Feb. 14 will be the 45th anniversary of my first employment in the insurance industry. I’ve enjoyed the ride. Here are two memories from my first three years in the business that I think personify the best and worst of our industry and, more importantly, suggest a path for differentiation and prosperity for those willing to transform. “Different isn’t always better, but better is always different.” -- Dale Dauten On Feb. 14, 1973, I began employment as a claims adjuster at General Adjustment Bureau (GAB) in Baton Rouge, LA. Late that year, I handled a substantial burglary loss in the home of the manager of a major industrial complex. It was a legitimate loss, and in the adjustment process I never sensed any mischief or exaggeration by the claimant. After interviewing the policyholder, visiting his residence, obtaining pictures of the damages, studying the police report and obtaining an inventory of the loss, I prepared my report and valuation on the loss to the regional claims manager (Vernon) for Republic Vanguard. Vernon called to explain the “way we do things around here.” He said that, if the policyholder can’t produce a receipt on items lost, we’ll commence negotiations at 50% of actual cash value. See also: Top 10 Insurtech Trends for 2018   In my next report, I explained that the policyholder was a sophisticated businessman well-respected in the community and was making a legitimate claim. I explained that I believed that, if I acted as instructed, we’d be working through this claim with the insurance commissioner or a judge. The day Vernon received my letter, he called my boss and said, “This boy is trying to trap me.” I was not trying to trap him. I was trying to protect a policyholder and to “cover my a___ for when the s____ hit the fan.” This company was known for ruthless claims handling. The modus operandus was to lowball the settlement offer made by the adjuster and, when things got ugly, blame the adjuster. In the end, I was vindicated by a newspaper article on the front page of the Baton Rouge Morning Advocate that exposed the ruthless nature of this carrier. This case was, in my opinion, an example of the “worst of times/behaviors” in our industry. The “best of times” was demonstrated to me two years later. I was a wide-eyed rookie producer working for an agency in Baton Rouge. We were the Louisiana administrator for the Professional Protector Plan (PPP) endorsed by the American Dental Association and underwritten by Chubb through Poe & Associates (the national administrator) in Tampa, FL. This PPP was tailored to dentists, and the policy was written in the language of dentistry. The PPP included malpractice coverage and flood (physician and surgeon’s floater) coverage. It was a state-of-the-art product. When I attended the annual state administrator’s program in Tampa my rookie year, Harry Chadwick with Chubb introduced himself to me at the cocktail party on the opening night. He was the senior executive in charge of this program. He was a gentleman. He volunteered to me the philosophy of Mr. Chubb and his company. He said, “Mike, Mr. Chubb built this company on two principles:

1. You deny the claim in the underwriting process.
2. You interpret the policy based upon the 'intent and not the content.'"

I represented that program for about eight years – Chubb lived the two principles. The only complaint I heard was when one dentist said, “They pay too much on claims.” This was after a slight rate increase. In my opinion, if every carrier was as “client sensitive” and honorable as Chubb, our industry brand would be more positive than suspect. The 1970s were simpler times – the marketplace was local, comparative rating was still an experiment, batch processing was the norm, fax machines were still on the drawing board and agents were friendly competitors who divided up the markets among themselves. The vast majority of folks were sold a commodity (price-driven) or a product (price-sensitive, with a few added coverages). In today’s hyper-competitive and global markets, the '70s were the good old days. Here, in my opinion, is the lesson: Chubb provided an excellent buying experience. That included a quality product, fair pricing and superior customer and claim service. Chubb was then what only a few companies are now. With the wisdom of 45 years of hindsight and reasonably good foresight, I offer the following admonition: To survive and prosper, agencies must:

1. Be niche marketers – meet each group of people (even a niche of one) who, where and how they are.
2. Be defined by clients and driven by them.
3. Create, tailor and deliver the right client experience for the niche served.
4. Leverage technology to ensure profitability as commissions “skinny down.”
5. Use technology for admin and service – the staff will provide the intimacy with clients.

See also: 5 Predictions for Agents in 2018   I’m not suggesting anyone agree with me. I’m suggesting that you project the future as you believe it will be, build the model to meet the clients and their needs in that future and leverage technology to ensure profitability regardless of how much commissions are reduced or policies are being quoted net of commission. Then live with the result.

Every business today has legacy processes and systems and faces the dilemma on how to transform the business to adapt to the rapidly changing market dynamics that are driving the shift to the digital age. Is there a proper approach? Insurtech is embracing these dynamics and powering the shift through the significant capital flowing to new technology and startup companies from MGAs and insurers. There is much discussion and debate on how the shift will reshape the insurance market as we have known it for the last 50 years. But the industry should not forget that this same disruption has also affected other industries such as retail, media, travel, telecom and banking, where successful companies created new business models, technology solutions and more. The insurance industry has long had a degree of protection from new entrants, provided by the complexity of the regulatory environments. However, regulators are quickly realizing they need to understand the new digital technologies and work with the insurance industry to integrate them into the market. Today, we are seeing that new entrants are making strong moves into the market by working with regulators. At the same time, existing insurers are bringing new, innovative products to market within their current businesses. Irrespective of where one operates within the insurance market and across the insurance value chain, change is coming. The change is being driven by a combination of new customer needs and expectations, the rapid adoption of new technologies that offer significant opportunities to innovate and the changing market boundaries that expand market reach. The result is the rapid emergence of new entrants who see the selling, marketing and servicing of insurance in a very different light to the more traditional entities. See also: How to Enhance Customer Service   For existing insurers with legacy technology estates, tinkering around the edges or waiting to be a fast follower will not work, given the pace of change. As we have described in our research, Future Trends 2017: The Shift Gains Momentum, we are experiencing a tectonic shift that is creating a market dynamic that we call Digital Insurance 2.0. If you embrace the need for change, what should you do to help adapt and innovate for the new world? Which slices should be approached first? Here are some suggestions: Understand and Listen to the Customer. This is basic stuff, but the industry does not do it so well. In Majesco’s research, The Rise of the New Insurance Customer and The Rise of the Small-Medium Business Insurance Customer, insurance ranks at the bottom in its interactions with customers. In today’s digital age, the customer is in control. So, to transform a business, it is imperative to take the time and make a concerted effort to understand your customer needs and expectations … because your new competitors are. Evaluate alignment of your strategy to your current systems’ infrastructure and organization. You’ll most likely find that your legacy systems’ estates are inhibiting your ability to change, let alone shift to Digital Insurance 2.0. Digital Insurance 2.0 requires a modern, open architecture that is cloud-ready and has open API capabilities to integrate new data sources, new technologies and more. Trying to apply a closed technical infrastructure to address the needs of Digital Insurance 2.0 is the proverbial square peg in a very round hole. Prioritize. You can’t flip an established business on its head overnight. It’s just not going to happen. You need to grow the existing business while transforming and building the new business. This is crucial. Marketing and distribution should not pull back from traditional business in anticipation of the launch of new business models, new products or new channels. The current business is funding the future and needs to be kept running efficiently and effectively as the market shifts. At the same time, you need to optimize the existing business while building the new business. Ideally, one would seek to transform a “sliver” of the operation which goes from “front-end” right through to the “back-end” function. If an organization’s teams have been working toward placing digital front ends on the traditional business to engage customers, they shouldn’t stop in the middle of the bridge. Any process that can be optimized on the traditional side will help to maximize the existing business, reduce the cost of doing business and provide a bridge from the past to the future while beginning to enable realignment of resources and investment into the new business. These are very often the incremental changes that will also gently shift the customer base through new ways of doing business. Evolution vs. Revolution. Evolving a business is not going to be without its difficulties; but the greatest risk is allowing “old thinking” to solve “traditional issues.” This is not an ageist issue but a state of mind – “We cannot solve our problems with the same thinking we used when we created them.” – Albert Einstein. As you bring your thinking into what the new world looks like – most likely it won’t look like what is currently in place. From an organizational perspective, one should also be very open to creating “greenfield” entities — new structures built on a clean slate approach rather than replicating the traditional silo approach so frequently seen in large corporations. Increasingly, insurers are developing a new business model for a new generation of buyers. Some insurers have made the mistake of envisioning their digital front end as their big leap into the future, not realizing that they have only just touched the new landscape. They need a strategy for a new business model that supports simultaneous leaps forward that will create new customer engagement experiences underpinned by innovative products and services. This will create growth, competitive differentiation and success in a fast-changing market. Creating the requisite infrastructure to address the realities of the market shift shouldn’t be underestimated; it will not be a trivial investment. Many insurers are looking at justifying investment based on growth strategies as well as competitive survival. Strategically, more are moving to the buy vs. build approach. Forward-looking companies are seeking a cloud-ready platform with a modern architecture that can support all the insurance business functions, as well as increasingly sophisticated digital and data capabilities to support the customer and distribution channels. See also: Roadblocks to Good Customer Relations   These solutions seamlessly integrate core insurance processing with a growing ecosystem of other technology providers, third-party data sources and the growing number of external sales/service platforms or marketplaces. As systems and their underlying architectures become more open, products and services will be sold and serviced as part of “non-owned” processes. As a result, insurers will need to integrate their data collection and transactional requirements into portals and platforms that they don’t control directly. Clearly, we are seeing the shift to Digital Insurance 2.0, a key topic of discussion and strategic planning in the boardroom, though many may not fully appreciate the extent and ramifications of this shift. Truly transforming a business to Digital Insurance 2.0 will be a customer-centric, digital-first endeavor. The digital age shift is creating both a challenge and an opportunity for insurers. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing. This article was written by Mike Smart.

While tech innovation is quickly transforming how people buy insurance, most innovation is focused on direct-to-consumer (DTC). Yet the majority of P&C insurance sales still happen through an agent. Our own research indicates that while 80% of consumers do not trust insurance carriers, they do trust agents, and, for this reason, still prefer to buy insurance through an agent, rather than online. If these numbers are any indication, insurance agents are not going away yet.

Still, the process of buying insurance through an agent–for customers, carriers and agents alike–remains cumbersome, with long lapse times, large margins of error and a lot of paperwork. These problems are deciding factors in why agents and customers choose to bring their business elsewhere and can lead to millions of dollars of lost premiums for carriers and a general distrust among agents and customers.

Focusing on improving the agent-driven sales process is a win-win-win–for customers, agents and carriers. Below are a few simple ways that carriers can incorporate agents into their customer experience strategy.

1. Ensure accurate quotes Carriers must do everything they can to ensure that quotes are as accurate as possible and issued without rework. Quote inaccuracy leads to a breakdown of trust on all sides, causing both consumers and agents to lose trust in carriers, creating friction within the quoting process and extending and convoluting the sale. By exposing risk ratings, ordering reports early and ensuring that the level of accuracy is the same between comp-raters and proprietary systems, carriers can speed the sales process and, through transparency, create trust between agents and consumers.

See also: The New Agent-Customer Relationship  

2. Align technology with agent needs, your rules and ACORD standards Ensuring that, as a carrier, you understand the information, systems and tools agents need to service customers and that agents understand your rules can help eliminate unnecessary confusion on both sides of the sales process. Sales enablement tools and SaaS technology that are designed using contextual research on agents' real selling processes help greatly. Make sure your technology accurately represents your rules and that it is transparent to the agent. Moreover, ensuring that any technology you implement is aligned with ACORD standards will create consistency between your technology and other systems agents are used to, further eliminating barriers. Remember, you want to make it as easy as possible for them to use your systems so they can go about their jobs.

3. Make servicing and claims as transparent as possible When hailing an Uber with your phone, you know exactly where it is on the map, what it looks like, who the driver is and when it is arriving, to the minute. Agents and customers want similar transparency into what is going on with applications and with claims. Invest in the technology needed to service the customer efficiently and fairly and inform the agent of what’s happening with the customer. Agents appreciate knowing key actions like a late payment or claim so they can manage expectations with the customer.

4. Bring agents along the journey of global transformation initiatives Digital transformation in insurance is about more than just technology. It’s about creating a better experience for everyone and developing the processes and the technology needed to support it. Digitizing business as usual is not the solution. Rather, invest in deep user research and involving all the players involved in an experience to develop the best possible solution for the customer, the carrier and the agent. As you are developing new sales enablement technology, share plans and get feedback from agents on in-progress work. This will not only provide you with valuable feedback but can convert agents into your initiative’s most powerful marketing tool with their colleagues and customers.

See also: How to Enhance Customer Service  

According to a survey of 5,000 independent agents, 99.5% of insurance agents say that ease of doing business is critical in choosing which carrier gets their business. Being easy to do business with goes a long way to support agents in their relationship with customers. Agents know when your quotes are not accurate and are frustrated by manual corrections. They will do whatever they can to shield their customers from those frustrations, and sometimes that means choosing a different carrier for their customer’s business. As carriers plan their global transformation initiatives, considering independent agents as a critical kind of user–as critical as, say, a customer–can provide an important competitive edge over other carriers, making them a carrier of choice for independent agents and the first carrier they go to when writing new business.

This article first appeared on the Cake & Arrow website. For more on improving the agent customer experience, watch this on-demand webinar.  

Happy New Year!

As an industry, we made huge progress in 2017 on our much-needed transformation, and 2018 is looking like it may be the tipping point. I think we will be in a very different place at the end of this calendar year. Even though we won't be able to act on all of the immense opportunities in front of us this year, we'll tackle a bunch, and the path to the future will be far clearer than it is now.

I can't wait.

To help set the stage, I've gone back through the nearly 1,000 articles we published from thought leaders in 2017 and have highlighted the six most-read articles below. Many are predictions about what would happen during the year. They hold up remarkably well and provide a start for a road map for 2018, because the opportunities that are identified take much more than a single calendar year to play out. 

My favorite is the final one, from our own Guy Fraker, on how to start on an innovation program. That first step is a doozy. Addressing a classic problem for incumbents, Guy provides a powerful framework for how to not only think outside the box but for how to drive that thinking into products and services that increase profits and generate growth in ways that can transform a business and, in time, the industry. Despite all our progress, we risk kidding ourselves about how far we still have to go—the spate of "innovation tourism" in Silicon Valley worries me—and Guy provides a no-nonsense approach that not only mattered in 2017 but that will hold up for years to come.

Top 10 Insurtech Trends for '17

Issues to Watch in Work Comp

Why AI Will Transform

The New Age of Aggregators

3 Areas of Opportunity

Innovation: Where Do We Start?

Stay tuned: Over the next couple of weeks, we'll be publishing a series of articles on our website that will set the agenda for 2018. 

Onward and upward!

Paul Carroll,
Editor in Chief

Why Lemonade is Going Global It’s a curious thing: Most insurance companies stop at the water’s edge. Europe’s largest insurance companies operate in dozens of countries, but most don’t offer insurance to consumers in the U.S. Same is true for those operating out of Asia Pacific and Africa. And it cuts both ways: American consumers buy insurance from American firms, most of which don't have any operations to speak of outside of the Land of the Free. It’s odd. The Atlantic and Pacific oceans are vast, but they can be crossed. And bits and bytes can cross them in milliseconds. As a tech company doing insurance, we see no reason that a body of water should be an obstacle to reaching new markets and expanding beyond the 50 states. In fact, within the U.S., we’re finding that being digital has allowed us to cross the country without enlarging our physical footprint. Consider this: California is our largest market at the moment, but our nearest employee to the Golden State is 3,000 miles away in the Empire State. Our announcement of a $120 million Series C funding round led by SoftBank sets the stage for our global expansion. See also: Lemonade’s Latest Chronicle   See, to bring AI-powered insurance to Mumbai, London, Rio de Janeiro or Sydney, there’s no need to invest in thousands of people in towering skyscrapers. Like Airbnb or Spotify, our services require little more than a mobile phone and a credit card. In our largest markets, we have zero employees. Sure, we’ll need to invest time with regulatory bodies and learn to adapt to local culture, customs and languages. But our mission is a global one, and our means to go global lie in our being a digital pure-play. When Tom Friedman wrote about the waves of globalization and the "flattening" benefits of it in the 21st century, he declared that the world went from being small to tiny. He dubbed the change Globalization 3.0, following the previous rounds of globalization, in the 15th century and later when multinational companies emerged. At the turn of this century, Globalization 3.0 moved the needle in such an enormous way that it’s not only a difference in size, it’s a difference in kind. Fast forward almost two decades, and insurance powered by bots and data-driven algorithms means we can reach endless people in all corners of the globe and provide them with a similar yet customized experience, without the heavy bureaucracy and costs that discourage the traditional insurance carriers of venturing across the ocean. Digitally enabled folks have a common denominator: They tap to get a ride, order a meal, get groceries delivered, find a soulmate… and they’d readily do the same to get insurance. We may be divided by international borders, but our connectivity is so intertwined that it has become the natural fabric that weaves us together. It’s not only the technology that makes international prospects so enticing. We believe our mission of trust and transparency is universal, too. Through his behavioral economics research, our Chief Behavioral Officer Dan Ariely reminds us that the way the insurance system is designed brings out the worst in us humans. Whether you’re in New York or Paris or Tokyo, that inherent conflict between insurance company and its customers brings out bad behavior from all sides. Bad behavior is rooted in the same human nature all over the world. See also: Lemonade Really Does Have a Big Heart   So we’re not stopping at the water’s edge. We believe that being built on AI and behavioral economics means that, at a profound level, we’re building something with universal appeal. The world is flat; it's time insurance was, too.

It’s time for the 2017 Deplorables Awards, lovingly bestowed on those vendors who do the best job making other vendors look good.  The good news is that you don’t have to actually win the Deplorables Award to sue me.  Runners-up are eligible, too. Here is my address for hand-service delivery most of the year: 890 Winter Street #208, Waltham MA 02451 In case you decide to sue me between June 22 and Aug. 8, use: 8 Paddock Circle, Chilmark, MA 02535 And don’t leave out my attorney: Josh Gardner, GARDNER & ROSENBERG P.C., 33 Mount Vernon St., Boston, MA 02108 I don’t know how much more I can do for you, other than lick the envelope. So go for it. Don’t make me beg. But, remember, unlike with your usual business model, in court you are required to actually tell the truth (I would be happy to explain to you how that works), meaning there is no chance of your winning — or likely even avoiding summary judgment, because none of the evidence is in dispute. It’s all your own writings. Oh, and I do my own cross, which means you won’t be able to find an expert witness. Anyone who knows enough about wellness to be an expert witness also knows enough about wellness to know that attempting to defend you would be a humiliating, on-the-record experience. And there is always the chance that some annoying jerk might blog about it… The 2017 Runners-Up Springbuk and Fitbit As many of you recall, earlier in the year we analyzed the study done by Springbuk that was secretly financed by Fitbit. Or maybe I need new glasses, because I just couldn’t find the disclosure in the Springbuk report that this paean to Fitbit was financed by Fitbit, much as Nero used to have the judges award him Olympic medals. Coincidentally, the study showed Fitbit saving gobs of money because employees taking more than 100 steps a day spend less money than those taking fewer. However, a simple tally of one’s own footsteps shows that it is impossible not to take 100 steps a day unless you are both:

1. in a hospital bed; and also
2. on dialysis.

This 100 steps-a-day threshold was repeated many times in the study, with no explanation of how that number came to be. However, it turns out we owe these two outfits an apology. Fitbit and Springbuk have told a number of people privately (not publicly, to avoid an embarrassing news cycle) that they didn’t really mean to say that 100 steps a day constituted activity. They meant to say that taking 100 steps a day implied you had your Fitbit on. My apologies for failing to read their minds that their conclusions were based on reading people’s minds to determine whether they wore the Fitbit deliberately, or simply forgot/remembered/cared to put their Fitbit on. Springbuk and Fitbit never did explain — privately or publicly or to anyone — how employees who took an average number of steps during the baseline year could show huge savings by taking an average number of steps in the study year, too. They also never explained how these two statements didn’t completely contradict each other, even though I specifically asked them to in a personal letter, excerpted here: Third, can you reconcile this statement…: “The materials in this document represent the opinion of the authors and not representative of the views of Springbuk, Inc. Springbuk does not certify the information, nor does it guarantee the accuracy and completeness of such information.” …with this statement: “This demonstration of impact achieved by integrating Fitbit technology into an employee wellness program reinforces our belief in the power of health data and measurement in demonstrating ROI,” said Rod Reasen, co-founder and CEO of Springbuk.  National Business Group on Health Next up is the National Business Group on Health. Last year, they made the list for criticizing the U.S. Preventive Services Task Force for not demanding enough screenings, in a country that is drowning in them. Not content to rest on those laurels, this year they earned an Honorable Mention for inviting Dr. Oz to keynote on the role of quackery in corporate wellness, and perhaps tell us about his latest lose-weight-by-eating-chocolate miracle diet. See also: How Advisers Can Save Healthcare   Health Enhancement Research Organization HERO, of course, also earns a runner-up award. 2017 will be remembered as the year they finally came to grips with the realization that a business model based on fabricating outcomes requires that perpetrators possess that critical third IQ digit. Without that extra “1”, an organization trafficking in math that can at best be considered fuzzy is going to be outed. This year’s set of lies?  By way of background, their 2016 poison-pen letter insisted they had fabricated that data set showing that wellness loses money without disclosing that it was fabricated — and also never reviewed their fabricated data before publication. Early in the year, I had the insight that, wow, this “fabricated” chapter in their guidebook is so much better than the other chapters that something is amiss. No one at HERO can analyze data competently…and yet, here it was, a competent data analysis. I did something I had never thought to do before, which was look up the actual author of that chapter. It was Iver Juster, MD. He was a great analyst even before he read all my books, took all my courses and achieved all my certifications in Critical Outcomes Report Analysis. So I called Iver. Here’s what I learned:

1. Whereas Paul Terry and Ron Goetzel had insisted that Iver fabricated the data, Iver said that, of course he didn’t — whatever made me think that?  (“If it wasn’t real, I would have disclosed that,” he observed. Of course, he would have. Iver has tremendous integrity.)
2. The board discussed and reviewed his chapter at length and made helpful suggestions, for which he was quite grateful. This review process required “countless hours,” just as the HERO document says:

The number of  transparent lies HERO tells could make a president blush. In the immortal words of the great philosopher LL Cool J, they lied about the lies they lied about. Even though 2017 was an off-year for them in terms of the number of lies, they still told enough to be named a runner-up. Wellness Corporate Solutions Next is Wellness Corporate Solutions, famous for its crash-dieting contests. WCS now offers a water-drinking contest. The idea is to set up a “challenge” for your team to drink more water than other teams. They call this a “healthy competition.” I guess they didn’t get the memo that forcing yourself to drink when you don’t want to drink, just to make more money, is anything but healthy. Here is a novel idea: Drink when you are thirsty.  Evolution 1, WCS 0. Perhaps as an encore, WCS, Dr. Oz and the National Business Group on Health could team up to offer a chocolate-eating contest. I looked into this outfit to see where they get their ideas. The CEO previously ran something called the Washington Document Service. That qualifies her to run a wellness company. As Star Wellness says, to run a wellness company successfully, your background needs to be in sales, or “municipality administration.” After all, what is more central to administering a municipality than documents? Wellsteps What fun would a list of runners-up be without Wellsteps, the  proud recipient of the 2016 Deplorables Award? While their streams of consciousness weren’t as memorable in 2017 as in 2016 (“It’s fun to get fat. It’s fun to be lazy“), they get credit for trying. Their 2017 weight-loss campaign was headlined: “This campaign is not really about weight loss, it is about helping you apply the behavioral secrets of those who have lost weight.” So if your kids ever want you to teach them how to ride a bike, say: “It’s not really about riding a bike. It’s about helping you apply the secrets of people who have ridden bikes.” And what secrets are we talking about? What person who has lost weight doesn’t brag to everyone or even write a book?  If there is a secret to weight loss, like eating chocolate, Wellsteps owes it to the country to tell them. Don’t make us beg. See also: Should Wellness Carry a Warning Label?   Odds and Ends No Koop Award winner this year, but an honorable mention to past winners and runners up for their commitment to wellness:

• McKesson, for flooding the country with opioids;
• Pepsi, for flooding the world with sugar.

Sounds like in 2018 the logical winners would be Philip Morris, or maybe the Asbestos Corporation of America. Veering briefly into the public sector, kudos to Rep. Virginia Foxx, (R-NC5) for introducing the Required Employee DNA Disclosure Act. Even HERO thought it was a dumb idea…and their threshold for thinking something that increases wellness industry revenue is a dumb idea is quite high, having all rallied behind the Johnson & Johnson fat tax, in which companies would be required to disclose the weight of their employees. Next up…the winner of the 2017 Deplorables Award

The emergence of insurtech has reshaped the strategic insurance agenda. Here are the top 10 insurtech trends as we enter 2018. Insurtech Trend #1 – Automation will replace human effort across the entire insurance value chain This is a trend that is not unique to insurance. But it is a trend that will significantly affect the insurance sector. This is because much of the insurance industry still operates in pre-internet ways. It is also because many personal lines are being atomized. Small parcels of insurance protection cannot be packaged and sold with human input and remain cost-effective. It is also because customers demand it. They want a purely digital experience that does not require human contact when a machine will do nicely, thank you. One to watch: ZhongAn Insurtech trends article: Is the Rise of the Digital Advisor the new InsurTech Game Changer? Insurtech Trend #2 – Insurance premiums will become highly personalized based on greater tech-enabled insight on customers and their individual risk When you add together the massive growth in new sources of data together with tech-enabled data science, it is inevitable that premiums will become highly personalized. This will be enabled by tech such as wearables, telematics, IoT and smartphone apps. Not to mention the ability to build insights through relationships that exists across data sets. Gone will be the days when people of the same age and gender, with identical cars or homes living on the same street, will pay the same premium. In the future, other factors will apply to reflect greater granularity in their individual risk profiles. Data science will become a key set for underwriters and actuaries. One to watch: Sherpa Insurtech trends article: Insurance distribution is about to get personal Insurtech Trend #3 – The blockchain era has begun, and there will be a rapid shift from pilot to production of distributed ledger technology It is hard to find a major insurer that is not involved one way or another with a blockchain initiative. This will only continue as this disruptive tech continues to prove its ability to provide a viable solution. Of course, there are still some big questions to answer in terms of scale, performance and security, but those answers will come. The big breakthrough in insurance for blockchain will be in the back office for the complex and global world of wholesale, commercial and reinsurance (which is desperately in need of moving into the internet age). One to watch: ChainThat Insurtech trends article: R3’s partnership with ChainThat is one giant leap for insurance See also: Insurtech: The Year in Review   Insurtech Trend #4 – The lines between the old and new will blur as insurtech becomes mainstream by 2020 The defining characteristic of the Fourth Industrial Revolution is speed of change. This certainly applies to insurtech and its impact on the world of insurance. The rate at which insurtech startups are popping up all over the world is not surprising. Everyone wants a piece of this $7 trillion cake. The incumbents have responded, too. By investing in, partnering with and acquiring insurtechs, the incumbent insurers have wholly embraced the movement. This will lead to the creation of whole new digital brands, designed to cannibalize traditional business. And because it is simply too expensive and takes too long to transform legacy operations, the incumbents will ring fence and run them down. One to watch: Munich Re Insurtech trends article: Digital transformation is the strategic imperative no insurer can ignore Insurtech Trend #5 – Digital engagement through lifestyle apps will change the relationship dynamic between insurer and insured Lifestyle apps are the norm. It is hard to find anywhere in the world where this is not the case, so lifestyle apps are the perfect vehicle to provide the peace of mind that customers want when they buy insurance. Instead of the annual chore of hunting for the lowest-priced insurance then having nothing more to do with it unless you suffer a loss, lifestyle apps offer value on a daily basis. This makes them sticky, which, for insurers, means less churn. They also give insurers greater insight into their customers’ behavior, which means better-informed risk assessments and personalized premiums. And they build brand loyalty, which, if you believe in behavioral economics, will result in lower levels of claim embellishment and fraud. One to watch: Metromile Insurtech trends article: Metromile, the pioneers of digital engagement Insurtech Trend #6 – The all-in-one insurance policy is here to stay It has taken longer than I predicted back in 2015, but the all-in-one insurance policy is here. From a customer’s perspective, the all-in-one policy makes perfect sense. Especially for the millennials and Gen Y's. Why can’t they simply have one relationship with one insurer and have everything covered in one go? And it’s not just for younger generations. Imagine giving the insurer the details about your car, home, health, travel, pets and possessions. The insurer gives you one overarching policy, a fair price and the ability to flexibly adjust the cover as needed. Operating on a membership model, the platform can provide safeguards and advise the customer on good and bad decisions. This is AI territory and relatively straightforward to automate. IMHO, this is a winner; watch this space! One to watch: Getsafe Insurtech trends article: Getsafe take the Lemonade model one step further Insurtech Trend #7 - New models will challenge the traditional insurance value chain  In the digital economy, where insurance is embedded into lifestyle products or distributed through ecosystems, the traditional insurance model doesn’t work. The inherent inefficiency in a highly intermediated value chain, too dependent on human effort, makes insurance products expensive. When as much as 80% of premium is lost on distribution, leaving barely a fifth for the risk pool, you know something has to change. In the words of Jeff Bezos, “your fat margin is my opportunity.” These new models will see the carriers squeezed as the reinsurers provide risk capital directly to digital brands. Regulatory frameworks will be reworked to reflect these shorter value chains that don’t require the many layers they have today. One to watch: Amazon Insurtech trends article: Redefining the insurance value chain Insurtech Trend #8 – Lemonade has set the pace in Insurtech 2.0; copycats will follow The first phase of insurtech was all about distribution and data. Then came Lemonade. In September 2016, they launched in New York, and a year later they cover around 50% of the U.S. population with their renters and home insurance products. For me, Lemonade have defined Insurtech 2.0. Many insurtech startups claim to redefine or reinvent insurance, but they simply don’t, whereas Lemonade has. It is inevitable that the copycats will appear. Some will be insurtech startups, although they will need to be as well-marshaled, experienced and funded as the Lemonade team to have any chance of success. And some will be the incumbents, which will have a go at creating a Lemonade model from within. These will almost certainly fail! One to watch: Lemonade Insurtech trends article: Lemonade really do have a big heart, killer prices and instant everything See also: Top 10 Insurtech Trends for 2018   Insurtech Trend #9 – Claims settlement will become an automated, self-service and quick-to-pay experience for customers Insurers spend too much of a customer’s premium on handling the claims process. This is because the process is manual. And because the carrier wants to double-check the claim. And because customers don’t always tell the truth. And because there is too much time in the whole process. And and and and and. The insurtech solution is to put the claims process in the hands of the customer. This sounds counter-intuitive, but it isn’t. Taking a self-service approach, the customer provides video and images at FNOL and is in control of the claims process. Automated reviews of claims handle the vast majority of cases and award instant payouts. The money can be with the customer in a matter of hours. No long processing cycles, no time to embellish the claim and high levels of customer satisfaction. Those that fail the automated review are the exceptions handled by the carrier, which is what they’re looking for anyway! This will become the norm for claims management, once the fears and resistance of the lifelong claims directors can be overcome. One to watch: Rightindem Insurtech trends article: Democratizing insurance claims restores trust for customers Insurtech Trend #10 – Tech-enabled loss prevention will become a key feature in the insurance product Advances in everyday technology are increasing the ability to predict the likelihood of an event or outcome occurring. In home and motor, tech is being used to model behavior and identify exceptions. Sensors and phones and devices are all collecting data that define our individual norm (as opposed to a collective norm). As a result, any deviation can be instantly assessed, and action can be taken. To handle scale, this is 100%-automated, driven by AI and machine learning. Which means the opportunity for insurance is immense, because, instead of being a passive risk taker (which carriers are today), insurers will become active risk managers. One to watch: Surely Insurtech trends article: Digital implementation is the strategy insurers have been looking for Insurtech prediction lists from previous years  Looking forward with insurtech Insights – 10 predictions for 2017 Daily Fintech’s 2016 predictions for InsurTech Sign up for more insurtech Insights here

You’re probably familiar with the name of the most recent Nobel laureate in economic sciences, Richard H. Thaler. A professor of behavioral science and economics at University of Chicago, Thaler's core work is "Nudge," a book he wrote with Cass R. Sunstein, in which the authors make the case for why to nudge people toward certain behaviors that are beneficial for the individuals and for society as a whole. Thaler's work has contributed to the creation of behavioral economics and could have major implications for economic research and policy, according to the Nobel committee. Settings of influence It’s common knowledge that the setting in which people make decisions very often influences the choices they make. What we buy at a supermarket is influenced by the position of products; what we choose from the menu often depends on what pictures of food are shown. These are simple examples, but implications extend to how a person or family relates to healthcare, insurance, savings strategy and so on. According to Thaler and Sunstein, even “small and apparently insignificant details can have major impacts on people’s behavior,” so whoever presents choices must frame them in some way, and the framing will affect the decision-making. The nudge approach has already been tested in different contexts, one of which is the U.K. government’s 2012 policy of auto-enrollment for private pensions. It is a great example of how a nudge policy can have benefits – it led to considerably higher private-sector, pension-saving participation, because individuals can opt out but are otherwise considered enrolled. See also: Major Opportunities in Microinsurance An example that is closer to the industry of our interest refers to a global insurer that has built on one of behavioral economics’ most powerful insights: “Losses loom larger than gains.” Starting from this premises, the insurer created more than 20 nudges and tested them on a large scale—in more than 7,500 cases of breakdown assistance. In one such case, the insurer’s service representatives described partner repair shops as “the natural, default choice, framing the benefits as something that would be lost if the customer went elsewhere—a subtle shift away from merely listing the advantages of choosing a partner repair shop.” The unexplored potential of microinsurance With particular focus on the smartphone — the main proxy of today’s customer — insurtech has introduced the concept of microinsurance: insurance policies of limited duration and contained costs available directly on the client’s smartphone with no paperwork. Currently, microinsurance covers around 135 million people, which represents about 5% of the entire market potential, with an average 10% annual growth rate. The risks covered by such solutions are the typical ones of the traditional insurance market: life, health, accidental death and disability and property insurance. Developing countries have economies that are generally based on farming and agriculture, and they cannot manage to cover all the needs of a growing population exclusively with the goods they produce. Approximately 70% of the world’s seven billion people live in poverty, which makes the case for insurance products like health and life, agricultural and property insurance, even catastrophe covers. An estimation of the potential market for insurance in developing countries is between 1.5 billion and three billion policies. Closing the protection gap Microfinance and microcredit, believed to have been originated at the Grameen Bank founded in Bangladesh in 1983, are commonly associated with poorer, developing countries and, by association, so is microinsurance. Nevertheless, the latter has a different kind of business potential. Microinsurance is not just a short-time insurance coverage at reduced cost for people in developing countries. It is an innovative way of selling insurance that is aligned with customer expectations while covering a specific need, at the right moment, at the right price, in a customer-centric approach – or so it should become. This type of insurance could help close the protection gap, both in developed countries and developing ones. The role of microfinance, in contrast, is to create “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high-quality financial services, including not just credit but also savings, insurance and fund transfers.” Microcredit means providing credit services to those with low income. It is an extension of very small loans to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history. Provided that people who live on a low income are offered the right service, means and knowledge, they will become effective consumers of financial services. The MicroInsurance Centre estimates that in the next 10 years or so, the microinsurance market could grow to one billion policy-holders, representing a third of the potential projected 3 billion market. It is key not to take insurance demand for granted. Bringing the benefits of insurance Insurance often has a negative connotation in the developing world, which stops it from reaching more people. The market needs an innovative approach based on customer education and incentives. The advantages of having an insurance cover has to be clear in the minds of potential customers and, for that to be achieved, trust and information are very important. There are several mediums that can help in accomplishing this task: like agents on the field, TV and radio program plot lines, or even literacy campaigns. To create demand, other types of incentives can also be used, including tax exemptions, subsidies or compulsory cover. For microinsurance to function in a developing country, the products and the processes to be put in place must be simple, and the premiums need to be kept low. This can only be achieved if incumbents change their mindset and implement an efficient administrative strategy combined with the right distribution channels. Insurers will have to find the right business model and partners when approaching such markets and should consider less common mechanisms for controlling moral hazards, adverse selection and fraud. For example, proxy underwriting, group policies and waiting periods mitigate adverse selection. At first, investing in microinsurance might seem a bit reckless, but the returns are gradual over time: starting with reputational gains in the short term, knowledge in the medium term and growth in the long term. Moving toward smart lives Already more than half of the world’s population uses a mobile phone, and 34% of the total population are active mobile social users, with a 50% penetration for internet usage worldwide. Fewer and fewer people use fixed telephone lines, as mobile phones are the dominant means of communication, even in the developing world. According to a Pew Research Center survey, in the last two years there has been a significant increase in the number of people from developing nations who declare that they use the internet and own a smartphone. Moreover, in nearly every country, millennials (those aged between 18 and 34) are much more likely to be internet and smartphone users than those over 35 years of age. This phenomenon is characteristic of both advanced and emerging economies. Despite these trends, fewer than 5% of people with low income have access to insurance or to covers that they need. These qualities make underdeveloped countries an ideal market for the insurance industry to explore because they present some great opportunities. Relevance of Thaler’s nudge theory This takes us to microinsurance and what it has in common with the nudge theory. Insurance should adapt to the customers’ habits and their environment, so we believe the best way to do that is by selling microinsurance that has a short duration with a push approach. It’s called a push approach because the insurance seeks the client out and not vice-versa. This could be interpreted as a gentle nudge that arrives exactly when the client needs it, directly on his or her smartphone, offering protection against an immediate and perceivable potential risk. Machine learning and artificial intelligence (AI) have evolved to allow a detailed profiling of the potential customer and the context. See also: Big New Role for Microinsurance   As Thaler suggests in his book, the context makes everything and helps conclude the sale. By interpreting the variables that could influence the customer, a good AI-based solution should be able to capture the precise means and moments to deliver short-period insurance offers to truly interested users. The trick is to avoid annoying customers with offers that do not interest them directly, in the wrong moment. The answer is an AI-based solution that can correctly interpret different types of data coming from the customer (through use of apps, of the smartphone, of wearable devices connected to the smartphone and so on). Why nudge people toward microinsurance? Why is it so important to nudge potential clients into buying microinsurance coverage? Consider a common statement regarding the industry that has proven true over decades: “Insurance purchase is not exciting; insurance is sold, not bought!” That is precisely why need has to be stimulated, especially with the arrival of smartphone technology. The key to selling insurance to millennials and the whole “connected generation” is to reach them with the right message, at the right time, on a device where they swipe, tap and pinch 2,617 times a day: their smartphone. Companies should get customers’ attention by using the same channels that they use and talk to them in their “language.” Empowered by technology, members of this generation search out authentic services that they utilize across platforms and screens, whenever and wherever they can. This might just be the perfect moment to develop solutions that are able to nudge people into behaviors that can benefit them, offering short-term coverage for atypical situations that would otherwise remain uncovered. A good step toward closing the protection gap – if you look at it from an insurer’s perspective. Article originally published on Qrius. 

As insurers undertake digital transformation programs, many rightly turn to the claims function. Claims is a very good candidate for such initiatives because of its importance to the relationship between customers and their insurers. Claimants and insurers both want speedy and fair resolution, based on clear lanes of direct and personalized service. A data-driven, analytics-enabled claims process can satisfy the objectives of all parties. Continuous improvement to customer experience in claims is critical to any strategy. After all, claims are a real “moment of truth” for insurers, with meaningful impacts on outcomes and customer loyalty. Insurers that craft the right strategies and deploy the right mix of digital technologies will be able to turn their claims operations into a source of competitive advantage, market differentiation and brand perception. While advanced technologies such as robotic process automation (RPA) and artificial intelligence (AI) are very much part of the long-term transformation story, there is much insurers can do that will generate immediate benefits. What matters to claimants — and how to deliver EY’s insurance consumer research confirms that speed, efficiency and transparency are among the most important characteristics of a quality claims experience. Better data and analysis can help streamline steps in the claims process, setting the foundation for an enhanced experience. Those analytics also set the foundation for the future where many claims will be resolved via “no-touch” processes. See also: 4 Ways That Digital Fuels Growth   Insurers seeking to automate their claims processes or to achieve straight-through processing for basic claims have multiple options, including:

• Advanced telematics data (including video imagery) can be instantaneously captured during an automobile accident and downloaded from the cloud to automatically trigger a first notification of loss (FNOL) entry. Underwriters can “score” the data to determine the extent of loss relative to the automobile’s current value.
• Drones and satellites can survey damage and collect information about property damage to initiate claims before a homeowner makes contact.
• Via intuitive apps or other interfaces, insureds can submit photos of damage to their homes or vehicles to initiate the claims process, provided there is no sign of fraudulent behavior (which analytics programs can evaluate).
• Property and casualty (P&C) insurers may use historical repair data to dramatically decrease estimating times for different types of vehicles and homes. They may also better manage repair costs and quality based on deeper analysis of these data sets.
• AI may be used in combination with social media and other data to scan claims for the likelihood of fraudulent behavior.

Insurers also have good options when it comes to personalizing service, which include:

• Voice analytics that can assess customer sentiment during phone calls, with appropriate classification and prioritization of resolution.
• Behavioral analytics that can be applied to model likely customer needs and identify high-value policyholders or those likely to dispute a claim.
• Analyses of customer records that can identify claimants facing renewal as well as good candidates for purchasing additional products.

A redesigned claims experience can pay immediate dividends (e.g., lower processing costs, improving claims resolutions or higher renewal rates). In all of them, insurers can engage at key points during the claims life cycle, with accurate and consistent information delivered on a timely and transparent basis. At the same time, claims teams can focus on high-value interactions, high-risk claims and other exceptions. The path toward a better claims experience No matter where insurers fall on the maturity curve today, there is much they can do to transform the claims process. The path to success begins with a series of well-thought-out steps designed to produce useful learning and incremental value. Huge investments in new technology or large teams of data scientists are not required for substantial improvements. Organizational and cultural factors are also part of the claims transformation equation. Insurers should endeavor to integrate third-party data (such as medical claims, consumer credit and weather data) with existing records. They also have the opportunity to pilot the use of automated notifications via chatbots and to encourage customers to submit photos of damage. While taking these initial tactical steps, they can begin building the business case for, and perhaps even pilot, more advanced capabilities, such as “no-touch” claims handling for specific products, regions, claims types or payments. Insurers in the intermediate phases of their digital transformation journey should consider expanding automated claims handling to more claims types and larger amounts, broaden their use of chatbots for communication and seek to integrate more external data sources. They can also deploy drones as “adjusters” and establish analytics Centers of Excellence in claims. More mature organizations will look to leverage new data storage and management technologies as the basis for advanced analytics and real-time visualization. They may also strengthen antifraud efforts by implementing machine learning. The most forward-looking insurers may build out data science teams to probe large and diverse data sets stored in analytics ecosystems. Similarly, they may expand claims volumes handled via RPA-enabled straight-through processing and evaluate medical treatments or repair effectiveness against leading practices. See also: Digital Transformation: How the CEO Thinks   As claims organizations become more digital, the benefits of additional data and more effective analytics should extend beyond the customer experience. Machine learning and visualization techniques can help assess and predict claims risk with greater accuracy and certainty. They also provide a consistent claims handling approach relative to unbiased reserving, litigation, subrogation and other claims processes. It is worth noting that technology enhancements alone will not produce a claims organization for the digital era. A cultural willingness to embrace change also matters. Many insurers must overcome risk-averse cultures to encourage experimentation and “fast failures” in the spirit of learning what works best for their culture and customers. How do they do that? Test-and-learn approaches are a good start for insurers with limited digital capabilities. Pilot programs for automated claims processing and bot-driven notification systems are an ideal place for many organizations to start. Customer experience is everywhere In the digital era, where customers have been trained to expect real-time access to data and personalized service, the stakes for the claimant customer experience have been raised. Insurers must learn to deliver what customers want and expect — and deliver it efficiently, accurately and quickly. Digital transformation makes it possible, while offering insurers significant upside in terms of lower costs, increased customer loyalty and reduced risk of fraud.

Intuitively, stents make sense. If you’ve got occasional chest pain due to reduced blood flow to your heart, having a stent—a thin mesh tube inserted into a coronary artery to hold it open—is a seemingly logical solution. Half a million of these procedures, called angioplasties, are performed every year, at a cost of roughly $20,000 apiece. Alas, sometimes hard data trumps intuition. Recently, a landmark “sham surgery” study showed these procedures don’t make a difference in people with stable angina and a single narrow coronary artery. Stents are inserted using a catheter. In this study, 200 people with chest pain who had single vessel disease had the catheter inserted. Half of them got a stent, and half did not (that’s the sham arm of the study). And the envelope please… Six weeks after the procedure, there was no real difference in the patients, either in chest pain or performance on treadmill tests. In other words, the placebo surgery did just as well as the real thing. While these results were described as “unbelievable” by some cardiologists, they are not much of a stretch from what we already knew about stenting. Even five years ago, the New York Times reported on research that found No Extra Benefits Are Seen in Stents for Coronary Artery Disease in patients with stable angina. That article also reported there was an “insignificant difference” between people who have had stents inserted and those who didn’t. A cardiologist and professor of medicine at Yale told the New York Times, “When people are making decisions, it’s important to disclose to them that this procedure [stenting]—outside of an emergency—is not known to be life-saving or to prevent heart attacks,” adding, “the vast majority of people who have this procedure have the expectation that it will help them live longer. That belief is out of alignment with the evidence.” See also: Global Trend Map No. 4: Industry Health   The good news is that we know that there are more conservative measures that can slow or reverse heart disease, include quitting smoking, exercising more, improving your diet and losing weight if possible. There are a range of safe and effective drugs that can help reduce chest pain as well as your risk of a heart attack. Although rare, there are some serious risks with angioplasty, such as bleeding from the site of the incision used to insert the catheter, damage to the blood vessel itself, irregular heartbeats and damage to the kidneys caused by the dye used. The risks of complications are low, but why would you take any risk, endure an uncomfortable recovery and pay a substantial co-pay or deductible, if there is no evidence of benefit? Like many medical procedures, the amount of unneeded and unnecessary stenting is a byproduct of the healthcare system’s financial structure that rewards doing more procedures, when doing less is often wiser and certainly cheaper. Sometimes the best procedure is none at all.