The dam has likely broken on sexual harassment claims. While the allegations currently focus on celebrities, politicians and other public figures, we can expect it to broaden to encompass virtually anyone in an organization. Victims now have a plethora of ways to address wrongdoings: social media with the #MeToo hashtag, traditional media and, of course, the legal system.
The risks to organizations are reputation, loss of focus and reduced productivity levels in the face of the negative publicity, legal costs, and legal awards or settlements. The current climate may very well have set the stage for some very large jury awards as juries decide to punish those who they feel failed to take the steps that should have been taken. Make sure your company and clients don’t fall into this category.
If your clients or company have not already implemented solid risk management practices in the employment practices arena, do so immediately! Make certain you have strong anti-harassment policies in place that are fully supported from the top down through the organization, train everyone in the company on the dos and don’ts of all forms of harassment, establish a clear line of communication for employees to report harassment and make certain that all complaints are promptly and competently investigated. Lastly, if you haven’t historically purchased employment practices liability insurance, revisit that decision, as well.
What do you think? Will the current deluge of harassment claims become a flood? Has corporate America done what it should to mitigate and manage the risks? Are companies large and small buying adequate insurance to fund the claims they cannot avoid? Share your insights and recommendations with other readers in the IRMI Group on LinkedIn.
You can find more at IRMI.com.
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Jack Gibson has led the executive teams in determining the strategic directions of the companies along with high-level tactics since 1982 for IRMI and 2011 for WebCE, when it was acquired by IRMI. Until 2016, he also led the editorial and training and education teams at IRMI.
In my last three blogs, we discussed what it means to be a digital insurer and how digital preparedness looks much like a fusion reactor — accomplishing something we called Digital Fusion. For a recap, you can begin with the blogs here. In the November 2017 issue of Canadian Underwriter, I also discussed why Digital Fusion is necessary and what it takes to become a digital insurer. We gave some specifics regarding how digital preparedness meets insurer needs throughout the insurance process. Today, we’ll look at how insurers will benefit from Digital Fusion, but we will home in on growth as a primary benefit — because digital strategies should never lose sight of their focus on growth. Digital Fusion enables growth.
Platform Shifts at the Core of Digital Growth (Systems)
No matter what lines of business an insurance company sells, it is going to want to accept new technologies and data sources into its unique ecosystems. Legacy core systems currently stand in the way. These systems have proven their capability to run traditional business models (Insurance 1.0), and they are mission-critical transactional systems that ensure continuing operations and compliance. However, over time, these systems have generally been cobbled together through expensive, high-level and limited integration points. These ecosystem solutions are often originated at different enterprises with different architecture, technology and even data models. Out of necessity, they were “integrated” for positioning as attachments to the primary core system. This may have sufficed to address short-term needs, but the approach falls short in providing differentiated customer experience and deep engagement because the solution will simply be the façade painted over the top of the insurer’s transactional systems.
See also: How Sharing Economy Can Fuel Growth
Rather than a retrofit architecture, the next generation of core is a complete architecture redesign that fuses common capabilities across transaction processing, insights and engagement needs with a strong “find and bind” integration architecture to tap into an ecosystem of innovative data and solutions. It is open to non-native components, supports rapid change to adapt to shifting industry needs and allows for continuous innovation. It can generate analytics and calibrate the customer-centric solution without losing speed or increasing total cost of ownership. That positions the insurer for market adaptability, innovation and, most importantly, continued growth.
Speed-to-Market Growth — Evidence for Agile Digital Connectedness (Innovations)
Part of the fascination of Digital Fusion is an acknowledgment that the sky is the limit and that digital thinking will provide growth through speed.
Let’s look at an example from auto insurance. Vehicles are able to tell us more and more every day. We started with telematics being able to communicate miles driven. Then we added capabilities such as speed, acceleration and braking habits. Carried to the limit, however, automobiles are mobile data nets. They can know where traffic is, where most accidents occur, how closely cars are following each other and even the temperature outside, including if ice is building on the roadways. Most have sensors that know when impact has happened. Consider all of the data that can be fused into these products and their analysis to provide real-time value as well as operational value. The P&C insurer that can apply all forms of digital content (social media usage, localization, IoT, mobile usage while driving) and also have access to relevant transportation data will be far more liable to be able to price competitively. Add another layer: digital feedback. How can the insurer rewrite daily driving scenarios with simple communications back to the insured to reduce risk or to provide value-added services? Insurers in all lines of business will be dramatically improving their use of real-time feedback in the coming years.
But that capability is only the tip of the product iceberg. What if the insurer could take that information and roll it into a new usage-based product in a matter of months across all geographies because it is employing a cloud “find and bind” architecture, allowing it to freely use innovations without massive integration work? That is the promise of Digital Fusion. Traditional platforms can’t keep up with innovation growth. "Find and bind" architectures facilitate growth through innovations.
This isn’t just a vision of the future. Majesco is currently working with companies that have already implemented frameworks where it is taking “months not years” from product idea to market launch. To view some of those examples, consult the recent Majesco white paper on cloud business platforms.Big Growth in Smaller Packages (Products and Experiences)
Digital insurance 2.0 represents a new age of insurance that requires a new way of understanding how digital platforms will affect insurance growth — that much growth will come through segmentation. What does this look like?
Higher volumes of lower transaction values.
Personalized service down to the individual level, even if the insurance is sold to groups.
Micro-duration insurance priced and sold “on demand.”
Insurance that is so personalized in use that it must use AI to consolidate data, analytics, pricing and underwriting.
Low-touch operations with a high-touch feel using cognitive communications.
Much of this is accomplished with a micro-services approach, instead of a core system administration approach.
Digital Fusion will provide insurers with multi-channel engagement, using journey maps, highly specialized apps and content to face customers with personalized experiences. But then it will go one step further, into usage analysis, so that insurers will be able to use data to measure and tweak processes.
Engagement + Insights = Growth (Relationships)
Digital apps are known as systems of engagement. Analytics apps are known as systems of insight. In a digital insurance platform, apps do not operate within silos. They are exposed to each other so they can provide power through Digital Fusion.
The power that comes through app fusion is specifically related to innovation and growth because it represents cyclical improvement. Insights will fuel new methods and measures of engagement. Enhancements to engagement will create deeper knowledge and expanded growth.
This is important because most insureds (individuals and businesses) want to be known. They trust an organization that they feel understands their needs and engages them. This makes Digital Fusion not only a platform for growth, but a platform for relationship-building. Great relationships will fuel healthy growth and high retention.
See also: Core Systems and Insurtech (Part 3) In Summary
Now, when someone asks why the organization should be considering digital transformations, you can say, “growth,” and share this four-point primer on how digital enhancements are going to yield growth. To recap, digital insurance platforms provide:
Digitally capable systems, without the distractions of infrastructure and operations
The ability to plug in innovations
A framework for creating a broader range of products with improved user experiences
A steady stream of valuable insights that will perpetually provide relationship-building ideas for engagement.
Plus,
More profit with a better process
Lower risk at lower cost while building a future-ready insurance operation
At Majesco, we are reimagining and providing the next generation of digital insurance platforms to insurers within all lines of business. To dig deeper into digital platform transformation, be sure to read Majesco’s thought-leadership paper, Cloud Business Platform: The Path to Digital Insurance 2.0.
This article was written by Manish Shah.
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Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco's client-centric strategy.
Approximately a year after the zombie malware Marai took some major websites off-line for much a day, cybersecurity researchers recently identified a potentially more potent threat called Reaper. Experts warn that Reaper has the capability to take down the entire internet.
Marai Zombie Malware
In late 2016, an online infrastructure firm called Dyn was the victim of a massive distributed denial of service (DDoS) attack attributed to Marai, an IoT attack malware. The DDoS attacker deliberately overloads a target server with an abnormal amount of traffic, using an army of infected computers, known as a “botnets,” to carry out the information requests. This often results in a crashed server, knocking the target website offline, effectively disrupting normal business. As more and more common household devices become connected to the internet, attackers are able to leverage an ever-growing army of devices to carry out these attacks.
Marai weaponized IoT devices, such as digital video recorders (DVRs), wireless routers and CCTV cameras, by exploiting factory-default or hard-coded usernames and passwords. A number of Dyn’s high-profile clients, including Twitter, Amazon and Netflix, were taken offline.
The Grim News About Reaper
CheckPoint, an Israeli cybersecurity firm, has said that the Reaper IoT malware is “forming to create a cyber-storm that could take down the internet.” Reaper is exponentially more dangerous than Marai because it exploits at least nine security vulnerabilities across a wider range of devices. Those vulnerabilities are identified on the CheckPoint website.
CheckPoint warned that Reaper is expanding “at a far greater pace and with more potential damage than the Marai botnet of 2016,” and it estimated that more than a million organizations worldwide already have been affected. Noted cyber security reporter Brian Krebs further noted: “It’s a safe bet that whoever is responsible for building this new Reaper IoT botnet will have more than enough firepower capable of executing Dyn-like attacks at internet pressure points. Attacks like these can cause widespread internet disruption because they target virtual gateways where third-party infrastructure providers communicate with hordes of customer Web sites, which in turn feed the online habits of countless internet users.”
See also: How to Keep Malware in CheckCost of a DDoS Attack
For many victims of a DDoS attack, lost internet traffic can equate to staggering costs and lost revenue. According to a survey Dyn sponsored and published in August 2016, the majority of companies surveyed calculate that an internet outage costs them a minimum of $1,000 per minute.
Protective Measures
Today’s connected enterprises definitely should fear the Reaper (apologies to 1970s rock band Blue Oyster Cult). But there are a number of steps companies can take to mitigate the risk of being taken offline by Reaper or other IoT attack malware. And because 100% prevention against the risk is impossible, companies also should consider transferring the residual risk through insurance.
Avoid or Mitigate the Impact of a DDoS Attack
There are several strategies an organization can deploy to prevent a DDoS attack or at least mitigate the effects of one, including:
Set traffic thresholds: Companies can track how many users typically visit their website on any given day, hour and minute. Volume can change based on a number of factors. By having this historical knowledge, thresholds can be installed and real-time alerts can be generated to advise of abnormal traffic.
Blacklist and whitelist: Control who can and cannot access your network with whitelists and blacklists for specific IP addresses. However, be mindful that certain IP addresses may generate false positives and be blacklisted when they are in fact legitimate traffic. By temporarily blocking traffic, a business can see how it responds. Legitimate users usually try again after a few minutes. Illegitimate traffic tends to switch IP addresses. A good resource to help begin the process of whitelisting and blacklisting can be found on the DNS whitelist. Here you will find IP addresses, domain names and e-mail contact addresses. Each IP address is given a trustworthiness level score.
Reroute traffic with additional servers. By having additional servers on standby to handle an abnormal increase in traffic, a business can improve the odds against one server being overwhelmed. While this is likely the most cost-effective method, it is difficult to tell how many might be needed because the size of the attack can vary.
Consider using content-delivery networks (CDN). This method involves using external resources to identify illegitimate traffic and diverting it to a cloud-based infrastructure.
There may be contractual obligations that are affected during and after a DDoS attack. As such it is important to review contractual liability implications with customers and business partners. Review contracts with an eye toward the following:
Revise unfavorable service-guarantee language due to downtime resulting from a DDoS attack. Allocate liability for potential outages as appropriate. Clauses that require security-incident notification under contract may be detrimental, especially when not required by law. Be sure your attorney reviews language related to this specific issue.
Terminate traffic as soon as a DDoS attack starts. Terminate unwanted connections or processes on servers and routers and tune their TCP/IP settings. If the bottleneck is a particular feature of an application, temporarily disable that feature.
Analyze traffic and adjust defenses. If possible, use a network-analyzer tool to review the traffic. Create a network-intrusion-detection system signature to differentiate between benign and malicious traffic. If adjusting defenses, make one change at a time, so you know the cause of the changes you may observe. Configure egress filters to block the traffic your systems may send in response to DDoS traffic, to avoid adding unnecessary packets to the network.
Notify and activate your incident-response team, if one is already in place. Contact the company’s executive and legal teams. Upon their direction, consider involving law enforcement and collaborate with your business-continuity/disaster-recovery team.
Create a communication plan. A company can easily become overwhelmed with inquiries from customers, business partners and media during a DDoS attack. Create a status page with a statement explaining the circumstances of the event. In addition, a template letter can be created to automatically respond to customers that contact a business for information.
During a DDoS attack, immediate efforts should be made to document facts in an incident report. It should be used to document what happened, why it happened, decisions made and how the organization will prevent future attacks. Review and document the load and logs of servers, routers, firewalls, applications and other affected infrastructure. The incident report may be read by a wide audience, and it is therefore important that it’s written in a language that is not overly technical.
Insurance Issues
For companies that are either the direct target of a DDoS attack or that are indirectly affected by an attack on a third party, significant business interruption costs, including lost income and other expenses, can be incurred. Consequently, affected companies should scrutinize their insurance policies to determine if they have coverage under either scenario.
Because there is no standard cyber insurance policy form, it is important for the insured to review its specific policy form and determine whether it provides coverage for a DDoS attack. Here are some issues to consider in that regard:
DDoS Provisions.
Is there an exclusion for DDoS attacks;
Is coverage limited to attacks targeted at the insured’s network;
Is there broader coverage for an attack that indirectly affects the insured;
Does the definition of “security event,” “security failure” or any relevant similar term include or exclude a DDoS attack?
Business Interruption Coverage.
Is coverage triggered only following a direct attack on the insured company;
Is contingent business interruption coverage available;
How long is the business interruption waiting period;
Is coverage triggered only by a complete business interruption or also by a degradation in business operations caused by the DDoS attack;
Is there coverage for professionals, including accountants retained by the policyholder, required to calculate and submit the claim?
Insureds are urged to consult with experienced insurance brokers and advisers to ensure that they obtain appropriate coverage for losses resulting from a DDoS attack. Cyber insurers often are open to negotiation of their policy forms, so insureds are encouraged to work with their insurance professionals to optimize coverage.
See also: How to Immunize Against Cyber Attacks
Further, business interruption insurance may not be made available for every company. Companies can make themselves a better candidate for coverage by implementing a strong disaster recovery/business continuity plan.
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Our authors are what set Insurance Thought Leadership apart.
John Farley is a vice president and cyber risk consulting practice leader for HUB International's risk services division. HUB International is a North American insurance brokerage that provides an array of property and casualty, life and health, employee benefits, reinsurance, investment and risk management products and services.
Judy Selby is a principal with Judy Selby Consulting LLC and a senior advisor with Hanover Stone Partners LLC. She provides strategic advice to companies and corporate boards concerning insurance, cyber risk mitigation and compliance, with a particular focus on cyber insurance.
Drones are becoming widely used in a variety of industries, including insurance. As mentioned last week, millions are expected to be sold in 2017, with PwC calculating the global market for the commercial application of drones at more than $127 billion. So how are insurers using drones right now, and what opportunities are arising?
Though drones could theoretically benefit many different aspects of insurance operations, to date the most common application has been roof inspections conducted by certified insurance assessors before payment is made on claims for storm or hail damage. Traditionally, assessors use ladders to climb onto roofs and sometimes need harnesses if the roof is high or steep enough. A manual inspection can take half a day.
See also: Drones + Gig Economy = Win for Insurance
A 20-minute drone inspection captures around 350 images of the property in question and provides data that can be used to identify moisture trapped in roofs, produce 3D models and elevation maps, calculate flood or wildfire risk and derive property measurements.
This gives insurers several good reasons to carry out these drone inspections. Here are some notable examples in the area:
Erie Insurance, an American traditional insurer active in the auto, home, commercial and life insurance sectors, is generally credited as the first insurer to use drones to inspect roof damage. It received approval from the American Federal Aviation Authority in the spring of 2015.
Betterview is an insurtech devoted to using drones for property inspections. The company announced this April that it had executed 6,000 rooftop inspections in the last two years and then signed a partnership agreement with Loss Control 360, which makes software for insurance carriers and inspectors. “We have seen insurers allocate budget dollars in 2017 to move from concept to real production use,” Betterview CEO David Lyman told the Insurance Journal. “In 2018, we expect to see a significant ramp up in the use of drones by insurers and reinsurers.”
Travelers has used drones to inspect damaged roofs since 2015. The carrier provides insurance-specific drone pilot training to its claims teams; by May this year, it had trained 150 pilots and expected to train hundreds more before the end of the year.
But it’s not just roof damage that drones are being used for.
Beyond roof inspection
The French global insurer AXA reported in 2016 that it was using drones in a variety of applications in France, Switzerland, Belgium, Mexico and Turkey. The business case is simple— to assess claims, drones can go places that are risky for humans: into fire-damaged buildings, into places where chemical toxicity is suspected and into manufacturing plants or other areas that have been subject to natural or other disasters.
AXA is developing tools and platforms to use drone images more efficiently, including this new data source in its claims adjustment processes.
Coupling imaging technologies with advanced analytics is proving useful across industries. Drones are being used in disaster management, geographic mapping, crop monitoring, supply chain monitoring, storm tracking and weather forecasting, to maintain power lines, monitor traffic flows and conduct surveillance—all instances that may assist insurers to dynamically adapt and innovate on insurance products and risk cover, especially for short-term cover.
Country Financial is, for example, using drones to identify issues in fields that are hard to spot with just "boots on the ground." It says its crop claims adjusters using drones can scout three times as many acres as an adjuster on foot. This technology also gives farmers more information to consider when choosing how much crop insurance coverage they need, the company says, and it means more insurance plans can be based on enterprise-level data rather than county numbers.
Evolving drone technology
While these examples provide a snapshot of the growing use of drones in P&C insurance inspections, they also highlight some of the limitations of current applications.
Regulators require drone pilots to maintain line-of-sight during a flight, limiting the range of a drone’s flight. New regulations—and wider use of fixed-wing drones—could dramatically boost this range, with corresponding increases in the amount of property a single flight could cover. Technology and regulation could also conceivably enable greater autonomy for drones in the future, allowing a single pilot to oversee multiple drones at once.
See also: What Is the Future for Drones?
A recent Businessinsider.com article highlights the emergence of generation seven of the technology, with the announcement of 3DRobotics’ all-in-one drone, Solo. These next-generation smart drones have built-in safeguards and compliance tech, smart accurate sensors, platform and payload interchangeability, automated safety modes, enhanced intelligent piloting models and full autonomy, full airspace awareness, auto action (take-off, land and mission execution). Imagine the future opportunities these drones will open up for insurers.
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Werner Rapberger is a principal director in Accenture’s distribution and marketing practice for insurance. He is responsible for various clients and projects in insurance and also leads the global offering development for connected insurance and IOT insurance.
As an introvert, I don't often write or talk about subjects that are highly personal to me, but, every time I do, people seem to appreciate it. In fact, my partner and friend Mike Maddock always encourages me to do it more. Another good friend and a highly regarded insurance industry thought leader, Nick Gerhart, encouraged me to tell this story specifically. So here goes:
In the second half of 2017, my family became a three-time reverse lottery winner. When you say that fast, it sounds awesome. But it's not. The reverse lottery is my personal shorthand for the complexities of insurance: random, sucky things that you win money to "fix." It's the lottery you buy a ticket for but never hope to win. These situations have left me with some burning questions.
The first experience was the death of my 86-year-old dad in September. My dad experienced a stretch of time in and out of care facilities. I do not need to explain the pain of this loss to anyone. However, that pain is many times worse for my mom. They met as teenagers and were married for 64 years.
My dad bought life insurance as part of his retirement plan. I was very proud to encourage that purchase and facilitated it through the company I was working for at the time. While life insurance wasn't really something my parents knew a lot about, they trusted me enough to go ahead with getting a policy on each of them, as they both worked and had pensions to protect. My dad was the one we all expected to live longer, partly because his dad lived to be 94 but also because he promised me that he would live to be 100. So we bought less insurance on him than on my mom. In hindsight, it seems silly to play actuary on the basis of my dad being like Superman to me. While my mom is thrilled to have had any life insurance at all, my only regret it is that I didn't get objective advice on how much to buy, as more was clearly needed. As an insurance executive with years of experience I was humbled by my own process and shortcomings here. It led me to appreciate how difficult it is to plan properly for life’s unknown events.
See also: Thought Experiment on Life Insurance
The burning questions on this are, why did a comic book character play the leading role in determining how much life insurance my dad should have? If someone who actually has experience fell into this trap, what happens to everyone else? And how do we help them avoid it?
The second “win” of the reverse lottery was the Saturday evening after Thanksgiving, when my husband and I came home to a flood in our condo from a leaking boiler that flooded our entire building but affected only us. It destroyed the floors on two levels, staircase, several walls, molding and ceilings. Luckily, it didn't damage any of our personal stuff. But, needless to say, it's a major inconvenience and stressful to boot during a particularly challenging year at holiday time. We are living in a hotel now as our place is being restored.
The good news is that I didn't play actuary this time. I got advice on how much was needed from my financial adviser, Chet, who ironically doesn't make any commission on that type of insurance but encouraged me to have it because he was looking at my needs in totality versus just what he could offer me in terms of products. That's someone who has your back. The other good news is that I chose a reputable insurance company, which really came through for us, paying not just for the damage repair but for all the extra expenses associated with living elsewhere while the repairs are done. The company is coordinating efforts with the condo association, contractors and mold remediation specialists and even wired money into our account within 10 minutes so we didn't have to go out of pocket to eat out more frequently than we typically would.
The adjuster breathed a sigh of relief when he saw our policy had plenty of coverage. He told me that so many condo owners wouldn't have enough coverage to repair the damages our condo suffered. We are lucky we had such a comprehensive policy. But really, we were luckier to have the advice to buy it and not cheap out. Policies don't come to you solely by luck; they come by choice, and we chose the richer benefits because it isn’t an expense, it's an investment in sanity.
Therefore, the next burning question is, how often does someone outside the company’s ecosystem (i.e., Chet) affect the outcome at claim time?
The third experience is perhaps the most difficult to talk about because it is still affecting people 15 years later, including my brother, whose 60th birthday is the same day as I write this.
He's a retired NYPD officer and was a first responder to the World Trade Center disaster on 9/11. While we are all well aware of the thousands who lost their lives and the billions of damage to property, that terrorist attack continues to damage more lives from a wide variety of health issues suffered by people at ground zero. This month, right before Christmas, my brother will have an operation to remove part of his kidney due to a 9/11-related mass that was discovered. He has already lost to cancer several friends who were beside him during that time.
However, the 9/11 fund has made his journey so hopeful. As an insurance expert, I would characterize it as the mother of all insurance policies. And he almost didn't apply during the open window until one of his buddies encouraged him to do so, because he didn’t want to think about it and didn't know yet that there was anything wrong.
Good thing. Not only is all of his care fully paid for directly, but also the doctors working with him are among the best available in the world and are treating him with dignity, respect and the urgency he deserves. Granted, this insurance policy had no premiums associated with it, but he paid with a very different currency to get that type of coverage. And he more than deserves it, as do the others who were down there on that horrific day and the months that followed.
Here, the scary burning questions are, what if his buddy didn’t intervene? And what would have happened if the assigned doctor did not treat this situation with urgency and made him wait months for an appointment, as many specialists often do?
These burning questions point to a big customer experience lesson. It is to understand that there is so much opportunity to innovate around the moments associated with claims. After all, isn’t that what insurance is all about? People purchase insurance hoping they never use it, but when they need to file a claim the industry must seize this as its opportunity shine. Exceeding expectations is critical.
So much of the innovation I see is around making insurance cheaper and easier to buy because it is easier to count time and money saved. However, the benefit side of the equation needs more love and attention, because it is rich with possibilities for a better world. That's because when the random sucky thing happens, it's a gang of people with expertise, empathy or both that dictate how the story will go. And they come from many different angles and don't always get counted in the customer journey, or they may be missing completely.
See also: What’s Next for Life Insurance Industry?
Your customer experience efforts must include deep insight on a wide ecosystem of people and their roles, pain points, attitudes and behaviors to fully understand the opportunities to innovate and continuously improve the experience. Do you deeply understand all the players in that ecosystem, how they interact with your ultimate customer and at what critical moments? If not, consider a commitment to getting an unparalleled understanding of the hidden players in the experience. It could do wonders for your competitive advantage in the New Year.
Happy birthday to my brother. Looking forward to 2018.
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As we reach the end of 2017, the first full 12 months where insurtech has been recognized as a standalone investment segment, we wanted to reflect on what has been an incredible year.
From the start, we at Eos believed that insurtech would be driven globally, and that has certainly played out. This year, we’ve visited: Hong Kong, Amsterdam, New York, Las Vegas, Nigeria, Dubai, India, Singapore, Bermuda, Milan, St. Louis, Munich, Vienna, Paris, Zurich, Cologne, Chicago, San Francisco, Silicon Valley, Seattle and Toronto. We've expanded our geographic footprint to include the East and West coasts of the U.S. and India and have seen fantastic progress across our expanding portfolio. We've welcomed a number of new strategic partners, including Clickfox, ConVista and Dillon Kane Group, and launched our innovation center, EoSphere, with a focus on developing markets
At the start of the year, we published a series of articles looking at the key trends that we believed would influence insurtech and have incorporated these in our review of the year.
We hope you enjoy it! Comments, challenges and other perspectives, as always, would be greatly received.
2017: The year innovation became integral to the insurance sector
How are incumbents responding?
We are seeing a mixed response, but the direction of travel is hugely positive. A small number of top-tier players are embracing the opportunity and investing hundreds of millions, and many smaller incumbents with more modest budgets are opening up to innovation and driving an active agenda. The number sitting on the side lines, with a “wait and see” strategy is diminishing.
“If 2016 was the year when 'some' insurers started innovating, 2017 will be remembered as the year when 'all' insurers jumped on the bandwagon. And not a minute too soon! When I joined 3,800 insurance innovators in Las Vegas, we all realized that the industry is now moving forward at light speed, and the few remaining insurers who stay in the offline world risk falling behind.” Erik Abrahamson, CEO of Digital Fineprint
We are more convinced than ever that the insurance industry is at the start of an unprecedented period of change driven by technology that will result in a $1 trillion shift in value between those that embrace innovation and those that don’t.
Has anyone cracked the code yet? We don’t think so, but there are a small number of very impressive programs that will deliver huge benefits over the next two to three years to their organizations.
“We were pleased to see some of the hype surrounding insurtech die down in 2017. We’re now seeing a more considered reaction from (re)insurers. For example, there is less talk about the 'Uber moment' and more analysis of how technology can support execution of the corporate strategy. We have long argued that this is the right approach.” Chris Sandilands, partner at Oxbow Partners
Have insurers worked out how to work with startups? We think more work may be needed in this area….
“Investors are scrambling for a piece of China’s largest online-only insurer… the hype could be explained by the 'stars' behind ZhongAn and its offering. Its major shareholders — Ping An Insurance (Group) Co., Alibaba Group Holding Ltd., Tencent Holdings Ltd.” – ChinaGoAbroad.com
“Tencent Establishes Insurance Platform WeSure Through WeChat and QQ” – YiCai Global
“Amazon is coming for the insurance industry — should we be worried?” – Insurance Business Magazine
“Aviva turns digital in Hong Kong with Tencent deal” – Financial Times
“Quarter of customers willing to trust Facebook for insurance” – Insurance Business Magazine
“Chinese Tech Giant Baidu Is Launching a $1 Billion Fund with China Life” – Fortune
We are already well past the point of wondering whether tech giants like Google, Amazon, Facebook, Apple (GAFA) and Baidu, Alibaba, Tencent (BAT) are going to enter insurance. They are already here.
Notice the amount of activity being driven by the Chinese tech giants. Baidu, Alibaba and Tencent are transforming the market, and don’t expect them to stop at China.
The tech giants bring money, customer relationships, huge amounts of data and ability to interact with people at moments of truth and have distribution power that incumbents can only dream about. Is insurance a distraction to their core businesses? Perhaps — but they realize the potential in the assets that they have built. Regulatory complexity may drive a partnership approach, but we expect to see increasing levels of involvement from these players.
Role of developing markets
It’s been exciting to play an active role in the development of insurtech in developing markets. These markets are going to play a pivotal role in driving innovation in insurance and in many instances, will move ahead of more mature markets as a less constraining legacy environment allows companies to leapfrog to the most innovation solutions.
Importantly, new technologies will encourage financial inclusion and reduce under-insurance by lowering the cost of insurance, allowing more affordable coverage, extending distribution to reach those most at need (particularly through mobiles, where penetration rates are high) and launching tailored product solutions.
Interesting examples include unemployment insurance in Nigeria, policies for migrant workers in the Middle East, micro credit and health insurance in Kenya, a blockchain platform for markets in Asia and a mobile health platform in India.
Protection to prevention
At the heart of much of the technology-driven change and potential is the shift of insurance from a purely protection-based product to one that can help predict, mitigate or prevent negative events. This is possible with the ever-increasing amount of internal and external data being created and captured, but, more crucially, sophisticated artificial intelligence and machine learning tools that drive actionable insights from the data. In fact, insurers already own a vast amount of historical unstructured data, and we are seeing more companies unlocking value from this data through collaboration and partnerships with technology companies. Insurers are now starting to see data as a valuable asset.
The ability to understand specific risk characteristics in real time and monitor how they change over time rather than rely on historic and proxy information is now a reality in many areas, and this allows a proactive rather than reactive approach.
During 2017, we’ve been involved in this area in two very different product lines, life and health and marine insurance.
The convergence of life and health insurance and application of artificial intelligence combined with health tech and genomics is creating an opportunity to transform the life and health insurance market. We hope to see survival rates improving, tailored insurance solutions, an inclusion-based approach and reduced costs for insurers.
[caption id="attachment_29390" align="alignnone" width="500"] Marine insurance is also experiencing a shift due to technology[/caption]
In the marine space, the ability to use available information from a multitude of sources to enhance underwriting, risk selection and pricing and drive active claims management practices is reshaping one of the oldest insurance lines. Concirrus, a U.K.-based startup, launched a marine analytics solution platform to spearhead this opportunity.
The emergence of the full stack digital insurer
Perhaps reflecting the challenges of working with incumbents, several companies have decided to launch a full-stack digital insurer.
We believe that this model can be successful if executed in the right way but remain convinced that a partnership-driven approach will generate the most impact in the sector in the short to medium term.
“A surprise for us has been the emergence of full-stack digital insurers. When Lemonade launched in 2016, the big story was that it had its own balance sheet. In 2017, we’ve seen a number of other digital insurers launch — Coya, One, Element, Ottonova in Germany, Alan in France, for example. Given the structure of U.K. distribution, we’re both surprised and not surprised that no full-stack digital insurers have launched in the U.K. (Gryphon appears to have branded itself a startup insurer, but we’ve not had confirmation of its business model).”– Chris Sandilands, partner, Oxbow Partners
Long term, what will a "full stack" insurer look like? We are already seeing players within the value chain striving to stay relevant, and startups challenging existing business models. Will the influence of tech giants and corporates in adjacent sectors change the insurance sector as we know it today?
Role of MGAs and intermediaries
Insurtech is threatening the role of the traditional broker in the value chain. Customers are able to connect directly, and the technology supports the gathering, analysis and exchange of high-quality information. Standard covers are increasingly data-driven, and the large reinsurers are taking advantage by going direct.
We expected to see disintermediation for simple covers, and this has started to happen. In addition, blockchain initiatives have been announced by companies like Maersk, Prudential and Allianz that will enable direct interaction between customers and insurers.
However, insurtech is not just bad news for brokers. In fact, we believe significant opportunities are being created by the emergence of technology and the associated volatility in the market place.
New risks, new products and new markets are being created, and the brokers are ideally placed to capitalize given their skills and capabilities. Furthermore, the rising rate environment represents an opportunity for leading brokers to demonstrate the value they can bring for more complex risks.
MGAs have always been a key part of the value chain, and we are now seeing the emergence of digital MGAs.
Digital MGAs are carving out new customer segments, channels and products. Traditional MGAs are digitizing their business models, while several new startups are testing new grounds. Four elements are coming together to create a perfect storm:
Continuing excess underwriting capacity, especially in the P&C markets, is galvanizing reinsurers to test direct models. Direct distribution of personal lines covers in motor and household is already pervasive in many markets. A recent example is Sywfft direct Home MGA with partnerships with six brokers. Direct MGA models for commercial lines risks in aviation, marine, construction and energy are also being tested and taking root.
Insurers and reinsurers are using balance sheet capital to provide back-stop to MGA startups. Startups like Laka are creating new models using excess of loss structures for personal lines products.
Digital platforms are permitting MGAs to go direct to customers.
New sources of data and machine learning are permitting MGAs to test new underwriting and claims capabilities and take on more balance sheet risk. Underwriting, and not distribution, is emerging as the core competency of MGAs.
Customer-driven approach
Three of the trends driving innovation that we highlighted at the start of the year centered on the customer and how technology will allow insurers to connect with customers at the “moment of truth”:
Insurance will be bought, sold, underwritten and serviced in fundamentally different ways.
External data and contextual information will become increasingly important.
Just-in-time, need- and exposure-based protection through mobile will be available.
Over time, we expect the traditional approach to be replaced with a customer-centric view that will drive convergence of traditional product lines and a breakdown of silo organization structures. We’ve been working with Clickfox on bringing journey sciences to insurance, and significant benefits are being realized by those insurers supporting this fundamental change in approach.
Interesting ideas that were launched or gained traction this year include Kasko, which provides insurance at point of sale; Cytora, which enables analysis of internal and external data both structured and unstructured to support underwriting; and Neosurance, providing insurance coverage through push notifications at time of need.
As discussed above, we believe partnerships and alliances will be key to driving success. Relying purely on internal capabilities will not be enough.
“The fascinating element for me to witness is the genuine surprise by insurance companies that tech firms are interested in 'their' market. The positive element for me is the evolving discovery of pockets of value that can be addressed and the initial engagement that is received from insurers. It’s still also a surprise that insurers measure progress in years, not quarters, months or weeks.” – Andrew Yeoman, CEO of Concirrus
We highlighted three key drivers at the start of the year:
Ability to dynamically innovate will become the most important competitive advantage.
Optionality and degrees of freedom will be key.
Economies of skill and digital capabilities will matter more than economies of scale.
The move toward partnership built on the use of open platforms and APIs seen in fintech is now prevalent in insurance.
“We are getting, through our partnerships, access to the latest technology, a deeper understanding of the end customers and a closer engagement with them, and this enables us to continue to be able to better design insurance products to meet the evolving needs and expectations of the public.” Munich Re Digital Partners
Where next?
Key trends to look out for in 2018
Established tech players in the insurance space becoming more active in acquiring or partnering with emerging solutions to augment their business models
Tech giants accelerating pace of innovation, with Chinese taking a particularly active role in AI applications
Acceleration of the trend from analogue to digital and digital to AI
Shift in focus to results rather than hype and to later-stage business models that can drive real impact
Valuation corrections with down rounds, consolidation and failures becoming more common as the sector matures
Continued growth of the digital MGA
Emergence of developing-market champions
Increasing focus on how innovation can be driven across all parts of the value chain and across product lines, including commercial lines
Insurers continuing to adapt their business models to improve their ability to partner effectively with startups -- winners will start to emerge
“As we enter 2018, I think that we’ll see a compression of the value chain as the capital markets move ever closer to the risk itself and business models that syndicate the risk with the customer — active risk management is the new buzzword.” – Andrew Yeoman, CEO Concirrus
We’re excited to be at the heart of what will be an unprecedented period of change for the insurance industry.
A quick thank you to our partners and all those who have helped and supported us during 2017. We look forward to working and collaborating with you in 2018.
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Sam Evans is founder and general partner of Eos Venture Partners. Evans founded Eos in 2016. Prior to that, he was head of KPMG’s Global Deal Advisory Business for Insurance. He has lived in Sydney, Hong Kong, Zurich and London, working with the world’s largest insurers and reinsurers.
Ever since the Chinese government banned Facebook in 2009, Mark Zuckerberg has been making annual trips there attempting to persuade its leaders to let his company back in. He learned Mandarin and jogged through the smog-filled streets of Beijing to show how much he loved the country. Facebook even created new tools to allow China to do something that goes against the social media giant’s founding principles: censor and suppress content.
But the Chinese haven’t obliged. They saw no advantages in letting a foreign company dominate their technology industry. China also blockedGoogle, Twitter, and Netflix and raised enough obstacles to force Uber out.
Chinese technology companies are now among the most valuable—and innovative—in the world. Facebook’s Chinese competitor Tencent eclipsed it in market capitalization in November, crossing the $500 billion mark. Tencent’s social media platform WeChat enables bill payment, taxi ordering, and hotel booking while chatting with friends; it is so far ahead in innovation that Facebook may be copying its features. Other Chinese companies, such as Alibaba, Baidu, and DJI, are racing ahead in ecommerce and logistics; artificial intelligence and self-driving cars; and drone technologies. These companies are gearing up to challenge Silicon Valley itself.See also: What India Can Teach Silicon Valley
The protectionism that economists have long decried—which favors domestic supplies of physical goods and services—supposedly limits competition, creates monopolies, raises costs, and stifles competitiveness and productivity. But this is not a problem in the Internet world.
Over the Internet, knowledge and ideas spread instantaneously. Entrepreneurs in one country can easily learn about the innovations and business models of another country and duplicate them. Technologies are advancing on exponential curves and becoming faster and cheaper—so every country can afford them. Technology companies that don’t innovate risk going out of business because local startups are constantly emerging to challenge them.
Chinese technology protectionism created a fertile ground for local startups by eliminating the fear of foreign predators. Yes, the technology industry is a predator. Silicon Valley’s moguls openly tout the need to build monopolies and gain unfair competitive advantage by dumping capital. They take pride in their position in a global economy in which money is the ultimate weapon and winners take all. If tech companies cannot copy a technology, they buy the competitor.Amazon, for example, has been losing money or earning razor-thin margins for more than two decades. But because it has gained market share and killed off a lot of its brick-and-mortar competition, investors have rewarded it with a high stock price. With this inflated capitalization, Amazon has raised money at below-market interest rates and used that to increase its market share. Uber has used the same strategy to raise billions of dollars to put potential global competitors out of business. It has also been unscrupulous and unethical in its business practices.
With these predators out of the way, Chinese technology companies started adapting Silicon Valley’s technologies and improving on them. In doing so, they weren’t only copying the technologies, but also copying Silicon Valley’s style—which is also to copy.
Steve Jobs built the Macintosh by copying the windowing interface from the Palo Alto Research Center. As he admitted in 1994, “Picasso had a saying, ‘Good artists copy; great artists steal’; and we have always been shameless about stealing great ideas.”Apple usually lags in innovations so that it can learn from the successes of others. Indeed, almost every Apple product has elements that are copied. The iPod, for example, was invented by British inventor Kane Kramer; iTunes was built on a technology purchased from Soundjam; and the iPhone frequently copies Samsung’s mobile technologies (Samsung also does the reverse).
Facebook’s origins also hark back to the ideas that Zuckerberg copied from MySpace and Friendster. And nothing has changed since: Facebook Places is a replica of Foursquare; Facebook Messenger video duplicates Skype; Facebook Stories is a clone of Snapchat; and Facebook Live combines the best features of Meerkat and Periscope. Facebook tried mimicking WhatsApp but couldn’t gain market share, so it spent a fortune to buy the company (again acting on the Silicon Valley mantra that if stealing doesn’t work, then buy).See also: Time to Rethink Silicon Valley?
America doesn’t realize how much things have changed and how rapidly it is losing its competitive edge. With the Trump administration’s constant anti-immigrant rants, foreign-born people are getting a clear message: Go home; we don’t want you.
This is a gift to the rest of the world, because the immigrant exodus is boosting their innovation capabilities. Let's hope they don’t try raising their walls, too.
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Vivek Wadhwa is a fellow at Arthur and Toni Rembe Rock Center for Corporate Governance, Stanford University; director of research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering, Duke University; and distinguished fellow at Singularity University.
There is little doubt that the widespread adoption of autonomous vehicles will have a huge impact on the automobile insurance industry. Research and computer modeling conducted by Accenture in collaboration with the Stevens Institute of Technology indicates that as many as 23 million fully autonomous vehicles will be traveling U.S. highways by 2035 (out of about 250 million total cars and trucks registered in the U.S.)
This rapid growth of autonomous vehicles will involve a major shift, not only in our driving habits and patterns, but in the ownership of vehicles. We believe that most fully autonomous vehicles will not be owned by individuals, but by auto manufacturers such as General Motors, by technology companies such as Google and Apple, and by other service providers such as ride-sharing services. Unlike individual car owners – whose vehicles typically sit idle most of the time — fleet owners can send autonomous vehicles out on multiple trips on a 24-hour basis, amortizing the cost of ownership.
Automakers have already begun to experiment with fleet-based ownership of autonomous vehicles, with GM announcing an autonomous vehicle partnership with Lyft, Uber announcing a similar partnership with Volvo, and many others exploring similar avenues.
Since insuring privately owned vehicles is what the auto insurance industry has been all about, insurers have every reason to be concerned about their future growth and profitability. With fewer individual owners, there will be lower overall premiums. And since as many as 94% of accidents are attributed to human error, the number and severity of accidents and insurance claims will drop, also leading to lower premiums as insurers learn to price in accordance with real risk.
Our forecast shows that the drop in individual premiums – due both to decreased private ownership vehicles and to safer vehicles — will begin in 2026, as large numbers of autonomous vehicles begin to appear, and could be as much as a $25 billion loss for insurers by 2035. This is significant for a roughly $200 billion market.
In addition to autonomous vehicles reducing the need for individual auto insurance, other trends, such as urbanization, ride-sharing, and a general lack of interest in car ownership among young drivers, are also cutting demand and putting pressure on premiums. And, while our research was focused on private passenger vehicles, it is worth noting that large commercial fleets such as UPS, FedEx, and other trucking businesses will likely move to autonomous vehicles at a rapid pace.
However, auto insurers have one factor weighing in their favor: The shift to fully autonomous vehicles will be gradual. It will likely be years before fully autonomous vehicles appear on U.S. highways in significant numbers, and they are likely to coexist with traditional “driven” vehicles and a host of semi-autonomous variants for decades.
See also: Who Is Leading in Driverless Cars?The Stages of Autonomous Vehicle Adoption
If we look at autonomous vehicle adoption as a spectrum – with zero representing a universe consisting exclusively of traditional vehicles and five representing a world of fully autonomous vehicles – we are somewhere between zero and one right now. Automakers are currently moving aggressively to Stage 1, which is the adaptation of some autonomous features.
At Stage 2, at least two features (such as braking and cruise control) will be automated, and at Stage 3 the car will be partially autonomous, although a driver will still be needed for monitoring.
We consider Stage 4 as vehicles having full autonomy, with a “human option” for the driver/passenger to take over at any time. And Stage 5 would be full autonomy, with no human option – meaning no steering wheel, brakes, or accelerator pedals.
We believe the transition through the stages will be gradual, and insurers will have some time to adjust and react. But our forecast says that by about 2050, there will be many more autonomous and semi-autonomous vehicles on the road than traditional vehicles.
Finding New Sources of Revenue
While the pace of adoption of autonomous vehicles is not easy to predict, it is clear that individual auto premiums will decline in a significant and likely escalating manner. This means that auto insurers need to create new revenue streams that offset the decline in individual premiums. Fortunately, new opportunities for insurers are emerging as well.
With help from the Stevens team, we have identified three areas with significant potential for insurers in the period from 2020 to 2050:
Cyber security. As cars become more automated and incorporate more and more hardware and software, insuring against cyber theft, ransomware, hacking, and the misuse of information related to automobiles can generate as much as $12 billion in annual premiums. This can be even more critical to entire fleets, for example, if Amazon deploys fleets of autonomous vehicles to deliver packages.
Product liability. Auto-related sensors and chips are expensive, but the real risk for manufacturers is the potential for failure through software bugs, memory overflow, and algorithm defects, and the resulting massive liability. Insuring against this is a $2.5 billion annual opportunity.
Infrastructure insurance. Cloud server systems, signals, and other safeguards that will be put in place to protect riders and drivers offer an annual revenue potential of $500 million in premiums for property and casualty insurers who underwrite the value of the hardware and software in play. The need to secure and insure the public infrastructure is likely to be vast and much larger than $500 million, but governments often “self-insure” these risks so the opportunity for commercial insurance is likely to be lower.
In the aggregate, these areas can generate $81 billion through 2026 ($15 billion per year from 2020 to 2026, with some fluctuations) and can more than offset the losses in premiums expected through 2050.
Planning for the Driverless Future
In a future dominated by autonomous vehicles, auto insurers will face some stark strategic choices. They can continue to conduct business as usual, fighting for pieces of a shrinking pie – or they can change their thinking and their business models and adapt to new realities.
The speed of the conversion to a driverless environment is impossible to predict exactly, but carriers should start creating the actuarial models that determine risk and pricing for different stages of autonomous vehicles. At the same time, they should be developing new product offerings in areas including cyber insurance and product liability for software and sensors.
We see four key steps that insurers can take now:
First, they can build expertise in big data and analytics. Playing effectively in the AV market means being able to control data generated by AVs and by the communications and software systems that support them. Market participants who can collect, organize and analyze this data will have inherent advantages over those with less developed capabilities.
Second, they can develop the needed actuarial framework and models. We have already seen partially autonomous safety features such as automatic emergency braking systems change the safety profile of newer vehicles. Insurers should be using sophisticated actuarial and modeling techniques to be ready as vehicles add more and more autonomous features.
Third, they should explore the partner ecosystem. Insurers will need to collaborate effectively with automakers, providers of communication and software systems, governments at multiple levels, and many other organizations. Insurers not doing so already should be actively identifying and mapping out ecosystem partners.
Finally, they should think about new business models.Currently, insurers whose revenues derive primarily from personal automobile policies have an expertise in insuring thousands of small risks. Such insurers may have to transform themselves into large commercial insurers writing policies on a small number of very large risks. Insurers remaining in the personal lines market will have to re-think areas including product development, policy administration, and distribution.
See also: Driverless Vehicles: Brace for Impact
It is also worth noting that decreasing premiums industry-wide may lead to an increase in mergers and acquisitions. There are many smaller insurance carriers that could end up being bought as larger carriers seek to maintain revenue.
In short, change is inevitable for auto insurers, but the change can be positive. Insurers that vigorously pursue the short- and medium-term opportunities presented by cyber insurance, product liability insurance, and infrastructure insurance – while making careful strategic decisions about their partner ecosystems, operating models, and value propositions – are most likely to thrive in a driverless environment.
This article originally appeared at Harvard Business Review.
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John Cusano is Accenture’s senior managing director of global insurance. He is responsible for setting the industry group's overall vision, strategy, investment priorities and client relationships. Cusano joined Accenture in 1988 and has held a number of leadership roles in Accenture’s insurance industry practice.
Michael Costonis is Accenture’s global insurance lead. He manages the insurance practice across P&C and life, helping clients chart a course through digital disruption and capitalize on the opportunities of a rapidly changing marketplace.
Recently, I was a panelist at How Marketers Drive Growth – sponsored by Forbes, along with TD Ameritrade CMO Denise Karkos, Tableau CMO Elissa Fink, Sprinklr President and COO Carlos Dominguez and Head of Forbes CMO Practice Bruce Rogers. We talked strategies to solve CMOs’ quest: proving marketing ROI. This precious goal is proving to be a bit like searching for the Holy Grail – an elusive goal with danger along the path to finding it. No wonder CMO tenure continues to decline and is the shortest of any member of the C-suite, based on studies published earlier this year.
Executive expectations across sectors and at companies ranging from seed stage to mature brands suggest CMOs are in more perilous positions than ever. They have greater accountability, coupled with limited additional formal authority. They are tasked to deliver ROI-based leads, accounts, sales, traffic – whatever the volume driver of a brand’s revenue is – with influence as their major weapon to win the resources and support to accomplish tougher goals. Oh, and another thing … they have to move at lightening speed and bring together a mix of hard-to-find talent within their own function, all the while demonstrating super-heroic performance including winning over peers to the unfamiliar.
See also: Wanted by the CEO: A Superhero CMO
CMOs who succeed at getting out from behind the eight ball are those who will:
Understand and practice the basics of marketing with modern era twists.
The technologies, channels, vastness of data, and speed of the marketplace have caused many executives, and CMOs themselves, to lose sight of the fact that marketing is still the set of skills and methods that grow a brand enabling differentiation and performance. Technology and data will not lead to performance without being focused and enlivened by a marketing mindset and skillset. And the same goes in reverse.
Marketing is much more than an organizational unit.
More productive: to recall that the science of marketing includes the know-how for identifying and delivering upon the unmet needs of findable and scalable audiences, with viable economics. Marketing done to the max can orient the business model around the users the brand wants to serve and the buyers the brand must reach. A marketing mindset must pervade the entire organization, and be role modeled by the CEO down. “Marketing” lower case “m” succeeds when it is widespread, not solely in the domain of “Marketing” upper case “M”. It’s a core way of operating, not a communications cost center.
Know the brand purpose and the business strategy.
What is the brand’s purpose, and what are the business goals being set by the CEO and ratified by the board? Can the operating levers to deliver goals be identified and can the CMO be empowered, with both resources and authority, to have at least an even shot at success when it comes to identifying and delivering what users need along with attracting buyers?
Go for the short term and the long term; be scrappy.
Focusing on today at the expense of tomorrow, or vice versa, is not sustainable. Winning businesses set and meet near-term expectations while using the opportunity of day in day out decisions to create their futures. They do so one step at a time and with urgency. In this regard, there is much the corporate world can learn from startups about bare bones testing that allows manageable steps forward without big budgets. Startups don’t have a choice. They don’t have the budgets and they are racing the clock to stay alive. The creativity applied to getting answers for market validation – by being good enough, no better -- offers a very different paradigm to what can be the exhaustingly slow pace and risk overweighting prevalent in large bureaucracies.
Be willing to invest.
People, infrastructure, capabilities, skills, methods and political capital are all required for today’s CMO to get out from behind that big eight ball.
Caution to CMOs-to-be: confirm CEO sponsorship and engagement, before signing on.
Change is built into the CMO role. That’s reality. Change has personal and emotional consequences, and is not necessarily embraced even when all of the facts line up to favor a new course. CMOs cause widespread change to deliver near-term impact and build brands. For that they need air cover, starting with the CEO’s consistent and courageous leadership and commitment from the Board.
See also: How to Make Sense of Marketing Tech
Assess whether the conditions are right to work this list of must-do actions, or set your sights in 2018 on how to shift conditions so you can make your mark as a CMO.
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Amy Radin is a strategic advisor, keynote speaker, and Columbia University lecturer focused on why transformation succeeds or stalls in large, complex organizations.
Drawing on senior leadership roles at Citi, American Express, and AXA, including one of the world’s first corporate chief innovation officer roles, she helps leaders build the capabilities required to absorb, scale, and sustain change.
Robotic process automation (RPA) is gaining attention in the insurance industry, but there is still a great deal of confusion around what it is and what it can do. RPA uses software and algorithms to simulate human actions in existing systems and applications through the user interface layer, rather than via APIs or web services. Automating processes ensures greater consistency and frees up resources.
RPA can be a cost-efficient, short-term solution to the problem of poor systems integration. It allows faster and less error-prone processing without the need to modify code or other resource-intensive approaches.
However, there are risks. Insurers should not rely too heavily on the “quick fix” of RPA to put off modernization and full integration indefinitely. If viewed as a long-term solution, RPA projects may increase environment and system complexity unnecessarily, as well as tie up resources better-used for more sustainable solutions. The underlying issues with legacy technology won’t disappear just because surface integration has been automated, and RPA may end up masking technical debt.
See also: Next Big Thing: Robotic Process Automation
However, insurers should not let the perfect become the enemy of the good. Given the duration of life and annuity or long-tail liability policies, and a lack of appetite for multi-year core systems replacement projects on the part of many insurers, many insurers will operate using multiple core systems for some time. Balancing cost optimization with systems optimization is a familiar trade-off for insurer CIOs. As with most technology investments, the key is making an informed decision rather than accidentally relying on a short-term solution for the next 20 years—a history shared by many of today’s legacy processes.
Providers are promoting more strategic use of RPA for transformational uses, such as governance across infrastructure, as part of a cognitive computing platform seeking processes to automate, or services orchestration. But this is not how most companies are embracing it; most insurers are using RPA with realistic, tactical goals in mind, as so-called “swivel-chair automation,” addressing specific process automation and systems integration use cases.
Strategic transformation is generally reserved for core systems projects rather than "scaffolding" infrastructural projects. Just as some insurers have leveraged business process management solutions or enterprise service buses for strategic transformation, some insurers may do so with RPA. But Novarica sees this as the exception rather than the rule.
The real question that insurers need to answer isn’t tactical vs. strategic but how an RPA solution will be used. RPA solution providers vary in terms of area of focus (front-office, back-office or both), control and governance capabilities, degree of focus on RPA, degree of integration with other technologies such as AI or analytics, industry verticals, partner ecosystems, and pricing. Because RPA solutions sit on top of other systems by design, it is easy for insurers to experiment with multiple vendors.
RPA solution providers often partner with systems integrators to help clients develop strategies and implement RPA solutions. Some solution providers obtain most of their sales through reselling by their systems integration partners. Though RPA is often marketed as a branch of artificial intelligence (AI), at its core it is an application of more traditional technologies, such as screen scraping and rules engines. That being said, the more advanced providers may couple RPA with AI and related technologies, such as computer vision and machine learning, to enable ingestion of audio, images and video, to eliminate data errors stemming from unexpected changes and field-mapping drift and to speed training of RPA "bots." Several RPA solutions take advantage of chatbot or voice interfaces.
Novarica recommends a five-step approach to RPA, though the same could be used for most emerging technologies with some modification.
Have a defined project in mind. A project with a limited scope will give carriers the ability to evaluate both the technology and the service provider, as well as the impact on the current workforce, in a relatively short time. As with any technology project, change management is a key component.
Determine a process for maintaining RPA rules. Like modern insurance core systems, RPA vendors often promise that business users can create, maintain and update rules themselves. The reality is that IT will likely have some role to play in terms of governance and other real-world complexities, and this should not be seen as a failure on insurers’ part. Creating, maintaining and upgrading software bots has implications for IT architecture and security, to name two areas.
Talk to service providers already in use. At this point, almost all IT service providers have RPA strategy development and implementation offerings. A service provider that an insurer already has a good working relationship with reduces the chances of project failure. Some solution providers have partnerships with RPA solution providers, as well, leveraging their own expertise in a particular area, such as contact center systems or customer service. While there are firms specializing in RPA strategy development and deployment, it seems likely that most will be acquired by larger systems integrator firms seeking to build out their expertise in the near-term.
Monitor the space for enhancements and new players. Both service and solution providers’ capabilities will change over time, and insurers may be able to negotiate better pricing at a minimum.
Review the impact of RPA projects, and continue to evaluate strategic options. Insurers should understand baseline metrics for the process or processes they are seeking to automate, to document improvements, as well as any errors. While RPA may postpone the need for a full core systems transformation initiative, it will not eliminate it.
See also: Here Comes Robotic Process Automation
All this isn’t to discourage insurers from experimenting with RPA. As with any technology project, the key is to have a defined use case, proper governance and measurement of the impact.
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Steven Kaye is head of knowledge management at Aite-Novarica Group and lead editor of the firm’s Business and Technology Trends in Insurance series. He has managed a wide range of research projects since joining the firm in 2008.
Previously, Kaye worked for Accenture as an insurance researcher focused on the U.S. life and property/casualty markets. He also served in both knowledge management and research roles at Gemini Consulting (now part of Capgemini) for several of the firm's industry practices.
Kaye holds MILS and B.A. degrees from the University of Michigan.
