Our chief innovation officer, Guy Fraker, has been talking to dozens of major companies since he joined us a couple of months ago and has found that many innovation efforts at incumbents are stuck. The companies know they need to do something to take advantage of opportunities and to head off competitive threats, but they generate some ideas and … well, then what?

Guy gets companies un-stuck. That’s what he’s done in his distinguished career as an innovation leader, focusing on insurance, and that’s what he’s doing now. He has crystallized his thinking into six stages that innovation programs must go through to succeed. Here is the short version:

--Are you sure?

The decision that seems intuitively correct is often not the best way to go – and the mistake does not become evident for some time. So, stop for a moment and define success. For instance, innovators who start at $0 and grow revenue to $1 million may exult. But will $1 million work for a company with $10 million of existing revenue? $100 million?

Are you really ready to go to market in a new way? To disrupt your business model?

--Deciding strategy

A frequently asked question is, "How do we foster a more innovative culture?” Guy says he responds: "Innovate for growth, and let the requirements for success change the culture."

Corporate innovators must be able to move faster than an organization’s ability to say "no,” but here’s a secret: The key is not thinking "outside the box." The key is actually having leaders define the box within which they want innovation to happen – innovation responds to constraints.

Don’t underestimate the power of people’s enthusiasm when selecting your strategic domain. 

--Deciding the basics

Once you start considering startups, investments, new ideas from within the company and new ideas from customers, you quickly feel like you’ve unleashed chaos. You can keep things under control by having a day-long (or shorter) facilitated session that defines the limits of the strategic domain for innovation and of the business models that can be considered. You also need to decide whether to embed the innovation effort in business units or centralize the work.

--Resources

Will a dedicated team be established? Will the efforts be assigned to "virtual resources" (code for: We're going to leave people in their day jobs, and they're going to do this part-time)? And who do they report to? Understand that highly effective executives—even those considered entrepreneurial within mid-sized to large corporations—operate quite differently from entrepreneurs and may not be the right fit.

Guy adds: "I always advocate for off-the-shelf innovation platforms [software]. Some organizations choose to build their own, which almost always proves to be the long road to town. Some organizations choose to go without, avoiding some upfront expense. I assure you that a good innovation platform mitigates the need for three to five full-time employees."

And: "One of the better-kept secrets is that innovation lives or dies in the middle of the organization.  Part of your strategy should be around how leadership will manage the soft spots where participation may be slow in coming."

--Build a portfolio view

Every organization needs a single view of innovation activities, including concepts, startups and early-stage investments that are being considered. The axes vary, but you might think in terms of complexity (from "incremental" to "doesn’t exist today") and time horizons (from "immediate" to "three years"). Ideas that can be executed immediately and represent incremental change will be the most by volume but require the fewest resources. At the other end of the spectrum will be a few, resource-intensive "moon shots."

The key is to create a dashboard that enables an organization to manage the scope and number of concepts/investments in motion. 

--Going to market

Often, the product should be introduced as though from a startup, with a small, dedicated team pounding the streets and using all available resources to market, capture feedback and recommend changes. This approach is very counterintuitive for most large organizations, so you need to lay the groundwork early.

Click here for the long version of Guy's thinking on the six steps to getting un-stuck. Better yet, go here to sign up for Guy’s blog.

Cheers,

Paul Carroll, Editor-in-Chief

I had the opportunity to participate in a high-octane session at the 72^nd Annual WCI Conference in Orlando, FL. With the somewhat imposing title of “The Grand Bargain or Contract of Adhesion: The Ongoing Debate Over Benefit Adequacy, Procedural Efficacy and Blanket Immunity in Workers' Compensation,” it was a 90-minute discussion about both specific state legal challenges and the future viability (constitutionality) of workers' comp overall. It featured Florida defense attorney H. George Kagan, Wyoming law professor Michael Duff, Georgia Administrator and Judge Elizabeth Gobeil and me. It was moderated by Florida plaintiff's attorney Paolo Longo. While we covered a variety of challenges that the industry continues to face, there was one that I regret we did not have the opportunity to address. That one issue is the concept of allowing employers to opt out of workers' comp altogether. Since the Oklahoma Opt Out scheme was torpedoed by the state Supreme Court's upholding of an earlier decision declaring it unconstitutional, many have assumed that this chapter has closed for the industry. We are quite content to put our heads back in the sand and wait for the next crisis before we stir from our slumber. You may pick up from my tone that I believe this to be a mistake. I am predicting here that the “threat” of Opt Out will return, faster than expected, and with an improved concept that will quickly gain traction. I'm telling you, we need to pay attention and be prepared, as this next round will be a more formidable challenge. The advocates of Opt Out have, quite simply, made a few key changes in their pitch and approach, and the changes, for the sake of argument, have merit. The Achilles heel of Oklahoma Opt Out was “exclusive remedy”; the approach had been allowed to develop a closed and tightly controlled system that maintained the benefits of liability protection afforded to employers within the highly regulated workers' compensation system. This was found to provide inconsistent benefits to some workers, and, combined with the one-sided controls granted employers within Opt Out, was deemed an unconstitutional restriction on employees' rights of due process. Today, the backers of Opt Out seem to have learned a lesson and are now proposing an Opt Out scheme that operates without the layer of protections afforded by the exclusive remedy provisions. See also: What Schrodinger Says on Opt-Out  In other words, they are saying, “Allow us to accept the risk of full liability and set up our own alternative plans to mitigate that risk.” Although I am known for my opposition to Oklahoma Opt Out and am not a fan of Texas non-subscription, I believe this concept is more intellectually honest than its Sooner State predecessor and therefore worthy of inclusion in the debate about the future of workers' compensation. With my involvement with “national conversations” on comp over the last year and a half, one thing has become firmly etched in my mind. There is a feeling of frustration simmering in the industry over the regulatory complexity and paperwork required in helping injured workers. There is tremendous appeal in the idea of bypassing all the oversight and just doing the job that needs to be done. After all, in some systems, treatment of the injured worker now seems to be a secondary goal; we can get to it when all the appropriate paperwork has been completed in triplicate and submitted to the various participants that are required to have it. By saying, “We accept the risks of open liability and can control those risks by doing the right thing by our employees,” backers change the argument significantly from that where exclusive remedy protected the employer either way. The new approach is going to have tremendous competitive appeal to employers and the legislators whose ears they reach. There are, of course, concerns with this concept. One of the oft-understated purposes of the “Grand Bargain,” which created a system that was supposed to be no-fault in nature, is that it assures treatment and benefits for the careless and negligent worker. People who represent the injured workers' interests hate to discuss this, but many accidents occur not because the employer was negligent but because the employee screwed up. The employee may have been simply careless or willfully bypassed safety practices. Either way, the injury is often the fault of the worker who suffers it. Workers' comp, with few exceptions covers that. Employers who find no liability in an accident may not. For example, let's say you run a delivery service. You maintain a strict “no texting while driving” policy for your drivers, even going so far as to install apps on company-provided phones that will not allow texting when movement is detected. However, one of your drivers pulls out a personal phone (banned by company policy), over which you have no control, and drives headlong into a tree while texting his BFF. Were you negligent? If you did not have workers' comp, would you need to be concerned with the liability of pain and suffering, loss of consortium and all the other threats of a negligence suit? Unlikely. Without the threat of a suit, would you be compelled to provide medical and indemnity benefits to this worker? Equally unlikely, I would suspect, especially in an Opt Out world. Believe me, there is a real attraction to being released of financial responsibility for things that were not your fault. This really becomes a discussion at a societal level. Are we willing to start assigning blame, potentially placing the burden on taxpayers for injuries that occur while someone is working for the benefit of an employer? Are we ready to return to the days before workers' comp existed? Another issue, of course, will be how the concept is actually created in legislative form. Saying you will accept the risk of open liability is different than legislating that element. As with all things, the devil will be in the details of any specific proposal. These questions will certainly be a part of the debate. In the meantime, the simplicity of bypassing an over-regulated system is going to provide tremendous appeal for some. At our Orlando session, George Kagan observed that Florida legislators have enacted so much legislation for workers' comp that it would make the “central planners of the Soviet Union proud.” Employers will eventually look to escape an overly complex system where regulators cannot even agree on a simple standardized reporting form. When the argument can be successfully made that benefits for the injured worker can be improved by leaving a burdensome system, then we will have a real dogfight on our hands. See also: Debunking ‘Opt-Out’ Myths (Part 6)   PartnerSource President Bill Minick, who is the primary supporter of the Opt Out concept, and I do agree on a couple things. One of those is that competition is healthy and almost always results in improved service for all. The concept that backers are beginning to put forth represents the opportunity for true competition to a system that cannot seem to respond to other external stimuli. I remain a vociferous advocate for the workers' comp system; its importance in stabilizing a contentious area of labor relations has been well proven over the past 100 years. However, I also want to see a vibrant and relevant workers' comp system for the next 100 years. That means we must address some of our issues head on, and answer the questions about what is important to us as a society. Opt Out will again soon be an issue we are debating, but with a change in focus on their side. It will be a concept worthy of a larger debate. It will be a debate that we best be ready to participate in.

Insurance telematics has been out there for more than 20 years. Many insurers have tried to play with the technology, but few have succeeded in using the data available from connected telematics devices. The potential of this technology was misunderstood, and best practices have remained almost unknown, as it was not common in the insurance sector to look for innovation in other geographies, such as Italy, where progress has been made. But the insurance sector is being overtaken by a desire to change, and it’s becoming more common to see innovation scouting taking place on an international level. In the last two years, billions of dollars have been invested in insurance startups; innovation labs and accelerators have popped up; and many insurance carriers have created internal innovation units. On the other hand, I’m starting to hear a new wave of disillusion about the lack of traction of insurtech initiatives, the failure of some of them, or insurtech startups radically changing from their original business models. In a world that tends toward hyperconnectivity and the infiltration of technology into all aspects of society, I’m firmly convinced all insurance players will be insurtech—meaning they all will be organizations where technology will prevail as the key enabler for the achievement of strategic goals. See also: Telematics Has 2 Key Lessons for Insurtechs   Starting from this premise, I’d like to focus on two main points:

1. The ability of the insurance sector to innovate is incredibly higher than the image commonly perceived.
2. While not all insurtech innovations will work, a few of them will change the sector.

In support of the first point, consider the trajectory of digital insurance distribution. The German Post Office first experimented with remote insurance sales at the beginning of the 1980s in Berlin and Düsseldorf using Bildschirmtext (data transmitted through the telephone network and the content displayed on a television set). Almost 60% of auto insurance coverage is now sold online in the U.K., and comparison websites are the “normal” way to purchase an auto insurance policy. In few other sectors is one able to see comparable penetration of digital distribution. In the health insurance sector, the South African insurer Discovery demonstrates incredible innovation, as well. Over the last 20 years, the insurer has introduced new ways to improve policyholders’ lives using connected fitness devices to track healthy behaviors, generate discounts and deliver incentives for activities supporting wellness and even healthy food purchases. Discovery has been able to replicate this “Vitality” model in different geographies and different business lines and to exploit more and more usage of connected devices in its model each month. Vitalitydrive by Discovery rewards drivers for driving knowledge, driving course attendance and behavior on the road with as much as 50% back on fuel purchases at certain stations. More than 12 months ago, I published my four Ps approach for selecting the most interesting initiatives within the crowded insurtech space. I believe initiatives will have a better chance to win if they can improve:

• Productivity (generate more sales).
• Profitability (improve loss or cost ratios).
• Proximity (improve customer relationships through numerous customer touchpoints).
• Persistency (account retention, renewal rate increase).

Those insurtech initiatives will make the insurance sector stronger and more able to achieve its strategic goal: to protect the way people live. One trend able to generate a concrete impact on all four Ps is connected insurance. This is a broad set of solutions based on sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of the collected data. In a survey of ACORD members by the North American Connected Insurance Observatory, 93% of respondents stated this trend will be relevant for the North American insurance sector. It’s easy to understand why. We live in a time of connected cars, connected homes and connected health. Today, there is more than one connected device per person in the world, and by some estimates the figure will reach seven devices per person by 2020. (Cisco Internet Business Solutions Group, “The Internet of Things: How the Next Evolution of The Internet Is Changing Everything,” April 2011, estimates seven per person; AIG/CEA, 2015, estimates five per person.) Others put the number at 50 devices for a family of four by 2022, up from 10 in 2014. The insurance sector cannot stop this trend; it can only figure out how to deal with it. Moving to the concrete insurance usage of connected devices, the common perception of UBI is not positive at all. This is the current mood after years of exploring the usage of dongles within customer acquisition use cases, where the customer installs a piece of hardware in the car for a few months and the insurer proposes a discount based on the analysis of trips. This partially (only for a few months) connected car approach is based on the usage of data to identify good drivers, with the aim of keeping them as clients through a competitive price offer. In 2015, around 3.3 million cars in the U.S. sent in data to an insurance company in some way, representing less than 1.5% of the market. In contrast, another market used telematics in a completely different way—and it succeeded. Almost 20% of auto insurance policies sold and renewed in the last quarter of 2016 in Italy had a telematics device provided by an insurer based on the IVASS data. The European Connected Insurance Observatory—the European chapter of the insurance think tank I created, consisting of more than 30 European insurers, reinsurers and tech players with an active presence in the discussion from their Italian branches—estimated that 6.3 million Italian customers had a telematics policy at the end of 2016. Some insurers in this market were able to use the telematics data to create value and share it with customers. The most successful product with the largest traction is based on three elements:

• A hardware device provided by the insurer with auto liability coverage, self-installed by the customer on the battery under the car’s hood.
• A 20% upfront flat discount on annual auto liability premium.
• A suite of services that goes beyond support in the case of a crash to many other different use cases—stolen vehicle recovery, car finder, weather alerts—with a service fee around €50 charged to the customer.

This approach is not introducing any usage-based insurance elements but is an approach clearly able to satisfy the most relevant needs of a customer:

• Saving money on a compulsory product. Research shows that pricing is relevant in customer choice.
• Receiving support and convenience at the moment of truth—the claims moment. Insurers are providing a better customer experience after a crash using the telematics data. Just think of how much information can be gathered directly from telematics data without having to question the client.
• Receiving services other than insurance. That’s something roughly 60% of insurance customers look forward to and value, according to Bain’s research on net promoter scores published last year.

Let’s analyze this approach from an economic perspective:

• The fee to the customer is close to the annual technology cost for the hardware and services. The €50 mentioned above represents more than 5% of the insurance premium for the risky clients paying an annual premium higher than €1,000. This cluster represents less than 5% of the Italian telematics market. The fee is more than 10% of the premium for the customers paying less than €400. This cluster represents more than 40% of the Italian telematics market.
• The product is a constant, daily presence in the car, with the driver, with no possibility of turning it off. While the product ensures support in case of a crash, it is also a tremendous deterrent for anyone tempted to make a fraudulent claim, as well as for drivers engaging in risky behavior otherwise hidden from the insurer.
• The telematics portfolio has shown on average 20% lower claims frequency on a risk-adjusted basis than the non-telematics portfolio, based on the analysis done by the Italian Association of Insurers.
• Insurer best practices have achieved additional savings on the average cost of claims by introducing a claims management approach as soon as a crash happens and by using the objective reconstruction of the crash dynamic to support the claim handler’s decisions.
• A suite of telematics services is delivered to the customer, along with a 25% upfront discount on the auto liability premium.

So, best practices allowed carriers to maximize return on investment in telematics technology by using the same data coming from the black box to activate three different value creation levers: value-added services paid for by the customer, risk selection and loss control. The value created was shared with the customer through the upfront discount. The successful players obtained a telematics penetration larger than 20% and experienced continuous growth of their telematics portfolios. See also: Telematics: Moving Out of the Dark Ages?   These insurers were able to orchestrate an ecosystem of partners to deliver a “customer-centric” auto insurance value proposition, satisfying the three main needs of customers—or at least those of “good” customers. Compared with many approaches currently being experimented with in different business lines around the world, where the insurance value proposition is simply enlarged by adding some services, this insurtech approach is also leveraging the insurers’ unique competitive advantage—the insurance technical P&L—to create a virtuous value-sharing mechanism based on the telematics data. The story of the Italian auto telematics market shows how insurtech adoption will make the insurance sector stronger and better able to achieve its strategic goals: to protect the ways in which people live and organizations work This article originally appeared on Carrier Management.

At SpatialKey, we’ve identified a few key doubts (or apprehensions) that seem to be holding some insurers back from embracing the true value of insurtech. The term “insurtech” gets thrown around a lot, and with all the hype it becomes easy to start tuning it out and diluting its value. So what does “insurtech” really mean? I view insurtech as a collaborative movement where insurers and technologists partner to solve insurance-specific problems. Through this collaboration, insurers are able to reap the benefits of digital evolution and transformation (e.g. increased underwriting profitability, reduced claims costs, improved operational efficiencies). From blockchain to the internet of things (IOT) and transformative business models, insurtech can touch any piece of the business. But from a SpatialKey perspective, I’m talking about insurtech in the context of advanced data and analytics. As a software provider that builds solutions specifically for insurers, Spatialkey has insurtech near and dear to its heart. We’ve been pioneering geospatial insurance analytics since 2011, and we've been collaborating with insurers and expert data providers to deliver value to the industry. We’re passionate about showing insurers what insurtech can do for them. Going beyond disruptive technology and data solutions, insurtech enables insurers to compete, innovate and realize new opportunities in an industry that is rapidly changing. Specifically, it solves some key data and analytics challenges, such as lack of value-added data, visual analytics and cross-team communication (as illustrated below). Right now, insurers are being presented with the opportunity to embrace insurtech, to grow and innovate quickly through collaborative partnerships. Insurtech partnerships represent the new path forward and are poised to change how many insurers do business. This is all positive; however, it seems as though negative misconceptions arise when insurtech gets linked to “disruption.” “Disruption” is just an acknowledgement that technology is changing the industry. But because disruption carries a negative connotation, insurtech sometimes doesn’t get the positive vibes it deserves. See also: Insurtechs Are Pushing for Transparency   Maybe you're still on the fence thinking, “I’m not sure insurtech is worth it” — worth the change, the hassle, the investment, whatever. Let’s address these doubts head-on and debunk some common insurtech misconceptions that could be holding you back: Misconception 1: Insurtech is a bunch of hype. Reality: Judging by the investment landscape alone, I feel confident that this movement has gone past hype. Investment is happening by investors outside of insurance. Seeing VC firms such as General Catalyst, with interests that are typically outside of insurance, step up to invest in insurtech is a sign that this movement has traction. From 2011 to 2017, VC funding for insurtech companies grew 31%. Between Series B and Series D funding, $2 to $3 billion is being directed to insurtechs annually. And, as of April 2017, Venture Scanner is tracking 1,185 insurance technology companies in 14 categories across 60 countries, with a total of $17.8 billion in funding. Investors clearly see the value of insurtech as a catalyst to change how customers interact with insurance; a way to understand troves of data streaming in from important new sources like IOT, catastrophe data and more. Consumers expect real-time claims and smart driving apps, smart home devices and even rewards for wearables. Why, then, should insurers themselves expect less from technology? It makes sense that what technology can do for their customers, insurtech can do for them. And, with the global insurance technology spend expected to reach $185 billion this year, it’s becoming evident that insurers themselves are actively pursuing investments in insurtech. Some large insurers and reinsurers are even creating units focused on identifying new investment opportunities to drive innovation to the benefit of the industry. Some also serve as incubators to get new companies off the ground. As Stephen O’Hearn, global insurance leader at PwC, stated, “Insurtech will be a game changer for those who choose to embrace it.” Insurtech isn’t just hype, it’s happening, and “good enough” is no longer, well, good enough. Whether you’re in underwriting, claims, exposure management — or you’re a CIO — insurtech will have an impact on you. Misconception 2: Implementing insurtech is too costly. Reality: Cloud technology has made the implementation and maintenance affordable and has reduced (or eliminated) the need for IT support. Insurers face so many challenges that it can be difficult to dedicate resources to insurtech. The business case for “good enough” can appear stronger than the case for change; change comes with preconceived resource and cost notions. But, by not embracing change, insurers are stuck in limbo — with “good enough” legacy systems and practices that limit growth. In fact, in one survey, 81% of participants admitted their existing IT systems hinder innovation. Put simply, there’s a significant cost to inaction — to your ability to compete, to retain and attract new customers and to make better risk decisions. Furthermore, all of this could test the long-term relevance of your business. While there’s a cost to inaction, there’s also the significant opportunity for cost reduction. A 2017 Accenture report, “The Cloud as Rainmaker,” states, “Without cloud’s capacity and firepower, digital does not happen. Nor does an 80% cost savings.” The fact is, SaaS-based software via the Cloud has made implementation and maintenance a mole hill instead of a mountain (see illustration below). With SpatialKey, for example, there’s no need for IT support. Insurers can be up and running on an intuitive platform — gleaning deeper analytic insights with good data literally in hours. Misconception 3: In this soft market, my bottom line is under siege, and realizing the upside of insurtech is long-term. Reality: Insurers are, in fact, reaping the rewards of better analytics. Positive impacts of better risk decisions can be felt in the short term. A 2016 report from McKinsey & Company noted high-performing organizations were nearly twice as likely than their lower-performing peers to make advanced data and analytics accessible across their organizations. And high-performing organizations were twice as likely to employ self-serve analytics for their business users. Furthermore, in a survey by West Monroe Partners, “Data Driven Insurance: Harness Disruption and Lead the Way,” 57% of insurers said they somewhat or strongly agree that their companies are fully realizing the benefits of advanced analytics. The most commonly cited benefits were increased customer experience (27%), reduced claims costs (21%) and increased sales (14%). Harnessing the power of insurtech to aggregate data and improve analytic insights creates the potential for a healthier, more profitable book and competitive advantage. We’ve seen this with our own clients who have been able to more accurately assess risk in order to comfortably underwrite opportunities they otherwise may have passed on. For more on this topic, watch SpatialKey’s joint presentation with RLI Insurance from this year’s RAA event: “Accelerating Quality Decisions with the Right Info, Right Now.” See also: 5 Insurtech Trends for the Rest of 2017   Bottom line, all of these concerns are legitimate, and insurers are absolutely justified in questioning the value of something that has an impact on how they do business. The point of addressing these misconceptions is to prove that insurtech isn’t just buzz, it’s happening — it’s been happening — and it’s undoubtedly critical to staying competitive, relevant and profitable going forward. But, in order to see any of these gains, insurtech must be viewed as a collaborative movement that helps us all win and moves the entire industry forward. And by “all,” that means commercial providers, too. At SpatialKey, we know we can’t preach collaboration and not take a dose of our own medicine. It’s hypocritical to ask insurers to transform if, as solutions providers, we aren’t willing to do the same. Being a technology provider does not make SpatialKey immune from the need to digitally evolve; if anything, it’s infinitely more necessary that we always look to innovate. Our path is the same: collaboration. Collaborating with other experts — from technology to data providers — only makes us stronger. But, right now, there is unrealized potential to move the industry forward and deliver better, faster value to the industry as a whole. As solutions providers, we, too, can do more, simply by embracing collaboration among each other. To find out how collaboration leads to innovation, download: Mastering InsurTech with Smarter Collaboration. 

This is an open letter to everyone writing about “disrupters” and the insurance “customer experience,” citing “industry experts” and “top insurance executives”: For the love of God, please, please, PLEASE stop comparing buying insurance to buying a consumer product on Amazon! Case in point — from an “industry expert”:

“What’s holding most insurers back from meeting the speed and performance of a customer experience leader like Amazon? In a nutshell, siloed legacy systems.”

No, siloed legacy systems are NOT the reasons why the insurance industry doesn’t meet the “customer experience” speed and performance of Amazon. The reason the insurance industry doesn’t meet the “customer experience” provided by Amazon is because WE DON’T SELL WHAT AMAZON SELLS! Amazon sells consumer products. Insurance is not a product. If you’re compelled to label insurance, it's a process, not a product. See also: Insurance Coverage Porn   Another case in point from a recent Reuters article that quoted Ajit Jain, Berkshire Hathaway's “top insurance executive”:

"Amazon.com can deliver something to you in four hours. If people can buy paper towels on the internet, why not insurance?"

Sorry, sir, but buying insurance is NOT the same as buying paper towels. Yes, technology can — and should — be used to improve the effectiveness and efficiency of the insurance process, but phone apps and big data are not going to make a silk purse out of a sow’s ear. (BTW, there are some great silk purse bargains on Amazon right now if you hurry, and the good news is that choosing the wrong one likely won’t bankrupt you, as can happen if you choose the wrong insurance “product.”) Not every buying transaction can or should be reduced to an Amazon-like “1-click” purchase. If I want to buy paper towels, does Amazon need to ask me to explain what I’m going to use them for? Or who is going to use them? Or where I’m going to use them? Or…? The insurance PROCESS starts with assisting individuals, families and organizations in identifying their many — and often unique — exposures to financial loss. That information is then used to determine what is the best combination of insurance policy forms and risk management techniques to minimize the likelihood of a serious or even catastrophic financial loss. And if there is a loss occurrence, the process continues in both a financial and emotional way. “Insurance” is not a commodity product. It’s a regulated, service-oriented process where the “product,” if you will, is a complex, detailed legal contract that is highly litigated. To compare it to paper towels or any other online consumer purchase is infantile. How many bad Amazon purchasing decisions can lead you to financial ruin? See also: Innovation: ‘Where Do We Start?’   Why do we listen to and enable people who lack historical perspective and clearly are fundamentally clueless about how the insurance industry works and why it works that way, who really don't understand the overriding mission of this industry? Technology is a tool and a means to an end, the “end” being protecting individuals, families and organizations from financial catastrophe. Unless it’s the product “disrupters” and consultants are selling... then it's the end in and of itself. Caveat emptor.

Spies and “bugs” have made frequent appearances in movies, books and television. In the James Bond movie series, we see an array of devices that were designed for 007 by “Q.” In the 1997 movie, Tomorrow Never Dies, Bond’s BMW car and mobile phone provide the first glimpses of the potential of the Internet of Things (IoT). He remotely starts and drives the vehicle to escape the villains, while operating a number of built-in devices from the phone as the car views and senses issues. Q was always on the leading edge of new technology for Bond. Fast forward 20 years, and we now have sensors and capabilities in so many things … in our appliances, automobiles, mobile phones and a host of common wearables. You may not think of these as "bugs," but they are. They are mini- and micro-technology components employed to see, listen, learn, assess and respond. The only difference between today’s sensors and yesterday’s is that today’s sensors are infinitely better at reading and recording data — and they may be used for the common good. To prove that they are still considered “bugs,” however, you only need to look at a bill introduced recently by U.S. Sens. Mark Warner (VA) and Cory Gardner (CO). The Internet of Things Cyber Security Improvement Act is aimed to protect the federal government from cyber intrusion through the Internet of Things. Their bill raises a great point — sensors need built-in security measures that will allow for the good features to be used without introducing new risks. See also: Insurance and the Internet of Things   Good Bugs Eat Risk In the insurance industry, we understand the implications of sensors and their ability to lower risk. “Bugs” and sensors are now our best friends. In our Future Trends 2017: The Shift Gains Momentum report, we examined how IoT experimentation and implementation is reaching into every area of insurance. Here is a short list of innovative ideas introduced by early adopters of IoT in insurance:

• Progressive, via the Snapshot usage-based-insurance telematics offering, monitored how customers drove using an OBD plug-in device from Zubie.
• Liberty Mutual partnered with Google to use NEST connected smoke alarms in the home to help customers reduce fire risk and carbon monoxide poisoning while also reducing their homeowners insurance premium.
• Beam Dental began pricing dental insurance based on smart toothbrush usage data.
• John Hancock used wearable devices to track the well-being of customers, lowering life insurance premiums and offering an incentive program through Vitality to shop for an array of things.
• Oscar, a health insurance startup, used wearable fitness trackers and a mobile app to help track and encourage members to be fit, find doctors, access health history, access the doctor on call and connect to Apple Health.

In addition to the last two examples above, companies are using wearable devices and the data generated from them to better assess individuals for healthcare, life insurance, workers compensation and investment rewards based on their activity and lifestyle. Innovative insurers are using wearables to provide improved underwriting discounts, rewards, claims monitoring and new services using real-time data. The new services can include advice on healthy living, real-time healthcare and prevention, real-time monitoring and assistance in treatment or recovery plans and determining return to work timeframes for injuries or other health-related incidents. These all contribute to enhanced customer experiences, longer customer lives and improved insurer investment options. There’s No Limit to Sensor Growth This rapid experimentation and use of IoT isn’t just limited to wearables, telematics and smoke detectors. Sensors of all kinds are being born into healthcare environments, construction sites, commercial buildings, roads and bridges, homes and cars.

• By 2025, the Internet of Things will be worth trillions annually.
• Connected homes will grow rapidly by 30% per year in the U.S. alone, where 22% of households now have at least one connected device.
• The wearable device market is expected to more than double over the next five years.

Sensors Should Reduce Claims With the proliferation of companies innovating and taking new offerings to market using IoT, we are seeing the beginning of a huge boom in insurers using IoT to drive an engaging customer experience through personalized insurance offerings, reduced costs and new value-added services. The Boston Consulting Group estimated that U.S. insurers could reduce annual claims by 40% to 60% with real-time IoT. The key is that insurers will be able to move from paying claims to mitigating or eliminating risk by engaging with customers via IoT devices while also enhancing the customer experience. What’s Next for the IoT? Better bugs? Though so much remains uncertain and untested, we should expect to see a rapid evolution of technologies to sort out which sensors are most valuable in which locations and just how IoT can bring cost-effective monitoring to market. For example, P&C insurers were quick to pick up on OBD technology, with installed devices in vehicles. In many cases, mobile phone monitoring soon became a more cost-effective solution. Most smart phones have GPS capability and an accelerometer. And now automotive manufacturers are embedding sensors and telematics in vehicles to enhance safety and position themselves toward autonomous driving vehicles – just like Bond. As some wearable technologies are dropping out of the running, life and health insurers will soon be taking advantage of advancements in smart watch design. The first wave of wearables looked like digital tech devices with touchscreens and LED displays. The next wave is the introduction of smart tech into “normal”-looking watches from standard manufacturers like Movado, Tag Heuer, Fossil and Tommy Hilfiger. Android Wear technology will be feeding the data. These would be much more like Q would have designed, and they will undoubtedly be worn by many who wouldn’t normally use an Apple Watch or a FitBit. A similar technology wave is beginning to hit homes. Currently, sensors are in use in some thermostats, appliances, lighting systems, security systems, computer and gaming devices. But one of the drawbacks to having so many sensors is that most companies haven’t networked all of them to a single IoT data framework. This hinders the ability to aggregate the data across sensors, limiting the potential value. Every new data point requires a new type of sensor. As with OBD devices, attaching a sensor to everything may even become non-essential, in favor of one centrally located device with multiple sensors. PhD students at Carnegie Mellon University have been developing a plug-in sensor package they call a “Synthetic Sensor.” Plug it into an outlet, and that room is immediately a smart room. Instead of a smart sensor on every item in the room, multiple sensors in the device track many items, people and safety concerns at once. The device can detect if anything seems to be “wrong” when appliances are in use by analyzing machine vibrations. And, of course, it can track usage patterns. The sensor can even track things insurers may not need to know, like how many paper towels are still left on a roll. See also: How the ‘Internet of Things’ Affects Strategic Planning   So, would P&C insurers like to be connected to the water heater thermometer, or have access to a device that can hear pops and leaks? Would L&A insurers like to know the lifestyle and behaviors of their customers to encourage healthy living?  Much of this will be sorted out in the coming years. What doesn’t need to be sorted out is that insurers will want access to device data – and they will pay for it. They will need to be running systems that will readily hold the data, analyze it and use it effectively. Cloud storage of device data and even cloud analytics will play a tremendous role in giving value to IoT data streams. IoT advancements are exciting! They hold promise for insurers, and they certainly will make many of our environments safer and smarter.

The three most famous houses for risk exposure are the one made of straw, the one made of sticks and the one made of bricks -- occupied by our friends, the three little pigs. These three houses face extreme local straight-line wind exposure courtesy of the Big Bad Wolf. The key lesson taught by this fable is that the better prepared you are for risk exposure, the more likely it is that you’ll come out on the bright side after the risk has passed. Unfortunately, we see every day that some children and many adults did not heed this moral. While no one provides Wolf-Based Wind Scores (WolfHubTM), it is now possible to find risk scores on just about every other bad thing that can happen to your home or business. We are strong believers in the power of mitigation. After all, many times you can't just up and move from your location. But to know what to mitigate for, you have to understand the risk around you. Like the first two little pigs, most people don’t understand the risks around their property, and let's not overly reward the third little pig. While he certainly did mitigate for Wolf-Based Wind, building his house near a forest potentially exposed him to wildfire. Seeing that he was planning on farming, there had to be a body of water nearby for irrigation, exposing his house to flooding, as well. Lack of knowledge is the leading cause of hazard loss. See also: 4 Steps to Integrate Risk Management   That’s why we provide www.freehomerisk.com. So anyone in the U.S. can get a better understanding of the hazards that affect their property. For example, this address in Miami, 701 South Miami Ave., returns a risk identification report like this: All of the hazards lit up in green are hazards that are applicable to that specific address. Not every address will have every hazard, as hazards are regional in nature. For example, Florida sinkholes only happen in Florida, while tsunamis only happen to places with exposure to the Pacific Ocean. Once you’ve identified the risk types to be aware of you, can investigate further by getting the Risk Exposure Report Card, with grades specific to the address. For 701 South Miami Ave., Miami, the Risk Exposure Report Card looks like this: As you can see, at this address you (and the three little pigs) have a lot more to be concerned about than just Wolf-Based Wind.

From the day a business opens its doors, it is exposed to a variety of risks. Owning an art business is no different. The first thing any owner should do is make sure to have sufficient insurance in place to provide financial protection. For those invested in their art inventory or art-related risk exposure, it is important to consider the risk factors, including the financial risk exposed to your business as a whole. Good insurance programs are created by brokers who interview their clients and tailor the insurance policies to their needs. Remember, communication is key. Below is a list of some of the possible coverages business owners may need to help protect their art and business. 1) Building Insurance If you own a building, coverage should be for the standard “all risk” perils on a replacement cost basis (no deduction for depreciation). Check the co-insurance clause to be sure you are carrying the proper amount of insurance. If possible, the “agreed amount” endorsement should be attached, which eliminates any possible co-insurance penalty at the time of a loss. Deductibles are available to lower premiums. Building insurance usually excludes boilers, machinery, air conditioning equipment and outdoor swimming pools. Boiler insurance can be purchased separately. Flood and earthquake are normal exclusions in most property policies, but these perils can sometimes be insured - usually under separate policies. 2) Contents Insurance On a standard “all risk” basis to business equipment, drapes, leasehold improvements, equipment (your telephone system if you own it), etc., coverage is usually written on an actual cash value basis. Ask about replacement cost, and check the co-insurance clause to be certain you are carrying the proper amount of insurance. Coverage may be limited to the premises named in the policy, and generally, office contents insurance is not designed to cover personal property of partners and employees (coats, wallets, money, jewelry, etc.). 3) Papers and Records Replacement Insurance Standard “all risk” coverage provides for reimbursement of the cost to reproduce books of account and other business records. 4) Library Insurance Standard “all risk” insurance covers the cost of reproducing or replacing books and manuscripts. Those items that cannot be reproduced or replaced should be reviewed to add to your fine art insurance policy. 5) Computer Insurance A special computer policy is available to insure the hardware, software and extra expenses, which covers the additional cost to continue operations following an insured loss. 6) Rental Value If you own a building and rent a part or all of it to others, you can insure for the rent you lose while the building is untenantable because of an insured loss. Check the co-insurance clause on rent insurance to be certain you are carrying the proper amount. 7) Leasehold Interest Insurance If you lease your office premises and such lease agreement has a cancellation clause in the event of a catastrophic fire, you would find it necessary to lease other premises at potentially higher rental cost per month. Leasehold interest insurance can be purchased to protect you against the difference in your rental cost—up to the time your previous lease would have normally terminated. 8) Extra Expense Insurance This provides reimbursement of extra expenses incurred to keep your business going as fully as possible after an insured loss has occurred. Some forms of this insurance are written with a monthly time limitation. 9) Plate Glass Insurance If you own your building, you can elect to insure against plate glass breakage. If you do not own the building, your lease agreement may require you to carry plate glass insurance (if there is a plate glass exposure). The cost to re-letter glass can also be insured. See also: Future of Insurance: Risk Pools of One   10) All Risk Floaters Coverage is available to cover camera equipment and valuable works of art in your offices, and camera equipment, computer equipment and similar property you take away from your office premises. 11) Account Receivable Insurance If your records of accounts receivable were destroyed, you would have no record of outstanding accounts on which to collect monies due to you. Accounts receivable insurance would reimburse you for these outstanding accounts. 12) Business Interruption Insurance For loss of earnings, insurance is available to reimburse you for the profits you would lose while your business is closed as a result of an insured loss. The insurance can be arranged to include reimbursement for payroll and other continuing expenses. 13) Blanket Bond Blanket bonding is available to cover all employees and partners. The Employee Retirement Income Security Act of 1974 requires that trustees of your pension plan be bonded. 14) Money and Securities The basic contents insurance limits or excludes coverage on money and securities. Specific protection is available to cover both on and off your premises, for example, a messenger going to the bank. Underwriters would be interested to know if you have a safe (type and model). Also, let the a broker know how much you usually have on hand in cash and how much in checks— this can make a difference in the premium. 15) Depositor’s Forgery Coverage Banks are responsible for any forged instruments they accept. However, their insurance is usually purchased with a large deductible. Depositor’s forgery offers protection to retain the goodwill of your banking connections and to avoid discussions with the bank in the event of a loss. It covers loss resulting from forgery of checks and other documents issued by your firm. 16) Comprehensive General Liability This is for protection against third-party bodily injury and property damage claims related to your premises and operations necessary and incidental thereto. Employees should be included as additional insured; if you lease, the lease agreement may also require the landlord to be named. 17) Medical Payments Insurance Medical payments insurance is available in connection with comprehensive general liability to provide reimbursement of medical expenses for a third party injury on your premises regardless of your legal liability. For instance, a client trips over his own feet, falls and cuts his hand. While not legally liable, you may want to offer to pay his doctor bills. Medical payments would cover this exposure. 18) Professional Liability This provides coverage for direct pecuniary loss and expense arising from claims for alleged neglect, error or omission in the performance of services in a professional capacity. Policies usually carry a mandatory deductible clause. 19) Foreign Liability It is important to note that most liability insurance policies are limited to claims within the U.S. and Canada. If you have operations overseas, your liability insurance should be extended to cover worldwide. Each country has specific insurance requirements. You should check for insurance laws that are local in your business operation. 20) Products Liability If you are involved in the selling, distribution, serving or give-away of any type of product, products liability should be purchased for protection against product claims. 21) Personal Injury Liability This is important protection against claims involving false arrest, detention, malicious prosecution, libel, slander or defamation of character. 22) Fire Legal Liability If you do not own the building you occupy, the owners or building management could hold you legally liable in the event of fire damage to the building premises caused by your negligence. 23) Contractual Liability Any contracts you sign should be reviewed by your insurance broker to review and determine if liability assumed by contract is acceptable. Liability assumed by contract is not automatically also assumed by that party’s insurance carrier. Discussion with your insurance broker may be required as well as amendment to your insurance policy. 24) Publisher’s Liability This coverage indemnifies you against loss through libel or the infringement of rights, pertaining to loss of privacy, plagiarism, piracy or copyright infringement. 25) Non-owned Auto Liability Employees or other persons may use their own autos for your business or rent autos in your name for business trips. If a person is involved in an accident, the injured party may name your business in a suit. This insurance would protect the business. As per your state requirements, individuals should carry his or her own personal automobile insurance for coverage as an operator. Most standard non-ownership forms exclude coverage for a partnership in respect to the individual partner using his or her auto for business purposes, but this exclusion can be deleted for an additional premium. 26) Host Liquor Liability This coverage protects your business against claims based on serving liquor. For example, an intoxicated guest could be involved in an auto accident after leaving your premises, resulting in a claim against the business. Host Liquor Liability should be assumed by your caterer or the party that is selling alcohol (in addition to having the appropriate licensing as required in your jurisdiction). 27) Employee Benefits Liability This is coverage against claims in regard to handling employee benefits funds. 28) Umbrella Liability This provides blanket protection over and above your primary liability program. It also covers unusual hazards that do not come under primary policies such as property of others in your care, custody or control or occasional overseas exposure. 29) Workers’ Compensation This is mandatory coverage for employees. Be certain that the policy includes all states in which your business has employees, and that the classifications on the policy apply to your operations. 30) Disability Benefits Insurance This is third-party coverage, statutory in some states, to provide coverage for employees hurt off the job. See also: Is This the Largest Undisclosed Risk?   31) Accident Insurance Coverage can be arranged in various ways to meet the requirements of your business, either to cover business travel only or 24-hour pleasure and business protection. 32) Key Man Insurance This coverage reimburses the business for financial loss resulting from the death of a key person in the firm. 33) Partnership Insurance If your business is a partnership, this insurance provides cash to carry out a buy-or-sell agreement in the event of death of a partner. 34) Kidnap/Ransom Coverage Kidnap of executives (or members of their families) and payment of ransom demands is a growing concern. This insurance covers reimbursement of ransom payments and related losses and expenses. This article is provided for general informational purposes only and is not intended to provide individualized business, risk management or legal advice. You should discuss your individual circumstances thoroughly with your legal and other advisers before taking any action with regard to the subject matter of this article. Only the relevant insurance policy provides actual terms, coverages, amounts, conditions and exclusions for an insured.

Organizations pay a hefty price for a data breach, but the cost, for the first time, has dropped, a 2017 IBM Security study conducted by the Ponemon Institute has found. The study, which interviewed more than 1,900 individuals at 419 organizations in 11 countries, found the average cost of a data breach is $3.6 million—a 10% decrease from IBM Security’s 2016 study. Incidents with fewer than 10,000 records compromised cost, on average, $1.9 million, and incidents with more than 50,000 compromised records cost, on average, $6.3 million. Incident costs in the 2016 study averaged $2.1 million for the smaller breaches and $6.7 million for the larger ones. See also: How to Measure Data Breach Costs?   “I was pleasantly surprised to see this was the first year in the history of the study that the global cost of a data breach has declined,” says Diana Kelley, IBM Security’s global executive security adviser. The Ponemon Institute has tracked the cost of U.S. data breaches for 12 years and other countries’ breaches for as long as 10 years. This year’s decrease, Kelley says, “may be an indication that the expertise and processes being put in place to optimize security measures are more effective than ever before.” What’s working The new study found that incident response, encryption and education had the most impact—and business continuity programs also helped—in reducing the cost of a data breach. The faster a data breach can be identified and contained, the lower the costs, the study revealed. For the 419 companies in the study, the average time to identify a data breach was 191 days, and the average time to contain a breach was 66 days. The average time to identify and contain a breach was highest when a malicious or criminal attack was involved. People, not glitches, cause most problems “Successfully responding to a breach is all about speed and limiting the window of access and damage to an organization’s IT environment and data,” Kelley says. “The more quickly a security team can identify what has happened, what the attacker has access to and how to contain and remove their access, the more successful they will be in keeping costs down.” Hackers and criminal insiders cause the most data breaches. The study found that 47% of all breaches were caused by malicious or criminal attacks. The average cost per record to resolve such an attack was $156. In comparison, system glitches were resolved at an average cost of $128 per record, and human error or negligence breaches were fixed for $126 per record. Companies in the U.S. and Canada spent the most to resolve a malicious or criminal attack. U.S. organizations spent, on average, $244 per record, and those in Canada spent $201 per record. In comparison, companies in India spent much less—$78 per record. A single record compromised, of course, would be a manageable expense, but organizations with data breaches usually are faced with hundreds to thousands of compromised records. “The numbers add up quickly when you consider all the resources and elements affected by an attack,” Kelley says. “Detection and escalation costs alone can include forensic and investigative activities, assessment and audit services, crisis team management and communications to executive management and the board of directors.” See also: Aggressive Regulation on Data Breaches   The bill “continues to rise,” she says, with the cost of notifying victims, help-desk activities, inbound communications, special investigative activities, remediation, legal expenditures, product discounts, identity protection services and regulatory interventions. “For some small- or medium-size companies,” Kelley says, “a data breach could cost them their business if not effectively addressed.” This article originally appeared on ThirdCertainty.com. It was written by Gary Stoller.

Nancy Newbee is the newest trainee for LOCO (Large Old Company) Inc. She was hired because she is bright, articulate, well-educated and motivated. She is in her second week of training. Her orders include: “We’ll teach you all you need to know. Sammy Supervisor will monitor your every action and coordinate your training. Don’t take a step without his clearance. When he’s busy, just read through the procedures manual.” Nancy is already frustrated by this training process but is committed to following the rules. Upon arriving at work today, Nancy discovers the kitchen is on fire! As instructed, she rushes to Sammy Supervisor. Interrupting him, she says, “There’s a major problem!” Sammy is obviously disturbed by this interruption in his routine. He tells her, “Nancy, my schedule will not allow me to work with you until this afternoon. Go back to the conference room and continue studying the procedures.” “But, Mr. Supervisor, this is a major problem!” Nancy pleads. “But nothing! I’m busy. We’ll discuss it this afternoon. If it can’t wait, go see the department head,” Sammy responds. Nancy rushes to the office of Billy Big and shouts, “Mr. Big, we have a major problem, and Mr. Sammy said to see you!” Mr. Big states politely, “I’m busy now,” all the while wondering why Sammy Supervisor hires these excitable airheads. “But, Mr. Big, the building…” Nancy interrupts. “Nancy, see my secretary for an appointment or call maintenance if it’s a building problem,” Mr. Big says impatiently, thinking, “Where does Sammy find these characters?” Near panic, Nancy calls maintenance. The line is busy. As a last resort, Nancy calls Ruth Radar, the senior secretary in the accounting department. Everyone has told her that Ruth really runs this place. She can get anything done. “Ruth Radar, how may I help you?” is the response on the phone. “Miss Radar, this is Nancy, the new trainee. The building is on fire! What should I do?” shouts Nancy through her tears. “Nancy, call 911!” Ruth says. Now, of course this is a ridiculous example… or is it? See also: How We’re Wired to Make Bad Decisions   Assuming you are the boss, try this eight-question test:

1. In your business, do you hire the best and brightest and then instruct them not to think, act or do anything during their training, except as you tell them to do?
2. Do you promise training and, instead, substitute reading of procedure manuals?
3. Do you create barriers to communication, interaction and effectiveness by scheduling the new employees' problems and inquiries to accommodate the busy schedules of your other personnel?
4. Do you and your staff ignore what new employees are saying?
5. Is the process more important than the result? Does the urgent get in the way of the important?
6. Do layers of bureaucracy between you, your employees and customers interfere with contact, communications and results?
7. Is “Ruth Radar” running your shop?
8. Do you have any fires burning in your office?

If you answered “no” to all of these questions, congratulations! Now go back and look at the questions again. The perfect business would have eight “no” answers, but very few businesses are perfect. If you are like LOCO, our large old company, you might be so far out of touch with your trainees, employees and customers that you won’t hear about a “fire” until it starts to burn your desk. Look back at IBM, GM and Sears in the late 1980s. These were  the kings of their respective jungles. Yet all of these leaders nearly burned to the ground. Many thousands of employees were terminated, profits were ended and stock values fell. If you would have talked to any of these terminated employees, you would have learned that the fire had burned for a long time and that many people had tried to sound the alarm. Remember the large old insurance companies that are no longer here: Continental, Reliance, etc. Did their independent agents smell the smoke? Did the leadership of these carriers ignore the alarm? Sam Walton, who had reasonable success in business during his lifetime, once said, “There is only one boss — the customer. Customers can fire everybody in the company from the chairman on down, simply by spending their money somewhere else.” Walton was right. In your business, do you or Nancy have the most direct contact with the customer — the ultimate boss? If Nancy has the most contact, is she adequately trained, motivated and monitored? Is she providing feedback? Are you listening? Take a minute to draw a picture of your organization. Now, draw a frame around your picture. Does this frame create a pyramid? Are you, as the boss, at the pinnacle? Are Nancy and her fellow trainees at the base? Is it prudent to have the least experienced personnel closest to the customers? Your organization was formed to meet the needs of customers. You exist to serve these same customers. Where are these customers in the organizational chart? Did you “forget” to draw them into the picture? How much distance is there between you (as boss) and the customers? Does this pyramid model facilitate the free flow of information between you and the customers, or does it buffer you from the real thoughts and feelings of the real boss (the customer)? In your business, is the customer and his problem seen as an interruption of the work or as the very reason for your existence? If you had to downsize your company, where would the cuts be made? At the top, middle or bottom of the pyramid? Are the people in the hierarchy of the pyramid there because they did or can do more for the consumer, or were they pushed up by the people they hired to support them? Is your company fat or lean? See also: How Basis for Buying Decisions Is Changing   If your employees answered all the above questions, would they agree with you? If your customers were asked, what would they say? If your customers voted tomorrow, who would be retained? Who would be fired? Think about it! Do you dare ask?