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3 Ways AI Improves P&C Economics

Cognitive computing is delivering unprecedented productivity gains and insight, leading to deep changes in how P&C insurers do business.

Daniel Mayer

October 10, 2017

It’s crunch time for P&C. Investment yields are declining while combined ratios are holding up in the 97% range. This has P&C insurers wondering: “What can we change in our operations to improve our economics?” Conclusive answers are now coming from the field of cognitive technology, the variety of artificial intelligence that deals with knowledge and textual information. In this post series, I want to share three areas where cognitive is delivering unprecedented productivity gains and insight, and leading to deep changes in how P&C insurers do business. Why cognitive technology is a great match for P&C P&C insurance is particularly people- and paperwork-intensive. Both underwriting and claims management revolve around the production or retrieval of information from documents – a policy or a claim package - that capture the specifics of the insured’s case. These are particularly time-consuming tasks that up to now have entirely fallen into the lap of human operators and typically represent 20% of the combined ratio. What cognitive technology brings to this picture is its ability to read documents much in the same way humans do, in a fraction of the time. It automatically harvests a case’s characteristic pieces of information and reasons on them. This reduces the time operators need to spend on such tasks from hours to seconds. As a result, insurance professionals can focus on the highest-value areas of their jobs, such as decision-making, rather than the more time-consuming, menial tasks. And it takes significantly less time to service a case. See also: P&C Insurers: Come Out of the Dark Ages As a first example, let’s look at how this plays out in claims. Accelerate Claims

Automate claim routing
Summarize key claim characteristics
Suggest claim valuation
Focus claim handlers on high value activities

Because claims workflows critically depend on proper information flows, grooming even ancillary information may take up a disproportionate share of claims handlers’ time. Cognitive technology alleviates a large part of this issue. When dealing with automotive claims, for example, it can review claim packages automatically to evaluate their complexity and route them accordingly, recover essential aspects of accident descriptions to support liability determination and suggest an appropriate settlement value based on the facts of the case, such as which injuries were incurred, what medical tests or treatments were applied, what the medical history is and how the prognosis looks. Overall, this accelerates the claims workflow and helps claims handlers focus on the highest value part of their work: decision making. A second area where cognitive plays well is underwriting. Accelerate Underwriting

Consistently grade risk and flag exposure
Accelerate quotes
Optimize risk engineers’ time

An essential part of underwriters’ jobs is to evaluate the risk profile of the customer they will be insuring. In commercial property insurance, for example, this involves analyzing third-party risk reports that describe the facilities to be insured, their particular risk factors (such as building combustibility, presence of flammable materials …) and mitigators (smoke detectors, sprinklers, fire extinguishers, site surveillance …). Cognitive technology quickly and consistently extracts each of these indicators and reports an overall, evidence-based, risk grade to the facilities. This means risk engineers can allocate more of their time to direct verification of the most complex cases, and underwriters can turn around quotes on new policies faster. When applied to the review of existing policies, cognitive can analyze clauses and compare them to reference policies to flag misalignments and excessive exposure. This means underwriters can more easily prioritize which clauses of a policy they may need to renegotiate in the future. See also: P&C Core Systems: Beyond the First Wave That's it for today, but in part 2 of this series we’ll look at a third area where cognitive can help, as well as some ideas on how you can start building a business case for applying cognitive to your own business. If the suspense is too hard to bear, you can also download the full white paper here. Let's discuss it! My co-author Pamela Negosanti and I are curious for your insights. If you're involved in applying cognitive to insurance, we'd love to know how you see it from your vantage point -- so please share your thoughts below and let's connect.

Daniel Mayer

Daniel Mayer is a a French-American dual national with 20 years international experience in product management and strategic marketing across the IT value chain. His passion is in crossing the chasm by helping organizations adopt emerging technologies and leverage them for strategic impact.

Life & Health

Navigating Telehealth for HR and Employers

While all serious cases should be addressed in person, there are far more minor cases that can be safely treated via telemedicine.

Robb Leigh

October 10, 2017

It’s no secret that telemedicine delivers faster, more accessible and more affordable medical care for patients across the world. However, when integrating a new telehealth program into your business, there are some details that employers should not overlook. Let’s start with state regulations. Because they vary across the country, it's important that employers be aware of the specific compliance regulations issued by their state. If an employer is in compliance with these state regs, the chosen telehealth provider will then help navigate the onboarding process and provide concierge support throughout the duration of the program. Telehealth and Workers' Compensation Another important factor to take into account is workers’ compensation. While telehealth and workers’ compensation have existed for years singularly, thanks to the rapid evolution of technology they have recently come together under the same vertical. To ensure that they’re getting the specific advantages that their business needs, employers should educate themselves on the available options for integrating telehealth into workers' compensation. See also: Consumer-Friendly Healthcare Model One option for integrating telehealth into workers’ compensation is to make it available to treat acute conditions. It could be particularly useful for employees with minor injuries or those who would rather seek self-care over in-person treatment. Making telehealth available in cases where a clinic might not be immediately available is another option. In these cases, an employee might be at a remote location and may not have prompt access to healthcare. Telemedicine solves this dilemma by bringing the doctor to the patient. And should injured employees require further care, telemedicine providers will refer them to specialists or ancillary services within their network for continuity of care. Telehealth is the ideal platform to deliver healthcare to injured employees if they meet the screening process. While all serious cases, emergency or otherwise, should be addressed in person by a physician or at an emergency room, there are far more minor cases that can be safely treated via telemedicine. The Big Telehealth Picture Many telehealth programs offer several direct benefits to the injured employee and the employer alike, including 24/7/365 availability, increased productivity, reduced absenteeism, greater employee satisfaction and reduced unnecessary visits to urgent care facilities, which incidentally allows for further cost saving. Whichever telehealth program employers choose, it's a good idea for them to make sure they have a strong communications plan to stay educated on benefits, onboarding and more. This often comes in the form of onsite education seminars where employers and employees have direct access to the extended boutique health and wellness services. See also: Case for Reimbursing for Telemedicine And, of course, as with all healthcare benefits programs, it’s equally important to research the benefits, platform features and plan options available in any potential telemedicine services you subscribe to, as no two telehealth programs are exactly the same.

Robb Leigh

Robb Leigh is an emergency physician and chief medical offficer for contemporary medical provider Akos. Dr. Leigh has 25 years of experience in the medical field.

Leadership

Digital Transformation: How the CEO Thinks

With a supercomputer in every pocket and IoT data exploding, the shift from product-centricity to customer-centricity is now tablestakes.

Jeffery To

October 10, 2017

This year's InsureTech Connect blew me away. More than 100 senior leaders attended our Salesforce Exec Summit and shared their firms' transformation stories. I especially enjoyed hosting a discussion, "A View from the C-Suite," with Paula Downey (CEO, CSAA) and Naveen Agarwal (Chief Customer Officer, Prudential). I got a lens into what makes other leaders tick: their habits, their values and their sources of inspiration in the face of difficult and risky change. For example, one CEO intimated how she keeps herself out of her comfort zone.

"I read everything. Just to get diverse perspectives. I try to read for 2 hours in the morning, and then finish my day with more reading whenever I can."

That really struck me. Every morning, the day-to-day minutiae of email, texts and news sound bites all conspire to rip our attention apart. Yet here's this very busy leader of a $3 billion company who still manages to schedule time for quiet, concentrated, contemplative reading. Every morning. Every night. I have no more excuses. See also: Future of Digital Transformation And there were more equally moving insights about leading change. I put six of them into this infographic:

Why the urgency? Financial services and insurance -- industries that are built not on tangible products, but on customer trust -- are among the industries that are bracing for the most significant change. The shift from product-centricity to customer-centricity is now tablestakes. With a supercomputer in every pocket, and the impending explosion of IoT data, digital upstarts are vying to become the next Amazon Prime of insurance that's personalized, on-demand and mobile-first.

How are you driving change? What are your secrets of success? Please share. See also: 4 Rules for Digital Transformation Thanks so much to everyone who attended the Exec Summit!

Jeffery To

Jeff To is the insurance leader for Salesforce. He has led strategic innovation projects in insurance as part of Salesforce's Ignite program. Before that, To was a Lean Six Sigma black belt leading process transformation and software projects for IBM and PwC's financial services vertical.

Leadership

Understanding the Person With Chronic Suicidal Thoughts

Some people who think of suicide do not want to stop. They say it comforts them to know it's an option if life gets too tough.

Stacey Freedenthal

October 9, 2017

The popular image of someone who is in danger of suicide goes like this: A crisis occurs. The person has overwhelming urges to die by suicide. Through the benefit of a call to a crisis hotline, loving remarks by family and friends, good psychotherapy, hospitalization or simply the passage of time, the crisis resolves within days or weeks, if not much sooner. That’s the popular image, and, I'm happy to say, it does happen for many people. But for many other people, there is no crisis that stimulates suicidal thoughts. Or maybe there was a crisis long ago, and it planted a seed that over the years has grown into a towering tree, one not easily felled by crisis intervention, therapy or time. For these people, suicidal thoughts are chronic. The trajectory is similar to that of a person with any other kind of chronic condition: There may be flare-ups where it is far worse than normal, and then the symptoms subside, but only temporarily. And for some people, the symptoms never subside. They live with their symptoms – in this case, suicidal thoughts – every day. Chronic suicidal thoughts are especially common in people with borderline personality disorder, an illness characterized by difficulty regulating emotions, impulsive actions and unstable relationships. The psychiatrist Joel Paris says that, for many people with borderline personality disorder, “suicidality becomes a way of life.” However, chronic suicidal thoughts can occur in concert with other mental illnesses, such as recurrent episodes of depression, or even with no illness at all. See also: Suicide and the Perspective of Truth Many people who regularly have suicidal thoughts will tell you they do not view the thoughts as a problem. In fact, they might have considered suicide for so long that it feels normal to them. Some have thought of suicide ever since they were young children. And some have made multiple suicide attempts, sometimes so many that they lost track long ago. Often the psychological pain of people with chronic suicidal thoughts is intense, but even seemingly minor challenges can awaken the wish to die. Frank King captures this dynamic well in his TedX talk, A Matter of Laugh or Death. Although King is a comedian, he provides this example in all seriousness: “See, people don’t understand. Let’s say my car breaks down. I have three choices: Get it fixed, get a new one, or I could just kill myself. I know, doesn’t that sound absurd? But that thought actually pops into my head…. It’s always on the menu.” Some people who think of suicide do not want to stop. They say it comforts them to know they can die by suicide if ever the pain of life gets to be too much for them. This dynamic led some experts to refer to “suicide fantasy as life-sustaining recourse.” As the philosopher Friedrich Nietzsche stated, “The thought of suicide is a great consolation: by means of it one gets successfully through many a bad night.” This is not to say that chronic suicidal thoughts are harmless. The more someone thinks of suicide, the more they might get used to the idea, thus dissolving their inhibitions and fears around suicide. And chronic suicidal thoughts typically indicate that an unhealed wound needs the person’s attention, whether that wound arises from past trauma, mental illness, grave loss, or some other cause. Even for people who do not view their recurrent suicidal thoughts as a problem, it certainly is better if they can come up other escape fantasies besides death. Better yet, they can be helped to develop problem-solving abilities, coping skills, hopefulness and reasons for living that will make the option of suicide unnecessary. So, for someone with chronic suicidal thoughts, therapy tends to take longer than it does for someone in an acute crisis. The goals of therapy are not only to keep a person safe but also to help them develop the skills and resources that will weaken suicide’s allure. Often, it is not a realistic goal for a person with longstanding suicidal thoughts to stop. Suicidal thinking has become a habit. And nobody can control what thoughts come to them, only how they respond to the thoughts. One way for someone to respond constructively is to observe their suicidal thoughts with curiosity and detachment. Some of my therapy clients say to themselves something like, “That’s not my real self talking. That’s my depression (or stress, or post-traumatic stress, or some other condition) talking.” Mindfulness can be especially useful here. The psychologist Marsha Linehan, PhD, developed dialectical behavior therapy, a form of cognitive behavior therapy combined with principles from Zen Buddhism. She uses a metaphor of a train passing by: You can sit on a hill and watch the cars of the train pass, or you can jump onto one of them and get carried away by it. So if you know someone with chronic suicidal thoughts, you don’t need to respond as though it is an emergency unless the suicidal thoughts have intensified to such a degree that the person is in danger. If the person is intent on acting on their suicidal thoughts soon, that’s an emergency. See also: Blueprint for Suicide Prevention If the person is simply having the same thoughts that they have had for many years, then don’t panic. Compassionately listen and empathize with the person. Ask how you can be of help. Talk with the person about resources they can use, like the National Suicide Prevention Lifeline (800-273-8255) or the Crisis Text Line (741-741). Also talk about how they can keep their environment safe, like by removing firearms from the home. Chronic suicidal thoughts are not ideal, but they also are not a crisis in the absence of intent to kill oneself. As odd as it sounds, the option of suicide might be the very thing that helps some people to stay alive.

Stacey Freedenthal

Stacey Freedenthal, PhD, LCSW, writes extensively about suicide. Her book, Helping the Suicidal Person: Tips and Techniques for Professionals, was published in fall 2017 by Routledge, an imprint of Taylor & Francis. Almost two million people have visited her website, SpeakingOfSuicide.com since 2013. She also has published scholarly articles about the measurement of suicidal intent, youth’s help-seeking when suicidal and other topics related to suicidality. (For more information about her book, please see HelpingTheSuicidalPerson.com.)

Leadership

Is It Time to Outsource Printing?

Many fear losing control because the print shop is not within arm’s reach, but outsourcing can improve quality and efficiency.

Gina Ferrara

October 9, 2017

Determining whether to shut down your internal print and mail operation and outsource to a print service provider, or keep it in-house and potentially make a capital investment in new technology can be a tough conversation. Those in favor of the latter option will cite concerns over sending customer data outside the organization and advocate that investing in new technology will improve operational workflows, enhance the customer experience and increase brand recognition by adding color to documents, as well as potentially generating a better ROI for the organization. Proponents of outsourcing believe that print is not a core competency and argue that outsourcing to a service provider would be the less expensive alternative. While there may be a variety of reasons that cause an insurer to consider closing the print shop, a few factors can create the perfect storm. 1. Decline in transactional print volumes Electronic delivery of customer communications was a high priority for many organizations as a cost-reduction strategy. While adoption rates may have varied, electronic delivery nonetheless caused transactional print volume to decline, even causing some enterprises to consolidate production into one site. Print volumes decline, unit costs go up and outsourcing becomes more financially attractive. 2. Equipment has reached end of life or end of lease Insurers in need of a technology refresh may not be willing to make the investment or be able to justify the expense. New technology can speed production, streamline operations, enhance documents with color capability and reduce risk; however, if priorities have changed and the customer communications management (CCM) strategy has shifted toward enhancing the digital experience, convincing management to invest in print technology may be a tough hurdle to overcome. 3. Limited or no color capabilities Some in-plants can only produce output in monochrome, or have very limited color capability. With the demand for color increasing, internal lines of business may look to an outside vendor to meet their requirements for color, and corporate marketing may have already beaten them to it. From a financial perspective, this is a double whammy. Outsourcing a subset of documents to a third-party provider decreases the volume for the in-plant facility and further exacerbates the impact on unit cost. In addition, outsourcing low volume to a third party can be costly for two reasons: higher unit costs from no economies of scale and additional conversion costs if the organization decides to consolidate all print volume with a single service provider in the future. See also: What Tasks Should Agencies Outsource? 4. Increased regulatory pressures require full document integrity Non-compliance with regulations can be costly from a financial and reputational risk perspective. Production issues such as double stuffs or incorrect document breaks create privacy issues with personally identifiable information (PII). Organizations must take the appropriate measures to ensure that sensitive data is secure. Software that provides factory controls and tracking capabilities for each mail piece throughout the entire manufacturing process is critical to ensure correct and complete packages. 5. Single-site operations must rely on third-party providers for disaster recovery and business resumption services If an enterprise operates one site, or has consolidated sites due to decreased volume, then disaster recovery and business continuity services must be contracted with a third party. Acquisition of facilities due to a corporate merger may not always provide the ability to transition print files from one site to the other if software, equipment and infrastructure differ. Worse yet, sometimes older equipment gained by acquisition must be kept due to machine-specific print jobs. 6. Change in management philosophy Even without the previous five factors, sometimes a change in senior management philosophy might be the one driver for the decision to outsource. C-level management may believe that print and mail is not a core competency of the overall business and thus should be outsourced to a service provider. While it makes sense to consider outsourcing if print volumes have been on the downward slope, there is no magic number or volume threshold that dictates the exact time to do so. Understanding the benefits that can be obtained by outsourcing may help to reduce anxiety and clear up the stormy skies clouding the decision process. To start, no capital investment in new equipment is required. Unlike an in-plant operation, service providers have the ability to spread the cost of capital across multiple clients and have made the investment in color technology. Due to greater economies of scale, service providers have great buying power for consumables such as ink, paper and envelopes. In addition, a reduction in postage expense could be realized if postal densities for five-digit and three-digit rates are met. To remain compliant with certain regulations, service providers must have strict production controls and data security procedures to ensure that sensitive data is protected. File-based tracking tools ensure that files are received on time and that record counts are accurate, while piece-level or page-level tracking ensures that each mail package is correct and complete. Detailed production reports with key performance metrics (KPIs) are available via a dashboard allowing clients to log in, view production job status, request document pulls or re-directs and even create customized reports. To facilitate testing, quality reviews can be performed prior to releasing files into production via a review-and-release capability. Once the decision to outsource has been made, it is time to set sail and begin the journey. Because price will most likely be a significant factor in vendor selection, here are a few tips that should be kept top of mind:

Create a complete inventory of all printed communications to be included in the request for proposal (RFP). Consolidating all print – what is produced internally or by external vendors – with a single provider is the best way to maximize volume pricing.
Understand what is included in transition costs, which can vary significantly by provider. To secure a contract award, some may include a certain number of free hours of development time as part of the transition cost.
Standardizing address location on documents eliminates the need for multiple types of envelopes, streamlines the manufacturing process, allows for jobs to be concatenated together and helps to keep production costs down.
Review SLAs for all applications to determine if there is flexibility.
Contract duration will typically affect price; therefore, annual pricing quoted in a five-year contract will be less than in a three-year contract.

See also: Go Digital… but Don’t Change Who You Are Deciding whether to outsource print requires consideration of a variety of factors, but with a detailed analysis of the pros and cons of both options, an informed decision can be arrived at more easily. Many insurance organizations fear losing control because the print shop is not within arm’s length, but the security, output quality, and efficient manufacturing controls implemented by top tier service providers should help to alleviate that fear. No transition is perfect – but the technology, processes, and depth of knowledge offered by a print service provider will ensure smooth sailing.

Gina Ferrara

Gina Ferrara is senior analyst at Madison Advisors, an independent analyst firm that specializes in offering Fortune 1000 companies context-specific guidance for a range of content delivery strategies, particularly those addressing enterprise customer communications.

Agent & Broker

Distribution: About To Get Personal

The supply chain will co-exist with brands and within ecosystems unconnected to insurance. Carriers will be irrelevant.

Rick Huckstep

October 9, 2017

The buying of insurance is going to change. The “sold, not bought” view of insurance distribution has run its course for many lines of business. Customer expectations have changed, and the inside-out approach to building silo-ed, exclusion-filled, fixed-term products just doesn’t cut it anymore. For this month’s InsurTech Insights, let's look at a new means of distribution that will fundamentally change the insurance supply chain, where insurance will be supplied through ecosystems as part of a wider proposition and not a solo purchase bought in isolation. After all, people don’t set out to “buy” insurance per se. What they want is a safety net in case something untoward happens.

"Your fat margin is my opportunity"

The insurance supply chain is typically seen as a linear model. Insurance distribution starts with brokers, ARs and MGAs at the front end. Carriers underwrite risk and decide whether to pay a claim. And the buck stops with the reinsurers. Front to back, risk and premium move from one intermediary to another, each one taking its share. It’s a model that hasn’t really changed over the last century. “Your fat margin is my opportunity” is the Jeff Bezos quote that defines the era of digital disruption. We now see tech-savvy entrepreneurs finding ways to “disrupt” established business models using digital and mobile to streamline out-of-date business models oozing with fat margin. When you look at the world of insurance, it’s easy to imagine that Bezos was looking at the world’s largest industry when he made that quote. It’s no surprise that insurtech has become the new fintech. The combination of many intermediaries in the supply chain, each one taking margin, together with the inefficient friction that goes with it has fueled the rise in insurtech. When you add in the shift in agency to the consumer (because of the likes of Bezos and how he built Amazon by putting the customer absolutely and unequivocally at the center), it is easy to see why insurance is a juicy target for digital disruptors. See also: Taking the ‘I’ Out of Insurance Distribution Redefining the Insurance Supply Chain As the insurance industry catches up and embraces the Fourth Industrial Revolution, we will see a redefining of the insurance supply chain. It's started already. It will evolve from the traditional linear model where risk and premium move front to back in a bi-directional flow. In its place, we see new supply chain models for insurance distribution at the front end with efficient management of risk capital at the back. Of course, as a highly regulated industry, insurance faces a drag on change from the legislature. But just as regulators and lawmakers made adjustments to accommodate the fintech models for alternative finance, they will follow suit in insurtech. And why wouldn’t they?

In the new model for insurance distribution, the supply chain will co-exist with brands and within ecosystems unconnected to insurance. Customers will be rated as individuals and not members of a risk pool. A greater share of premiums collected will be set aside to pay claims. Instead of sales commissions, there will be platform fees. Time to pay claims will become the KPI of choice for customers to rate their insurance experience. And as convenience replaces price as the key buying criterion, the way that insurance is distributed will change. Automation is key for insurance distribution In the new insurance supply chain, there will be fewer handoffs, less friction, less premium erosion. Just like with Amazon, the customer will be absolutely and unequivocally at the center of the ecosystem. Trusted brands will own the customer relationship. These brands know the meaning of loyalty and will value these relationships highly. They also understand how expensive it is to build them in the first place, and how easily that can be lost. Amazon-like levels of service will become the norm for both insurance distribution and paying out claims. Automation is the key to making it very, very easy to do business. Of course, someone will need to manage risk capital. This will be the domain of the reinsurers, with the role of the carrier becoming superfluous. The reinsurers know better than anyone how to manage large pools of risk capital. They’ve been carrying the insurance industry for long enough. In the new insurance supply-chain, firms like Sherpa will own and manage the customer experience. The Sherpa model is to charge a value-based annual fee to a customer in return for meeting all insurance needs. This removes sales commission from the equation. The founder and CEO of Sherpa, Chris Kaye, explained to me, “Today, insurers pay sales commission for selling the insurance products that the insurers have created. “We are turning that on its head and creating a membership organization that is unequivocally on the consumer’s side. No more commissions for products you don’t need, instead a flat fee to assure the risks that matter most are protected.” How does this work in the Sherpa model? On behalf of customers, Sherpa goes straight to Gen Re and buys insurance wholesale. Sherpa can distribute personalized insurance products to customers while packaging up parcels of risk at the back end. This innovative approach is one example of how customer brands will be able to fine tune, personalise and price based on a whole set of new and different risk criteria. So what? Well today, insurers create the products that they want to sell. Brokers do their best to find the best match of their customer’s needs to the fixed insurance products on offer. But customers end up paying for cover they don’t need. And they don’t always get the specific cover that they do want. The new approach allows the brand, in this case Sherpa, to personalize the cover specific to the individual while packaging up modules of risk for the expert managers of risk capital. Go west to see the future of insurance distribution China’s ZhongAn epitomizes everything that is insurtech. It is a 100% digital tech business with around 1,500 employees. More than half of them are developers, and none are in sales. The company also happen to provide insurance, and a lot of it! In the first three years of trading, ZhongAn wrote more than 5 billion policies. It sold 200 million policies in one day alone last November during China’s annual online shopping fest! The thing that makes ZhongAn the darling of insurtech is that 99% of all operations are automated. Quote, policy, premium collection and claims are all automated, which is why the company can process 18,000 policies a second. But it’s ZhongAn’s approach to premium pricing and insurance distribution that really set it apart. First, the insurance business is built around retail ecosystems. The products are embedded in the customer buying process through retail sites. The company makes it super easy to buy insurance, simply by checking a box. Next, the insurance is micro-priced, based on a personalized premium, unique to the individual customer. ZhongAn does not use the law of large numbers to price risk premium. Instead, ZhongAn uses big data for dynamic and personalized pricing. There is no single price list for insurance products. Customers are risk-assessed individually and priced accordingly. For ZhongAn, it is more important to build customer loyalty (aka stickiness) through speed and convenience. See also: Distribution Debunked (Part 1) ZhongAn use ecosystems to distribute insurance A question I get asked a lot is: “Are these insurtechs an insurance firm or a tech firm?” It’s a great question, just like asking if AirBnB is a hotel chain or if Uber is a taxi firm. Of course, there are many old diehards of the insurance industry who rail against that question and revert back the old mantra of “an insurance company is an insurance company.”

But the reality is that, in this rapidly changing digital world, the fundamental nature of providing a financial safety net is changing, too. The old “insurance product,” designed by insurance companies to suit their own needs and aimed at customer segments that never claim, is on its way out. In ZhongAn’s case, it is a tech company first, which is why it can take a fresh approach to insurance, unhampered by old ways of thinking. When it comes to insurance distribution, ZhongAn’s business model is based on supplying insurance cover through an ecosystem partnership model. The company doesn’t pay broker fees or have to support a huge cost of sale. Instead, it has partnered with leading players that already have a customer base across many different market sectors. This allows ZhongAn to directly embed insurance products into an online experience, making it really easy for the customer. Customers simply check a box to include the insurance cover. The premium is dynamically, real-time, micro-priced, unique to the customer at that moment. This is all about improving customer experience. Insurance distribution is going to change, it’s just a matter of time

For many, it is hard to imagine a world where insurance could be any different than how it has been for the past 100 years. To them I say, cast your mind back to 1995. It was only 20 odd years ago that people were talking about this thing called the World Wide Web and about how everything could change. A lot of it sounded science fiction and the stuff of fantasists at the time. Even so, nobody could have possibly imagined the full extent to which the world would change. And, over such a short span. All because of this thing called the internet. Just as the supply chains of many industries have changed in the internet era, so will that of the insurance industry. It’s no long a question of “if,” but “when.”

Rick Huckstep

Rick Huckstep is chairman of the Digital Insurer, a keynote speaker and an adviser on digital insurance innovation. Huckstep publishes insight on the world of insurtech and is recognized as a Top 10 influencer.

Emerging Technologies

InsureTech Connect 2017: What's New

Many insurtechs and their insurer partners are on the verge of rollouts and implementations that will produce major results.

Mark Breading

October 6, 2017

The insurtech movement is in full swing, and one need look no further than the ITC2017 event for evidence. The event itself mirrors the trajectory of the most successful insurtechs – coming out of nowhere to achieve success virtually overnight, at least overnight in the context of the insurance industry. Any event that goes from nothing to 1,500 participants in year one and 3,800 in year two is worthy of attention. ITC and, in fact, insurtech overall has been a wild ride. And I say this as an active participant in insurtech – as a mentor, adviser, researcher and strategist to insurtechs, insurers and incumbent tech firms. So, a few observations and predictions on the movement are in order.

Growth. In early 2015, SMA began tracking insurtech startups. The initial list had about 50 companies and has grown rapidly to have almost 1,200 worldwide. There have been failures along the way, but there is still an upward trend in the number of startups.
Maturity. In many of the first encounters I had with insurtech founders, there was a certain self-admitted naivete regarding the insurance industry. Many happily volunteered that they knew nothing about insurance, but had a really great idea that was going to disrupt the industry. Fast forward to today, and you find many industry veterans who have been brought on board, much learning about the industry on the part of those inexperienced with insurance and a newfound respect for the strengths of the traditional industry.
Partnering. Everyone in the ecosystem is seeking partners – re(insurers), insurtechs, existing tech companies (what we call MatureTechs), accelerators and others. In most cases, it is not about displacement but more about enhancement through partnering.
Experimentation. Trying new business models, new products and coverages, new distribution approaches and new operational activities is more widespread in the industry than it has ever been.
Excitement. There is a palpable sense of excitement, energy and enthusiasm in insurtech crowds. The mix of individuals and background is more varied than ever, creating sparks of innovation everywhere.

See also: Top 10 Changes Driven by Insurtech The one aspect of insurtech that is still in early stages is the powerful, mind-bending results. There are premiums being run through insurtech players every day; insurers are achieving operations efficiencies and improving the customer experience, and they are placing new products on the market. But in the context of a massive industry, the numbers and the impact are still small. I offer three main predictions on where insurtech is likely to head over the next few years:

Results/Impact. Many insurtechs and their insurer partners are on the verge of rollouts and implementations that will produce more substantial results. We are likely to see some insurtechs emerge as big winners.
Growth Curve: SMA expects the number of insurtechs to continue to increase, as capital and appetite are still there to fuel growth. However, we will enter a phase in the next one to two years when more startups close their doors, are acquired or otherwise exit as standalone firms.
Convergence: Insurers and insurtechs are already finding successful formulas that leverage the traditional strengths of the insurer with the new technologies, capabilities and ideas of insurtechs. This is likely to be the predominant trend over the next few years.

See also: Insurtech Is Ignoring 2/3 of Opportunity Insurtech is beginning to change the industry, playing a major role in insurance transformation. Many insurers have already been spurred into more aggressive strategies because of the activities in insurtech. At the ITC2017 and similar events, we are starting to glimpse the new face of the insurance industry.

Mark Breading

Mark Breading is a partner at Strategy Meets Action, a Resource Pro company that helps insurers develop and validate their IT strategies and plans, better understand how their investments measure up in today's highly competitive environment and gain clarity on solution options and vendor selection.

Going Digital

Is Insurance Broken? (Part 1)

No, insurance isn’t broken, but it has been painfully slow to evolve and is now in desperate need of some modernization.

Braden Davis

October 6, 2017

Long on fear, short on facts, so-called disrupters are using “insurance is broken” as a marketing tool to win customers. In Jetty’s view, insurance isn’t broken, but it has been painfully slow to evolve and is now in desperate need of some modernization. Insurtech is heating up, with more being written about this corner of the insurance industry than ever before. At Jetty, we’ve been busy combining a novel combination of products to help streamline the home rental process and, along the way, participating in a lot of conversations all across the spectrum about how the insurance industry is evolving. As we headed to InsureTech Connect, we saw this as a good time to kick off “Signal to Noise,” a recurring series of thought pieces about the various aspects of insurtech — the things that matter to all of us to some extent or another (or ought to), whether it’s the technical workings of insurance, the individual products, distribution challenges and opportunities, or the increasing awareness and focus on the customer experience. Starting now and continuing through the end of 2017, my colleagues and I will go into far more detail in each of those distinct areas of Insurtech. To kick off this series, let’s take a high level look at how the signal-to-noise ratio is obfuscating our sense of the industry’s real challenges, by unpacking Insurtech’s most clickbait-worthy claim: insurance is broken. An introduction The single biggest element missing from personal lines insurance is a real understanding of one rather important, but often forgotten figure in the equation — the customer. Specifically, how the customer’s needs should inform product development, distribution strategies, and the customer experience. Here in Part 1, we’ll explore the "insurance is broken" narrative, where it is misleading and, conversely, where it highlights genuine shortcomings. And in future articles we’ll go deep into each area. The fundamental, technical aspects of insurance Broken-o-meter-score: Low

At its core, insurance is sharing or “mutualization” of risk — a concept that has been practiced for thousands of years in different formats, but with the same fundamental principle: the distribution of the risk of loss, and ensuring mutual aid. For as much noise as is out there, the reality is that this “risk transfer” element is one of the strongest and healthiest aspects of the industry. And as much as some Insurtech’s claim to be reinventing the model, the reality is that this principle continues to serve as the basis of our industry. Another oft-criticized technical aspect is the policy “form”. The technical and court-tested contract language, while neither pretty nor readily-comprehensible to laymen, functions as it should. Let’s not forget that an insurance policy is a legal contract, and the legal system demands specificity. The problem lies not in the existence of the jargon itself, but rather in the failure to translate that jargon into plain English, on customers’ terms. At Jetty, we’re working to not just translate the technobabble into more easily digestible information but to make it relevant, maybe even enjoyable, and definitely more approachable. Easy when the bar is low! See also: Innovation: ‘Where Do We Start?’ The insurance product Broken-o-meter-score: Medium

Clever wording and great design aside, on the product front, being approachable just isn’t enough. The coverage offering — the scope and context of the protection which the insurance product should provide — is outdated. Consumer behaviors and expectations have changed. What are consumers most concerned about? Not a Zenith Console Hi-Fi —an iPhone. Not a mink coat —a Prada handbag. Not your father’s Oldsmobile — actually, not even a car at all. Not how do I protect the stuff in my rental home — how do I even get into a rental home. That last one — getting into a rental home — is one of the biggest pain points for the modern urban consumer, and is why we created Jetty’s Passport Deposit and Passport Lease products as part of an all-encompassing solution to update and streamline the entire home rental process. The products aren’t broken, but the industry is only now spending energy considering how they can be updated to address the emerging and changing needs of modern consumers. At Jetty, our products are a lot of things: updated, enhanced, combined, all in the pursuit of an all-encompassing solution to address the entirety of the home rental problem set. But they weren’t created anew. Because the underlying insurance products aren’t broken. The distribution model Broken-o-meter-score: High

In many ways, the U.S. is one of the world’s most innovative and technologically-advanced markets, where customer service and convenience are the hallmarks of our retail model. In contrast with almost every other consumer vertical, insurance is one American industry which lags far behind (ironically, this is not the case in some other parts of the world). At this point, many Insurtechs and pundits will throw agents under the bus in their interest to suggest the model is “broken.” It’s certainly not the most efficient and convenient model, but agents do provide a valuable and important service for the segments of the market that need real advice for complex situations. And just because those pundits think the advisory process is cumbersome, it doesn’t mean that they should (or will) be able to get away with shirking their duty to advise. The modern American consumer has grown up with different expectations — she is digitally-native and prone to prefer self-service. This widening gap creates both a great opportunity and one of the more interesting challenges — namely, how to provide intelligent, relevant advice through a more efficient technology-driven platform, accessible to the consumer wherever she may be. The customer experience Broken-o-meter-score: Very High

Insurance is a consumer good, but somehow, our industry never participated in the transformation experienced by the rest of the financial services market. This myopic perspective has only been amplified over the years as the changing expectations around ease of use and self-service have increased across the board. While everyone is racing to throw chat bots, AI, and IoT at the problem, the consumer’s fundamental expectation is this: a simple and straightforward process that leaves him or her feeling happy and relieved at the end. Most consumers view insurance as a necessary evil — how refreshing would it be if they can instead experience insurance as a problem-solver and an enabler. Providing a great consumer experience is more than tools and process (and far more than buzzwords) — it’s the entire look-and-feel, the voice, the lingo — everything that is tied up in the “brand.” See also: Top 10 Changes Driven by Insurtech At Jetty, we probably invested just as much time and sweat equity into our FAQ as we did in creating a clear and compelling consumer experience. And it is paying off handsomely, as informed customers consistently make solid decisions about how to use the Jetty products to help get into and protect their things in the place they rent. Tying it all together Insurance isn’t broken, but it certainly needs a refresh, free from false promises and criticisms that simply increase confusion. At Jetty, we’re combining an ability to speak to our customers in a way that resonates, with novel and thoughtful analytics that allow us to tailor coverage specifically to their lives. We’re adding real innovation by offering new and novel coverages that address emergent pain points like Bed Bugs and Lease Guaranty, alongside traditional products. We engage with our customers in ways that are simple and natural with how they obtain and process information, and navigate life’s obstacles. That’s our focus — presenting an entire solution specific to the modern consumer, with an innovative process and product combination that is easy, relevant, and instills confidence for renters and landlords alike. The challenge for our industry is to finally approach insurance as a consumer good, bring a “big-M” approach to marketing and deliver on a truly refreshing and stress-relieving experience. And this is a great week to keep this thought top of mind: What are you doing to deliver novel solutions to improve customer experience and address customer needs?

Braden Davis

Braden Davis is CEO at Jetty.com. Currently, Jetty focuses on solving the problem of renting a home through a novel offering of financial services and insurance products that solve major headaches for consumers and landlords. Offered in combination or à la carte and accessible over any digital device, Jetty products are widely available across the United States, and aiming to be nationwide by the end of 2017.

Going Digital

Lemonade: Interview With CEO

"Not just our business model but also the whole product flow is informed by behavioral economics."

Roger Peverelli

Reggy De Feniks

October 6, 2017

Lemonade is currently the most talked-about disruptor. That’s why we’re pleased that, for the first time in Europe, Lemonade will present at DIA Munich what the pioneering concept is all about in a keynote presentation. As a special DIA Munich appetizer, we spoke to Lemonade CEO and co-founder Daniel Schreiber recently, exactly one year after the company launched. DIA: Daniel, congratulations on Lemonade's first anniversary. It must have been a roller coaster ride. Thanks for being willing to share some of the experiences and learnings. Did the first year meet your expectations? Daniel: "Yes, it has been quite a ride. But it is great to see that we're striking the right chord. We already sold ten thousands of policies. Our portfolio doubles every 10 weeks." DIA: If you had to name just one thing, what would you say is the key success factor so far? Daniel: "Our renters insurance is 80% cheaper than what competitors offer and takes less than 90 seconds to purchase.” DIA: 80% cheaper is almost unbelievable … Daniel: “Many industry insiders think so, too. [They think that] at least 40% of what insurance carriers receive in premiums is paid out in claims. So if Lemonade is 80% cheaper it must lose money on every policy. That is not true. Renters insurance covers personal property, not real estate. The expected loss is therefore significantly lower and so should the corresponding premium be. Unfortunately, the enormous overheads incumbents have make low-premium products impossible. Their minimum premium reflects their high costs rather than your low claims.” See also: Lemonade’s New Push: Zero Everything DIA: We can imagine that such a price difference attracts a specific segment … Daniel: “Yes, indeed. We offer a good price, especially at entry levels. No less than 87% of our customers are first-time buyers. Lemonade is the preferred insurance brand among first-time insurance buyers. In the state of New York, where we first launched Lemonade, we now have a market share of 27% among first-time buyers.” DIA: Was this the target segment you planned to focus on initially? Daniel: "Not really, at least not to this extent. This was definitely not planned or expected. It appears our proposition is attracting people who did not think of such an insurance before; because it was too expensive, too much hassle, or because they had little trust in the added value. So it turns out we actually opened up an underserved, untapped market. This was really a surprise for us, as well. It just shows that with really new propositions there is only so much that you can plan." DIA: This suggests the Lemonade concept is about solving frictions that customers experience when dealing with a traditional insurance incumbent. Aren't you selling yourself short here? Daniel: "True. It is not just about solving frictions; being faster, better or cheaper. That wouldn't be sufficient in the long run. When we started conceiving Lemonade, we immediately realized there is no way you can beat insurers at their own game. We needed to think beyond that. We decided to foster trust, not suspicion. Our business model is built on two very distinctive pillars: behavioral economics and artificial intelligence.” DIA: The pillar that is often highlighted is behavioral economics, one of the reasons we like Lemonade so much. Insurers could benefit much more from psychology and social sciences. Daniel: "The vast knowledge and experience of our Chief Behavioral Officer Dan Ariely (professor of psychology and behavioral economics at Duke University) is instrumental in this. We apply behavioral economics to neutralize the adversarial relationship, the conflict of interest, between customers and their insurance provider. We take 20%, and the rest (80%) goes to paying claims, and this includes our reinsurance. If less than the 80% is used to pay out claims, for instance 75%, the 5% unclaimed money is donated to charities chosen by customers. The maximum amount that can be given back is 40%. Lemonade gains nothing by refusing a claim. This way we are reinventing insurance from a necessary evil to a social good." DIA: Can you explain how behavioral economics reflects in Lemonade's daily customer experience? Daniel: "Not just our business model but also the whole product flow is informed by behavioral economics. For example, we ask people to sign on the top of the form, not at the bottom. Behavioral research shows that asking people to pledge honesty first results in forms that are actually more accurate." DIA: How does this affect the combined ratio? Daniel: "Multiple ways. For example, we also apply behavioral economics to reduce fraud. In the onboarding process, customers are asked which charity they want the money that is not used for claims to go to, let's say the Red Cross. Now, when at some point in time a customer files a claim, we first remind the customer of the charity he or she selected before diving into the claim. We do that on purpose. To many people, insurance fraud is considered a victimless crime; you're not really hurting someone, at least that is the perception. Research shows that 24% say it’s okay to pad an insurance claim. We're changing that by immediately creating the presence of a victim. Making it crystal clear that a claim harms a charity someone cares about inhibits misuse." DIA: Do you already have proof points that using behavioral economics this way works at a larger scale? Daniel: "Obviously we're a young company, so the amount of claims that we receive are still limited. But we already have early indications that this really works. In the last two months, we actually had six customers who claimed and got paid, but later on returned the money. Someone, for instance, thought his laptop was stolen, claimed and got paid. A few weeks later, it turned out he had left the laptop with his mother-in-law. He then decided to return the money, probably because he didn't want to harm the charity he selected. I would really love to know how many customers of traditional insurers are returning their money." DIA: Insurers need to manage the feelings side of financial services much better than they do today. Quite a few tend to forget that when they are going digital. Others are building hybrid solutions of, for instance, chatbots and human experts. How do you secure the human side in a pure play such as Lemonade? Daniel: “Behavioral economics is one pillar of our business model; artificial intelligence is the other. Thanks to AI, we don’t have to rely on brokers and paperwork. Underwriting and claims handling are taken care of by AI, as well. This makes it even more important to secure that we are recognized as living, breathing people who really care. My co-founder Shai Wininger has a rare talent to marry technology with customer understanding. Our bot has a name. It talks in an approachable manner. It doesn't say, ‘I don't understand.' We know its limits and anticipate the direction in which the conversation is going. Next-level questions are seamlessly moved to our, human, support staff.” See also: Lemonade: World’s First Live Policy DIA: We quite often see that traditional insurance carriers have a strong immune system when it comes to embracing insurtechs. Apparently, different cultures are difficult to match. Sometimes we even see organ rejection. We noticed that the Lemonade team not only incudes tech veterans like yourself but also former executives from AIG and ACE. How do you make that work? Daniel: “When we started thinking about a new concept in insurance, we just had a rudimental understanding of insurance. We had the advantage of being ignorant. We had no preconceived notion. This helped us to question the basic principles of the industry, such as the conflict of interest. "Coming from the outside helped us to rethink, reconceptualize in a fundamental way, from scratch, what Lemonade should be about. "Now, it is only so far you can take that. As soon as you move to execution, you really need to have deeply entrenched insurance knowledge on board. Think of the regulatory maze we have to go through. Then it comes to finding the right people, which was not that easy. We soon realized that we were looking for ‘insiders’ who were ‘outsiders’ at the same time. In our recruitment ad, we actually said it was a requirement to be in the throes of a midlife crisis; not feeling happy in the corner office anymore. They had to buy into our vision.” DIA: We noticed that your fast growth in an market segment that is so difficult to reach by incumbents has led companies such as GEICO and Liberty Mutual to use "lemonade" in their marketing and promotion activities … Daniel: “Ha ha, yes, we’ve noticed that as well, of course. GEICO even introduced a ‘lemonade’ TV commercial at the same time as we launched the company. Liberty Mutual, in fact, introduced a new brand, Lulo, and paraphrased everything, from logo to pricing. "We take it as a compliment that such renowned brands are looking at us, and try to learn and use our ideas. But the examples also show that it is not that easy. Lemonade is more than a logo. You really need to understand the two pillars of our model: behavioral economics and artificial intelligence and how that reflects in the way we operate. And you need to understand that we are really a different kind of company. Obviously, we have duties to our customers, employees and investors. But we’re also a B-Corp, which makes us legally committed to social impact. Our customer base is therefore more like a community of people around a cause – which in turn results in more trust and less fraud. It is about aligning customers and insurer, and giving up underwriting profits. We’re rebranding the insurance sector.”

Roger Peverelli

Roger Peverelli is an author, speaker and consultant in digital customer engagement strategies and innovation, and how to work with fintechs and insurtechs for that purpose. He is a partner at consultancy firm VODW.

Reggy De Feniks

Reggy de Feniks is an expert on digital customer engagement strategies and renowned consultant, speaker and author. Feniks co-wrote the worldwide bestseller “Reinventing Financial Services: What Consumers Expect From Future Banks and Insurers.”

Emerging Technologies

Time to Bust Myths on Cloud Computing

Fallacies include the belief that lifting and shifting applications to the cloud does not work and that sunk costs are unrecoverable.

Michael Costonis

October 5, 2017

Insurers are under increasing pressure to accelerate innovation to keep pace with new disruptive technologies and changing customer behavior. Cloud computing provides a crucial vehicle for much-needed digital innovation. It underpins all the major digital advances insurers need to adopt to satisfy future customer needs and meet long-term business objectives. Innovations as diverse as digital channels, self-driving cars, wearables and advanced analytics systems all depend on cloud technology. See also: Growing Import of ‘Edge Computing’ However, many insurance executives are holding back from embracing the cloud. Around 85% of the executives we canvassed in our 2016 Technology Vision for Insurance survey, for example, agreed that the cloud would foster innovation in their businesses that was not previously possible. Yet, only 49% were investing in comprehensive digital technology programs as part of their business strategies – moves essential to capitalize on the potential of the cloud. Often insurers are stalling a shift to the cloud because of common misconceptions about this powerful technology environment. Some of the reasons they give for their reluctance are:

Lifting and shifting applications to the cloud does not work.
Sunk costs are unrecoverable.
Digital transformation can happen without cloud.

These beliefs are, for the most part, fallacies. Let’s look at the first fallacy: that lift-and-shift doesn’t work. In fact, we’ve already helped some insurers realize 80% savings using the lift-and-shift approach to cloud application migration. In the highly competitive banking sector, Capital One demonstrated the cost-cutting potential of switching to the cloud by migrating most of its critical workload to Amazon Web Services (AWS). The U.S. banking group expects this shift to help it more than halve the number of data centers it requires. In addition to cost savings, moving to a more agile, cloud-based environment provides insurers with the flexibility and speed-to-market that traditional infrastructure cannot match. That’s important, given that more than half the insurance executives we canvassed claim current technology processes are impeding their business objectives. Incremental change to traditional technologies will not solve that problem. A utility-based cloud model is the best way for insurers to improve their flexibility. Furthermore, our research shows that more than two-thirds of insurance executives believe that replacing their legacy technology with something new would be too costly. Yet more than 10% of carriers use no legacy technology at all. While the savings achieved by replacing legacy with cloud-native applications are typically hard to match, we see equivalent gains in some lift-and-shift scenarios, such as migrating development and test environments to cloud workloads. See also: ‘Core in the Cloud’ Reaches Tipping Point In my next post, I’ll address the common fallacy that sunk costs cannot be recovered if companies move to the cloud. In the meantime, have a look at this link. I think you’ll find it useful. Eighty percent reduction in insurance carrier costs? Cloud as rainmaker. This article was written by Daniel Presutti.

Michael Costonis

Michael Costonis is Accenture’s global insurance lead. He manages the insurance practice across P&C and life, helping clients chart a course through digital disruption and capitalize on the opportunities of a rapidly changing marketplace.