I read a comment from a consumer who purchased a renter's policy from a well-known, low-price, direct carrier for $25 a month and got a quote for $5 a month from a well-known, though brand new startup. The consumer asked online of the startup, "Are you real?" One of its executives replied, "Yes, and we can charge so little because of our technology!" (I'm paraphrasing slightly for confidentiality.) That is some kind of technology to legitimately charge 80% less. If the technology is that great, everyone else should just pack up and quit now. But, first, I will go through some simple math. I'll use the incumbent carrier's results using publicly available data. The limitation is that I do not have line-item expense data down to the renter's policy level. This might make a difference, but, because the price difference is 80%, the difference is not material for this explanation. See also: Chasing the Right Numbers on Claims   The incumbent's overall expense ratio excluding loss adjustment is about 14% of written premium. The overall industry average over the last 10 years is 27.1%, and in 2016 it was 27.7%. Expense ratios tend to be stable, stubbornly so when companies need to decrease them. The incumbent's profit margin excluding investment revenue was approximately 5%. Therefore, it pays out approximately 70% of premiums in claims (total industry average for all lines is approximately 59%). This means that, if this carrier had no expenses and no need for profit, it would have to charge $.70 per dollar of premium just to  break even. The new competitor (let's call it "NewCo") is charging approximately 80% less. NewCo is too new to use its actual expenses as comparisons (the profit margin was hugely negative last year, which is normal for a startup, even one with great technology). 80% less, though, is less than the incumbent's expense ratio when loss adjustment expense is included (LAE is approximately 10%). In other words, the incumbent's expense ratio including LAE is approximately 30%, one of the lowest in the industry, and yet NewCo can justify a rate of $.20? To the best of my knowledge, no developed personal lines company has a sub-20% expense ratio including LAE. I suppose that, if everyone worked for free, if reinsurance were free and if the great technology was free, it might be possible. For NewCo's executive to be accurate, its technology must be so good that the great technology, his salary, others' salaries, auditing fees, license fees, all other expenses and all losses must be less than $.20 on the dollar. Is the executive correct? We'll have to wait and see. Giving the startup the benefit of the doubt, the only way a company can make money at 20% is if the technology identifies prospects that will not have claims, except in a highly unlikely scenario, such as maybe Black Swan events. The policy would have to be really a de facto catastrophe policy, even though the insured does not see it as such. Another possibility is that the forms are not comparable, which means NewCo's form is disingenuous or a de facto cat policy from a different angle. Based on the executive's response, though, no indication was made coverage was less, so I'm going to assume the forms are comparable. If I am wrong, a serious disclosure should have been made. I am going to extend the benefit of the doubt further. If NewCo's technology really is that good, to select people highly unlikely to have a claim, then those people do not really need insurance. They are just wasting much less at $60 per year than $300 per year. Going further into the implications for the industry: There have to be clients so unlikely to incur a claim that rates can legitimately be 80% less. The law of large numbers is based on the concept that a company cannot, within reason, predetermine which of 100,000 renters will have a theft or fire. The company can only identify the probable number of claims and the claim dollars it'll incur from these 100,000 renters collectively. If the carrier charges enough for all 100,000 policyholders (law of large numbers) but does not identify specifically who will have a claim because historically (and maybe still today) that is not predictable, then the company can make a small profit. The profit on some clients will be 70%, and on others it will be -1,000%, but, collectively, the underwriting profit will be 5%. If NewCo's executive is correct, what he was really saying is that its technology knows exactly who will have a claim--true predictive modeling down to the individual level. This means the consumers likely to have claims will pay much, much, much more. The carriers and agents stuck with these unfortunate clients will have serious problems, too, because the rates they have to charge may be so high as to be unaffordable. As much as people hate paying premiums that are always too high, historically insurance was egalitarian in many ways because all clients in a pool were treated somewhat equally. See also: How to Make Your Numbers Jump   Of course, NewCo could just be seriously underpricing its product like hundreds of new carriers that have gone before and often failed. Insurance history is littered with the tombstones of carriers that have "figured out something smarter" but were really just underpricing. It would not be the first time, and it will not be the last, where an executive thought the key advantage was technology when, in reality, the carrier did not even possess a competitive advantage. I recently heard another insurance C-suite executive advise that its advantage was technology when a review of its financials suggests it is not even investing in technology beyond some interesting reserving models. There was one other aspect of the web-based conversation between the consumer shopping renters' insurance and NewCo's executive. When asked if the company was real, the executive also advised that NewCo was real because regulators have licensed it. Please understand that, just because regulators have licensed a company, does not always mean much in the real world. I believe that almost all insurance companies that have failed were licensed. For an executive to use this as proof of "being real" causes just a smidgen of skepticism, especially when combined with a need to write to a combined ratio of 20%. The logic doesn't add up.

In 1980, the actor Steve McQueen traveled to Mexico to receive unorthodox (and ultimately futile) cancer treatment. The widespread coverage that McQueen’s trip received in the mainstream press can, of course, be attributed to his celebrity. But it was also because the actor had taken the reins of his healthcare from the medical establishment, something that was seen as brazen. Back in those days, we wouldn’t have used the term “consumerization of healthcare” to describe what McQueen did. However, his approach has become an accelerating trend over the past decade, when Americans have taken more control over their health, and the healthcare experience. Consumers are more informed about choice, more demanding about the services being offered and more focused on how they pay for it. The list of changes is long and growing, focusing on:

• Wellness
• Easily accessible online repositories of medical information and advice
• Medical tourism
• Physician ratings
• Walk-in clinics at stores like Walmart and CVS
• Health spending accounts
• A proliferation of insurance options

As technology advanced, consumerization was enabled, and, as healthcare costs increase, it’s grown in importance. But the question remains: Do consumers have what it takes to control their health and healthcare as they both consume it and pay for it? See also: Healthcare Buyers Need Clearer Choices   What’s driving the consumerization of healthcare? Thanks to the wealth of information available on the internet (product and service details, pricing info, ratings and reviews), consumers have more control over what they spend their money on, and where and how they spend it. Consumerization began with product shopping but quickly moved into the service sector (financial services, travel services, healthcare). Whether consumers are covered by group plans in their workplace or by individual plans, they are paying more for their coverage and experiencing higher out-of-pocket costs. A recent Kaiser Foundation study showed that, from 2015 to 2016, deductibles increased by 12% for those covered by employer-sponsored plans. While deductibles have grown more rapidly than premiums – this is, after all, the tradeoff – premiums have still been rising more rapidly than wages. More now than ever, people are more conscious of what they’re spending. Consumers have become more active Today, consumers are increasingly relying on technology to manage their health. This trend cuts across generations. Baby boomers were perhaps the first truly “health conscious” cohort. Running, as a popular activity, took off on their watch, as did an interest in (and willingness to spend on) healthier foods. At the same time, boomers are focusing on the health and the healthcare experience of their elderly parents. Boomers are taking advantage of monitoring technology that enables them to keep a remote eye on their parents while helping them remain independent. Then, of course, there’s tremendous interest coming from millennials -- digital natives who are used to ubiquitous technology and to shopping around and finding the best deals in all aspects of their lives. Millennials are more likely than boomers and Generation X-ers to own a fitness tracker, search for a physician online and base physician choice on reviews. Millennials are also more likely than other generations to go online and research a medical problem before consulting a physician. Technology, in fact, is bringing about a merger between health and healthcare. When employers are buying Fitbits and sponsoring wellness programs for their workforce, they’re hoping to achieve the dual benefits of healthier employees and more cost-effective healthcare. There is a growing body of evidence that consumers want more active involvement in their healthcare, and the adoption of digital health tools and applications is a good proxy. For the past several years, Rock Health has surveyed consumers on their use of digital health. In a 2016 report, Rock Health found that 46% of those surveyed have adopted three or more forms of digital health tools. They’re using a fitness tracker, engaging in some form of telemedicine or contacting their physician via email or text message. The survey also found that the majority of Americans would like an electronic version of their healthcare record, and that, in the six months prior to the survey, 20% had requested or downloaded a copy. Do consumers have the tools and knowledge to manage cost? Consumers are showing an increasing willingness to take control on the payment end of things. But they may not yet be in a position to do so. Policy Genius, which offers online tools for buying all types of insurance, surveyed consumers on their understanding of some of the basic concepts underlying health insurance. Only 53% picked the right definition of "co-pay." The term "coinsurance" was understood by just 22%. Roughly half couldn’t define "deductible." So, while consumers may express a greater desire to take control of their healthcare, they may lack awareness and understanding of how to best utilize their insurance to pay for it. See also: Consumer-Friendly Healthcare Model   There’s an app for that The good news is that technology applications are making consumer control possible. We’ve already seen plenty of apps that help manage so many aspects of health and the healthcare experience: apps for checking symptoms, chatting with a physician, monitoring medications, tracking vitals and even accessing healthcare records. Applications that focus on the cost and payment side of the equation have been slightly slower in arriving to market, but they are coming. There is an emerging array of insurance-related (insurtech) apps that are making it possible for consumers to gain control of their insurance buying experience, apps that enable them to figure out whether their physicians are part of their network, whether their prescriptions are covered and just what that coinsurance-copay-deductible means to their pocketbook. These insurtech platforms include businesses like GetInsured, which helps individuals purchase the right health insurance plan; apps like Stroll Health, which brings transparency and efficiency to the imaging referral process by delivering personal recommendations based on what is covered by the patient’s insurance plan; and GlucosePath, an app that looks at the 6 million combinations of drugs available to treat Type 2 diabetes to find the regimen that is affordable (based on the patient’s insurance), effective and has the fewest side effects. Given that Steve McQueen was famous and wealthy, he probably wasn’t worried about the cost or payment side of his treatment. But taking control of his own healthcare the way he did may have helped spark a major consumer trend. Today, consumers continue to push for active control in their health and in how they consume and pay for their healthcare. And, through technology, the healthcare industry is inexorably delivering solutions to fill any gaps that keep consumers from exercising even more control.

The downfall of Travis Kalanick should show the world of would-be tech entrepreneurs that they need better role models, that they need to stop looking up to the spoiled brats who lead some of Silicon Valley’s most hyped companies and the investors who fund their misbehavior. Travis Kalanick’s ouster from Uber is literally a watershed for the Valley, something that is capable of shaking up its entrepreneurs and venture capitalists alike. For too long, the elite have gotten away with sexism, ageism and, to coin a word, unethicalism. The cult of the entrepreneur idolized arrogant male founders who plundered money and even sank companies; the more money they raised (and often lost), the higher the valuations their companies received and the more respect they gained. Corporate governance and social responsibility were treated as foreign concepts. Uber was not the worst offender in the tech industry; it was just the most visible and the one that got caught. Its investors have been rightly humiliated for having their heads in the sand. This is because it has for so long been clear that Uber needs management that is more responsible — to its employees, its drivers and its customers. The trouble first surfaced in 2013, when complaints about male drivers’ assaulting female passengers met with denials of responsibility by the company. Then followed sexist “boober” comments by Kalanick; ads in France that pitched attractive female drivers; suggestions by an Uber executive that he would dig up dirt on a journalist; and the rape of a woman passenger in New Delhi partly caused by a lax screening of drivers. See also: What to Learn From Uber’s Recent Troubles   But through all of this, Uber investors supported the company and accepted the ethical lapses as if they hadn’t happened. All that seemed to matter was that valuations were rising; the business, expanding. Who cared that a top Uber executive had secured a copy of the medical report of the Delhi rape victim and shared it with other company executives, including Travis Kalanick, in an attempt to discredit her? The company was growing; investors were valuing it in the billions! Things finally reached a boiling point with a series of allegations by a woman employee about rampant sexism and sexual assault at Uber headquarters. And, fortuitously, a board member illustrated the root of the problem by making a sexist remark at a meeting about eliminating sexism. The board was finally compelled to do something it should have done years ago: force Kalanick out and clean up its act. To be fair, there are many technology companies that are, in this regard, exemplary, including Salesforce, Microsoft and Facebook. They are going to extremes to correct problems that they had found in their ranks. I know from discussions with executives such as Microsoft CEO Satya Nadella that they have been working hard and sincerely. But too many Silicon Valley stars are like Uber. With the help of Arianna Huffington and Eric Holder, the company is at last working on reforming itself. And maybe the downfall of Kalanick will provide not only valuable but lasting lessons for the hotshots of Silicon Valley, and of tech cultures worldwide. If Uber can do it, so can the rest of the Boys Club. They have to realize that press releases won’t suffice, that real change is necessary. Who are “they”? To begin with, the people who fund the offenders, the venture capitalists. They have not been held accountable, and they need to be. The Diana Project at Babson College documented that, as of 2014, 85% of all venture capital-funded businesses had no women on the executive team, and only 2.7% had a woman CEO. The proportion of women partners in venture capital firms had also declined to 6% from 10% in 1999. And this is part of the problem for an obvious reason: Women don’t tolerate boys-will-be-boys behavior, because they aren’t boys. Moreover, as any number of studies have documented, diversity in companies yields a broader range of perspectives on the business itself and, often, better bottom-line results. And, as I have pointed out, high-tech women who are measurably better than men have been consistently discriminated against. Venture capitalists are susceptible to business pressure. The money that they invest is not their own. It is raised from pension funds, universities and state governments. They must require venture capital firms to provide public disclosures about the diversity of the companies they invest in — including the gender and age of the executives. They must have a diverse set of investment partners, without sugarcoating the numbers using inflated titles for junior associates. Next are the boards. Venture capitalists demand seats on boards as a condition for their investment but don’t usually fulfill their fiduciary duty to all shareholders and employees — they always put the interests of their own funds ahead of those of the company. They must take responsibility for the employees as well as for the success of the company, as board members are supposed to do. And startups must have diverse boards that provide balance and broad perspective, not chummy boys clubs dominated by venture capitalists. Finally, all tech companies must take heed of the report that was put together by former Attorney General Eric Holder for Uber. There are obvious procedures to employ in making diversity a priority: such things as blind resume reviews; interviewing at least one woman and one minority candidate for each open position; limiting alcohol at work events and in the office and banning employee-manager relationships. In most industries, discriminating on the basis of gender, race or age would be considered illegal. Yet, in the tech industry, venture capitalists brag about their "pattern recognition” capabilities. They say they can recognize a successful entrepreneur when they see one. The pattern always resembles Mark Zuckerberg, Bill Gates, Jeff Bezos a nerdy male. Women, blacks and Latinos need not apply. Venture capitalists openly admit that they only fund young entrepreneurs because, they claim, older people can’t innovate. See also: A Trip Through Silicon Valley   Silicon Valley got a free pass when computers were just for nerds and hobbyists. Few cared about its arrogance and insularity, because its companies were building products for people who looked just like their founders. And these child geniuses inspired so much awe that their frat-boy behavior was a topic of amusement. But now technology is everywhere; it is the underpinning of our economic growth. What is more, the public is investing billions of dollars in tech companies and expects professionalism, maturity and corporate social responsibility. There is no free pass for the tech industry anymore. It must grow up and clean house.

The avalanche of news from "industry-transforming" insurtech startups continues. Here are some of the latest: Headline: Aviva to Slash Prices with "Game-Changing" Concept Concept: To sell insurance without asking applicants any questions. Quote: “What’s our long-term goal? To go from Ask it Once to Ask it Never – so customers don’t have to answer any questions at all.” Observation: How about a long-term goal of protecting individuals and families from catastrophic financial ruin? I just had my annual physical. My doctor said his new concept was to not ask me any questions and to get me in and out of his office in two to three minutes. That’s the kind of “customer experience” I want when my life is on the line. How about you? Headline: “Insurtech Startup Gets a Boost for Smartphone-Only Policies” Concept: To provide “Insure-a-thing” coverage for things like “flights, baggage and weddings.” Observation: Hmm, travel insurance and wedding insurance. Something that revolutionary certainly deserves an $8 million infusion of cash. And I’ll bet you that these “game-changers” have a phone app to distinguish them from everyone else. Apparently this is the insurtech equivalent of a guitar amplifier that goes to 11.

With genetics and insurance, fundamental issues are at stake. But there are potentially significant benefits for consumers who allow access to data on their lifestyle, activity patterns, medical history and genetic makeup. Importantly, insurers would be able to offer much more personalized insurance policies that encourage engagement and improve outcomes for their customers. Genomics, the field of molecular biology focused on mapping the genome, is at the forefront of a technological revolution in biomedicine and healthcare. In medicine, efforts are shifting toward detection and prevention, replacing treatment of symptomatic illness. Better use of genomic information also promises targeted therapy, so people will avoid undergoing treatments that are ineffective. Genomics is also an essential issue for the insurance industry, particularly with regard to life insurance policies. Compared with other medical data, knowledge of our individual DNA is regarded as particularly powerful and is therefore treated exceptionally. Genes, unlike other medical information, are associated with themes of empowerment and the right to an open future. Unsurprisingly, most concerns about gene testing relate to confidentiality, privacy and discrimination. See also: Why Life Insurers Must Adapt   So far, the U.K. insurance industry has voluntarily agreed not to use much of the data that is available. A differential approach to genetic data is warranted to prevent discrimination based on unavoidable risk factors and to lower disincentives to valuable testing in a medical context. When introduced, the moratorium acknowledged contemporary concerns that DNA sequencing would allow abnormal patterns in specific genes to be recognized and potentially misused by insurers. That might lead to discrimination of asymptomatic individuals based solely on presumed or actual genetic differences predicted by a genetic test rather than their physical characteristics. Because of the obligation to full disclosure, people fear that testing may render them uninsurable. There is a danger that adverse genetic information excludes high-risk individuals from life insurance, making it available only to people who need it least. Alternatively, if people use genetic information to determine they are low-risk, they probably won’t buy insurance, pushing prices up as policy numbers decrease. Benefits Undoubtedly some people who could benefit from genetic testing are foregoing the opportunity out of concern over possible repercussions. In practice, there is very little evidence of actual genetic discrimination by insurers. At least, nothing that would yield a negative societal impact. The moratorium is a metaphor for the relationship between the industry and genetic science. Enduring unchanged for more than a decade since work to sequence the whole human genome concluded means it has not moved with the times. We now understand medical predictability can only rarely (e.g. Huntingtons Disease) be  based on DNA alone. Other risk factors may be more important – as an example, the combined effect of genes, nutrition and exercise. But, while exercise is linked with genetics, the relationship is too fragile for the results of direct-to-consumer genetic tests to be useful in making lifestyle recommendations. These tests are convenient for people to understand their genetic makeup and continue to be popular despite providers' consistently failing to meet international standards on confidentiality, privacy and secondary use of data. Our collective understanding of genomics and its potential relevance to risk assessments has also improved significantly in recent years, and it offers the opportunity for insurers to do things better – with individuals’ consent. Falling costs More people will be attracted to genetic testing as costs fall and predictive power grows. Much wider use of genomics in medicine could mean people are much better equipped to make personal decisions about their insurability than insurers can. While recognizing the ethical responsibility of getting it right, this potential asymmetry of information is especially relevant in a voluntary insurance setting. If consumers hold genetic information, but insurers do not, this can create an uneven playing field. It could ultimately render voluntary insurance, with its approach to pooling risk, impossible and remove an important social good. See also: Key Trends in Innovation (Part 2)   Securing trust to a degree that customers will be willing to share genetic data with an insurer will be a challenge. Some customers may never develop this degree of trust, but, for those who do, the reasons to share need to be compelling – better pricing and better outcomes, at the very least. There is no doubt that a time is coming when consumers will wish to see this information made relevant to their insurance. There have been many changes since the moratorium. Genomic information is increasingly used across a range of health problems, and this information will appear in the medical records that insurers have consent to access. How should they best use this genomic knowledge in equitable ways to benefit customers? There are moral questions that need to be asked before insurers are given a full regulatory go-ahead in this context. Genomic-themed conversations across a full spectrum of stakeholders, around what kind of information should be made accessible to insurers to the ultimate benefit of their customers, are urgently required.

You’ve probably had regular help from a virtual assistant by phone or online, assisting you with basic tasks such as directing your call or giving you your bank balance. Helpful, right? The companies that employ the virtual assistants think so, too, and are applying these AI/robotic processes to more and more of their everyday business operations. Often called out for being slow to change, the insurance industry is beginning to catch up quickly. It’s making sweeping changes across organizations and core systems because of the disruptive emergence of insurtech. Carriers like Celina and USAA are using AI in their daily operations and reaping the benefits. As a result, insurers are now either delivering — or are in the process of delivering — a great digital experience to consumers. Once complete, this transformation will entail an entirely new way of doing business and servicing customers. See also: Strategist’s Guide to Artificial Intelligence There are four main technologies to keep in mind: Robots Robotics is the branch of technology that deals with the design, construction, operation and application of robots, virtual or physical. They are autonomous or semi-autonomous machines or systems that can act independently. Artificial Intelligence AI is the theory and development of computer systems able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making and translation. AI is software that learns and improves. Some robots can use AI to improve their capability by learning, but that is optional. Cognitive Computing Cognitive computing technologies are a subset of AI. Cognitive computing “refers to computing that is focused on reasoning and understanding at a higher level, often in a manner that is analogous to human cognition,” writes Lynne Parker, director of the division of information and intelligent systems for the National Science Foundation, in Computerworld. “This is a subset of AI that deals with cognitive behaviors we associate with ‘thinking’ as opposed to perception and motor control.” Robotic Process Automation Insurtech consultant Celent defines robotic process automation (RPA) as a set of technologies that can automate processes that currently require human involvement. Robots replicate human behavior to conduct the tasks as a human would; robots also optimize the tasks. RPA can yield benefits when applied to the right roles. It does well supporting repetitive tasks in various environments where there is little change, often back-office support roles and tasks. Accenture found that cost savings after deploying RPA can reach as high as 80% and time saved on tasks as high as 90%. Automating repetitive processes means tasks are completed quickly with fewer errors, opening up new opportunities for employees to focus on more customer-centric tasks. But RPA is not the answer to everything. It does not think, reason or predict. It completes simple, repetitive tasks quickly, but it does not learn or self-improve. Developing an enterprise-wide strategy to determine where RPA provides the most value and to anticipate the organizational change that may result is the prudent approach. The Future Is Here IBM’s Watson and Amazon’s Alexa are early examples. Insurers already have joined the revolution. Celina Insurance Group uses an analytics-based agency prospecting tool to appoint agents in high-potential underserved areas. USAA’s “Nina” is an AI virtual assistant that chats with customers on the USAA website. It’s designed to respond to 120 questions, from reporting stolen payment cards to changing a PIN. See also: The Big Lesson From Amazon-Whole Foods   There will inevitably be lessons to learn from successes and failures of this first wave of robotics and AI. However, early adopters of these technologies also risk success. Investing in innovation is what will allow insurers to stay ahead of disruption and, in some cases, create it. As robots evolve, their capabilities and applications will no doubt be vast. Just as we could not have predicted how the internet — and now the Internet of Things — would evolve, robotics and artificial intelligence will likely follow the same course.

While much of the coverage of the insurtech world focuses on innovations in the distribution part of the process and in the P&C arena, the 1,400 insurtechs that we monitor as part of our Innovator's Edge service are showing plenty of sharp thinking in other areas, too. This month's list of 6 Innovators to Watch, for instance, is mostly full of data plays and focused on life and health, not P&C (with a decidely non-U.S. profile). There seems to be plenty of innovation to go around.

The June 6 Innovators to Watch honorees are:

Atidot aims to help life insurance companies make better decisions by unlocking the power of customer data in existing books of business. Based in Tel Aviv, Israel, the company combines life insurance expertise with data science, delivering greater efficiency and accuracy. Using machine learning, the company can structure data from a variety of sources in a client company and analyze it to find signals that it says leads to new customer insights, predictive models and faster go-to-market strategies for products. Atidot is currently serving a South African life insurer and has several pilots under way with other life insurers. To learn more about Atidot, click here.

GeneYouIn offers a product called Pillcheck designed to deliver personalized medicine by ensuring a better match between a person's prescription medicine and his or her genetic profile. The Toronto-based company uses a saliva sample to develop a full genetic profile of a person's suitability for more than 100 medications. Matching drugs to a person's DNA can avoid harmful side effects, improve the efficacy of treatment and avoid the standard trial-and-error process of finding the right medication and dosage. GeneYouIn, currently working with the Canadian military, also targets benefit management companies and disability management companies. To learn more about GeneYouIn, click here.

Jornaya provides insurance companies with an in-depth view of where a customer lead is along the consumer buying journey to more effectively convert leads to customers. Jornaya technology places code on more than 30,000 websites, such as insurance company web sites and quote comparison sites, letting it view consumer activity and score leads according to age, behavior and other metrics. The technology also spots fraud and provides users with records to ensure compliance with consumer protection laws. Insurance is one of Jornaya's fastest-growing verticals, and it currently is working with personal lines insurers in the property/casualty, life and health sectors. Learn more about Jornaya, click here.

Lapetus Solutions provides an innovative way for life insurers to quickly conduct a health risk assessment. Using a mobile device selfie and a brief questionnaire, Lapetus not only can estimate a person's longevity but also identify key health markers, such as age, smoking status and certain disease markers. The Lapetus solution aims to give life insurers access to information as reliable as blood chemistry but in a way that is less invasive, costs less and delivers results more quickly. Wilmington, N.C.-based Lapetus was created by a public health researcher with a focus on longevity and an academic specialist in facial analytics, and is working on several pilots with insurance and reinsurance companies. To learn more about Lapetus, click here.

Safe Beyond offers what it calls the first "emotional life insurance" platform, designed to let its customers deliver important information and personal messages to designated beneficiaries after death. Customers can store important information in a digital safe—such as documents, passwords and more—as well as record video messages to be delivered at designated times or upon the occurrence of certain events in the future after their death, such as the marriage of a child or graduation of a grandchild. The Tel Aviv-based company has identified life insurance and financial advisers as markets that would use the product as a new way to engage with their customers. To learn more about Safe Beyond, click here.

Vericred wants to be the utility company that powers your innovative health plan data and analytics products and services. The New York-based company currently focuses on three main data sets: health plan design and rate data; provider network data; and formulary data. The goal is to make it easier for small group health insurers and innovative tech companies to build tools for searching providers, selling benefit plans, quoting coverage and enrolling policyholders, among other things. Several innovators within Innovator's Edge are customers for Vericred's data as a service, the company says. To learn more about Vericred, click here.

The June honorees are drawn from among the nearly 1,400 insurtech companies that are featured in Innovator’s Edge, a technology platform created by ITL to drive strategic connections between insurance providers and insurtech innovators. From this pool, only those companies that have completed their Market Maturity Review—a series of modules designed to help insurers conduct baseline due diligence on the innovator and make a more informed connection—are eligible to be considered for Innovators to Watch.

For information on previous honorees, click here: May, April and March. 

Cheers,

Paul Carroll,
Editor-in-Chief

“If you try to win, you might lose, but if you don't try to win, you lose for sure!” —Jens Voigt, cyclist Alpe d’Huez is a legendary climb, world-renowned by cyclists. A relentless 8.5 miles with 21 hairpin bends and an 8.1% gradient, it’s been a stage that can make or break the Tour de France for riders and determine the outcome of the entire race. What Alpe d'Huez is for cyclists, insurtech is for insurers. See also: 10 Trends at Heart of Insurtech Revolution   Right now, insurers are faced with an epic climb: insurtech. A new breed of insurance technology has changed the game and disrupted an industry that’s been largely status quo. A very large bump (actually, more like a mountain) has appeared in the road — making it more critical than ever to “see over the horizon,” according to Jon Bidwell, former Chubb chief innovation officer and now SVP and underwriting transformation leader at QBE North America. However, to see beyond the horizon, you first must climb to the top. “When we look back at today, the winners and losers will be defined by those that did and did not embrace an insurtech digital implementation strategy.” —Insurance Thought Leadership, “Death of Core Systems.” The only way to compete is with technology that evens the playing field. Over the past 110-plus years, the Tour de France has gone from 40-pound, fixed-gear road bikes (and no helmets!), to sub-15-pound, carbon bikes and electronic drive trains. Innovation, technology and engineering have played a role in the evolution of the sport of cycling. Think about it: If the 22 teams that compete in the Tour didn’t progress with some equality in the equipment they employ, there would be a very large gap on the field. It would be abundantly clear who’s still pedaling 40-pound bikes up Alpe d’Huez. Insurtech is a game changer. What worked in the past will not work in the future. Insurance technology and innovation is undoubtedly moving at race pace. And, what’s “good enough” for now will likely be a 40-pound bike in five years. See also: Why AI Will Transform Insurance   From the Internet of Things (IOT) to vehicle telematics and, especially, advanced data and analytics — which is fast becoming a key competitive differentiator — insurtech presents the opportunity to evolve and compete. But if we don’t get on the bike and climb, there’s no possibility of winning, no possibility of moving the industry forward. With the right partner, or, in true Tour de France fashion, “domestique,” insurers can create a slipstream that accelerates the insurtech climb. It won’t be long before we start seeing players screaming down the backside — trying to catch the next horizon.

This article is the sixth in a series on key forces shaping the insurance industry. The other parts can be found at these links: Parts One, Two, Three, Four/Five and Six can be found Part One, Part Two, Part Three, Parts Four and Five and Part Six.   Trend #7: Partnerships and alliances are the way forward in internal innovation; incubation and maturing of capabilities will no longer be the optimal option. And dynamic innovation will require aggressive external partnerships and acquisitions. As such, a model that encourages collaboration and embraces partnerships and alliances with third parties has the best chance of driving successful innovation. Incumbents can innovate from within, but this is often difficult because of the challenges of innovating within an existing business, the risk of disrupting BAU activities and the different motivations that drive individuals. See also: The One Thing to Do to Innovate on Claims   At Eos, one of the core principles underlying our vision is that insurtech will deliver the most value through a collaborative approach between incumbents and startups. Identifying common goals will be key to ensure the collaboration is a success, particularly given significant cultural differences. Another challenge in the current environment is that the sales cycle is painfully long. The average is 12 months, an awfully long time for a typical startup. Even with senior buy-in and a decision to proceed, it can still take six months to get a startup to launch. In many instances, the process adopted by an insurer to onboard a large technology provider — like Guidewire or SAP for a major transformation project — seems to be the same as for the startup. In response, an increasing number of startups have decided to apply for a license and set up a full-stack insurer. This is a challenging model and will require significant investment capital, but many are succeeding, and others will, too. However, it would be a real shame if insurers cannot find a way to become more open, agile and responsive. They bring customers, distribution, products, underwriting capacity and a wealth of experience that can be applied. They are also working on internal innovation projects that can play a key role. The Eos model has been designed to address this challenge; we have created a bridge between incumbents and startups. The investors in our fund are from within the insurance sector, are reinsurers, are insurers and are brokers. They make the investment for two reasons: the prospect of strong financial returns and, more importantly, an opportunity to create a strategic partnership that gives them the ability to access and engage with cutting-edge innovation. By creating an ecosystem that supports collaboration and embraces development, we significantly shorten the adoption cycle. One of the interesting dynamics as we embrace new technology is that AI sits at the center of three exponential forces:

• Moore’s law refers to the fact that computing increases in power and decreases in relative cost at an exponential pace;
• Kryder’s law refers to the rapid increases in density and the capability of hard-drive storage media over time; and
• Metcalfe’s law refers to the community value of a network that grows as the square of the number of its users increase.

Those laws mean that change happens so fast that, if you miss the boat, there will be no way of catching up…. The cost of sitting on the sidelines and not embracing insurtech could mean the death of your business. See also: 10 Reasons to Innovate — NOW!   We hope you enjoy these insights, and we look forward to collaborating with you as we create a new insurance future. The next article in the series, “Trend #8: Simple 'Grow or Go,’” will showcase how decisions of the last decade will be sub-optimal as the dust settles in insurtech and how degrees of freedom will be the key.

The physical science of matter and motion provides valuable insight for the effective digital management of risk. In this first installment of the DelphX Innovation Series, we describe how a new reinsurance facility powered by transparent distributed ledger technology is employing digital parallels to physical science to diffuse the impact of adverse events. Background The physics of diffusion enables the force of a speeding bullet to be absorbed and rendered nearly harmless by the energy-distributing property of graphene lattice incorporated within a bulletproof vest. That diffusion results from the efficient random-walk distribution of the bullet’s force among the graphene fibers – conveying its energy down a gradient from cells of greater concentration to those of lesser concentration. That property of absorption also causes fluid collected in a sponge to be efficiently distributed among its cavities in proportion to the relative size and fluid concentration of each cavity. Correspondingly, fluid contained in a saturated sponge placed in a vacuum will be released from each cavity in proportion to its relative size and concentration – with those containing higher concentrations sourcing respectively higher amounts of the outflowing fluid. Science of Digital Reinsurance A digital corollary to that balanced distribution process has been integrated into the patent-pending technology of a new risk-pooling reinsurance facility, styled “Quantem” to reflect its risk/collateral-minimizing utility. The facility will be operated by a major global reinsurer to optimally diffuse the impact of loss among risk holders – rendering even a material event nearly harmless to any individual holder. Ceded risks will be distributed within a transparent digital ledger that allocates each risk among all cedents in proportion to the net current size and concentration of risk ceded by each. While all cedents will have full viewing access to all elements of the ledger, their identity will never be disclosed. Operation of the Quantem ledger will be perpetual and open-ended, with the level of concentration of each new risk being determined at origination by the anonymous interaction of competing participants in the SEC-regulated DelphX Alternative Trading System (ATS) market. Demand in that market will be sourced from participants seeking to cost-effectively transfer (or speculate on) risk, and its supply will be sourced from participants seeking to assume referenced risks in return for their continuing receipt of a negotiated annual premium/spread. The aggregate size of the ledger will dynamically increase as new risks are added and decrease as existing risks expire due to their maturity or settlement. As each new risk is added, its size and premium/spread (risk concentration) will determine its positioning along the ledger’s concentration gradient – incrementally adjusting the proportionate quota-share exposure of each other risk. See also: The Need to Automate Reinsurance Programs   Credit Market Solution The Quantem facility will be initially deployed in the global credit market to provide participants a low-cost and more efficient alternative to single-name credit-default-swap contracts. Quantem will diffuse the impact of adverse credit events and provide a regulated security-based solution to the dwindling derivative-based CDS market. To accommodate that efficient transfer of credit risks and the supporting cash flows among investors, Quantem will commoditize those risks/flows within a new form of digital default compensation receipt (DCR) securities that provide:

• Fixed negotiated spreads and maturities;
• MTM-collateralization by cash-equivalent assets held in trust by a highly rated custodian bank;
• Lump-sum compensation payments to holders upon occurrence of a qualifying credit event involving the referenced corporate, municipal, sovereign, structured or other security; and
• Anonymous negotiation, origination and trading within the transparent DelphX ATS market.

To source the collateral required and minimize the cost of DCRs, Quantem will also commoditize and reinsure the related DCR risks through the sale of digital collateralized reference obligation (CRO) securities that provide:

• Fixed negotiated coupons and maturities;
• Full collateralization by cash-equivalent assets held in trust by a highly rated custodian bank;
• Deeply discounted purchase prices reflecting the lower risks resulting from Quantem’s reinsurance facility; and
• Anonymous negotiation, origination and trading within the transparent DelphX ATS market.

Note: All CRO sale proceeds are available to Quantem solely for use in funding the collateral requirements and compensation of DCR holders. The risk-mitigating utility of Quantem results in DCR spreads well below the cost of comparable CDS protection and low purchase prices for CROs. The enduring benefit of that lower cost of purchase is economically evidenced in the considerable post-claim yields payable to CRO investors. For example, an assumed annual loss ratio of 4.0% (which is more than twice the aggregate mean default rate of all U.S. corporate bonds since 1981), would produce the following post-claim CRO yields: Market-Based Underwriting The fixed risk concentration of each new DCR added to the ledger is determined at origination by the clearing premium/spread resulting from the competitive interaction of participants in the transparent DelphX market. That risk-concentration thus reflects the market’s then-current equilibrium of supply and demand for protection relating to the risk of the subject CUSIP/ID. That transparent interaction among symmetrically informed market participants facilitates the efficient market-based underwriting and selection of new risks - avoiding adverse selection and subjective/uninformed assessments of risk concentration. While the current DCR pricing for each referenced CUSIP/ID will increase and decrease on the DelphX market, the ledger’s design facilitates the aggregate behavior of pooled DCRs to gradually converge onto a normal (Gaussian) distribution. As the market’s current risk assessment of each CUSIP/ID increases and decreases, the MTM collateral requirements of holders of the related DCRs will correspondingly increase and decrease in response to those changing market prices. Consistent with the law of large numbers, however, as risks of some DCRs are increasing others will be decreasing – resulting in an increasingly predictable mean exposure within the ledger. As exhibited by the historical behavior of participants in the single-name CDS market, demand for DCR protection (and speculation) for a given CUSIP/ID is expected to increase in proportion to the collective assessment of participants of the likelihood of a loss involving that security. If the risk assessment increases, the pricing and volume of DCR purchases for the subject issue will correspondingly increase. As those new, freshly priced DCRs are ceded, their higher price/risk concentration will cause the aggregate concentration of risk for the subject CUSIP/ID in the ledger to correspondingly increase. Thus the collateral sourced by those higher risks will proportionately increase the ledger’s aggregate collateral available for MTM adjustments and minimize the impact of a related loss on all other DCR risks. See also: Transparent Reinsurance for Health   Market-Based Adjudication Quantem will also employ its diffusion protocol to distribute the cost of claims among risk holders based on the net size and concentration of each holder’s ceded risk at the time of adjudication of each claim. That adjudication process is transparently accomplished through anonymous single-price auctions conducted within DelphX. Upon the reporting of a credit event meeting the definition and conditions specified in the DCR documentation, a single-price auction is scheduled within DelphX to facilitate the sale of the collective offerings of the referenced CUSIP/ID by its holders. The clearing price of that auction is then subtracted from the par value of the referenced security, with the remainder determining the compensation payable to holders of DCR(s) referencing the sold issue. Next Series Installment - Digital Risk Speculation