Late in the 18^th century, at the dawn of the Industrial Revolution, a young mechanic named Ned Ludd became famous for destroying two machines. His actions spawned an anti-technology movement that lasted into the early 19^th century. Adherents of that movement became known as Luddites, a term that is used to this day to describe an individual or group of people who are against technological progress. As technology has continued to advance, modern-day Luddites have materialized. In today’s increasingly connected world, there are already those that go “off-the-grid,” or at least sympathize with the idea. Since we are on the verge of connecting and automating virtually anything you can imagine, it is worthwhile to ponder the possibility of segments that will oppose this progress or just rebel outright. What will this mean for society and the insurance industry?

First, it is important to explore just how connected the world is becoming. In addition to smart home devices, drones, and connected cars that are receiving so much attention, there are smart things and solutions to address every facet of life. Even items such as toothbrushes, underwear(!), and patio umbrellas have smart versions that are collecting real-time data about their usage and their surroundings. More and more of the world is being monitored, analyzed, and automated.

See also: It’s Time to Act on Connected Insurance  

Increasingly, these smart things are being powered by artificial intelligence which allows the connected things to become animated – taking action without any human intervention. This is leading some people to fear job loss, intrusions into privacy, and in the worst case future scenarios, machine overlords à la The Terminator series. While there are many potential benefits of emerging tech advances for society, it is not difficult to see why there are a growing number of people that fear the prospect of a connected world. Some of these are modern-day Luddites with irrational fears, but others raise important concerns that society must address.

There are a number of key considerations for insurers regarding these concerns and individuals.

• Customer segmentation: Insurers recognize that smart technologies have great potential to improve safety and security across many situations, lowering the risk for individual and business customers. New products and services, fueled by new partnerships, will be increasingly offered by insurers. At the same time, the actual adoption uptake for connected technologies is still an unknown. There may be large segments of the population that will make the conscious choice not to be connected, and insurers will have to continue to accommodate their needs too.
• The insurtech movement: Much of the insurtech movement is based on the increasing connectivity and data generated by connected things. Approximately 30% of the 900+ insurtech startups tracked by SMA fall directly into the connected world space, in areas like connected vehicles, smart homes, connected commercial, or connected life and health solutions. Another 14% are digital data/analytics firms. Many of those provide capabilities for insurers to use the new, real-time data sources to gain insights for underwriting, loss control, claims, or other business areas. Although many of these startups are likely to fail, others will succeed and have a key role in reshaping the insurance industry.
• A digital divide: One scenario predicted by some is a dichotomy between urban and rural environments. The urban centers are more likely to be highly connected, with vehicles, buildings, infrastructure, and medical and educational facilities all contributing to a smart city environment. Rural settings may be relatively unconnected, as the value is questioned by individuals and small businesses and the desire for independence trumps the benefits of connected technology. Insurers should factor in the potential for a growing digital divide between cities and rural environments.
• Customer interactions: Insurers already have difficulty convincing customers to go green by converting to electronic documents and communications. For lots of them, this is unlikely to change overnight due to the feeling that their electronic footprint is already greater than they would like it to be. Many new ways to communicate with policyholders and agents are being introduced, and insurers are already taking advantage of these. But, not everyone will want to opt-in for these types of interactions.
• A back-to-nature movement is already evident for some individuals that are looking for a simpler, healthier lifestyle. This has driven part of the transformation in the agriculture and the grocery sectors.

See also: The New Paradigm of Connected Insurance  

Insurers are likely to see implications across many industry verticals as certain segments choose to be unconnected in the future.

Twenty five years ago labor experts warned employers about an impending shortage in the skilled manufacturing workforce caused by the soon-to-be-departing baby boomers. Almost no one listened. Those few employers who did realized preparation meant investing in training. Investment = money so many employers put it off, especially during the Great Recession of 2008 – 2010. So here we are America … needing to fill 3.5 million manufacturing jobs in the next 10 years, according to the Deloitte publication, “The Skills Gap in U.S. Manufacturing 2015 & Beyond.” Deloitte opines that we’ll be lucky to fill 1.5 million of those openings, leaving a gap of 2 million jobs. This potential shortfall didn’t go unnoticed by Daimler Trucks North America (DTNA), a manufacturer of class 5-8 commercial vehicles, school buses, and heavy-duty to mid-range diesel engines. The company saw this bullet coming years ago. See also: Insurance And Manufacturing: Lessons In Software, Systems, And Supply Chains   To those in the know, the skilled workforce shortage conundrum isn’t new. As far back as 1990, the National Center on Education and the Economy identified this job shortfall in its report, “The American Workforce – America’s Choice: High Skills or Low Wages,” stating large investments in training were needed to prepare for the slow workforce growth. If you look at the burgeoning skills gap, coupled with vanishing high school vocational programs, how, as an employer, do you recruit potential candidates?

To not address the millennials’ employer predilections is to miss an opportunity to tap into a vast resource of potential talent.

DTNA addresses the issue by reaching out to high schools throughout the U.S. via the Daimler Educational Outreach Program, which focuses on giving to qualified organizations that support public high school educational programs in STEM (science, technology, engineering and math), CTE (career technical education), and skilled trades’ career development. Daimler also works in concert with school districts to conduct week-long technology schools in one of the manufacturing facilities, all in an effort to encourage students to consider manufacturing (either skilled or technical) as a vocation. Like all forward-looking companies, Daimler must address the needs of the millennials who – among a number of their desires – want to make the world a better place. Jamie Gutfreund, chief strategy officer for the Intelligence Group notes that 86 million millennials will be in the workplace by 2020 — representing 40 percent of the total working population. To not address the millennials’ employer predilections is to miss an opportunity to tap into a vast resource of potential talent. To that end, Daimler has always emphasized research in renewable resources and community involvement as well as a number of philanthropic endeavors. Not only is it the right thing to do, but it also appeals to the much-needed next generation who will fill the boots of the exiting boomers. See also: 4 Steps to Integrate Risk Management   Just because a company manufactures heavy-duty commercial vehicles doesn’t mean it can’t give back to the environment and the community at large. And, in the end, that will help make the world a better place.

This article is the second in a series on key forces shaping the insurance industry. Here is Part One. Trend #2: Data: External data and contextual information will become increasingly more important than historical internal data for predicting risk and pricing. The insurance industry tends to look backwards to understand the future. Underwriting and pricing are based on historical data using proxy factors. However, the explosion of information from IoT devices, wearables, genomics, bionomics and health tech is driving a fundamental change in the approach to pricing, risk selection and underwriting across all lines of business. It is now possible to base underwriting decisions on real time detailed information specific to the individual risk and monitor and update those decisions over the life of the policy. See also: 10 Trends at Heart of Insurtech Revolution How different product lines will accommodate external and contextual information P&C personal Lines – personal lines products, particularly motor and home, are already seeing positive momentum in the use of data. For example, insurance propositions leveraging smart home devices. Data from these devices can help prevent accidents (for example, responding to a burst pipe) and can help inform and assess the risk profile of the policy in real time (for example, the period each day when the property is empty). Similarly, in motor the data from telematics devices can be used to determine the relative quality of the driver. Going forward it will be possible to adapt pricing based on the length and nature of a journey (for example, motorway versus city centre, weather conditions and weight of traffic). “Real time pricing of motor and home based on an actual risk profile” Commercial lines – the dynamic in commercial lines is slightly different and likely to drive commercial insurers and brokers more towards risk mitigation and risk management rather than traditional risk transfer solutions. For example, as the quality of monitoring devices and technology significantly reduces the chances of a piece of machinery going wrong the need for insurance falls. To remain relevant insurers therefore need to help their customers better manage their risk profile whilst providing protection in the event of a catastrophe. Also, IoT devices can supply detailed information about a risk during the life of the policy, presenting the opportunity to change the pricing or more likely allow the insurer to manage their reinsurance program in real time and provide valuable support to their client to help reduce accidents. “Commercial lines insurance will become increasingly about risk mitigation rather than risk transfer” Life and Health – in life and health, initial moves have seen insurers adopt wellness programs to help encourage policyholders to live more healthy lives. This is the tip of the iceberg. Over the next few years the quality and quantity of information about an individual is going to increase exponentially and can be used to identify potential health issues much earlier than traditional means thereby allowing intervention and increased likelihood of a successful outcome. Information will also be able to tell us a lot more about the relative health of the individual and susceptibility to certain diseases. In this environment, insurance is about prevention and providing access to the technology rather than simply protection after something has happened. “Leading tech companies believe that historical underwriting factors in life insurance are completely irrelevant” Where next? The problem is that whilst the velocity of data is going to increase exponentially the ability of the vast majority of insurers to capture and use this new information is very limited due to the legacy IT environment. Insurers cannot respond with their current systems and that creates the opportunity for insurtech companies, particularly those who can provide an end to end solution that both engages the customer and facilitates the capturing, processing and use of the information. See also: 10 Predictions for Insurtech in 2017   We hope you enjoy these insights, and look forward to collaborating with you as we create a new insurance future. Next article in the series: Trend #3: Majority of the simple covers will be bought in standard units through a ‘marketplace/ exchange’, permitting just-in-time, need and exposure based protection through mobile access This article was written by Sam Evans, Carl Bauer- Schlichtegroll, and Jonathan Kalman

There’s barely a week that goes by without some sort of cyber security incident — a system hack, a data breach, putting thousands if not millions of people’s personal information at risk. Although big corporations generate the most headlines, the reality is that small and mid-sized businesses are equally, if not more, vulnerable to cyber attacks. Smaller organizations don’t have the resources to put up firewalls or deploy high-powered system monitoring software that larger firms can afford. Like the house on the block with an open window and no burglar alarm installed, these businesses are easy prey for hackers, and they’re getting hacked more often than you think. According to IBM, small and mid-sized businesses are hit by 62% of all cyber attacks, at a rate of 4,000 per day. A more sobering statistic? Sixty percent of small businesses go out of business within six months of a breach. As insurance professionals, we have the opportunity to change that outcome. Although we can’t deter the cyber thieves from striking, we can help our business customers protect themselves by effectively educating them on their risks and providing the cyber liability coverage they need. See also: Why Buy Cyber and Privacy Liability. . .   A Quick 411 on Cyber Liability Coverage The good news is, there are 20 or more cyber liability carriers in the marketplace today, which keeps pricing low for budget-conscious business owners. Typically, every million dollars of protection, for a company that has never been hacked, runs about $2,500 per year. That’s well within most businesses’ budgets. However, not all policies are created equal. It’s critical for insurance professionals to spend time educating themselves on the details of what each policy offers before heading off to sell. This ensures that you offer the best solution to each of your customers and can adequately review any coverage they currently have for gaps. Cyber liability policies should always include coverage for the following: Notification Costs and Credit Monitoring Most states require companies to inform anyone affected by the breach of personally identifiable information in a timely manner, and offer credit monitoring for the 12 months following the incident. Typically, businesses have to set up call centers to answer frequently asked questions, as well. A good cyber policy should cover all of these costs. Cyber Extortion According to the FBI, the incidence of ransomware attacks is on the rise. This attack typically begins when an employee clicks on a legitimate-looking email attachment. That one click releases malware that locks digital files until the company pays a ransom to release them. Unless the company pays the tens of thousands of dollars that hackers demand, businesses could lose proprietary information, product schematics, customer orders and other sensitive information. The right policy will help cover the cost of payments to extortionists, as that’s typically the only way to get the data back. Business Interruption If the company’s systems are compromised, hackers encrypt company software or overload Web servers to block legitimate orders, and business comes to a screeching halt. Think about the financial impact a day or a week down could have on a small e-commerce company, a CPA firm or manufacturing operation if they’re not adequately covered for the loss. Public Relations One hack can ruin a local business’s reputation in a heartbeat. If a breach occurs, that company has to hire an experienced public relations team to explain what they’re doing to protect the affected individuals and mitigate reputational risk associated with the breach. Forensics Costs Finally, and perhaps most significantly, a cyber liability policy should cover forensics — hiring computer technologists to come in and identify where and how the breach occurred, and how big the impact was. It’s important to note that this is typically the biggest cost associated with a breach, and the most frequently exhausted limit in cyber liability policies. So, it’s important to make sure the policy you recommend provides adequate coverage in this area. Explaining Cyber Insurance to Your Customers The most effective way to talk to your customers about cyber liability insurance is to show them their exposures. Typically, small and mid-sized businesses don’t think of themselves as being at risk. For example, a restaurant owner might believe that, by using a third-party payment card processor, her business is protected. The reality is: Her patrons don’t care who processes her transactions. They come to her restaurant, eat her food and hand her servers their credit cards. The place where people do business is going to get the blame — and be the one liable for the costs. It’s not just retailers and restaurants that are at risk. Any company with personally identifiable information – Social Security numbers, health records or employee data – is exposed. With the average cost-per-compromised record averaging $221, the more records a company has, the more exposure it has. When you explain that one incident could cost a smaller business $50,000 or $100,000 to rectify, the value of paying a few thousand dollars a year for cyber liability insurance becomes very clear. See also: Cyber Attacks Shift to Small Businesses   In addition to being affordable, cyber policies are quick and easy to get — if the business hasn’t been hacked before. For most carriers, it’s a one-page application that asks basic questions to find out if the company has a firewall, antivirus software and encryption, as well as its use of mobile devices. Typically, you can get a quote in an hour or less, issue the policy and be on your way. Just as important, your customers will know that you’re looking out for their best interests. If I can leave you with one thought, it’s this: In this technology-reliant world, every business has a target on its proverbial back. If some form of cyber-attack hasn’t affected your customers yet, there’s a high probability that they’ll get hit in the near future. No business is too small, and no one is immune. With the right cyber liability coverage, your business customers will be prepared for the inevitable breach — and have the protection they need to survive it.

Insurance agents know that selling insurance is unlike selling anything else. Selling insurance means selling trust, selling promises and selling ideas. As an insurance agent, you know your clients trust your expertise and expect you to have their best interests at heart. But even the best agents need something to make their jobs easier. That something, a lot of insurance professionals find, can be mobile applications. Here are three that have proven very popular: 1. DocuSign The insurance industry still relies on a lot of paperwork. And it requires both insurance professionals and clients to sign a lot of documents. This is why the DocuSign app deserves a place on this list. It’s an e-signature app that you can use to sign documents online with your mobile device. Statistics also show that a large number of insurance companies use e-signatures to sell their products. So, an app that makes this possible ought to be pretty useful for insurance professionals like yourself. Here are some benefits of this app: Sign legal documents immediately:  Any online documents can be signed and delivered in minutes instead of days. Go completely paperless: With this app, you can send documents to be signed any time without having to rely on manual means to do so. Available for different mobile platforms: The DocuSign app can be downloaded for free on iPad, iPhone, Windows and Android devices. See also: Will Policies Break Down Into Apps?   2. Go For an insurance agent to succeed, he needs to know more than his clients do. In the case of car insurance, this can be information about legalities or current deals that are available for clients based on their current situations. However, comparing insurance is a hassle that even the most experienced insurance agent want to skip. This is why the Go car insurance app on iTunes deserves a place on this list. This app can help agents like yourself find the best car insurance for clients in seconds 60 seconds. The best part is that it can help you find packages that can actually save your clients money. Here are other benefits: Chat with a seasoned expert: Even insurance agents who go solo need advice from professionals who have been in the industry for a while. With the Go app, you can chat with agents who can give you tips on getting cheaper rates for your clients. Why you should get it: The Go app was developed for the iPhone 6 Plus, SE, iOS 9 and even the Apple Watch. Reviews rave about the app’s easy-to-use interface. 3. CamScanner Looking for the right financial packages and drafting agreements sometimes requires insurance agents to pore over countless technical and legal documents. With this app in your smartphone, you can capture images of documents like insurance agreements, policies and any other documents. You can: Scan on the go: Think of CamScanner like a mini scanner that you can carry around with you and use whenever you come across an interesting document that can help you service your clients. Convert images to PDF files: To email documents, you have to scan them first. And the whole process becomes incredibly tedious if you have to scan several documents at once or do so countless times. Just take a picture of the document you want to scan, use auto cropping to remove unused edges and use the auto enhancing feature to make the image sharper. Then convert into a PDF file and share the file with clients or colleagues. Get crystal-clear documents: The app takes pretty clear and crisp images that don’t blur even when you zoom into them. It has five enhancement modes that you can use to customize your scans and make them look more professional. With this app, the scanning process is reduced to a few taps on your smartphone. It has options that allow users to send scanned documents via email and social media and to even upload them on third-party cloud services. See also: 5 Insurance Apps to Download Today   The proliferation of mobile tools is having a huge impact on business, and these three apps will help.

Fitness trackers can be a convenient way to monitor the number of steps taken every day. Some insurers have even started using them as a proxy for good health, selling life cover to people who are already fit and who track their steps. Insurers may even reward policyholders’ physical activity with lower premiums and other incentives. The assumption is that regular exercise, especially the number of steps taken, is a predictor of lower mortality. Exercise is known to confer health benefit by improving mental health, reducing cardiovascular risk and lowering cancer mortality. The question is, how many steps might lead to a longer life? Adult walking cadence is 100 steps per minute, a rate that demarks the lower end of moderate-intensity exercise. The World Health Organization suggests an ambitious minimum of 150 minutes of “moderate-intensity” aerobic physical exercise throughout the week, or 75 minutes of vigorous-intensity or a combination (setting aside recommendations for muscle strengthening). Public health authorities across the world have adopted these guidelines to help people improve health, build stamina and burn excess calories. See also: Wearables: Game Changer or a Fad?   Manufacturers of fitness trackers and wearable technology, ever since the Japanese pedometer that came out for the 1964 Olympics, have commonly set the goal at 10,000 steps a day, a marketing ploy not rooted in science or WHO guidelines. Although this "10,000 steps" goal varies greatly by leg length and gait, it translates into roughly five miles a day for the average person and remains a considerable distance, especially considering that the average British adult walks 3,000 to 4,000 steps daily. The figure encourages sedentary people to move but isn’t a magic number on a doorway to health nirvana. Even 5,000 steps a day could be too high for some older adults or people with chronic illness, but small increases will confer health benefits. It’s also important to distinguish between incidental and session-based physical exercise. Incidental exercise is the result of steps taken during the course of the day to get us from A to B, but it neither accounts for the pace nor intensity of the exercise or the true level of fitness. A three-hour workout “session” requires a much higher level of fitness than just walking, not to mention a significant level of motivation. Insurance products that discount for steps walked each day are likely to have broader appeal than those that mandate "session-based" exercise. Asking additionally for, say, three hours per week of sweat-inducing exercise could literally be a step too far. Those unaccustomed to such levels of exercise are likely to conclude that this insurance product is not designed with them in mind. Recent evidence suggests activity tracking brings no immediate measurable health benefit but this misses the point. Regular exercise has benefits that are not necessarily related to easily measurable variables such as weight and blood pressure. It’s important to understand that long-term outcomes are what are important for insurers. See also: Wearable Tech Raises Privacy Concerns   Although the WHO recommends 150 minutes of moderate-intensity exercise a week for ages 18 to 64, a critical review of the literature indicates that just half this level still brings marked health benefits. This suggests insurers could lower the bar and design life insurance programs that would also appeal to older people or those with chronic disease or restricted mobility, who may otherwise rule out buying a policy explicitly linked to fitness.

In April 2016, the U.S. Department of Labor (DOL) released a regulatory package that established a new standard for fiduciary investment advice. Under the Fiduciary Rule, investment recommendation given to an employee benefit plan or an individual retirement account (IRA) is considered fiduciary investment advice and therefore must be in the “best interest” of the investor. As a result, financial advisers who provide investment advice under the new standard now face limits on receiving commission-based compensation. Considering that 50% of U.S. financial assets is held in retirement accounts, the impact of the rule is significantly affecting insurers, broker dealers and investment managers. The DOL has long been concerned that people rolling over assets from an employer-sponsored pension plan to an IRA are not being well-advised and, as a result, are investing in products that are not most suitable for their needs or are unnecessarily expensive. Central to the DOL concern is what it perceives to be a lack of transparency around the standard under which an adviser is providing advice and how he/she is compensated. This is not surprising because advisers operate under multiple standards, with a majority of asset flows falling under a “suitability” rather than fiduciary standard. To address these concerns, the DOL expanded the definition of the term “investment advice” under ERISA, thereby imposing fiduciary status under both ERISA and the Internal Revenue Code on firms and advisers who provide investment advice under this expanded standard. A fiduciary is subject to the duties of prudence and loyalty and is prohibited from acting for his/her own interests or in a manner adverse to those of the ERISA plan or IRA. Accordingly, fiduciary status will have a fundamental impact on adviser compensation, as advisers who are fiduciaries may not use their authority to affect or increase their own compensation in connection with transactions involving an ERISA plan or IRA. See also: Does DOL Ruling Require a Plan C?   A catalyst of widespread organizational change The DOL Rule is causing significant changes to the insurance industry that go well beyond compliance. While the industry needs to be prepared for the June 2017 applicability date, delayed from the original April date, the rule (even if delayed again) is also a catalyst for more meaningful change for both insurance manufacturers and distributors. In many cases, these changes have been contemplated for some time. Compensation – For starters, to mitigate any conflicts of interest resulting from distribution compensation, insurers should inventory current compensation and understand the impact of changing models to various distribution channels. The industry has been focusing on the issue of compensation for some time, anyway (e.g., moving to commissions for annuities), and the DOL rule provides further impetus for change. This change will not be easy, not least because the industry has a variety of products and uses different distribution models. To facilitate the transition to the new environment, carriers and distributors will need to understand the current hierarchy and how it might change.

1. What is the distribution channel? Is the distributor a fiduciary? If so, what exception or exemption is the distributor using?
2. How will changing the hierarchy affect agents’ livelihood?
3. Do you risk losing agents to a carrier that will pay “conflicted” compensation?
4. How do you factor in outside compensation (e.g., marketing fees and allowances, 12-B1 fees)?
5. Depending on the product shelf, there will be different types of conflicts.
6. Determine which transactions are prohibited. Determining “red” and “green” transactions should be relatively easy, but determining “yellow” ones will be much more difficult, especially because the rule is fairly ambiguous in this regard.
7. Understand each other’s point of view. Distributors will create rules for types of compensation they will allow in their systems. Although they are currently uncertain about how they will have to adapt, carriers will have to change their compensation structures and communicate them to distributors.

Carriers and distributors will also need to safeguard against personal and organizational conflicts of interest.

1. How do we pay our workforce and others?
2. What is non-cash compensation?
3. How do we provide incentives to agents to sell products and sell certain product classes over others?
4. What is the difference between suitability and fiduciary?
5. Inventory products and create a tool to identify potential conflicts. This will be a complex undertaking, but it will enable carriers to determine who and how much carriers pay and why, as well as if conflicts are permissible or need to be disclosed.
6. Perform a compensation impact analysis; assess the performance of distribution compensation as it currently exists and what seems likely in the future. This should include an assessment of the future model’s effect on revenue, profitability, market position, channel attractiveness and overall company performance.
7. As part of a change management strategy, ensure that there is regular, clear and informative communication – both internally and externally – on impending change.

Changes in agent training Once the fiduciary rule is in effect, agents will need to be advisers first and sellers second. Even though many insurers, especially ones with captive sales forces, have already tightened sales practices in recent years, this does represent a genuine cultural shift and a novel convergence between compliance and sales and distribution. As a result, agents will need more training on their fiduciary role – all the way down to call center scripts – and, with rationalized product lines, most likely less product training than in the past. Some carriers are experiencing impacts they didn’t foresee. Because of their increasing need to respond to fiduciaries’ requests, they’re having to adopt their distributors’ policies and procedures (including access data requests) and change their product portfolios, share classes and fee structures. If they don’t do this, they risk losing shelf space to insurers that do. Product rationalization – The DOL rule is intensifying carriers’ and distributors’ focus on product rationalization. Smaller product portfolios and resulting streamlined distribution models will facilitate carrier understanding of its product suite and compliance risks when providing “best interest” advice to consumers, reduce training required for agents and help the industry reduce costs and increase scale. For example, with annuities:

• There are many providers offering many similar products, and oftentimes riders emulate characteristics of other carriers’ products that companies can’t build themselves. The rule provides the industry further incentives to address the inherent inefficiency in this state of affairs.
• When determining which products to sell, financial strength is going to be a key product rationalization consideration for distributors because compensation will be more normalized with fewer products. When product portfolios shrink, lower-rated carriers’ products aren’t going to receive shelf space, especially if distributors can’t clearly demonstrate their benefits to customers. As a result of portfolio rationalization and likely decreases in commissions, both carrier and distributor consolidation is likely to increase.
• Moreover, this isn’t just a business decision but also a compliance one; distributors will have monitoring policy procedures to confirm adherence to this policy. Accordingly, distributors will have to establish a product selection methodology for each segment that accounts for appropriateness and applicability.

However, regardless of product, the challenges of rationalization also represent an opportunity for insurers to have more profitable product portfolios because they can focus on what they’re best at. They also should be able to create products that are less capital-intensive and, with a level fee/different fee structure, potentially profitable in earlier years. In addition, rationalization can help solve the challenge of a shrinking captive and independent agent workforce; fewer and more transparent products should reduce the need to replace many of the agents who are at or near retirement age. Because of the ability to inexpensively manage small accounts and automatically comply with fiduciary standards, as well as the potential to increase scale as needed, robo-advisers should become an even more popular way for insurers to sell products. Data and technology – Moreover, the DOL rule makes capturing and maintaining new types of data a high priority for carriers and distributors. Agents will need to track, from the time contact is made with a client, how they acted in his/her best interest, and this record – which should be readily available to customers – will demonstrate that agents are being compliant (i.e., defensibility), as well as facilitate monitoring. Automating data capture, which should be especially effective via the robo-adviser channel, is the easiest way to ensure data is repeatable and transparent (again, defensible). This requires automating certain process to maintain compliance and be competitive in the future. Most of the industry has been aware of the need for technological changes, namely process automation, for some time – and many have been making them – but the DOL rule serves as yet another catalyst, especially for those companies that have been slow to act. See also: Stepping Over Dollars to Pick Up Pennies   Facilitating effective compliance Distribution traditionally has had little to no involvement in regulatory compliance, and the DOL rule represents a new challenge for most organizations. We recommend that compliance should:

1. Oversee distribution;
2. Provide quarterly “health checks” to the board of directors in to review compliance on a quarterly basis;
3. Maintain a traceability matrix that outlines key strategic and operational decisions related to rule requirements and thereby provides the company defensible documentation to minimize and mitigate losses.

Implications: Far beyond compliance As a result:

• The industry is likely to increase its already growing investments in and use of digital and online channels, including robo-advice.
• Some insurers are divesting their broker-dealers; as a result, we expect to see consolidation among smaller insurance broker-dealers, independent broker-dealers and regional brokerages over the next three years.
• The DOL’s move to increase transparency and eliminate conflicts of interest is helping drive convergence of regulation toward a broad fiduciary standard. Whether or not the SEC proposes to cover non-retirement accounts given the mandate for a federal uniform fiduciary standard under the Dodd-Frank Act, some fiduciary agents have already started to consider extending the DOL standard to an increased scope of accounts to avoid potentially awkward double standards for investors who hold both retirement and non-retirement accounts.

Regardless of political developments, we believe the rule’s core framework will remain intact. The industry has already made significant progress toward complying with it, and there is general recognition of the importance of removing conflicts of interest between financial advisers and retirement investors. As a result, financial advisers and firms should continue their work to meet the rule’s requirements.

Our first post covered the morning sessions on blockchain at the #CityChain17 event organized by MBN Solutions and held at IBM’s spacious SouthBank offices. Our next speakers focused more on applying the technology in your business. So, here are some more reflections from listening to those speakers, together with blockchain resources that I hope you’ll find useful. How to get from concept to implementation First up was Peter Bidewell (CMO of Applied Blockchain). Complementing the earlier technology detail, he unashamedly emphasized engaging the wider business, especially senior leaders (a popular topic for this blog). He emphasized that his firm was finding real business uses for the technology and that it specialized in the "smart contracts" capability of blockchain. The benefits of blockchain that he is seeing as more relevant for business clients are:

• Tamper-proof actions/events
• Peer-to-peer (avoiding cost of intermediaries)
• Innately secure (built-in encryption and consensus)
• Pre-reconciled data (automatically synchronized)
• Smart contracts

But to apply this technology in business he has found the company needed to develop a number of other augmentations/supporting capabilities. This includes a blockchain "mantle" with:

• Platform-agnostic implementation of blockchain
• Data-privacy "capsule" used within the chain
• Identity management service
• System performance improvements

See also: What Blockchain Means for Insurance   In addition to that "enhanced blockchain" capability, real world business applications have required a “full stack" of technologies:

1. Blockchain (of choice)
2. Mantle (the above enhancements)
3. Integration with other key business systems
4. Front-end (user experience, or UX)

Bidewell explained that a smart contract has nothing to do with replacing lawyers. Rather, it is a container of data and code (a block that can be placed on the chain/shared-ledger/network. It can contain:

1. Data
2. Permissions
3. Workflow logic
4. Token (if simulating passing of funds)

He finished by sharing some interesting applications. His company is working with Bank of America. Appii, Nuggets and SITA. The first of those is perhaps the most relevant for readers. BABB is to be the first blockchain-based bank, “an app store for banking.” The Appii pilot is also interesting, as it enables a sort of verified LinkedIn or CV (with qualifications/experience validated by providers). But the example that sticks in the memory best is real-time drone regulation for SITA; the world’s first blockchain-based registry of what all drones are: What’s the path to mainstream adoption? Acknowledging the emerging reality at this event (that commercial blockchain case studies are still in pilot stage), our next speaker shared his experience and thoughts on making greater progress. Brian McNulty is a founder of the R3 Consortium (mentioned in part one). This is the world’s largest blockchain alliance, with more than 70 major financial services firms and more than 200 software firms and regulators already members. R3 – Consortium Approach from R3 on Vimeo. What does R3 do? Well, apparently it collaborates on commercial pilots. It also provides labs and a research center to support organizations during their innovation. R3 has its own technology (R3 Corda implementation) and own "path to production" methodology. So, perhaps some resources worth checking out. Akin to what we have learned for customer insight and data science pilots, McNulty confirmed that the path to mainstream adoption will be a "burning platform." What story will make the case for such an unacceptable status quo that organizations must make the leap to blockchain (to avoid the flames)? He suggests a few pointers:

• Collaboration is increasing, adding complexity;
• The appetite of regulators in increasing, as they grasp the benefits of pushing for distributed ledgers as market solutions;
• More work is needed on standards (but the dust is settling, and competition is reducing)
• Will we get to cash on the blockchain? (probably more a move to digital assets on ledger being counted as monetary assets)
• The real burning platform will probably be increased operating costs (currently $2.6 trillion annually, with blockchain promising 20% savings)

Despite all that, McNulty confirmed that most businesses are still only at pilot stage. But, apparently, some FS firms are having IT developers trained en masse (so that blockchain can be considered as just another technology option to meet business requirements). Bursting the blockchain hype bubble Next was a man who should seriously consider a second career in stand-up comedy. Dave Birch is innovation director for Consult Hyperion. He gave a hilarious comedy session on the hype around blockchain. Using just genuine newspaper headlines, he revealed how blockchain is apparently the answer for every industry, transforming everything from banking to burgers and healthcare and ending global poverty. As an aside, he shared the amusing story of how Amex was conned during the “Great Salad Oil swindle” of 1963. He used that as analogy to the crucial issue of how not to get swindled by hyped blockchain claims. The key, it appears, is to always ask: What’s in the blocks? Birch also shared his four-layered model of a shared ledger:

1. Contract (smart contract built upon)
2. Consensus
3. Content
4. Communications (robust)

He described the lower three as a "consensus computer." He also introduced a taxonomy of blockchain implementations. This was divided into a simple binary tree built on two layers of questions:

• Is it a public or private ledger?
• Is it permissioned or double-permissioned?

If you think about it, a shared ledger is really a practical example of the much talked about RegTech. Dave pointed out that a shared-ledger solution would have uncovered the Great Salad Oil Swindle, because the macro production numbers would have been unbelievable. A lot of the hype is misguided, because blockchain can’t fix individual problems, but it can spot systemic errors. An interesting analogy he shared was an old idea of best way to avoid bank branch robberies. At the time when lots of architects were suggesting military-like protections for staff and vaults, one radical turn of the century designers suggested the opposite: a bank built mainly of glass. If everyone can see what is going on, the bank robber has nowhere to hide. That is the principle of blockchain, the power of radical transparency. So, businesses may get more value thinking how to radically redesign, rather than just reengineer, existing database solutions into a blockchain app. See also: Blockchain: What Role in Insurance?   Getting back to the customer benefit of blockchain Our final speaker brought us back to that emphasis during panel session – what is in it for the customer? (A topic that is preaching to the choir on this blog.) Peter Ferry, commercial director at Wallet Services, suggested that blockchain is gradually becoming an invisible technology option. The focus will return to customer needs and business requirements, with IT departments worrying about when blockchain is the right technology solution for needs. But when would it be relevant? How can blockchain make our lives simpler? As Ferry rightly pointed out, the development of the internet and today’s digital applications should be a warning. Mostly, digital technology has not made our lives simpler; if anything, they are more complex and demanding. The internet has developed differently than was originally dreamed (distributed and robust network for military purposes). Blockchain can potentially do a lot for customers, including: security by default, sovereignty of their own data and no single point of failure. Customer-focused design principles have to be applied to this enabling technology to deliver real value. So, there is a strong case for customer insight teams to partner with blockchain development teams to help enable this. For its part, Wallet Services used this event to launch its enabling technology. SICCAR can be thought of as Blockchain as a Service, including APIs, services and pre-fabricated business use cases. Might be worth checking out: How will you approach the potential of blockchain for your business? I hope this post was also useful, giving you food for thought and some useful resources/contacts. Where are you on this journey? Are you still learning about blockchain? Do you have plans to partner with blockchain development team? Are you already using customer insight to guide blockchain pilots? If so, please let us know what’s working for you or any pitfalls to avoid (using the comments section below).

Interest in insurtech grew substantially during 2016. Many traditional insurance companies have been hampered by legacy IT systems and regulatory transformation programs which means there have been limited funds to invest in innovation. This has left the industry somewhat behind others in the financial services sector, making the industry ripe for disruption. - KPMG - The Pulse of Fintech Q4 2016 Report.

Insurtech is an industry that is growing very quickly. In fact, between 2017 and 2020, the insurtech field is projected to grow 10% every single year. This growth is being fueled by the fact that insurance technology is rapidly improving, and the technology has tremendous benefits for insurers and policyholders alike. As the insurtech industry grows, some key trends have started to emerge. These trends will affect how the insurance industry as a whole progresses in the coming decade. Here are five of the top insurtech trends to watch out for in the remainder of 2017. Strong Investment In 2014, insurtech investment was $800 million. By 2015, this number surged to $2.6 billion. Because insurtech is undergoing strong growth, and it is still a very new sector, there will most likely be many more investment opportunities. In fact, KPMG notes that it expects investment interest in insurtech to remain "hot" throughout all areas of the world in 2017. See also: 10 Trends at Heart of Insurtech Revolution   Privacy Many new insurtech companies rely on customer data to provide key insights that can help insurers. While being able to analyze data can be extremely beneficial from an insurer’s standpoint, many customers are likely to continue to be wary about giving away any private information. To address this concern, insurtech startups are enhancing privacy features and security. This is particularly true as the insurtech sector begins to intersect with the health industry. Heavier IoT Use The internet of things, or IoT, is being used more and more in insurtech. In fact, in 2016, the IoT and AI combined accounted for 44%  of all insurtech investments. This is because insurance companies thrive on data, and the IoT provides opportunities for many brand new types of data to be collected. The IoT also has the potential to be useful in a wide range of insurance niches. For example, it can be useful in auto insurance, health insurance and home insurance. Artificial Intelligence As AI and machine learning technology develop, they continue to become more and more useful in many different industries. Insurtech is no exception. In fact, many insurtech companies are now starting to use AI and machine learning to advance their data gathering and analytics protocols. One company, Fokuku Mutual Life Insurance, even replaced 34 workers with AI. Throughout 2017, AI is likely to continue growing into a stronger force in the insurtech world as it helps to make companies more efficient and streamlined. See also: Top 10 Insurtech Trends for 2017   Cost-Saving Solutions Through digitization and automation, many processes and functions of insurance companies are becoming cheaper and more efficient. For example, one solution called CynoClaim, by Outshared, is enabling 60% of claims to be managed automatically. Now that's impressive! Such solutions can result in dramatic cost savings for businesses in the insurance industry. Because there is so much to gain from solutions like this, it is very likely that insurtech cost-saving solutions will continue to be invested in for the rest of 2017. Through these insurtech trends, the insurance world is undergoing a disruptive modernization. The old ways of conducting business in the insurance industry are being replaced with digital and consumer-centered practices. Technology is the key that has unlocked all of these changes. For the remainder of 2017 and beyond, insurance is likely to become better, cheaper and more precise. It is a very exciting time for all of us in the insurance and insurtech industries!

The April 2017 issue of Business Insurance Magazine features a cover story on the retail industry, and how the move to e-commerce is changing the risks faced by the insurance industry. The articles include “Retail caught flat footed by e-commerce,” and “Web revolution creates new era for retail risk management.” It is remarkable that both the retail industry and the insurance industry seem to be taken by surprise at the advance of online shopping. This is especially puzzling because the handwriting has been on the wall for so long that it is beginning to fade away. What are the lessons for the insurance industry today in a world where digital change is affecting every industry?

Before answering that, it’s a good idea to brush up on the history of e-commerce. The ability to shop and purchase items online began to appear in the mid- to late 1990s with the initial internet boom. In the early days, anyone who could put up a website thought they could reach the whole world and become rich and famous overnight. Thousands of those early web businesses achieved rapid valuations based on inflated expectations and then crashed and burned in spectacular fashion during the Internet bust of the early 2000s. But others were very successful and began to eat away at the business of the traditional “brick and mortar” retailers. Of course, Amazon.com is the most famous, starting in 1994 and selling its first book online in 1995. Although the company did not have a yearly profit until 2004, its growth in those early years was phenomenal, and there was little doubt that it would become a major force in retail.

See also: Why AI Will Transform Insurance  

I could enumerate many examples of e-commerce successes and failures, but the point is that the move to e-commerce has been gaining steam for more than 20 years, putting a number of household names out of business along the way (think Borders, Circuit City). Many others filed for bankruptcy or were acquired at bargain basement prices. Many retailers have been closing stores and trying to revamp their business models for a decade or more (Sears, J.C Penney, Macy’s). And a wave of local retailers have found it difficult to compete with big online retailers.

The Business Insurance articles do a nice job of describing the implications for the insurance industry and retail risk managers of this transition to e-commerce, identifying how the movement changes the risk landscape. The main question is, what took everyone so long to realize that online shopping would have a transformative effect on the retail industry? It did not happen overnight, and the implications could have been foreseen and planned for long ago. To be sure, some retailers and some insurers were forward-thinking and adjusted for the transformation, but far too many were blindsided, as indicated in the articles. What does this mean for insurers today?

Besides the changing nature of retail and the companies populating the space, commercial lines insurers should focus a critical eye on every industry segment they serve. Today, the pace has quickened, and a wide range of emerging technologies, societal trends and demographics are causing upheaval in every industry. For example, the transportation sector faces issues such as autonomous vehicles, ride sharing, vehicle electrification and new transportation technologies – developments that are sure to completely reshape that industry sector. Similar cases can be made for change in manufacturing, energy, entertainment, travel and other industries. This time around, those industries and their insurer partners will not have 20 years to monitor developments. Many of these industries are likely to see substantial changes within the next three to five years. The changes to products, business models, companies and industry structure will, in some cases, dramatically change risks. For some, new technologies and solutions will enable very significant reductions in risk, and for others, new risks will emerge.

See also: A Gap That Could Lead to Irrelevance  

The main messages for insurers are these: Don’t be complacent. Don’t assume this is all hype and will never happen. And don’t assume that you will be retired before any of these transformations take hold. Plan and prepare now, seizing the opportunities to succeed in the digital age.