The sharing economy is not just a U.S. experience. It is truly a global phenomenon that has infiltrated and influenced multiple industries in both developed and developing countries. Even the ultra-conservative insurance industry has not been immune to these advancements. While U.S.-based insurer Lemonade has been receiving much of the recent domestic headlines for being an innovator, the insurance sharing model, or peer-to-peer insurance, has, in fact, been in existence in several countries since as early as 2010. Companies such as Friendsurance, PeerCover, Riovic and Guevara have played key roles internationally in the disruption of the traditional insurance model in countries like Germany, South Africa, New Zealand and France — among others. While peer-to-peer insurers shift focus toward technology, automation and social networking, it is apparent that the core concepts of traditional insurance — such as sharing losses through mutual insurance arrangements, avoiding adverse selection and mitigating moral hazards — remain fundamental to its business model and, quite frankly, its survival. Peer-to-peer insurance, much like traditional mutual insurance, is a group of “peers” who pool their premiums to insure against a risk and across both types of insurance the perils that buyers are insuring against remain homogeneous. It is, in essence, the centuries-old concept of mutual insurance being given a 21st century makeover. This new peer-to-peer model of insurance adheres to traditional pooling and sharing of losses, but it is now combined with today’s technology, providing a product for increasingly savvy consumers who require transparency in an on-demand economy. Further, peer-to-peer and traditional insurers also group policyholders in similar ways; however, the peer-to-peer model may provide more refined classes because of advances in computer algorithms and artificial intelligence (AI). Simply, peer-to-peer companies allow participants to insure a common deductible, while large claims are still covered by traditional insurers. When smaller claims occur that fall within the deductible, this loss is shared among a small circle of friends or similar policyholders. Traditionally, when policyholders had a good year and a favorable loss ratio, premiums would be returned in the form of a dividend. This concept has also been adopted by some peer-to-peer insurers, while others have also designated excess premiums be sent to a charity chosen by the policyholder group. So while peer-to-peer insurance may provide more refined methods of grouping policyholders or more options for distributing unused premiums, the underlying core concepts of traditional insurance are still maintained. See also: Examining Potential of Peer-to-Peer Insurers   Sharing economy businesses express their desire to reduce costs and increase transparency for consumers. Peer-to-peer companies are working to accomplish this by insuring self-selecting groups. Their philosophy is that they can improve the quality of the risk because of the relationship between the members. The peer-to-peer models strengthen the sense of responsibility within the group, which results in a reduction in both moral and morale hazard. As the two often get confused, we define moral hazard as a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost — in other words, an intentional act. Conversely, morale hazard is an increase in the hazards presented by a risk arising from the indifference of the person insured to loss because of the existence of insurance, which, in comparison, is more unintentional behavior. Allowing policyholders to actively choose the members of their policy group could foster a greater sense of belonging, responsibility and duty to others. Groups in which close-knit friends or family share in losses tend to manifest a stronger aversion to risk with the knowledge that your actions will have a direct impact on your family’s pocketbook. That family vacation everyone was planning — and paying for with the year-end dividend payment — could be put on hold because of a recent insurance claim. Similarly, if any proceeds from premiums were designated for a specific charity (i.e. pediatric cancer research in honor of a niece stricken with the disease), a member of a close-knit group may engage in better driving habits to avoid being the person responsible for a drag racing accident that could result in the loss of that donation. With more at stake, pooling participants are more likely to engage in responsible behavior — better for them and the insurer. For peer-to-peer models where groups can unconditionally decide on their members, there can be even greater benefits — for both the group and insurer. One such advantage is the reduction of adverse selection. Typically, it can be very difficult for insurers to assess the full nature and habits of applicants at the time of an underwriting review. The insured is typically in a position to palliate their risk, often without making material misrepresentations. However, in peer-to-peer models that rely on referrals from other group members, the likelihood that the complete risk exposure of a potential insured is revealed is much greater. For example, perhaps several family members have decided to submit an application for shared automobile insurance with a peer-to-peer insurer. While most of the members have superior driving history and habits, they all know to never drive with Aunt Susie. She’s known to them as a speeder, tailgater and road-rage extraordinaire; however, she has been lucky enough to avoid any serious accidents, which has kept her record looking clean. Though she may appear to be a good risk for a half-sighted insurer, her relatives know better and, in preservation of their premium and potential dividend, deliberately do not ask her to join their group. See also: An Overview of VC Investment in Insurtech   Although peer-to-peer insurance models have promoted their new-age benefits with the introduction of digital platforms, AI and cost transparency, their business model is built on the foundation on traditional insurance, and their ability to succeed will be based on how well they can deliver the best of both worlds. Peer-to-peer insurers will continue to develop their models and philosophies on distribution channels, return-of-premium programs and scope of coverage. While it is too early to calculate how much market share they can siphon from traditional insurance companies, it is clear they have many valuable attributes both operationally and philosophically that will assist them entrench their business among mainstream competitors.

This week's Six Things will serve as an introduction to Guy Fraker, who joined us not long ago as chief innovation officer and who wrote an important article linked to below. That article tackles the question that he hears so frequently when he coaches big companies on how to innovate: "Where do we start?"

Where to start about Guy? He is a huge addition to our team. He has 30 years of experience within the insurance industry and has been on the leading edge of building innovation systems for the past 10, spanning primary carriers, reinsurers and related sectors. Through what we call ITL's Innovator's Studio, he will offer webinars and provide other coaching for established companies that are wrestling with the thorny questions that come from trying to innovate at scale in such a rapidly changing environment. He will also assist us in evaluating and encouraging the more than 1,500 insurtechs we're tracking on the Innovator's Edge platform, as we help insurtechs and incumbents find the right matches with each other and form powerful partnerships. 

We don't intend to just be at the edge of innovation. We want to be in the middle, helping make good things happen. And Guy's breakthrough work on innovation will help put us—and you—right at the heart of the biggest change in insurance since Edward Llloyd set up his coffee shop near the wharves in London almost 350 years ago.

For good measure, Guy is one of the world’s leading authorities on the risks and opportunities associated with autonomous vehicles (which is how I first met him; I quoted him in a book on driverless cars that Chunka Mui and I wrote four years ago). Before joining ITL, he served as executive director of Cre8tfutures, which developed a step-by-step, "how to" system of innovation best practices, and was chief learning officer of AutonomouStuff, a provider of autonomy-enabling technologies and world class services. 

His article below provides a powerful framework for thinking about innovation, but that's just the start. You'll be hearing a lot more from Guy. In fact, you can subscribe to a new blog from Guy to follow his commentary and insights. And you can always contact him directly with any questions, at guy@insurancethoughtleadership.com.

Cheers,

Paul Carroll,
Editor-in-Chief

All any company decision-maker needs to do is pay heed to the intensifying regulatory environment to understand that network security has become a mission-critical operational issue. Consider that the Colorado Division of Securities is implementing 90 pages of new rules to clarify what financial “broker-dealers” and investment advisers must do to protect information stored electronically. That’s on top of the New York State Department of Financial Services enforcing new cybersecurity rules for financial services firms that wish to do business in the Empire State. And, of course, Europe is rolling out new privacy rules known as the General Data Protection Regulation, which will affect more than 4,000 U.S. companies doing business in Europe, including many small and midsize businesses. See also: How to Anticipate Cyber Surprises   I recently sat down with Edric Wyatt, security analyst at CyberScout, to discuss the first step any organization — of any size and in any sector — can take to increase its security maturity. His answer: Get cozy with the National Institute of Standards and Technology’s risk management framework set forth in its NIST 800 series of documents. (Full disclosure: CyberScout underwrites ThirdCertainty.) And let’s not overlook looming compliance standards covering data privacy and security, such as the Payment Card Industry Data Security Standard (PCI DSS) and the Health Insurance Portability and Accountability Act (HIPAA). Here are a few takeaways from our discussion: NIST is foundational. NIST 800 is composed of Uncle Sam’s own computer security policies, procedures and guidelines, which have been widely implemented in the Department of Homeland Security, the Department of Defense and most big federal agencies. New York state’s new rules for financial firms incorporate the NIST framework, and the U.S. Food and Drug Administration, likewise, refers to the NIST framework in guidance for medical device manufactures. NIST is aggressive. Derived from extensive public and private research, NIST 800 exists as a public service. It lays out cost-effective steps to improve any organization’s digital security posture. Implementation materials are available at no cost to organizations of all types and sizes, small- and medium-sized companies, educational institutions and state and local government agencies. NIST is flexible. At the end of the day, the NIST series guides organizations to shaping security policies and security controls that are flexible, adaptable — and effective. One vital component is senior management buy-in. New policies can and should be implemented and tweaked in a methodical, measurable manner and should be championed by senior leaders. The goal should not be just tightening security, Wyatt says, but also making one’s organization more reliably productive. A continual feedback loop can help keep controls alive and vital, Wyatt says. See also: Cyber Challenges Under NIST's Framework   This article originally appeared on ThirdCertainty.

Over a year ago, Stephen O’Hearn, global insurance leader at PwC, predicted, “Insurtech will be a game changer for those who choose to embrace it.” Since then, the insurtech playing field has matured. Many insurers that have operated in the “good enough” zone are finding that it is no longer, well, good enough. The game has changed. Whether you’re in underwriting, claims or exposure management or are a CIO, insurtech will have an impact on you. There's no option to stay on the bench. So, what’s your game plan? Partnership is the way forward Right now, collaboration should be a part of everyone’s game plan — not just insurers, but everyone from commercial tech providers to managing agents and brokers. Insurance is a team sport and has been since its inception. Insurtech will not change that; it will only amplify the need to partner — quickly. Who insurers pick as their partners to accelerate transformation matters, and the technology they employ to transform matters. See also: Insurtechs Are Pushing for Transparency   In the last year, talk of “disruption” has turned to talk of “collaboration” as the insurance community is realizing the fastest way forward is through partnerships. A more mature conversation is happening. Insurers are realizing the benefit — and speed — of leveraging what insurtechs have to offer. Once labeled “disrupters,” insurtechs are now “enablers.” Fact is, the vast majority of insurtechs aren’t looking to oust incumbents. They’re looking to find a niche where they can succeed and leverage the sheer scale of their more established partners. As a recent InsurTech Bytes podcast observed, “Partnership is the way forward. Enablers are leading disruptors across the insurance sector, presenting an exciting opportunity for insurers to drive forward their digital transformation. Insurtech has developed (largely) with a view toward partnership rather than disruption.” New digital opportunities are opening up more choice for consumers and businesses alike — think Internet of Things (IOT), vehicle telematics and, especially, advanced data and analytics. As customer expectations grow, an insurer’s data and analytics will need to keep pace in an effort to drive competitive differentiation. This includes the ability to hasten and streamline the quote process, more accurately price risk and mitigate and respond to claims. Insurers recognize data and analytics as a leading insurtech priority and, like other digital transformation priorities, are looking to either VC opportunities or partner integrations to accomplish this. In fact, in a KPMG survey of insurance executives, 25% of respondents said they already had a VC unit set up to make investments in technology companies. And 37% said a VC unit was in the works. Likewise, these same insurers are looking for partnerships to help accelerate transformation; three-quarters of respondents said they "will partner to gain access to new technology infrastructure." Still, while some insurers are clearly making plays toward making insurtech investments a priority, others are still on the bench. Only 39% of insurers believe they are harnessing digital technologies successfully. And one in five property and casualty (P&C) insurers do not apply advanced analytics for any function. This last statistic is mind-blowing when you consider how intrinsic data and analytics is to insurance. So, what is holding a large percentage of insurers back from embracing digital transformation? The gap between knowing and doing In a recent column, Denise Garth talks about the gap between “knowing and doing.” She writes, “Even though most companies know they should respond to key internal and external challenges to create promising growth opportunities — and more importantly to ensure survival — many are still only thinking about doing something, at best. Why is there a gap between knowing and doing?” The gap exists because the list of challenges is long: legacy systems and processes, lack of budget and downright risk aversion. Understanding where to start with digital transformation, and how, is critical for insurers that recognize the need to digitally transform. But the goal shouldn’t just be transformation. It should be to succeed — to lead and compete in ways that produce profitability, efficiency and innovation. However you measure success, integrating insurtech — whether IOT, blockchain or advanced data and analytics — should achieve those goals. But where to start? First, “see over the horizon” Without doubt, insurtech is an epic climb. It's not a bump in the road, it's a mountain that will shape the future of the industry. If we’re to succeed, we must start climbing — only by doing can we compete and start shaping what’s next. However, you first must climb to the top and, as Jon Bidwell, former Chubb chief innovation officer and now SVP and underwriting transformation leader at QBE North America, put it, “see over the horizon.” See also: 5 Insurtech Trends for the Rest of 2017   SpatialKey is insurtech, and even we’re not immune from the need to digitally evolve. We’ve been providing geospatial insurance analytics since 2011, and we’re constantly evolving our own platform and product offerings to include the latest technology. Our role as an insight hub is to help shorten and accelerate the transformation that’s necessary for insurers to remain competitive. But, at the same time, our insurance clients are recognizing that not all digital transformation has to be hard. Technology integrations can be swift and painless with the right partner. What is hard about insurtech is making the right choices, making the right investments, prioritizing the right transformation initiatives, collaborating with the right partners. It’s all a risk — but not as big a risk as doing nothing. There is no option to stay on the bench. No one knows what’s over the next horizon, but we all have an opportunity to shape it.

In the first of this series of four segments, we looked at the current state of the risk markets and the insurance industry. In this segment, we will look at how peer-to-peer (P2P) fits. First, P2P is not mutual insurance. While the mutual insurance model is in more of the same spirit as P2P than corporate insurers are, mutuals are still operating primarily with the same business methods that corporate insurance companies use, and the financial service is still an indemnity insurance contract. The same would apply to the fraternals. P2P is also not just a behavioral economic twist on insurance to reduce fraud. While elements of P2P methods do invoke (and should employ) behavioral economic principles, employing these principles alone will not qualify a service offering as P2P. P2P is hyped to get insureds to convert their social network into insurance leads. When done correctly, a P2P service offering should demonstrate a level of virility in excess of existing insurance offerings. But traditional insurance already achieves some virility -- I am an insurance broker, and much of our business is already generated via client referrals -- so virility alone would not be a key differentiator for P2P. P2P, today, is not actually disruptive. Rather, it is only an iteration of insurance as we know it today. To believe otherwise is a route to strategic disaster. But there are other methods that more fully embody P2P methods and will prove to be quite disruptive to the current balance existing in the risk markets. See also: Examining Potential of Peer-to-Peer Insurers   Okay, so what is P2P? In the first segment of this series on complexity, I discussed the three network graphs that have emerged in the risk markets and which business models embody them. For quick reference: To dive into this, we first need to define the activity that the risk markets perform for society. Why did the risk markets emerge, and why does society engage with the market? There are three core societal functions that risk markets perform for society:

• Risk transfer;
• Escrow of funds for a defined purpose; and
• Management of reallocation of escrowed funds.

Let’s take a look at each of these functions and the methods deployed to accomplish them. Risk Transfer One of the core elements required to legally define a contract as an insurance contract is indemnity. Inherent in the term “indemnity” is the idea of risk transfer. Indemnity is defined as “compensation or payment for losses or damages,” which essentially means that experienced risk from a loss event has been transferred from one party to another. While insurance is a highly efficient method of accomplishing some portion of total risk transfer, an insurance contract is only one of many methods humans use to transfer risk around society, and the method has its limitations. Other formal risk transfer methods include: companies that offer consumers a warranty on their products and service companies that are bonded by creating the same effect as a warranty does for consumers of their service. In the financial markets, we see options and swaps, as well as letters of credit. Formalized charity efforts also amount to risk transfer. In the public sphere, as was demonstrated in 2008, society has formalized methods for transferring risk from systemically important private companies to the public, all backed by the government’s access to taxation revenue. Informal methods of risk transfer that can be routinely observed include families and friends compensating each other for some risk that the other has experienced. The same behavior also emerges within groups and communities, both with and without the intentional purpose of risk transfer. These methods amount to “black market” methods because they are not formalized, and the economic activity is not taxed and does not contribute to GDP. However, the economic activity does and always will occur. Escrow of Funds With indemnity insurance and other formalized methods, every insured has paid a premium for the legal right to transfer their risk exposure to another party. Presumably, this transfer shifts risks from individuals to a group as a whole. These premium funds are held in escrow to assure participants that the system will work. This behavior can be viewed as an “escrowing of funds for a defined purpose.” With informal methods, we do not observe this escrow pattern. Indeed, many families and friends have received news that someone has experienced a loss that they do not have the means to bear. It is important to note that the person who has experienced the loss, in many cases, has already engaged with the available formalized methods that the risk markets have on offer — but the risk is in excess of what those methods can cover. With insurance, this uncovered risk amount can take the form of a deductible, the exclusion of a peril or a limitation of coverage on a covered peril. See also: 3rd Wave of P2P Insurance   Informal methods of risk transfer emerge to fill these segments of total risk, which formalized methods do not address. Because there are no funds that have been pre-paid and escrowed for the purpose of addressing these segments of risk, we observe informal methods of risk transfer employing a post-pay method of achieving coverage. This can be observed in the digital environment on crowdfunding platforms such as GoFundMe, where coverage for a loss is achieved after the event has occurred. Management of Reallocation of Escrowed Funds Formalized methods of redistributing escrowed funds, like insurance methods, employ a legal contract. In black and white, rules specify for what purpose escrowed funds will and will not be paid out by the system as coverage, and how the dollar amount of that coverage will be calculated. This legal contractual methodology creates the requirement for actuarial work. Insurance companies employ statistical and actuarial methods to ensure that enough money is escrowed to accomplish the purpose for which the society agreed to escrow the funds but also that there are additional funds to pay for the costs of centralized managing of the reallocation process, including some additional funds for profit for the insurance company. The degree to which these formalized methods necessitate the burning of escrowed funds is a reduction in efficiency. Internal process inefficiencies that exist in the companies managing the process effectively add to society’s realized risk from engaging with the insurance system’s methods. Currently, informal methods obviously do not employ legal methods, as no funds have been put into escrow for any specific purpose. These informal methods for the redistribution of funds to achieve a transfer of risk unfold as individual peer decisions, directly between the two peers involved. This is an example of an emergent P2P behavior. The Question Now, let’s get back to the original question. What is P2P? Whether we are taking about music files via Napster, transportation via Uber, housing via AirBnB or work via TaskRabbit, the amount of economic activity resulting from those P2P methods blossomed — but only after a platform enabled the formalization of the behavior that already existed in the world, albeit informally. In each of these markets, society built wonderful centralized organizations to accomplish the fundamental economic activity of the market. In each of these markets, when a P2P platform was built — offering just the right degree of formalization, but not too much, to enable, but not inhibit, the connection of individual peers on the platform — economic activity grew drastically. This is, fundamentally, an expansion of the market’s economic pie. In the risk markets, we will see the emergence of a P2P platform that enhances the individual’s ability to network using distributed methods of management and to accomplish the process of reallocation of escrowed funds. With this platform, the three core functions driving society to engage with the risk markets will be accomplished by the individual actors without necessitating a central authority. New technologies (such as distributed ledgers) and methods that, as it turns out, predate insurance by 1,000 years will converge, and the risk markets will see a P2P network come about. This network will be designed to accomplish a positive financial network effect that will create financial leverage, amplifying the amount of risk that individuals can cover with their own individually escrowed funds. P2P will effectively give users the option of “networked self-insurance” to better cover the gaps in total risk left by already formalized methods. Insurance methods will not go away. The methods play an important role in how our existing financial system works. But note what is not necessary for P2P: indemnity legal contracts, actuarial methods and a centrally controlled escrow account for processing the reallocation of those escrowed funds. There is nothing wrong with these methods. They work quite well and systemically serve to mitigate the risk housed on lending banks' balance sheets, albeit at the borrower’s cost. Lending activity also serves a systemically important role of enabling financial leverage for large capital purchases. However, that leverage comes with a risk. If a bank lends on a mortgage or auto loan and the underlying asset is destroyed, the loan on the bank’s balance sheet will have lost value. Indemnity insurance is likely to remain the only method of mitigating this balance sheet risk exposure that lenders will agree to accept. It would not be surprising to see the rise of insurance policies sold to banks on their loan portfolios — much like we see today occur in the process of securitization of the loan portfolios and somewhat similar to what we see with forced placed insurance. See also: Is P2P a Realistic Alternative?   It appears that we are observing in the risk markets that the insurance industry has been behaving in a way that can be described as: “If all you have is a hammer, everything looks like a nail.” Great, but just be sure you insure the risk exposure. There are new tools available to the risk markets, along with new behavioral patterns, and we should not be a surprised when we see new methods — P2P and otherwise — emerge to employ these new tools for the benefit of society. In the next section of this series, I will dive into one of those tools: blockchain, a.k.a. distributed ledger technology.

As Congress returns from recess, the current version of the Senate bill to repeal and replace the Affordable Care Act (ACA) aims to reduce Medicaid spending by $800 billion over 10 years. By reducing the federal match for new enrollees and tightening eligibility standards related to the federal poverty level, the plan will make it harder for people to cycle on and off Medicaid in accordance with their employment status, ultimately reducing the number of “expansion enrollees” that qualified for Medicaid under the ACA. The net effect is to make it financially infeasible for states to continue to cover the ACA expansion population, leading to more than 20 million Medicaid patients losing their insurance over the next decade.

Nine years ago, when I wrote "Riding the Indian Tiger," India was in a dynamic transition. Unbridled by the shackles of a socialist government, the economy was in full swing, with massive foreign direct investment, major infrastructure projects and a booming stock market. When I began researching my book, I had the opportunity to meet with the architects of India’s future, who included the founders of leading companies: Infosys, Jet Airways, Bharti Tele-Ventures, Tata Motors, Wipro and many more. I was impressed by the energy, intelligence and Silicon Valley culture that had been created by these firms. That optimism was tempered by the abject poverty that abounded, a growing gap between rich and poor, dilapidated infrastructure, contaminated drinking water, poor sanitation and corrupt government ministries. Still, I believed that, with ingrained democratic institutions, India would ultimately out pace China economically. Then came the global financial crisis, and India fared far worse than China, which had the ability to manipulate markets and weather the storm. With the overwhelmingly popular election of Narenda Modi in 2014, India once again emerged as an Indian Tiger. With GDP growth of 6.6% for 2016 and an estimated GDP growth of 7.2% for 2017, India is, in fact, surpassing China in economic growth. What about the insurance market? India, with a population of 1.2 billion, is now the 14th largest insurance market in the world at approximately $60 billion. McKinsey estimates that India will become the 10th largest insurance market in the world by 2025, with a value of more than $250 billion. Now, Brazil with a population of 200 million, is the 15th largest insurance market in the world today. Still, change is in the wind in India. See also: What India Can Teach Silicon Valley   It began with the liberalization of the domestic insurance market, which allows foreign companies to own as much as 49% of an Indian subsidiary. Foreign insurance companies are racing into the market, with an estimated $3 billion in direct investment coming into the Indian insurance industry in the next few years. But is the market ready for disruption? It depends on how you look at it. With a rapidly growing middle class, tech-savvy millennials and a life insurance market that has had an average CAGR of 22% over the past several years, the answer is yes. Yes, Brazil and India both have about 300 million smart phone users, even though India has six times the population, but the Indian insurance market is rapidly changing as old brokers and processes are forced to give way to a much more dynamic market. The clear and present opportunity for disruption in India will be a combination of transformational insurance products that create optimal flexibility for a rapidly growing middle class and the use of digital marketing channels that allow insurance companies to develop a virtual personal relationship with the new consumer. Digital marketing is still in its early stages in India, with total spending of $6.8 billion in 2016. However, with the average Indian internet user spending 40 to 45 hours a month online, the opportunity is clear. The purchase of goods and services online is still in its infancy, with the majority of purchases being related to music. Most telling might be the fact that online retail brokerage is booming in India, dominated by middle-class Indian housewives who are running their own stock portfolios. My recommendation for any savvy insurtech: Begin your reconnaissance now. Keep your powder dry until the time is right, but that might be sooner than you expect!

Nineteen percent of the world’s top 2,500 companies have appointed an executive, commonly known as a chief digital officer (CDO), to oversee the digital transformation of their business, according to the results of a new study about the role from Strategy&, PwC’s strategy consulting business. Though this number might seem modest, it more than tripled last year’s figure, of only 6%. Sixty percent of the digital leaders identified in our most recent study have been hired within the past two years. Strategy&’s 2016 Chief Digital Officer Study looks at the top 2,500 public companies around the world by market capitalization to better understand how many companies have appointed a digital leader, who they are and where the position fits into companies’ hierarchies. For the purposes of this study, the CDO is defined as that executive, no matter the title, who has been given the task of putting into practice the digital mission of his or her company or business unit. See also: The Dawn of Digital Reinsurance   In light of the significant increase in digital leaders across industry, company size and region, companies would do well to start believing the hype around the new position.

• Companies in the financial services and consumer-focused industries have the highest digital leader ratio. According to our study, 35% of insurance companies have digital leaders, and 27% of both banking and consumer products companies do, as well.
• European companies are hiring CDOs at faster rates than companies elsewhere (38% in Europe vs. 23% in North America, 13% in South and Latin America and 7% in Asia-Pacific).
• Larger companies continue to remain ahead of the curve in appointing digital leaders. The percentage of companies with CDOs by market cap peaks at 33% for Quartile 4, then decreases to 18% for Quartile 3, 15% for Quartile 2 and 10% for Quartile 1.

Creating a unified vision for digital “For a growing number of companies, it’s just not feasible any longer to spread out various digital efforts among separate business units,” says Pierre Peladeau, a leading digital practitioner and study co-author with Strategy&, partner with PwC France. “It may work during early stages of digitalization, but as a company moves toward a more advanced stage of digital maturity, a unified approach is needed to execute a more comprehensive digital strategy.” Taking the helm of a holistic digital strategy means different things for different companies. While some look externally for digital leaders, others engage existing leadership and a diverse group of stakeholders to help manage the transition. For these reasons, digital executives come in various forms, with a variety of different skills in tow. While marketing and sales-backed leaders dominated last year (34% and 17%, respectively), this year 32% of digital leaders bring technology backgrounds to the job, up from 14%. “One of the most daunting challenges for any digital leader is how to develop new digital applications at the same time as they’re dealing with legacy IT systems that have been vital to a company’s operation for years,” says Mathias Herzog, Strategy& co-author and partner with PwC US. “As this becomes more and more apparent, we should continue to see a growing number of executives with the technical expertise necessary to navigate a company’s multi-faceted digital assets.” Knowing how to work within these constraints while simultaneously maintaining the operational agility needed to move digitalization efforts forward will be key for any incumbent digital leader. See also: It’s Time to Accelerate Digital Change   “The CDO’s role, by definition, is transformational,” says Olaf Acker, co-author and Digital Services leader with PwC Strategy& Germany. “Which means anyone assuming the role has to balance the old technologies with the new, technical expertise with an understanding of internal organizational mechanisms and a vision for a company’s future that also aligns with its longstanding mission.” Methodology Strategy& examined the global top 2,500 listed companies by market capitalization as of July 1, 2016, as defined by Bloomberg. For more information, please visit www.strategyand.pwc.com/cdostudy. A copy of the study and breakdowns by industry, company size and geography are also available from the media contact.

New, technology-driven changes in the ways people live their lives are prompting revolutions across industries. The insurance sector must adapt to these changing needs if it is to remain relevant to customers. The power and popularity of wearable technology as a generator of health data and the developing potential of genomics are well-discussed issues in the insurance industry. The sharing economy and shifting social factors also mean people visualize risk in new ways. Insurers want to offer security in ways that appeal to these emerging customer demands. But they are faced with myriad potential practical steps they could take. The idea of having individuals generate useful health and activity-related data, through wearable technology, is already established in insurance. However, the scale at which highly personalized data is being generated by consumers, whether deliberately or unwittingly, has been growing at a remarkable pace. Deciding how best to handle issues around data privacy is among the industry’s key questions. Some people will not wish their personalized data to be put in the hands of insurers making decisions about policies, while others will want their data to be used to drive down insurance costs. See also: ‘AI’ or Just ‘I’? Most Adaptable Will Win!   To understand how the insurance industry, “insurtech” startups, innovation labs and accelerators view these challenges, we spoke to some 75 thought leaders from around the world in a project we called the Incredibly Curious Adventure. The results of the research are fascinating. Many of those interviewed saw a real opportunity for the insurance industry to evolve from life protection to life enrichment, firstly through more consumer-centric product design, and secondly through the dynamic use of predictive data that wearables, supercomputing power and artificial intelligence make possible. However, legacy systems present a real challenge to insurers in the adoption and integration of these new technologies. Many insurers underestimate the readiness of the market to embrace the new opportunities and even to take advice from machines. Another essential issue for the insurance industry is genomics, particularly with regard to its relevance in creating life insurance policies. In spite of early discussions on the subject, in the last couple of years it has been parked mainly out of view, and the insurance industry has voluntarily agreed not to use much of the data that is available. But our collective understanding of genomics and its potential relevance to risk assessments has been expanded very significantly in recent years, and it offers the opportunity to do things better with individuals’ consent. Personal genomic information is increasingly being taken into consideration by doctors as they prescribe medications and by the pharmaceutical companies who create those products. For individuals, the deepening of the information about their own bodies, which they can now access and refer to, is radically different from what it once was. People are increasingly engaged with the details of how best to manage their health, with the help of the digital data they create. There is no doubt that a time is coming when consumers will wish to see this information made relevant to their insurance. Given these changes, there must be genomic-themed conversations across a full spectrum of stakeholders around what kind of information should be made accessible to and deemed relevant for insurers. The rich intelligence on everyday health knowledge gained from consumer genetic tests and much wider use of genomics in medicine could mean people are much better equipped to make personal decisions about their insurability than insurers can. While recognizing the ethical responsibility of getting it right, this potential asymmetry of information is especially relevant in a voluntary insurance setting. There are certainly moral questions that need to be asked before insurers are given a full regulatory go-ahead in this context. But it is clear there are significant potential benefits for consumers who open up access to data on their lifestyles, activity patterns, medical history and their genetic make-up. Importantly, insurers would be able to offer much more personalized insurance policies. Making the most of data and genomics poses a serious technological challenge. To stay ahead of the competition, insurers must look toward startups to provide support and technical expertise. Some insurers are in a position to acquire and absorb startups. Many others are not. The chief executives we interviewed said it is collaboration with startups that offers the potential to add value through insight and connection. At Gen Re, our focus is now on nurturing relationships with startups whose innovations have real potential. We partner with those whose ideas can help insurers be more responsive to the changing dynamics within their industry, whether that is in relation to data analytics, mobile health, artificial intelligence or wearable technology. Large-scale insurance companies are typically enthusiastic to adapt to change, but are operationally less agile. Insurtech startup companies are helping to change fundamentally the insurance industry and enabling it to meet emerging demand among consumers for greater personalization. See also: It’s Time to Accelerate Digital Change   It is our view that insurers must embrace the changes happening and be part of the conversations going on around these fundamental issues. Now, more than ever, the future is wide open. Our aim as a reinsurer is to be part of that global discussion about what the insurance industry can be and what it should offer. As originally seen in “Future of Insurance” published by Raconteur Media on June 14, 2017, in The Times.

The rise of the on-demand economy is disrupting billion-dollar markets — from retail, travel and transportation to healthcare, financial services, insurance, cable and utilities. In fact, a recent survey by Pew Research Center found that 72% of American adults have used on-demand services. While we’ve become accustomed to witnessing startups and digitally native companies launch on-demand services with relative ease, the reality is far different for established enterprises with legacy systems that they have to integrate. For many companies, adapting to an on-demand model requires organizational restructuring, not to mention disparate systems that need to be connected to make that possible. Often, it’s difficult for enterprises to keep pace with the changes to meaningfully transform their business for the on-demand economy. By 2025, leading enterprises will operate entirely on-demand — using software and mobile devices to connect to global and distributed networks and using a combination of AI and chatbots to handle customer service, payment and transactions and other business processes. According to Gartner, three out of 10 jobs will be converted to software, robots or smart machines. These realities both threaten and present opportunities for enterprises. But the biggest risk of all is for businesses is to pretend the changes aren’t happening. Enterprises need to embrace the change to both redefine their role and the value they bring their customers, all while automating key areas of their business, ensuring compliance and stimulating growth. See also: On-Demand Insurance: Ultimately a Bust?   The on-demand economy has raised consumer expectations across industries. It places the customer firmly at the center of a business. We’ve seen Amazon set a new standard for retail customer service. Uber and Lyft have used a distributed workforce to disrupt a $60 billion local transportation market, while Airbnb has changed the travel and vacation rental market, and Lemonade is changing the insurance industry. The elevated experiences provided by these companies, and those like them, combine to raise the customer expectations across all industries. What’s even more interesting is what has become known as the “experience gap.” It’s based on the fact that 80% of CEOs believe they are delivering a superior experience, but only 8% of customers agree. And given that more than half of customers today say they’ve switched companies solely because of poor user experiences, it’s clear that companies that fail to embrace change and the shift to consumer-centric solutions are at a strategic disadvantage. This experience gap is the catalyst for a lot of disruption because it’s catching businesses off-guard because they’re not yet deploying the new tools that can close the gap. As such, competition doesn’t manifest itself through traditional means. Instead, competitive differentiation stems from the quality of experiences businesses can deliver to their customers. So that brings us to the question of “how” to deliver experiences consumers expect. How can enterprises join the on-demand economy and deliver experiences that are synonymous with being always-on and personalized? In broad terms, there are elements or “steps” of digital transformation that enterprises can undertake to get them in the right place and ready to meet the needs of today’s demanding consumer. And, the process is not as complex as one might imagine. Enterprise Transformation for the On-Demand Economy 1. Enabling messaging as a customer engagement channel The first step is to enable a secure messaging system that can adequately serve the needs of consumers. This means it needs to offer all the necessary functionality that consumers experience in other channels such as payments, scheduling, CRM integrations, file transfers, customer service and marketing. In addition, the communication platform needs to meet security and privacy standards to ensure no breaches in compliance. The fact is, traditional channels — such as telephone and email — are no longer the primary channels through which people communicate with each other. The adoption of messaging has been rapid, and it shows no signs of slowing down. With this in mind, businesses large and small need to follow suit and begin the transition to messaging by including it in their channel strategy. The reason messaging is such a key part of the on-demand economy is that its very premise is on-demand. Messaging allows consumers to respond in their own time and send messages whenever they like. It harbors a strong sense of immediacy that’s unmatched on other channels. And it’s a channel that’s easily accessible through the smartphones that people carry with them everywhere they go. 2. Messaging across all devices and channels This same messaging capability then needs to be plugged in effectively across all devices and channels to connect with customers in real time. So, whether the primary interface is a mobile app, website, social network or otherwise, it’s the same high-value messaging experience. 3. Scale through business process automation with chatbots and artificial intelligence. The third step to entering the on-demand economy is scaling the always-on messaging experience through the use of chatbots and artificial intelligence (AI). These technologies work to automate the whole operation and provide a cost-effective solution for scaling 24/7 connectivity. The future of business communication is firmly based in the on-demand economy. So enterprises must be focused on making processes easy to access and intuitive to move through. Despite all the extraneous features and services that will be enabled through technology, the biggest drivers of innovation will be utility and simplicity across the customer experience. See also: Insuring a ‘Slice’ of the On-Demand Economy What It Means for Businesses to be On-Demand To be truly on-demand is to be at the beck and call of customers and consumers — to deliver experiences that provide consumers with access to information and services when and where they need it. It’s a simple concept with massive implications. Each day, consumers embark on an infinite number of journeys. For businesses to play a role in these consumer journeys, they need to meet them where they are along the way. And that is the the premise of the on-demand economy. Businesses no longer have the control — consumers are the ones who are empowered. It’s therefore essential that businesses adopt the on-demand model to retain and build their customer’s loyalty.