The personal lines segment of the property and casualty (P&C) industry has been the golden child of late, having exhibited a willingness and apparent propensity for the adoption of new tech. While personal lines may be the first that place new technology has gained a foothold in the insurance industry, it is hardly where the real potential is hiding. In contrast to personal lines, which has historically been the industry’s “volume game,” commercial lines remains a segment where high degrees of expertise and specialization allow insurers and brokers to carve out very specific and profitable niches in the market, making the definition of the best risks necessarily relative. The specificity of commercial lines business is precisely why these insurers are poised to become the beneficiaries of new tech driving efficiency gains up and down the value chain. See also: Innovation: ‘Where Do We Start?’   Right now, insurance companies are entertaining new ideas about what to cover, how to cover it and how to most effectively bring commercial insurance products to policyholders. In an era inundated by new tech, the bests ways for commercial lines insurers to identify, compete for and win the right to write the best risks include investing in solutions and partners that enable better communication, better products and significantly better distribution. Better Communication Within commercial lines, there’s a high degree of variation between how things get done depending on the characteristics of the risk (e.g., exposures, premium size, geography, etc.). The universal truth, however, is that there is a big market opportunity for technology to improve communication and collaboration between underwriters, brokers and policyholders. Insurance policies in general, and complex commercial policies in particular, take too long to write, require too much back-and-forth between brokers and underwriters and let too many premium dollars fall through the cracks due to inability to quickly close a customer. What is perhaps saddest about the current state of affairs is that the breakdown in communication begins at the start of the sales process. A recent survey from Channel Harvest Research revealed that brokers wish insurers would put greater emphasis on what the company is willing to write. Commercial lines agents often invest significant data entry time on applications or key information into an insurer portal only to be declined due to underwriting ineligibility. One could easily equate such a situation to Amazon asking customers to submit an onerous, multi-page order form for something before revealing whether the product is even available. Despite this kind of situation having been normalized in the insurance industry, it is also an area where new technology is already making a positive impact in typical insurance processes. The essential first step for any commercial insurer to get a look at the best or most desired risks is to clearly articulate the company-specific definition of the best risks. While this may seem almost oxymoronic, commercial insurers must be able to clearly define and communicate niches and specialties, so that business partners and channels know instantly what is within the company’s wheelhouse without wasting underwriting time with ineligible or undesirable risks. Better Product It seems safe to assume that no one responsible for the regulatory aspects of insurance product approval or filing has ever been heard saying “Boy, that was easy!” Regulatory complexities, to make matters worse, can be compounded when an insurer attempts to design and bring to market a non-standard product. New insurtech entrants are doing everything from automating and managing the filing process with the multiplicity of state insurance divisions to providing artificial intelligence (AI) to identify like contract clauses that can be brought to bear when designing product. Because insurance is responsible for producing an astounding amount of legalese, taking collective advantage of it just makes good sense, doesn’t it? Thanks to insurtech, it’s increasingly possible to automate the development of contract language and manage getting it filed with insurance departments with almost Turbo Tax-like efficiency, helping insurers laser-focus on emerging market opportunities instead of on creating more legalese. Better Distribution In the age of the internet, too often there’s a rush to judgment that improving distribution means taking a product online or cutting out brokers and going direct. The truth is that better distribution is smarter, more targeted distribution that puts the buying decision in front of the potential policyholder at exactly the moment insurance is needed for something (and often this requires a broker, especially as you move up market). See also: Insurtech Is Ignoring 2/3 of Opportunity Some commercial insurers are finally starting to realize the thinking that every match must be a “home game,” and that distribution and underwriting (the sales process) must happen on a company website or portal, is hopelessly outmoded. Insurers today are delivering APIs to distribution partners, thereby empowering partners to create a native rate/quote/bind experience specific to the channel. Why can’t workers’ comp be sold directly in a payroll app? Why can’t a liability policy be issued directly from drone controller software? Why can’t a policy be endorsed at the time new equipment is procured? Why can’t a cyber policy be issued commensurate with the sign-up for AWS or GCP or Azure? There’s easily as much opportunity, if not more, to sell insurance at the point-of-sale (PoS) in commercial lines as the personal segment. By identifying the right buying trigger, insurers can tap into a supply line of the best risks. Conclusion At the end of the day, the definition of the “best” risks varies from one commercial lines insurance company to another, but ultimately, the best risks are those each company individually determines are a good fit for the company strategically. Figure out what best means to your company, clearly articulate your definition of best to the world, tailor product to cover the niche and sell the heck out of it.

In its latest effort at self-promotion, industry “disrupter” Lemonade has posted an article on multiple web sites. Here is the article from one source: “Lemonade: World’s First Live Policy” Below are some excerpts from the article and some observations and questions of my own. “Then, customers would need to pay for some changes, and probably get a new policy sent to them in the mail (snail mail, of course). That’s where the red tape and long wait times come in….” So, the changes listed in the article that Lemonade will allow their insureds to make without customer service assistance wouldn’t in some cases result in additional premium? And what carrier mails an entirely new policy for changes as described in the article? This is nonsense, and it is not an accurate nor an honest statement. “As far as we know, no other insurance company allows its customers to modify their coverages or even cancel their policy on their own.” This is disputed in one comment at the bottom of the article linked above. More important, if anyone actually CARES about the customer, why would they want to facilitate an untrained person to make a change that, unbeknownst to them, could create a serious exposure gap? So, Lemonade would allow, with no questions asked and no intervention by customer service, one spouse to remove another spouse even if both are named insureds on an insurance CONTRACT? The insured, without question or counsel, can remove a landlord as an additional insured on a policy even if the lease contractually requires the landlord to be covered? How many insureds read their leases or insurance policies? How many would know the potential liability they’re incurring? Do the people at Lemonade understand this? This is why knowledgeable insurance agents serve a purpose. Most insurance agents are required by law to pass examinations and engage in state-approved continuing education to provide counsel to consumers for these types of decisions. How is a consumer who knows pretty much nothing about insurance supposed to make coverage decisions on her own without the training that state regulators require of agents? What do regulators think about this practice? “Even if you buy renters insurance directly from the likes of GEICO or Progressive, the only part that’s direct is taking your money and sending you a policy. Everything else requires customers to contact customer service — which we all know can be… painful. That sucks.” What can be far more painful is the inability of an uneducated, ill-informed and unsuspecting consumer to contact customer service to obtain the counsel and advice of a properly trained and knowledgeable insurance agent. See also: Lemonade’s Crazy Market Share   It sounds like Lemonade is adopting a practice that saves THEM a lot of time and lessens THEIR need to hire competent insurance advisers and SELLING it as a benefit to consumers. In other words, Lemonade is reducing its workload, increasing consumers’ risks of loss and making customers thank the company for it. On top of that, because Lemonade is not intervening in the insured’s own bad judgment, is the company also insulating itself from E&O claims such that customers will have no coverage under either their own policy or Lemonade’s E&O coverage? Who is the real beneficiary here? I think most insurance professionals can answer that question. Caveat emptor.

There have been three major global cyberattacks in the last six months. These attacks have caused extensive system damage and monetary loss. Some companies affected remain crippled weeks or months after the attack. Will this rate of “one every other month” continue? Nobody knows, of course. But, as a recent Wall Street Journal op-ed suggests, ransomware will remain the dominant attack method of choice, and the problem “isn’t going anywhere.” The article claims that “cybercriminals launch hundreds of millions of attacks daily across the globe, and recent studies have found that as many as 60% involve ransomware.” Why? Because they are easy, and they work. Without a robustly secured network, it is impossible for most entities to withstand a targeted or random cyberattack. So most companies, big or small, generally enlist the help of third-party vendors, which traffic a multitude of software products, modules or platforms to keep cybercriminals from exploiting vulnerabilities. But, because nothing is fail-safe, companies must still consider buying insurance to protect against the staggering potential of loss that a global cyberattack can cause. See also: Why Buy Cyber and Privacy Liability. . .   Cyber is no different from other risks that an organization could be exposed to (e.g., fire, burglary, flooding, power failure, strikes and liability issues). Businesses have to consider insurance against cyber-attacks and the relating financial consequences. This kind of insurance policy is known as Cyber Liability Insurance Coverage, or CLIC. With the estimated annual costs to the global economy from cybercrime estimated between $375 billion and $575 billion in 2014 alone and the average cost of a corporate data breach at more than $3 million per incident, it is understandable why cyber insurance is catching on. Still, there seems to leave a lot of room for error, rounding or otherwise, in a market where U.S. insurers wrote approximately $1.3 billion in cyber coverage last year. This is expected to reach $14 billion by 2022. There is industry data that shows insurance premiums could range from $800 to $1,200 for SMEs/SMBs with revenues of $100,000 to $500,000 (on the low end) to more than $100,000 for SMEs/SMBs with revenues in the millions. Allianz SE, the largest insurer in the world, expects these premiums to skyrocket by 2025. Furthermore, the Insurance Information Institute estimates that the third-largest risk for companies worldwide is cybercrime, not in the least due to cyber attacks such as WannaCry and Petya/NotPetya. As it stands right now, insurance companies have limited resources to address the growing number of CLIC applicants. There are the obvious factors that come into play when calculating an insurance premium: the nature of the business, the vulnerability (attractiveness for cyber crooks) of the data, the size of the company and the amount of revenues, etc. But pinpointing the exact risk is still evolving. Currently, insurers mostly rely on questionnaires or third-party onsite assessments to estimate the cybersecurity posture of applicants, which is time-consuming and expensive. Because this branch of insurance is not mature enough, there is a lack of specialized and qualified personnel that have the experience and expertise to perform cyber risk assessments. In many cases, the onsite assessments are conducted by junior staff members of the insurer and junior security consultants using non-standardized methods. My guess is that insurance companies still don’t know exactly what they are insuring and what to charge, because there are still inefficiencies in the market. There are conflicting definitions of what exactly makes a system “secure” and what constitutes a threatening vulnerability that must be decided upon. Knowledge still has to be gained to determine how to manage risk. Most insurance companies are large enough to have a staff of security officers and to use third-party vendors to protect themselves from cyber vulnerabilities. But what to do about assessing insurance candidates? The good news is that there is progress being made where advanced simulation can help assess the various attack vectors that are being used today. The value of such a CLIC assessment would derive from being able to put an aggregate “risk score” on an insurance candidate. The score would be based on known and acceptable risk calculating methods such as NIST, CVSS3 and DREAD. It would be provided to each applicant based on the results from a simulated assessment done on its network, testing all its security controls. See also: How Data Breaches Affect More Than Cyberliability   The value from such technology comes from insurers being able to know within a few hours if they should provide coverage to an applicant based on demonstrated risk, how much coverage to provide the applicant without putting the insurers at risk and how much in premiums to charge based on an accepted risk score provided after the assessment. Providing a uniform score for cyber insurance applicants reduces the exposure level for insurers, possibly saving millions of dollars and could even lead to revenue growth by raising premium prices to match the risk level.

I was in New York City recently and found myself talking to the founder of a fintech. His company had recently raised several million dollars from a large investment bank. It raised some questions about how insurers go about partnering with startups. Things were going really well. I asked him about progress engaging with the bank as a “supplier.” I guessed that a bank that had invested such a sizable sum would be eager to get its hands on the startup’s technology. I wanted to hear how banks had solved some of the problems around partnering with startups experienced by insurers. It turns out they have the same challenges. The founder told me that the first thing he had to do post-investment was to sign a policy confirming that he does not use child labor. His team was currently in the process of filling in a 60-page questionnaire on data security. It was months before he expected to be live with any kind of even limited pilot. The startup was one of the first to be accepted by the bank’s incubator. Recognizing the process challenges, a technical employee had been seconded from the bank to help the team four days a week. The employee was advising on how to build technology to be compliant with the bank’s requirements. This was helpful – but rather than shortening the timeline had merely made its requirements achievable. All this oversight “red tape” despite the fact that most of the founding team are former employees of the bank and that one of bank’s senior managing directors was a director (through the investment). See also: Startups Take a Seat at the Table   I was surprised by this. On some dimensions, fintech is ahead of insurtech, notably on investment volumes (see page 3 of our presentation to the Slovenian Insurance Association). But it seems that banks suffer from the same challenges engaging with startups. This made me wonder: Is the startup-as-a-supplier model a failed experiment? How can it be that a bank is willing to invest millions in a startup but then finds it so hard to use its product? It is too early to know for sure if the model is a failed experiment. However, it is fair to say that the model is not currently working for most insurers. This blog proposes two changes in the way that insurers could partner with startups – one pragmatic, the other radical. Design a "startup-grade" governance framework (or "sandbox") It is very easy to produce slideware that tells management teams to be more “agile” and launch “innovation pods.” The problem is that an innovation strategy needs to be rooted in detailed operational analysis to be effective. A vital component is a “startup-grade” governance framework – in other words an onboarding and oversight process that is commensurate with a startup’s resources and the scale and likely risk of any early implementation. For example: What are reasonable information security requirements for a small-scale trial; how does procurement get comfortable with a pre-revenue business? These are questions that companies tend to tackle in an ad hoc way at the moment. There are two consequences: First, engagement processes are slow, and, second, solutions are bespoke. In other words, companies are not “formalizing” their learnings to speed up future engagement processes. We believe that insurers with ambitions to engage with startups should design these governance frameworks – sometimes referred to as “sandboxes” – soon after settling on their innovation “vision.” Avoiding this operational detail will slow or kill the startup partnership. Critical in all of this is differentiating between genuine “red lines” and “nice to haves.” An insurer must, for example, be satisfied that its startup partnership is not contravening the rules imposed by the GDPR; on the other hand, the procurement process could probably be shorn of company-imposed requirements like the need for suppliers to show three years of audited financials. At Oxbow Partners, we are currently helping several clients develop startup-grade frameworks and the processes that sit underneath. A new startup partnership model: "buy in-spin out" A startup-grade governance framework may, however, not work for all companies. Some will simply find it too hard to find an acceptable compromise between their standard compliance processes and the needs of a startup. There is some legitimacy to this outcome: As we have pointed out, the penalties of non-compliance with legislation will mean a “sandbox” is not to every organization’s taste. This would mean that for some companies the startup-as-a-supplier model will not work. So how do these companies get access to the best ideas, technology and talent? It seems to me that the point of failure in the current model is that a startup is an outside partner. This is beneficial in some ways – a management team that has incentives to build a business; separation from a corporation to allow for creative and rapid development. But where there are advantages there are disadvantages: Alarm bells might ring in a corporate risk team when they see the words “creative” and “rapid.” We therefore suggest more attention should be paid to an alternative model, which we call the “buy in – spin out” model. (Some companies are already offering elements of our model, but not, as far as we know, in the form we are proposing.) In this model, corporations would buy a controlling stake in startups early in their lifecycle and run them as internal development teams. The startup’s objective is to make the technology work for the “host” organization. This simplifies the startup’s objectives, makes the governance framework clearer and also gives the startup access to internal resources to comply with these requirements. See also: Will Startups Win 20% of Business?   At a certain point, each side has the opportunity to buy the other out. Either the startup believes that its idea is broadly marketable and buys out the “host” with a consortium of investors (“spin out”). Alternatively, the corporation thinks that the business gives it competitive advantage, in which case it might offer a higher price than the consortium. Clearly, there are many issues to test before implementing the “buy in – spin out” structure. The most obvious is startup appetite: The startup will have a deep fear of either being crushed by a corporate owner or being tarnished by the host when trying to distribute to competitors. The solution may not yet be clear, but the problem is well-defined. While there is a lot of activity around partnering with startups, we are yet to see many implementations beyond limited POCs. Insurers need to ensure they are not just defining their “vision” but building an effective operating framework to make it happen. This article was first published on the Oxbow Partners Blog.

With Hurricane Harvey gone and people in Houston starting to pull their flood-ravaged lives back together, here comes Hurricane Irma. This is what Irma looks and feels like at the moment, as described by our friend and colleague Guy Fraker, ITL's chief innovation officer and a resident of the Florida Keys:

"If the forecasted winds and waves come to fruition, the house will be a total loss. We normally have 1.5- to 2-foot 'waves' on our mile-wide channel. Saturday and Sunday are projected to see 27- to 31-foot waves, lasting 11 to 13 seconds each, for 15 hours. With winds topping 150 mph pushing debris on water 30 feet above normal, this is Andrew all over again."

Guy has a gig in Baltimore this week, and his wife, Becca, is with him, so the one hopeful note is:

"The car is on the fourth floor of the Ft. Lauderdale airport, with essentials, and we loaded up the luggage—so we'll see."  

While we can still hope and pray that Irma, with its currently 180 mph winds, swerves north and away from land, Harvey and perhaps Irma provide the first real test of the newly innovative insurance industry. We've been talking a good game for a couple of years now, but how fast will we really be to pay claims? How good will the drones be at assessing damage? How much smarter have our assessments of risks become? Will "gig" workers make a difference? 

We also, of course, face the question that comes with every disaster: In this moment of truth, are we as an industry really trying to give people peace of mind and get their lives back to normal as quickly as possible, or is that just a marketing claim and something we tell ourselves so we can feel good about what we do? I'm hoping we're sincere and have learned some of the hard lessons from Sandy and Katrina about where points of contention are and about how we need to treat customers. We'll see. 

Finally, we have to figure out what to do with the National Flood Insurance Program, which is set to expire at the end of the month. Even if Washington weren't dysfunctional, an answer would be elusive. We all know that the NFIP doesn't work. What would work is rather harder to define.

If you find these topics half as compelling as I do, then I commend to your attention four articles that we've published over the past week, which I'll describe here rather than just include in the six articles below. I tackle all three topics—the test of innovation, the need to honor our commitments and the NFIP question—in "Harvey: First Big Test for Insurtech." (My advice on the social responsibility front: Be like J.J. Watt, not Joel Osteen.) Bill Wilson suggests a solution for the NFIP in "Time to Mandate Flood Insurance?" Michael Murray suggests that the federal government could get out of flood insurance entirely, in "Harvey Hammers Home NFIP Issue." He also offers a thorough, insightful exploration of the public trust issue in "Hurricane Harvey: A Moment of Truth."

I'm hoping that next week's note will be much cheerier—but not counting on it.

Cheers,

Paul Carroll, Editor-in-Chief

P.S. Back in April, I wrote about— OK, I mocked —Juicero as an example of how innovation can run amok even when smart people are involved. The heavily funded startup's business model was to have you buy a $700 device for the privilege of getting access to the company's overpriced juice—only to have a Bloomberg reporter show that she could squeeze the juice packets by hand faster than the high-powered, super-smart, internet-connected juicer could. Well, Juicero, mercifully, closed up shop over the weekend.

Good riddance—but rest assured that this won't be the last spectacularly bad idea to draw funding. Keep your guard up.

For millions of Americans, the end of summer marks an important tradition: fantasy football drafts! Even with the National Football League seeing a slight downturn in television ratings for the first time in years last season (the possible causes of which are too complex to address here), fantasy football continues to grow in popularity. The Fantasy Sports Trade Association estimates that almost 60 million people in the U.S. and Canada will play fantasy sports in 2017 (with fantasy football being the most popular). Fantasy football continues to be a colossal enterprise that drives significant interest to the NFL, as well as a wide array of supporting industries looking to monetize our apparently unquenchable love of this game within a game. One such secondary industry, which began developing several years back, is fantasy football insurance. Although some of the original companies may have fallen by the wayside, there are still a few companies selling these "insurance" policies, intended to provide coverage for a fantasy owner’s investment in the event a starting player gets hurt. Although some of the details have changed over the years, these policies continue to raise interesting questions under insurance law. See also: How Literature and the NFL Shed Light on Innovation   As a starting point, let’s recap how fantasy football works. A group of participants, or “owners,” form a league to compete against one another based on the statistical performance of NFL players in real, live games. Teams are typically made up of a quarterback, some combination of running backs, wide receivers and tight ends, a defense and a kicker (with backups for key positions). More advanced leagues may also incorporate defensive players and special teams. Before the NFL season starts, the owners hold a draft – or sometimes an auction – to divide the desirable players (expected to accumulate strong statistics over the season) and build their rosters. Each week during the NFL regular season, fantasy teams square off against each other, earning points based on their players’ performance in NFL games. Whichever squad scores more points that week wins, and the teams that accumulate the most wins have a short playoff during the last few weeks of the season to name an ultimate champion. Fantasy football is popular for countless reasons, but, for many, it’s a form of competition among friends (or even strangers), and, as with any competition, there is an opportunity for wagering. Although many leagues are simply for fun, very often leagues have an upfront buy-in (ranging from a few dollars to thousands), with the champion taking home cash at the end of the season. Fantasy football certainly combines elements of both skill and luck in ways that many more traditional gambling ventures, like slot machines or craps, can’t claim, but, in many regards, fantasy football serves as a statistics-based gambling enterprise. The insurance products available online are intended to protect an owner’s “investment” in the league; that is, the cash buy-in. Typically, an interested owner picks a player he wants covered from a list of eligible players on the insurance company’s website and determines how much “coverage” to buy. Prices vary depending on a few different factors (coverage options, a player’s history of injuries, etc.). For example, in updating the research for this article, I was able to buy a $50 policy on one of my star wide receivers for $6.40 using a coupon code found online. If my insured player misses 8 or more games due to injury, the policy will pay me $50 to make me whole for my league buy-in. But what am I really insuring? All insurance policies require an insurable interest, which means that a policyholder must have a valid legal or financial interest in the thing he wants to insure. People buy insurance policies to cover lots of things: their body, home, car, business, life. We buy insurance for these things because we have an insurable interest in them – if something bad were to happen to them, it would harm us. In most states, to form a valid insurance contract, the insurable interest must exist both at the time the policy is purchased and at the time of the loss. If the policyholder has no insurable interest, the insurance policy is typically deemed void (although many courts still enforce the policy against an insurance company that accepts premiums knowing that no insurable interest exists). A mere “contingent” or “expectant” interest that isn’t based on a legal interest or right is typically not enough to be insurable. Without an insurable interest, the contract essentially becomes a wager that something bad will happen to the thing insured; there is only the upside of a payout if the insured matter is harmed, without any downside to a disinterested policyholder. These fantasy football insurance policies challenge the insurable interest requirement by expanding what kind of interest can be insured. Is owning a player on a fantasy football team, and betting on that team, a sufficient legal interest to be insurable? Maybe, maybe not. Technically, betting on fantasy football is legal in most states, especially those that allow betting on games of skill. The betting also likely complies with federal law: The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA), which attacks funds transfers associated with internet gambling websites, specifically carves out fantasy sports from its reach. (In recent years, the rise in prominence of daily fantasy sites, such as Draft Kings and FanDuel, has brought the legality of betting on fantasy sports into question, but this article assumes that ordinary participation in a season-long fantasy league with a cash entry fee complies with the statute.) But even if legal, it is undeniable that a fantasy football owner’s sole monetary interest in his players is the league entry fee, which is a wager against the other owners in the league; to the winner go the spoils. The purpose of the insurable interest is to prevent using insurance policies as a form of gambling, so it would make little sense that a policyholder could have an insurable interest in a (possibly legal) wager. In this regard, fantasy football insurance is a wager on a wager, and probably lacks an insurable interest. Another challenge for these insurance products is that the insurance companies have no way of confirming that the policyholder even has the insured player on his or her team. In years past, carriers selling these policies made actually no effort to determine if the policyholder actually had the covered player on a team. Now, at least one company is asking customers to click to confirm that the player is on the customer’s roster, but the insurance company has no way of knowing if the policyholder keeps that player on the roster throughout the season. Trades and other transaction are one of fantasy football’s most popular features, as owners enjoy managing their teams and shuffling their rosters. If I trade away my covered player in Week 2, and he has a season-ending injury in Week 3, the policy should be void, because I no longer hold an insurable interest in the player covered. The insurer also has no way of determining how much my insurable interest should be; policyholders are allowed to buy any level of coverage. See also: 4 Goals for the NFL’s Medical Officer   Because of the absence of a valid insurable interest, these policies do not likely qualify as “insurance” policies under most states’ laws. So what are they? The law would probably consider them to simply be a bet that a particular player will get seriously injured. And not only is it a bet, it’s a bet made over the internet, which raises even more problems. Such bets likely violate federal law. UIGEA allows owners to bet on fantasy football because the outcome reflects the knowledge and skill of the owners and is determined predominantly by the real-world statistics of the NFL players on each owner’s team, but a bet on whether a player will get injured certainly fails this test and is likely considered a violation of the statute. But policyholders don’t need to panic quite yet. Consumers have no liability under the UIGEA – the law solely targets the financial institutions that process the transactions for unlawful internet gaming. In the end, fantasy football insurance companies aim to provide well-intentioned products to owners, ensuring enjoyment of their leagues and mitigation of risks. Most “policyholders” simply have a fantasy football team that they’ve spent some money on and want to hedge their bets in case a star player gets hurt. But do not be surprised to see courts or regulators step in to provide clarity on the legality of these policies if these products ever make a significant jump in popularity.

Customer experience (CX) has become the lifeblood of nearly every industry in the world. Carriers that once sidelined it in favor of other internal aspects of their business have come to realize that positive and expedient customer interaction is integral to maintaining customer relationships and building new ones. While there are a myriad of ways to accomplish this, a simple yet often underrated way to overhaul CX is to move from paper forms to electronic smart forms. Not simply a cosmetic improvement, it is extremely effective at both reducing internal inefficiencies and improving relationships with policyholders. See also: Why Customer Experience Is Key   Consumers -- especially millennials -- have become accustomed to real-time, above-and-beyond customer service from companies like Amazon and Apple. They prefer to do business with organizations that provide a comparable or superior experience, and insurance is no exception. New entrants like Lemonade attract a millennial consumer base because of their transparency and straightforward communication. A significant part of that is standardizing and digitizing forms so that they don’t become a burden on either the carrier or the consumer, especially with regard to claims. What are the biggest benefits to moving from legacy forms to new templates or web-based smart forms? We break them down here: Smart Forms Eliminate Costly Errors: Insurers face a major problem in that most mistakes are human errors. Handwriting can be hard to read from both colleagues and policyholders. This leads to misinformation that could have severe implications months, or even years, down the line if a claim happens. Another issue is missing information and supplemental forms that are required based on previous responses that never get filled out. Additionally, errors frequently occur on physical forms because consumers aren’t pointed to their mistakes until the forms are already submitted. Insurance forms are often complex and confusing and are difficult to fill out correctly without proper guidance. Oftentimes, there are certain non-obvious questions that only apply to specific applicants. These errors can result in wasted time and resources for carriers who need to decipher illegible handwriting, correct errors or request missing information before submitting the form. One carrier we spoke with said that errors are so common that it takes two to three weeks to get through a process that requires 30 minutes once automated. This delay can be deadly when it comes to new business acquisition, as consumers do not want to wait that long. A digital form can alleviate the problem immediately by guiding the customer through the completion process, such as indicating where information needs to be entered, prompting for additional information based on previous responses or catching unsigned documents. For example, GroupHEALTH Benefits Solutions, a health benefits solution provider, saw a significant improvement when it switched from paper to smart forms. Their original paper-based method was error-prone, and employees had to take considerable time to research and resolve missing or conflicting information. The provider realized it could improve enrollee experiences and save money by implementing digital transformation techniques such as automation and intelligence through smart forms. Once the implementation took place, there was a near-immediate ROI. The new online enrollment process ended up reducing errors, which in turn helped the company focus on providing excellent CX. Confusing Forms Can Lead to Customer Drop-Off: While errors on paper forms can waste significant time and resources for a carrier, the forms can also leave customers angry, frustrated and willing to give their business to a competitor. According to Ernst & Young's Global Insurance Consumer Survey of 24,000 people in 30 countries, 40% of customers left an insurer in the past 18 months. The most interesting finding was that respondents in North America placed “ease of doing business with an insurer” (60%) as more important even than “value for money” (53%) – especially in P&C insurance. Respondents said that, because there were often not many opportunities for carriers to interact with their customers, each touch point became critical to their view of the company. Consider then, the importance of forms, which are the primary source of collecting data between carriers and policyholders. Smart forms create a system that allows only the correct information to display once a question is answered, whittling information down to only what that specific customer needs to know and fill out. At GroupHEALTH, as an example, enrollees would mistakenly assume their company plans included coverage not offered by their employers. This confusion led to customers filling out unnecessary forms and back-and-forth that ate up time and resources and increased frustration levels. After the switch to smart forms, however, the system would automatically prompt enrollees to supply missing information, noticed inconsistencies and flagged missing information. It was a runaway success, with GroupHEALTH estimating that, in just the first two months, it reduced the cost to manage enrollments by 20% to 25% -- just from switching to an online-based method. See also: Key to Digitizing Customer Experience   Digital Forms Help Employees, Too: When there are fewer errors, customers are happier (of course), but so are employees. For every mistake on a manual form, an employee must take time to correct it, send it back and re-process it. This cuts time from providing an excellent customer experience, replacing it with tedious correction work. When an online-based forms procedure is implemented, employees are able to spend more time on sales and customer service, rather than dealing with the mundane tasks associated with keeping track of forms and fixing incorrect ones. Online forms offer real-time customer access to policy details, billing, claims and beneficiary information. All of these are as important to the employees as to the customers because they create an environment of efficiency and transparency. Making changes at the ground level with digital documents may seem like a small step toward providing exceptional customer service in a sea of emerging technologies, but it’s also necessary to the health of a carrier’s bottom line.

If you spend any time writing or speaking about healthcare reform, eventually you’re asked the magic wand question: What would you do? Well, there’s an idea I’ve been thinking about. It’s not a Big Fix. It’s merely something that would improve whatever system is in place – I think – by making the system more simple and transparent. I’m sure it’s riven with problems. And maybe it’s a hot topic, but I’ve missed those articles. In any event, here it is. Please let me know what you think I’m missing. The Mechanics The idea is to have providers (physicians, hospitals, clinics, laboratories, etc.) publicize what they charge using a multiple of what Medicare pays. If Medicare pays $100 for a procedure and a doctor charges $300 for the same procedure, this doctor is a 300% provider. Carriers, meanwhile, will set what they reimburse providers as a percentage of Medicare, as well. If an insurance policy pays as much as $250 for this same procedure, it’s a 250% policy. See also: The Math of Healthcare Reform   The key is that this percentage doesn’t vary based on the procedure. Once a provider or carrier sets its multiple, that figure defines the cost for all treatment and services. Consumers gain two bits of information they lack today: what their provider is charging (300% of Medicare in this example) and what their health plan pays (250% of Medicare here). There’s two advantages to using Medicare as the benchmark for pricing. First, it’s already in use today. Second, it assures both providers and payers are using the same measurement. When you say “300% of Medicare,” doctors and insurers know what you mean whether they’re in San Francisco or San Antonio. (If you’re from elsewhere, it means take the Medicare rate, and multiply it by three). Compare this with today, when all they know is that the carrier pays in-network services on a mysterious discount and out-of-network services based on an unknowable formula. What is reasonable and customary? Under my proposal, however, consumers know what the carrier will pay and what they’re responsible for before they walk through the door for medical care. If the proposal were implemented today, a number of things would remain unchanged. Deductibles, co-insurance and co-pays: still allowed. The Affordable Care Act’s essential benefits: covered. Preventive care: not subject to deductibles and co-insurance. How emergency treatment is reimbursed will need to change to a standard multiple of Medicare for all payers regardless of the facility’s usual percentage so consumers aren’t subject to balance billing. Simplicity and Transparency As noted, this idea overlays the current system; it’s not a substitute. This is an overlay, however, that delivers substantial simplicity and transparency. Consumers know up front which providers they can afford. There would be no networks, so there would be no surprises from out-of-network charges, Consumers choose any doctor fully aware of how much of their bill is covered by their health insurance. If they want more covered, they simply choose another provider. Physicians wouldn’t have to guess what carriers will pay them. They’ll reduce their costs as a lot of unnecessary paperwork goes away. However, they’ll also have to compete with other providers in their community. If a doctor is going to charge a lot more than everyone else, she better have a good reason. Hospitals could no long hide behind their charge masters– a menu of prices they charge for services that no one ever sees and few hospitals can explain or justify. These inflated costs are the starting point for pricing negotiations with carriers, so few people ever see them. (Steven Brill wrote a special report for Time magazine in 2013 that explains charge masters and should be required reading for anyone attempting to reform American healthcare). Consumers and their brokers will be able to compare the value of plans on an apples-to-apples basis. If a 400% policy is more expensive than a competitor’s 500% policy, the carrier better be able to explain why. Consumers won’t face unexpected charges, either. They’ll know if their policy will cover all of a given provider’s expense or if they’ll need to pay a portion of the costs. And they can choose their providers accordingly. Carriers benefit from this proposal, too (unless you’re employed in the networking department). Actuaries will have more certainty in determining the reimbursement required under each plan, regardless of whether the provider is in- or out-of-network. With better information on their exposure, carriers can price more accurately. The simplicity of the system will also reduce operating costs, and that’s critical for carriers needing to meet a legally required medical loss ratio. An Improvement, Not a Revolution I know this idea doesn’t fix America’s healthcare system. The goal is to inject greater simplicity and transparency into whatever system is in place. If transparency advocates are right, this will revolutionize healthcare. I’m not sure I buy into the idea that transparency is all that game-changing, but, to the extent it is, this proposal dramatically increases transparency throughout the healthcare system. Single-payer advocates will not be impressed by this idea. However, I believe, in spite of its current momentum, single payer is a long way away. Single-payer proposals cost too much, impose too much centralized control and are too disruptive. The ACA cost Democrats Congress (and arguably the White House), and Obamacare is far less radical than any single payer plan out there. Imagine the political blowback at a government-run insurance program by voters already fearful of death panels and distrustful of Washington? See also: A Way to Reduce Healthcare Costs   ACA supporters should like my approach. A common criticism is that the ACA doesn’t do enough to make healthcare or healthcare coverage affordable. Simplicity saves money. Transparency empowers consumers to reduce their healthcare costs. The ACA plus a Medicare-pegged healthcare system will help the ACA keep its affordability promise. Advocates of reference-based pricing should also be happy. I’m proposing reference-based pricing on a nationwide scale with everyone using the same reference: the Medicare reimbursement schedule. This goes further than most of the reference-based pricing proposals or implementations I’ve seen, but it’s a logical expansion of the concept. And because both the provider and the payer are referencing the same benchmark, litigation — a too-common result of current reference-based efforts — is unnecessary. This proposal isn’t a panacea. The question is, is it a practical improvement? Please let me know what you think – and what I’m missing here – in the comments. This article first appeared on the Alan Katz Blog. 

AI is one of hottest trends in tech at the moment, but what happens when it’s merged with another fashionable and extremely promising tech? Researchers are looking for ways to take big data to the next level by combining it with AI. We’ve just recently realized how powerful big data can be, and, by uniting with AI, big data is swiftly marching toward a level of maturity that promises a bigger, industry-wide disruption. What to expect from the convergence of big data and AI The application of artificial intelligence on big data is arguably the most important breakthrough of our time. It redefines how businesses create value with the help of data. The availability of big data has fostered unprecedented breakthroughs in machine learning. With access to large volumes of datasets, businesses are now able to derive meaningful learning and come up with amazing results. It is no wonder then that businesses are quickly moving from a hypothesis-based research approach to a more focused “data first” strategy. See also: Setting the Record Straight on Big Data   But how is big data driving rapid breakthroughs in artificial intelligence? Businesses can now process massive volumes of data, which was not possible before due to technical limitations. Previously, they had to buy powerful and expensive hardware and software. The widespread availability of data is the most important paradigm shift that has fostered a culture of innovation in the industry. The availability of massive datasets has corresponded with remarkable breakthroughs in machine learning, mainly due to the emergence of better, more sophisticated AI algorithms. The best example of these breakthroughs is virtual agents. Virtual agents (more commonly known as chatbots), have gained impressive traction over the course of time. Previously, chatbots had trouble identifying certain phrases or regional accents, dialects or nuances. In fact, most chatbots get stumped by the simplest of words and expressions, such as mistaking “Queue” for “Q” and so on. With the union of big data and AI, however, we can see new breakthroughs in the way virtual agents can learn by themselves. IPSoft’s Amelia A good example of self-learning virtual agents is Amelia, a “cognitive agent” recently developed by IPSoft. Amelia can understand everyday language, learn really fast and even gets smarter with time. She is deployed at the help desk of Nordic bank SEB along with a number of public sector agencies. The reaction of executive teams to Amelia has been overwhelmingly positive. Google’s DeepMind Google is also delving deeper into big data-powered AI learning. DeepMind, Google’s very own artificial intelligence company, has developed an AI that can teach itself to “walk, run, jump and climb without any prior guidance.” The AI was never taught what walking or running is but managed to learn through trial and error. The implications of these breakthroughs in the realm of artificial intelligence are astounding and could provide the foundation for further innovations in the times to come. However, there are dire repercussions of self-learning algorithms, too, and if you weren’t too busy to notice,you may have observed quite a few in the past. Microsoft’s Tay Not long ago, Microsoft introduced its own artificial intelligence chatbot named Tay. The bot was made available to the public for chatting and could learn through human interactions. However, Microsoft pulled the plug on the project only a day after the bot was introduced to Twitter. Learning at an exponential level mainly through human interactions, Tay transformed from an innocent AI teen girl to an evil, Hitler-loving, incestuous, sex-promoting, "Bush did 9/11"-proclaiming robot in less than 24 hours. Should the evolution of AI concern us? Some fans of sci-fi movies like Terminator also voice concerns that, with the access it has to big data, artificial intelligence may become “self-aware” and may initiate massive cyberattacks or even take over the world. More realistically speaking, it may replace human jobs. Looking at the rate of AI learning, we can understand why a lot of people around the world are concerned with self-learning AI and the access it enjoys to big data. Whatever the case, the prospects are both intriguing and terrifying. There is no telling how the world will react to the amalgamation of big data and artificial intelligence. However, like everything else, it has its virtue and vices. For example, it is true that self-learning AI will herald a new age where chatbots become more efficient and sophisticated in answering user queries. See also: Forget Big Data; You Need Fast Data   Conclusion Perhaps we will eventually see AI bots on help desks in banks, waiting to greet us. And, through self-learning, the bot will have all the knowledge it could ever need to answer all our queries in a manner unlike any human assistant. Whatever the applications, we can surely say that combining big data with artificial intelligence will herald an age of new possibilities and astounding new breakthroughs and innovations in technology. Let’s just hope that the virtues of this union will outweigh the vices.

Every generation or so, technology takes a giant leap forward. Steam power, electricity and computing – each revolutionized the way we live and work. Where once it was the loom, the lightbulb and the mainframe, today it’s the internet’s turn. Since its creation in the 1980s, the World Wide Web has grown at an explosive rate and can now do so much more than help people share information. Today, the web is evolving – to bring together people, businesses, machines and logistics into the Internet of Things (IoT). The IoT is leading the fourth industrial revolution – known as “Industry 4.0.” It has the potential to transform our understanding of how everything can be connected and deliver enormous value to the world. Recent studies have estimated that it could add $14.2 trillion to the global economy by 2030. But if the IoT is to deliver on its immense potential, then businesses also need to get serious about tackling the new risks this era of connectivity promises. A Brief History of Industry 4.0 Before the 1780s, people worked with their hands – there was no such thing as "industry." Then came the steam engine, enabling high-speed transportation and mass production in factories. The world was transformed in that first industrial revolution. The second began in the 1870s with the widespread adoption of electricity, oil and steel – leading to such inventions as the light bulb, the telegraph and the internal combustion engine. In the 1970s and 1980s, the silicon chip heralded the third industrial revolution with the rapid rise of computing and robotics. Today, we are in the midst of Industry 4.0. This is being driven by the global spread of the internet; new technology such as wireless sensors; and the dawn of artificial intelligence (AI). Like its predecessors, Industry 4.0 will transform the way we live and work. See also: Welcome to the Robot Revolution   How Industry 4.0 Will Change Everything At a fundamental level, Industry 4.0 could unite the digital and physical worlds to offer a whole new universe of opportunities to gather and use information. This has the potential to improve efficiency and encourage innovation on a massive scale. Operational efficiencies: When sensors can be placed almost anywhere, businesses are able to gather detailed insight into how their machinery and processes are operating. For example, imagine a company warehouse – it’s been run the same way for years and is functioning effectively. The company decides to install IoT sensors in the warehouse to monitor how the staff pick and place goods on the shelves. Analysis of the data from the sensors shows that forklift drivers are taking 30% longer journeys than necessary. New routes are devised, and productivity increases with minimal investment. IoT can also help improve maintenance processes. Predictive maintenance – which can identify maintenance issues in real time – allows machine owners to perform cost-effective maintenance before malfunctioning technology becomes critically damaged. A key value proposition of industrial IoT is being able to determine ahead of time machinery that might fail, and take action based on that information. For instance, a company in Los Angeles could understand if a piece of equipment in Singapore is running at an abnormal speed or temperature. The company could then decide whether or not the equipment needs to be repaired. Improved understanding of risk: Better visibility into operations helps organizations identify risks and take steps to mitigate them. Many industries say that IoT is helping, or has the opportunity to, lower overall risk in the organization. In 2014, for example, 20% of worker deaths happened in the construction industry. Providing construction workers with wearable tech devices can give companies the data they need to understand how employee accidents happen, so they can improve safety procedures. More sensors collecting device data mean that risk can also be better understood and priced from an insurance perspective. This has already happened in the automotive sector with telematic usage-based insurance. Wireless monitors inside a car or truck can collect precise details on how an individual drives and use that data to construct tailored insurance packages. The growth of a new data economy: The proliferation of sensors means every business is now potentially a data business. Stankard gives the example of a maker of agricultural equipment, which can harvest the data from its devices to design and sell business optimization plans. In the future, the largest revenue stream that companies will likely have is going to come from selling data and selling production efficiency consulting around their own equipment. It’s a completely new business model for a company that for a hundred years was focused on making and selling capital equipment. New World, New Risks The opportunities presented by Industry 4.0 are enormous. But to realize them, we will have to come to terms with an entirely new risk landscape. Cyber Risks Up until the IoT, industrial machinery was not online. There was a physical “air gap” between the production process and the web. The connectivity that Industry 4.0 brings means that this is no longer the case. Cyber risk is consequently amplified. In 2015, hackers in Ukraine compromised sections of the country’s power grid by infecting plant operators’ IT networks with a virus hidden inside an Excel spreadsheet. One study from Kaspersky Labs found that 39% of computers involved in operating industrial infrastructure were subject to a cyber-attack in 2016. Cyber risks themselves are likely to give rise to risks in other areas. For instance, governments are likely to respond to increasing cyber threats with tough new regulations, which will themselves mean new risks for companies. The EU’s General Data Protection Regulations (GDPR), due for implementation in 2018, governs the handling of any data relating to EU citizens, with heavy penalties for non-compliance. Understanding these risks and the regulations they may prompt, and putting into place appropriate measures to mitigate them, will be critical – as will nurturing a culture of collective corporate cyber responsibility. In an age where a single misplaced USB drive can corrupt the operational integrity of entire systems, education and accountability are vital if vulnerabilities are not to become gaping cracks in defenses. Talent Risks A changing world means that the people and skills that businesses need will also change. The first industrial revolution, centered on the British textile industry, put many weavers out of work, prompting riots across the country. But it simultaneously created demand for machine operators. Industry 4.0 is likely to prompt changes of its own to workforces. Overall, there’s no clear consensus on whether the mass automation that will likely become part of Industry 4.0 will have a net positive or negative impact on jobs. Some argue that, as in previous revolutions, technologies like automation will increase wealth and productivity without affecting overall levels of employment. Other studies suggest a more pessimistic future of declining rates of employment and pay. What is certain is that talent requirements will change. It is predicted that there will be a 2 million worker skill gap in manufacturing after the baby boomers start retiring, which will go unfilled between 2015 and 2025. Organizations involved in the future of industry and manufacturing will need to address the lack of skill development with better training and education programs. See also: How to Respond to Industry Disruption   Embracing the Future Industry 4.0 is opening significant opportunities for organizations. From re-evaluating business models to new data-driven revenue streams, the possibilities are limitless. However, there is going to be significant incremental risk, likely posed by cyber and the immense – and growing – amount of connectivity. There is a risk reduction element here, as well. With such levels of connectivity, Industry 4.0 is likely to isolate and improve quality issues and enhance the overall customer experience. Organizations will need to rise to these challenges to fully take advantage of the amazing new opportunities Industry 4.0 will offer.