisan effort. Trump’s actions can be remedied by Congress acting to guarantee funding the cost-sharing subsidies. And while a bipartisan deal, the “Bipartisan Health Care Stabilization Act,” has been reached by Senators Lamar Alexander and Patty Murray, President Trump has repeatedly switched from supporting it to not supporting it. The other question is whether Senate Majority Leader Mitch McConnell will do the right thing and put this deal up for a Senate vote, with the speculation being that he won’t. Currently, the bill has 22 additional co-sponsors (11 Republicans and 11 Democrats), so it seems feasible that it could actually pass in the Senate. Then the question becomes getting the bill through the House, where Speaker Paul Ryan has come out against it and may not let it be put to a vote. House members have already approved an Affordable Care Act change bill, H.R. 1628, that would continue funding for the cost-sharing reduction subsidy program for two years. The other likely scenario is that with budget talks coming up, an Obamacare fix could end up in year-end package. Either way, this would not remedy any cost-sharing subsidies not paid and may come too late for insurance companies to change their 2018 premiums. So, please start early and be prepared. As you should always do with any type of insurance, it’s important to understand what your health insurance options are and obtain coverage accordingly. To get the best plan at the optimal price, shop and compare the different tiers. The bottom line to get the best plan at the best price: shop and compare all plans, even if you currently have a policy.

Digital technologies have the power to re-design insurance. A host of benefits lie within the front-end customer experience, but insurers stand to gain just as much from the digitalization of the back-end operations, including the claims process.

• According to the Insurance Information Institute, 64% of insurance premiums (nearly 2/3 of every dollar) are used to pay claims and adjustment expenses.
• Digital answers to loss reduction and loss prevention stand to yield the greatest profit for insurers.

This is critically important in an era where catastrophic claims seem to be more important and subsequently have the potential to do significant damage to an insurer’s bottom line. In our last blog, we looked at the impact of digital technologies on the claims value chain. The hurricanes, hail storms, tornadoes and fires of 2017 have given all insurers a wake-up call to claims preparedness. We listed out many of the ways that technology has the potential to improve catastrophe management and claims experience. In this blog, we’ll look more closely at operations. How can operations look at catastrophic events differently? How can it prepare for both internal and external impact? Can our redesigned claims experience create real value? A holistic approach to catastrophic claims From Aug. 12-23, Hurricane Harvey was tracked and classified between a tropical storm and a tropical wave. It suddenly started gaining strength as a tropical storm on Aug. 24. Overnight, it rapidly became a Category 4 hurricane, making landfall at Rockport, TX, on the 25th. In the days prior, NASA and many U.S. insurers shared a concern. What would happen to the city of Houston? Hurricane Harvey was not only going to do catastrophic damage, displace thousands of people and potentially disrupt many businesses, it was going to hit the Johnson Space Center, home to the operations for the International Space Station (ISS). The ISS receives as many as 50,000 different commands from Houston in any one month, making corrective maneuvers and steering the station away from harmful debris. Systems could not go down without safety concerns for the ISS. See also: Using Catastrophes to Rethink Claims   NASA is adept at preparing for anything. When they aren’t launching rockets, monitoring rovers and steering the space station, they are running through scenarios to improve their ability to handle any situation. In this case, they did have a plan. They remained vigilant, and they rode out the storm. Insurers now have NASA-like capabilities to use data and digital technologies to their advantage. They, too, can look at the entire sphere of a catastrophic event and find ways to protect themselves and their insureds while optimizing every asset. Pre-Crisis Efforts Insurers are known for standing by their clients in the aftermath, but what about standing by their clients before crisis hits? Last month, in one of the biggest evacuations ever ordered in the U.S., roughly 6.3 million people in Florida — more than one-quarter of the state’s population — were told to clear out from areas threatened by Hurricane Irma. Another 540,000 were directed to move away from the Georgia coast. Insurers can wait for the government to issue general warnings, but they can take control of communications with their customers by adding digital capabilities. Insurers are armed with ever-improving risk models. They have unprecedented access to customer-specific, property-specific and economic-related data as well as other types of valuable data, including climate and location data, traffic data and telematics data. Insurers are increasingly pulling this big data together for real-time analysis, cognitive learning, insight and decision-making … including to minimize or eliminate claims. Insurers are also in a better position to help properly categorize storms and crises, leveraging digital technologies such as analytics and artificial intelligence. Using this data, insurers can personalize communications through digital channels that can reach the people that are in the risk zones with highly specific loss and risk prevention measures. Texts, e-mails, automated phone calls with clear directives can greatly help customers who are often panicking, lack detailed information or can be indecisive. This is the trending wave of insurance transformation at its best. Preventive communications can be targeted individually, giving insureds all of the vital information they need to protect themselves and their property, an area of increasing interest and expectation by customers we identified in The Rise of the New Insurance Customer and The Rise of the New Small Medium Business Customer research. In Majesco’s recent white paper, Changing Insurance for the Digital Age, we discuss how the future is not only becoming more foreseeable, but it is also becoming more volatile. The result is that insurers will be shifting from risk coverage to risk prevention. The most sought-after portion of the claims value chain may be the network of data and technologies that prevent or reduce claims. These prevention services will soon be new sources of revenue.  During the Catastrophe During the 2016 Ft. McMurray wildfires in Alberta, Canada, an estimated 88,000 people were displaced from their homes. Most had no idea where to go, and many refugees found themselves without adequate short-term housing. The digitally enabled insurer can help direct insureds to likely locations of refuge and even offer housing discounts or pre-paid lodging to those who are displaced. This kind of communication and service will build strong loyalty among insureds, while providing marketing with a host of compelling stories with happy endings. What happens, however, when the insurance organization itself is in the same line of storms, fires or earthquakes? NASA, during Hurricane Harvey, had contingency plans in place. Should ground teams need to be evacuated, they would be moved temporarily to Round Rock, TX, then for a longer term to the space center in Huntsville, Alabama. Many insurers had their claims adjuster crews prepared, and drone capabilities in place, but were less prepared if their systems and operations were affected, primarily due to their large on-premise operations.  While many insurers have disaster recovery plans, they must ask themselves if their operations can scale rapidly to handle the onslaught of calls, claims and needs. How will operations be managed remotely if staff are unable to get access? Which customer service centers may need to be relocated, and how will they handle the potential of consecutive catastrophic events … like what we saw in Houston and then Florida? See also: Catastrophes and ‘Do Little’ Syndrome   Cloud business platforms are perfect for handling claims operational requirements. They are always on, most often are located off-site, are easily scalable and often are managed by someone outside the organization … providing access to critical resources. While systems are attempting to handle hundreds of adjusters at once, customer service may also be handling thousands of customer inquiries. Insurers need the capacity and stability that a cloud platform can supply. Cloud platforms are the perfect foundation for constructing a catastrophe-proof claims value chain. Post-Crisis Restoration In addition, the right cloud platforms can handle the plug-and-play technologies that are increasingly used by claims departments for post-claim services. They can handle images and video from drones, photos from mobile phones and tablets, simulation data, cognitive computing decisions (with speed) and a high volume of communications — automated, human and chatbot. These same technologies will aid in adjuster mobilization, prioritization and routing. In the next blog in this series, we will look specifically at how digital technologies will help claims to build relationships with customers. Where are the effective touchpoints in the claims process? How can an insurer “take control” in the relationship and gently guide policyholders into best practices and safer circumstances? What can insurers do to stand by their policyholders during the restoration or rebuilding process? At the same time, we will look at how insurers in the future will use data and AI to spot fraud and cut costs. For a deeper look into the data strategies and predictive analytics that are having an impact on the complete insurance value chain, be sure to read Majesco’s report, Winning in a New Age of Insurance: Insurance Moneyball.

Twitter feeds of industry influencers lit up about ZhongAn’s recent $1.5 billion stock offering. There was a feeling in the air that the P&C insurance industry had finally turned a corner, reaching for direct-to-consumer distribution with open arms. However, customer satisfaction studies from J.D. Power indicate that U.S. insurers aren’t quite there yet. While more consumers shopping for auto coverage use D2C channels for quoting, only 10% of those quotes turn into new business. Consumers have high expectations when purchasing products through digital channels, so insurers need to provide more than a pleasant experience. They need to provide a wow moment. We recently conducted a survey of P&C insurers. What we found is that the “wow” experience is eluding many. While 68% say they view digital distribution as the most important aspect of their future growth, fewer than 25% are fully happy with their efforts to date. The elusive “wow” factor is holding many insurers back from realizing the benefits of going direct-to-consumer. What are they missing? Raising Acquisition Rates in P&C Insurance Insurers that aren’t online are missing the chance to engage with nearly 70% of the market. That’s the number of consumers who prefer to use online channels to research coverage. Turning a casual observer into a customer depends on the strength of your D2C capabilities. Some websites are off-putting. They speak primarily about the insurer, provide a complicated quoting process and fail to advise customers on coverage gaps. In this digital environment, the customer feels like a pawn, being moved through a complex series of maneuvers to determine product pricing or to purchase insurance coverage. If we turn this scenario around to one where the website speaks to the customer, provides easy quoting of insurance products and advises the customer on coverage gaps, we see a more personalized shopping experience emerge. See also: 3 Ways AI Improves P&C Economics   In case you’re wondering how open consumers are to this type of digital advisorship, Accenture has an answer. It recently polled more than 32,000 consumers and found that 74% are open to advice about insurance from digital sources, and many find that it’s faster, offers greater convenience and delivers more impartial guidance. A comprehensive direct-to-consumer strategy plays a strong role in acquisition rates. A leading D2C insurer expanded its digital capabilities and saw new business increase 8% in the quarter the enhancements were made. Supporting Customers in their D2C Experience While consumers are keen to embrace digital, what happens when they have a question that can’t be answered online? They are going to need an agent, but after experiencing the top-tier digital bliss of your D2C channel they aren’t going to be inclined to purchase if the agent is slow or less personal. Industry influencer John Cusano said that to complement digital distribution channels, and remain relevant to their customers, insurance advisers need to use an array of digital tools to efficiently manage routine tasks as well as to service increasingly demanding and knowledgeable customers. That means uniting siloed systems and giving agents a single view of the customer across products. When insurers get this right, it plays a big role in generating new business, as is evidenced by a prominent insurer in the D2C space. This insurer recently enhanced the digital experience for its consumers and internal agency. As a result, conversion rates rose to 35%, and sales doubled year-over-year. Customer Loyalty Is Possible in P&C Insurance Bain’s recent survey of 172,000 insurance customers confirmed what many in the know have been indicating for a few years now. Frequent interactions generate loyalty. Historically, insurance has been a low-touch business. Insurers send out renewal papers with a request for payment every six months to a year and, beyond that, only engage with customers if there is a claim. Consumer demand for high-quality touch points goes back to digital pioneers like Amazon. They’ve constructed a business out of putting customer needs at the forefront and generating a “wow” experience from the first interaction. As customers make their way across a site, they are guided by product recommendations and pricing comparisons. Each of these touchpoints make customers feel central to the buying experience, and they come back for more. This is where D2C comes in for insurers. Digitizing customer information makes for more efficient data retrieval and better application of consumer analytics. The insights derived can pinpoint interaction opportunities, including cross-selling moments, all in real time. According to Bain, the more touchpoints the better, as insurers that master the art see net promoter scores that are 15 points higher than other insurers. D2C Adds up to Stronger Acquisition, Retention and Loyalty In our survey, 77% of insurers are seeing demands for direct-to-consumer channels of engagement. That’s because consumers have grown accustomed to interacting through the channel that is most convenient in the moment, and they like the simplicity of purchasing online. Insurers with strong D2C channels send a clear message to consumers. It says they are in touch and ready to put their customers at the center of their business strategy. Customers deliver loyalty in return, driving up retention rates and buying more products. See also: P&C Insurers: Come Out of the Dark Ages   To better serve customers and encourage retention, a top customer-experience leader recently improved its direct-to-consumer offering. Despite increasing its advertising budget, the insurer reduced its expense ratio and increased conversions 4% in a single quarter. Are you still searching for a digital identity? If so, what are the main impediments you’re facing?

I honestly did not know what to expect, yet I was somewhat shocked by the results. And it is making me rethink much about our current educational strategies. I've had the tremendous fortune over the last few years to present at numerous conferences and seminars about various areas of workers' compensation. Many of those presentations mentioned the “grand bargain,” yet, it wasn't until last week that the thought ever came to me. We spend a great deal of time talking about the tenets of the grand bargain, or the “great compromise”; but how many workers' compensation professionals even know what it is? I spoke at the Texas DWC Educational Conference in Dallas recently. My scheduled topic was titled “Opting Out of Opting In – The Cost of Non-Subscription.” I did not simply wish to focus on the accounting aspects of employer liability within the Texas non-subscriber world. I wanted to talk about the real cost to the employer, worker and society of not protecting our most valuable assets - our human workforce. Part of this presentation mentioned the basic doctrines of workers' compensation, both the grand bargain and exclusive remedy. Shortly before the presentation began, however, I had a thought. I wondered, how many people, embedded in the day-to-day minutiae of workers' comp, even know what the grand bargain is? I decided to ask, for the first time ever, that question of this audience. See also: Taking a New Look at the ‘Grand Bargain’   My session was the last one of the conference, the mightily feared “closing session.” A number of attendees had already departed, so I would estimate that there were only about 100 people in the room. As I began my presentation, I told them that I would like to ask what was likely a stupid question. I said, “By a show of hands, how many of you have ever heard of the grand bargain?” Probably just a dozen or so hands went up. I claimed at the time that I was not too surprised by that, but I was truly taken aback. The grand bargain, the covenant that created basic protections for injured workers in exchange for limited liability protections for their employer, is the underlying foundation that created and has guided our industry for more than 100 years; yet 90% of the workers' compensation professionals in the room had never heard of it. How could we let that happen? It is often said that, to understand where you are going, you must have a clear vision of where you have been. People working in workers' compensation today may have a clear understanding of process, but they may be fuzzy on why we exist in the first place. I've often said that one of the problems of the workers' comp industry is that it has been essentially commoditized over the last 100 years. It is not clearly understood by the people it serves, and those who experienced the confusion and tumult that brought the industry to life have long since departed this earth. Today, workers' comp is viewed by many employers as a pain-in-the-butt mandatory expense that they would be better off without. They do not appreciate the benefits and protections that workers' comp can provide them. They don't know about the grand bargain. And, apparently, many in our industry are not prepared to educate them. That must change. This shouldn't be difficult. The grand bargain can literally be explained in minutes. It should be required curriculum at all conferences and within workers' compensation training programs. People must understand the “why” in addition to the “what” and the “how.” In fact, the “why” is probably the most important part, as it can motivate and guide the way our processes and procedures are performed. See also: ‘Opt Out’ Will Return; Pay Attention   This was not the fault of the people in that room in Texas. It is the failure of an industry to embrace and understand its heritage. It is the result of a relentless focus on process versus one of purpose and recovery. We need to teach our professionals about the grand bargain. It is part of understanding our history; and, as we all know, a failure to understand history means we may be doomed to repeat it.

Will policy administration systems cease to exist as we know them? Insurance core systems have evolved from monolithic policy, billing and claims suites that were primarily for accounting functions to fully functional service offerings. Configuration capabilities were added next, reducing the size of the code base. Solution providers are now aggressively working to offer headless (no user interface) core offerings with microservices and integration layers to address the legacy nature of the core systems. As a service-oriented architecture, microservices consist of independent, modular services that each run a unique process and communicate via a lightweight protocol. Microservices-based architectures allow for continuous delivery and deployment, and these offerings meet carriers’ needs for competitive differentiation of customer experiences, faster deployment of changes, integration with new analytics capabilities and deeper digitalization of processes. What’s next? We see leading solution providers modernizing their systems by segmenting and extracting functionality from the remaining core components to create standalone services that can be hosted in the cloud and accessed directly from any platform. They will continue to dismantle these components and build microservices to enable more continuous change and flexibility. These services will leverage cloud capabilities and expand on demand to meet spikes in workload, then shrink to more appropriate deployment levels. See also: Policy Administration: Ripe for Modernizing   Orchestration of microservices for online interactions will eventually be controlled by the UI layer. Batch jobs have been modernized to background functions to increase availability. Will policy administration systems shrink into just the orchestration layer for bulk processes? Will they disappear entirely like a house built out of Lego blocks that has been dismantled? Will current solution providers adapt quickly enough, or will insurtech disrupt this market with core services built on more adapted architectural frameworks? One thing is for sure: Carriers will need more sophisticated tools to monitor performance and manage microservices. By implementing the modern core systems of today, carriers can not only avoid needing to transform their existing systems, but can also focus on differentiation while outsourcing evolution to their solution providers. The key is to remember that the point of buying a system isn’t just for benefits today, it’s also for the value that comes tomorrow.

In last summer’s blog series, I looked at the impact of digital on the insurance industry’s barriers to entry. Now I’ll change the perspective and ask, in response to digital and other pressures, “What will the Insurer of the Future look like?” Auto/Motor Insurance The Insurer of the Future will do very little business in the auto/motor market. Insurers that remain focused on this segment (whether personal or commercial lines) will either shrink dramatically or fail. See also: When Will the Driverless Car Arrive?   As I said last year, once fully driverless cars become the norm, then:

1. Accident rates will be diminished dramatically.
2. There will no longer be drivers to insure.
3. But it’s actually even worse than that for insurers: Thefts will be minimized, too, as vehicles can be disabled remotely.
4. Fire and malicious damage cover will no longer be needed, as personal and business vehicle ownership is increasingly replaced by manufacturers supplying "vehicles as a service";
5. With the majority of vehicles still being owned by manufacturers, those manufacturers will increasingly self-insure – at best taking some reinsurance cover from the industry for catastrophic software failures.

All of the above won’t happened overnight – but the trends are already there. See also: 7 Steps for Inventing the Future   Part 2 will focus on underwriting and pricing.