Customers, distributors and vendors sink or swim together. One-sided relationships that maximize value for only one partner are self-defeating. They often result in the dissolution of worthwhile relationships, including the loss of key customers and the inability to access meaningful new opportunities. Despite this, when it comes to managing relationships with vendors, distributors and customers, most companies set the bar low, and it shows during the annual planning process. Plans typically call for negotiating better rates with vendors and distributors. We often hear, “We’ll negotiate better rates and cut costs this year by one to two percent.” Or, “We'll do more for customers and hope to increase our share of their wallet.” Or, sometimes even, “We just hope to retain the business.” In addition to near-term planning, most organizations have traditionally managed important vendor, distributor and customer relationships through various business functions, including procurement, treasury, IT, sales and distribution, product and account management. In many cases, these functions are split by territory or division — and often even further by business line. As a result, organizations tend to manage these critical relationships in silos, quarter to quarter, seeking to maintain or marginally improve the partnerships currently in place. Moreover, as many organizations look to expand beyond their existing footprint to increase scale, introduce innovative products and offer customers and partners engaging experiences, they often create even more silos that hurt relationships with new vendors, distributors and customers. From a tactical approach to a strategic one The status quo is far from ideal, and many companies are beginning to realize that successfully deploying their relationship capital can provide a significant boost to long-term revenue and profitability prospects. Unlike traditional, siloed vendor, distributor and customer relationship management functions, strategic relationship management (SRM) views vendor, distributor and customer relationships holistically (e.g., from each perspective) and allows organizations to not only improve the terms of these relationships but also radically re-imagine them by developing new partnership models. SRM also enables organizations to streamline their total vendor and distributor footprint by focusing strategic spending on a few core partnerships. Certain industries are rapidly adopting SRM to unlock the full value of their partnerships. The financial services, technology and professional services industries are early adopters, and we anticipate broader industry adoption as firms increasingly see their vendors, distributors and customers as strategic partners. Early adopters have begun viewing their strategic relationships as assets, with the objective of increasing long-term shared value for all parties. See also: A New Paradigm for Risk Management?   Organizations that have adopted SRM have seen tangible benefits from being in the cockpit with their most strategic partners. Organizations with SRM invest in partnerships by creating shared business plans and meeting regularly to discuss joint activities and coming opportunities. Enterprises and their top strategic partners have come to realize that they sink or swim together, and they focus on developing truly mutually beneficial relationships. Examples of strategic partnership models include:

• An insurer strikes a strategic partnership with a vendor. A global life insurer used several vendors to assist it with various strategic initiatives. Through its SRM function, the organization was able to prioritize one of the vendor firms that had a strong track record of helping the organization. Through several joint strategic partnership meetings, the two organizations defined a partnership model that could help drive shared, long-term objectives. The life insurer agreed to partner with the vendor on several strategic growth initiatives in return for taking over the vendor’s group life insurance plan (for 50,000-plus employees).
• A strategic customer provides product feedback that increases sales and customer satisfaction. A large technology company had prioritized strategic customer accounts throughout its entire organization. By cultivating these relationships at all levels, the sales and distribution and account management teams were able to quickly relay real-time customer feedback to the product group. This transparency enabled the technology organization to make quick changes to its product offering that significantly increased sales, customer retention and satisfaction upon full product launch.
• A partner opens the door to new markets. A regional bank used its SRM function as a foothold to expand its operations into new markets. The bank leveraged its strategic B2B partnerships, which already had operational or commercial reach, into select target markets that the bank selected based on the partners’ access to distribution channels and other opportunities to accelerate growth.
• A large coffee retailer identifies a “win-win” opportunity with a strategic coffee supplier. Through its SRM function, a multinational coffee retailer identified a strategic partnership with one of its coffee suppliers in South America. The supplier produced top-quality Arabica coffee and needed to expand to meet the coffee retailer’s growing demands. Knowing the strategic importance of the relationship in the long term, the SRM function worked with the executive leadership team to create a mutually beneficial opportunity. The coffee retailer helped fund part of a coffee farm expansion project, and the supplier agreed to sell its product to the only retailer and work with it to develop new coffee blends. The retailer was able to build a strategic partnership that is helping to fuel its long-term growth strategy, while the coffee supplier was able to also grow its farming output.

Strategic Relationship Management approach SRM strategically influences the lifecycle of major opportunities by focusing on four key concepts: connect, collaborate, leverage and influence. Connect with your vendors, distributors and customers to identify their needs and develop strategies to successfully meet them. Leverage strategic relationships to identify and prioritize growth opportunities. Collaborate among business units, across borders and with external account stakeholders to create awareness of new opportunities. Influence decisions where possible to increase benefits and drive growth for your customers and company. This approach can help organizations develop joint strategies with their strategic partners to uncover mutually beneficial opportunities and create shared value. Selecting the accounts deemed “strategic” is one of the foundational aspects of setting up SRM, and companies must carefully establish the baseline criteria and other factors they’ll use to identify these accounts. In addition, to obtain its full benefits, cross-functional executive leadership buy-in is essential to establishing effective SRM. An internal executive governance committee as well as appropriate account management processes and technology platforms will be necessary for the entire organization to effectively own and manage the targeted strategic accounts. Conclusion: Benefits of Strategic Relationship Management In conclusion, any organization can benefit from implementing SRM to strategically manage its most vital partnerships. Because of their scale and increased complexity, multinational organizations can stand to benefit exponentially. Benefits for enterprise:

• Leverage partners’ skills, capabilities and specialized knowledge as your own
• Gain access to partners’ networks, channels and geographies
• Create opportunities to evaluate a relationship holistically (i.e., as a buyer, vendor and distributor)
• Lower negotiated rates with suppliers by negotiating across business units/divisions/ geographies
• Improve revenue, margin expansion and prioritization of vendor and distributor relationships
• Simplify relationships with fewer vendors and distributors

Benefits for strategic partners:

• SRM-sponsored symposiums where buyers and vendors define common goals
• Executive group partnership that incorporates global, regional and local perspectives
• Candid and active feedback on final decisions (win or lose) within defined timelines
• B2B business planning
• Awareness of RFP opportunities

In short, having deeper and more meaningful partnerships with strategic partners creates transparency, trust and, subsequently, more opportunities for all parties. Moreover, the proper functions will clearly hear the voice of vendors, distributors and customers and thereby facilitate mutually beneficial, active strategic decision making. See also: A Revolution in Risk Management   This post was written with John Dixon, Jay Kaduson and Tucker Matheson.

Everywhere you look, companies are using video as a major part of their marketing strategies. And while it is true that many videos are uploaded simply for entertainment purposes, the momentum around video is simply incredible, and top marketers have taken notice. There’s no denying video’s effectiveness in attracting and informing viewers. In fact, according to Brainshark, 52% of marketing professionals worldwide name video as the type of content with the best ROI. That’s why, for agency owners, it’s critical that you pay attention to this medium as a way for you to attract, engage and retain clients. See also: 3 Ways for Video to Reinvent Claims Work   But without a plan, your video content may not hit the mark. This list will provide four great ideas for implementing video in your marketing strategy. 1. Create a “Why Work With Our Agency” video or staff introduction videos These videos, when produced effectively, can provide an excellent primer for both your current and prospective clients! This is your chance to boast, whether it’s about your work for local charities or church groups, your 40 years of providing local service or anything else you think is noteworthy — so be sure to mention it! Our advice is to keep these videos short and sweet (90 seconds or shorter) and answer the question: “What is my unique selling proposition?” Here are a few examples:

• CCW Insurance - Top 10 Reasons to Choose CCW
• Mark Anthony Group - Why Choose an Independent Insurance Agent
• Klinger Insurance - Introduction to Klinger Insurance

2. Use video to create customer testimonials Hearing your current customers speak about their experience with your agency will provide assurance to prospective customers. Try to have the topics and benefits presented between the testimonials so that any prospective buyer can see all the ways you’ve helped your clients. Again, be sure to keep these videos short and sweet (aim for less than one minute!), and be specific — vague statements like, “they’re the best,” don’t offer much insight to prospective clients. Here are a few examples:

• Sampson Insurance Testimonial
• W.J. Wheeler Insurance Testimonial

3. Make birthday and holiday videos Remember: You are in a relationship business! Everyone loves to be celebrated on their special day, and birthday/holiday videos are a simple and cost-effective way to do just that! Be sure to express your personality, and make it fun! Singing is not a requirement, as long as your tone otherwise is upbeat. Tip: Most email service providers (and even some agency management systems) enable you to set up “birthday campaigns” that will send your birthday videos automatically. Here are a few examples:

• Happy Birthday from Paradiso Insurance!
• Happy Birthday from AltaVista Insurance Agency!
• Happy Birthday from the Stromsoe Insurance Agency! (disclaimer: this video is from MyInsuranceVideos.com)

4. Create videos that answer FAQs and explain coverages If you’re feeling ambitious, you can flex your insurance expertise with a video that answers frequently asked questions and that explains coverages. How many times have you been asked about how an umbrella policy works or whether a flood insurance policy would be a good investment? With video, you’re able to leverage the power of storytelling to better communicate the value of insurance. A good video can also help you sell more, as an informed client is more likely to make a purchase decision. Once you’ve made the video, it can be used again and again — when quoting, on your website, in your email newsletter and even on social media (a smart way to work!). Tip: Keep these videos to two to three minutes in length. Consider using visuals to reinforce your message. Here is an example:

• Spivey Insurance (North Carolina): How Much Homeowners Insurance Do You Need?
• Neckerman Insurance Services: Liability for Fitness Centers & Personal Trainers
• The Dickinson Agency: Renter’s Insurance
• Benefits of Umbrella Insurance (disclaimer: this video is from MyInsuranceVideos.com)

See also: 4 Technology Trends to Watch for   Those are just a few tips to help you integrate video into your marketing strategy. Video is a powerful and growing medium that cannot be ignored. Whether you’re attracting clients with Facebook, LinkedIn or YouTube videos that establish credibility and trust, engaging them while quoting and cross-selling with videos that show your polish, or retaining them with periodic video touches for birthdays and holidays, video is a versatile tool that can be used at any stage of the customer lifecycle. And, if you realize the power of video but still find the process of creating them daunting, My Insurance Videos is a done-for-you video platform with more than 40 videos, ranging from explanation of coverage videos to birthday and holiday greeting videos customized with your voice! According to Brainshark, 74% of all internet traffic in 2017 will be video, so there’s no better time than now to get started.

Once again, our healthcare reform is mired in muck. That means we’re knee-deep and grinding away at our circular healthcare debate, but it’s really a big distraction. It’s the wrong debate. We keep debating the math of coverage and cost as if they’re independent of system design — and they aren’t. As Senate Majority Leader Mitch McConnell is finding out, there’s no solution to the Rubik’s Cube he’s playing with, because it’s the same one we’ve been fiddling with for decades: tiered coverage to support tiered pricing. The only way to lower the cost is to end coverage (“how” and “for whom” are just the dials). The good news is that “single-payer” healthcare isn’t necessary to solve our healthcare cost crisis. The bad news is that single pricing is, and that will require systemic change. Lost in our debates (often intentionally) is a critical design component called universal health coverage. Here, the landscape is littered with artifacts and variations of the term, but they’re often used in a way to disguise, confuse or obfuscate the core principle of universal coverage. There are many good definitions, but this one from the World Health Organization captures the general intent well:

“Universal health coverage is defined as ensuring that all people have access to needed promotive, preventive, curative and rehabilitative health services, of sufficient quality to be effective, while also ensuring that people do not suffer financial hardship when paying for these services. Universal health coverage has therefore become a major goal for health reform in many countries and a priority objective of WHO.”

Terms like “universal healthcare,” “Medicare for All,” and “single-payer” are typically substituted for universal coverage as if they all mean the same thing and everyone understands the reference. They don’t, and the big distinctions are critical for any debate. Payment and coverage are definitely connected, but that connection can (and should) be simple and transparent, not complex and opaque. Universal coverage is that simplicity and transparency. What we have is tiered coverage designed to support tiered pricing. It's not just complex for everyone, it's totally opaque. Medicare, Medicaid, VA, Indian Health Services, employer-sponsored insurance, Obamacare and the uninsured are all different tiers of coverage — all with different pricing. That works well to maximize revenue and profits, but the enormous sacrifice to this design is safety, quality and equality. A big myth surrounding the debate is that our system is just broken. It’s not. It’s working exactly as designed, and we need a different system design based on the core principle of universal coverage. See also: Healthcare Needs a Data Checkup   Obviously, how universal coverage is paid for (either single- or multi-payer, delivered through government or privately owned industries) is a critical debate, but who qualifies for coverage (and under what terms) shouldn’t be. There are only three big arguments against universal coverage — clinical, fiscal and moral — and they all fail. The clinical evidence alone isn’t dazzling, but it is compelling. As MedPage Today noted last week:

“There are a lot more studies covered in Woolhandler and Himmelstein's paper, but they all suggest roughly the same thing–that insurance has a modest, but real, effect on all-cause mortality. Something to the tune of a 20% relative reduction in death compared to being uninsured.”

That’s just the clinical evidence, but healthcare is really expensive, so health coverage is inseparable from payment — which, of course, is the fiscal or economic argument. As a country, we've been arguing, fussing and fighting over the economics of healthcare for decades — and we're likely to continue for years to come — but the following chart is the only proof we need that we're not just on the wrong clinical trajectory, we're on the wrong fiscal one, as well. [caption id="attachment_26817" align="alignnone" width="570"] Creative Commons License by author Max Roser[/caption] Our system design is the death spiral — not Obamacare. Of course, policy wonks and politicians love to confuse the debate with a heavy focus on the y-axis of life expectancy. The general argument here is that the data around life expectancy is too variable around the world, so it’s all wrong. By extension, the argument goes, the whole chart must be wrong, but I’ve seen no dispute with the x-axis because the math is bone simple. Take our (estimated) National Health Expenditure for 2017 ($3.539 trillion, from CMS) and divide that by our current population (325,355,000, from the Census Bureau). The result is a whopping $10,877 per capita spending just on healthcare this year (the chart only goes to $9,000 in 2014). The argument that universal coverage is just too expensive for Team USA also fails with this chart because all of those other countries have some variant of it. Our debate swirls endlessly around economic options of tiered group (and now individual) coverage, but it’s all the science of actuarial math. The largest single group is always an entire country, and that’s also where the actuarial math is fully leveraged. As we can see from the chart, our decades-long battle with actuarial math has been epic, but the battle using tiered coverage (or some variant) is un-winnable. All of which brings us to the final argument: the moral one. Germany was among the first to recognize the moral imperative of universal coverage with its Health Insurance Bill of 1883. We’ve argued this imperative as well–perhaps none so eloquently or succinctly as Dr. Martin Luther King, Jr. in 1966:

“Of all the forms of inequality, injustice in health is the most shocking and the most inhuman because it often results in physical death.”

He’s right, and we know it. The clinical, fiscal and moral arguments against universal coverage all fail, so what’s left? All we really need now is the logic behind our obvious and longstanding political intransigence against it. Why don’t we just implement universal coverage? Here’s the simplest and best answer I’ve seen from the legal mind of Harvard Law Professor Lawrence Lessig:

“You know, when Bernie (Sanders) was talking about single-payer healthcare people rolled their eyes. Not because it was a bad idea, but because there’s no chance to get single-payer healthcare in a world where money dominates the influence of how politicians think about these issues.”

He’s right, too, and we know it. Much of our "healthcare debate" isn't really a debate at all. It’s a huge distraction from our fatally flawed system: the status quo. We’re just grinding away at the math hoping for an undiscovered calculation to solve our Rubik’s Cube. Politicians and heavily entrenched incumbents love to debate the variants of tiered coverage (and opaque pricing) because it continues to support the enormous revenue and profits for the healthcare industry. At almost $11,000 per capita per year, our healthcare system is a gigantic monument to the priorities of “shareholder value,” inequality and injustice (at scale). No one group is to blame for our healthcare cost crisis because each segment of the industry is complicit, and they each have a fiduciary obligation to their shareholders. Payers, providers, pharma, suppliers, educators, software vendors and medical device manufacturers are all harvesting enormous profits from our $3.4 trillion “medical industrial complex.” Naturally, they also lobby heavily for legislation to support those profits, and they have the war chests to do that effectively. See also: A Way to Reduce Healthcare Costs   Again, a payment mechanism for universal coverage is the only real debate, because there are many options and enormous ancillary benefits as well. Two of the biggest are single pricing (versus the opaque, tiered pricing of our current system) and the elimination of annual enrollment. I’ve never seen a clinical or economic argument supporting annual enrollment in health insurance because there aren’t any. That’s just not how healthcare works. It's just another artifact (like employer-sponsored insurance) in a system that's been optimized for billable episodes of care — not health — all marching to the drumbeat of an annual tax calendar. Single-payer is certainly one payment option, but it’s not the only one, and it’s easy to argue that it's not a good cultural fit for Team USA. That’s OK, because we don’t need single payer to get to single pricing. As one of the wealthiest countries on the planet, we can easily afford any healthcare system we choose — except one. The one we have. The future of Obamacare or Trumpcare isn’t the real debate, because it’s not as much a clinical or financial debate as it is a civil rights one. That will take time, but the result is inevitable. Universal health coverage isn’t a matter of if, only when, and not just because it’s the right thing to do but because it’s in our collective economic and clinical interest to end tiered pricing as the way to maximize revenue instead of optimizing for health. Obamacare was a step closer to universal coverage, but as Obama (and others) have suggested, progress isn’t always linear. My book Casino Healthcare is now available. You can also follow me on twitter @danmunro.

"Hamilton," the ground-breaking musical about our colonial forefathers, is finally coming to Los Angeles in August. But maybe you’ve been experiencing a version of that story. Like Aaron Burr, injured workers want to be in the room where it happens [sorry if you encounter an ad at this link].  Instead, they are frequently shut out of discussions and proceedings about their claim. Ignorance breeds resentment Go to any WCAB location, and you will see a waiting room full of injured workers. Many more injured workers with claims on the calendar are not in attendance. Settlement discussions may occur in courtrooms, cafeterias and even hallways. Injured workers are usually not included in these discussions. No injured worker should waste time traveling to a Board when nothing will happen. On the other hand, injured workers want to sit in on their attorneys' negotiations. If the injured worker is already at the Board, shutting out that person can foster mistrust.

In wellness, it’s totally legal to lie to customers. Indeed, if you don’t, you’ll probably lose them, since your competitors are happy to do exactly that, and most customers aren’t going to notice anyway. In securities, though, it is totally illegal to lie to shareholders or to pay someone to write a favorable but dishonest report on your product, with the intent of propping up the stock price. This brings up to Fitbit, and a recent report on savings allegedly generated by its activity trackers, published by Springbuk. Let’s leave aside for a moment the value of activity trackers to users. “Like” is not the issue in this savings claim. The issue is whether the math works. And it doesn’t. The Springbuk report of savings and outcomes for Fitbit was impossible. Among the clinical issues is the study design itself: The report defines “active” as taking 100 steps a day. However, as the previous installment showed, it is impossible not to take 100 steps in a day without being so sick you can’t get out of bed. So rather than being the threshold for being counted as an “active” person, as the Springbuk study says, it should be the threshold for being a person who can get out of bed. And of course, people who can get out of bed will by definition have lower healthcare costs than people who can’t get out of bed, whether or not they wear a Fitbit. See also: Are Patients Ready to Take Control?   Among the mathematical issues, it is not possible to reduce costs by 46% (one of the claims made) with a fitness device, because in the working-age population, only a small number of hospital admissions are caused by not taking enough steps. Further, in addition to the apparent mathematical and clinical impossibility of Springbuk’s results, the author — and Fitbit — refused to respond to the following query, which was sent multiple times. Hi Mr. Daniels, I have some questions about your report. Perhaps I’ve gotten some things wrong, so I’d love to hear from you in the next 3 business days, if I have. First, isn’t it the case that anyone who is not in a wheelchair walks at least 100 steps a day, Fitbit or no Fitbit? Is that the threshold for “active” as opposed to “bedridden” ? Second, Figure 2c indicates that the very fact of being in the “engaged” group, even if you never get out of bed, reduces costs by 30%+. How is this possible? A corollary: It would seem that all savings are being attributed to Fitbit, at least in the Fitbit interpretation. They also seem to be taking credit for this: “266 employees who used their Fitbit tracker for at least half the duration of the program decreased their healthcare costs by 45.6% on average.” Third, can you reconcile this statement…:

“The materials in this document represent the opinion of the authors and not representative of the views of Springbuk, Inc. Springbuk does not certify the information, nor does it guarantee the accuracy and completeness of such information.”

…with this statement:

“This demonstration of impact achieved by integrating Fitbit technology into an employee wellness program reinforces our belief in the power of health data and measurement in demonstrating ROI,” said Rod Reasen, co-founder and CEO of Springbuk."

Fourth, how is it possible to show basically no separation for 182 days of getting out of bed (taking 100 steps a day) from being bedridden, but massive separation for getting out of bed for 274 days? I can’t find the explanation of the exercise science that would lead to that result. It would seem that there is some huge physiological disadvantage to those extra 92 days of taking 100 steps. Fifth, am I missing the disclosure that Fitbit paid you to do this study? I can’t find it anywhere. Or did you do this on a pro bono basis? Sixth, would you have come up with this same result if you had been paid by a hedge fund that was shorting Fitbit stock and wanted to show no savings? Seventh, since most wellness-related healthcare spending is unavoidable altogether by walking 100 steps a days or any other amount for 12 months, I’m wondering if you were able to determine approximately which elements of healthcare spending were reduced, in order to get a 45.6% reduction in costs? You would have to wipe out all hospitalizations, for example – and get roughly a 10% reduction in everything else. Thanks very much. If you would like to reply, I’ll look forward to your reply by 5 PM EDT on Wednesday 5/24. Assuming Fitbit paid Springbuk (that’s a big assumption — this obvious conflict of interest is not disclosed anywhere, so the reader has to decide whether Springbuk collected money, or whether it did this study out of the goodness of its heart), one of four outcomes is possible:

1. Springbuk genuinely thinks, among other things, that walking 100 steps a day for 274 days reduces healthcare costs by 27% vs. walking 100 steps a day for only 182 days. No crime there, other than the one committed by the grade school that granted them a diploma. It’s unlikely they think this, because Springbuk says they are “obsessed with analytics” and that they sell “the leading health analytics software…[with] powerful insights.” So if Springbuk truly believes their own report, then congratulations are in order: they have accomplished more in this one analysis than most extremely stupid people accomplish in a lifetime. (Not an original line, as Veep fans know, but apropos nonetheless.)
2. Springbuk wanted to show savings because they were being well-paid to do so, but Fitbit put no pressure on them when they gave them the check. Once again, doesn’t say much for Springbuk’s ethics, but Fitbit did not commit a crime.
3. Fitbit paid Springbuk to lie for them, in order to impress prospects and customers. Once again, no crime. There wouldn’t be enough room in the prison system if lying in wellness were a crime. (See http://www.ethicalwellness.org for a list of wellness vendors that have agreed not to lie. It’s not very long.)
4. Fitbit paid Springbuk to lie for them, in order to inter alia impress investors. This is not legal, any more than if Fitbit made up their own data for that reason. Since many Fitbit analyst reports make reference to savings of “up to $1500 per employee per year,” and since this study appears to be one of only two justifications for that statement (the other being equally suspect), there is a case to be made that Fitbit’s stock price would indeed be lower if they told the truth: that no disinterested researcher has ever found more than a trivial impact on employee health status or healthcare insurance cost.

We don’t know which of these four is the case. Is Springbuk dishonest, or just incompetent? Does Fitbit genuinely believe that wearing their device could magically reduce healthcare costs for U.S. corporations by hundreds of billions of dollars, or are they willing to lie in order to boost revenues and their share price? See also: IoT’s Implications for Insurance Carriers We look forward to hearing the answers to these questions once the financial media gets hold of this posting. Opinions expressed in this column are those of Al Lewis individually. They do not necessarily represent the views of Insurance Thought Leadership. Therefore all threats of lawsuits should be directed to the former, to which I say: “Go ahead. Make my day.”

Here is another startup that is going to revolutionize the industry: I first talked about a recent interview with their CEO on my LinkedIn Discussion Board. (If you’re not aware, I communicate about industry issues on LinkedIn and via Twitter — you can access them and subscribe from my Contact page.) This startup I want to talk about claims that it can place homeowners insurance without an application of any kind. The company basically only needs to know your name and address, then it gets all the data it needs from other sources. Presumably this process takes a couple of minutes — and that’s it. I invite you to read the interview and then join the discussion. This “We can write your insurance in two to three minutes” mantra is becoming a common theme with many of these insurance startups. The rationale is improving the customer experience. But what about the customer experience of having a six-figure (or greater) uncovered loss because nobody took the time to prompt the consumer for exposures? See also: Why A Homeowner Should Know About Complying With Workers' Compensation Laws    I make this point in the LinkedIn discussion:

“If you were going to sky dive for the first time, would you pack your parachute yourself? Would you insist that someone else pack it as fast as possible with almost no attention to detail because you’re in a hurry? Or pack it with their eyes closed? My insurance program is my financial parachute. There are no shortcuts to security unless you’re buying insurance with no exclusions or policy limits, and most of what is being sold on the internet is far from that.”

So what do you think? Are regulators who welcome these startups with open arms really doing their constituents a service by embracing “fast and cheap”? Or are they simply insuring (no pun intended) financial ruin for perhaps a great many of them? For more discussion, comment on this article and visit the LinkedIn discussion on this subject.

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

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

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

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

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

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

Cheers,

Paul Carroll,
Editor-in-Chief

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

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