In our last post, Insurance Nexus Global Trend Map #2: Insurtech Perspectives, we looked at carrier sentiment toward disruption both globally and in a range of local markets (Europe, North America and Asia-Pacific). We found significant, though not overwhelming, impacts reported from new market entrants, while at the same time acknowledging that psychology may play a substantial role in carriers' self-assessments. In this context, it will be interesting to see what sorts of priorities insurers are setting – whether their money is where their mouth is, so to speak. As part of our extensive Trend Map survey, we drew up a short list of 15 priority areas and asked our carrier respondents to rank them from a money, time, staff and training perspective (results below, both globally and segmented on three key regions). You can find a breakdown of our 1,000-plus survey respondents, details of our methodology and bios of our contributors by downloading the full Trend Map here. We allocated ranking points separately for money, time, staff and training (15 points for first, 14 points for second… one point for last). We then combined our four measures into one composite priority score'(meaning a top score of 60, representing four top ranks, and a bottom score of four, representing four bottom ranks). See also: 2017 Priorities for Innovation, Automation   Digital innovation tops the list internationally as well as in North America, Asia-Pacific and Europe. This result (digital innovation as respondents’ key priority, with customer-centricity not far behind) complements what we saw in our earlier post on industry challenges, where technological advancement and changing customer expectations' were perceived as the key external challenges in the industry. Digital innovation and customer-centricity also represent much of the ground fought on by insurtech – and upon which incumbents must fight, too. Investment management is the lowest-ranked priority across the board, most likely a reflection of enduring low interest rates.

"The highest single priority for insurers – Digital Innovation – is a direct reflection that this is the widest capability gap between insurers’ expertise and what are now marketing 'table stakes'. Time is not on the side of those who fail to close this gap." –Stephen Applebaum, Managing Partner at Insurance Solutions Group

Looking at specific technologies attracting buzz, Analytics emerges as top-three priority across the board, while Internet of Things (IoT) struggles to break into the top ten. This is not to deny the importance of IoT for the industry over the years to come, but it does suggest that there are more immediate gains to be realised on the analytics side; ultimately, these two technology areas complement each other perfectly. We further explore Analytics (including Artificial Intelligence!) and IoT in our Key Themes section, which you can access straight away by downloading the full Trend Map here. While Blockchain did not feature in this year's shortlist of insurer priorities, we do still cover it among our Key Themes, in our sub-section on Fraud. To deepen our comparison of the different regions in the table above (North America, Asia-Pacific and Europe), we also created a ‘medals table’ drawing attention to the differing levels of emphasis placed on our 15 priorities from one region to the next. For instance, Asia-Pacific achieved the highest priority score (60) for Digital Innovation and has therefore been credited with the Digital Innovation Medal on the medals table below ...

1. Analytics, Customer Centricity and Digital Innovation achieve similar scores across all our regions; Customer Centricity trails marginally in North America.
2. Noteworthy is the perfect score of 60 attained for Digital Innovation in Asia-Pacific, which indicates that this was the number-one priority here in all four measures underlying the priority score (money, time, staffing and training).
3. Underwriting and Risk Management both score considerably higher in North America than they do elsewhere – as we saw in the first table, Underwriting is 3rd in the list of priorities in North America, despite not getting above 7th place in any other regions.
4. There is a step-up in focus on Claims in Europe and North America compared to Asia-Pacific.
5. With Distribution, we have the exact inverse scenario, with Asia-Pacific leading the pack, possibly a reflection of the emerging markets within it necessitating high-scale low-cost distribution, which traditional models cannot provide.
6. Fraud is also a marginally higher priority in Asia-Pacific.
7. Europe and Asia-Pacific lead North America with their focus on Internet of Things.
8. Cybersecurity and Mobile achieve similar (lowish) scores for all regions; Product Development is relatively high across the board.
9. Regulation is the biggest deal in Europe, where respondents quoted in particular Solvency II and the Insurance Distribution Directive (IDD) as being causes for concern.

"Even though different markets seem to focus on a variety of distinct priorities, it’s clear many insurers place the customer at the heart of their strategies, whether through analytics, digital processes, mobile-first platforms or enhanced distribution capabilities. In each situation, technology is at the core of such digital innovation. Culture and mind-set may be the two elements that slow success." – Sabine VanderLinden, Managing Director at Startupbootcamp

Find out more about how our key priority areas vary by geography in our Regional Profiles, by downloading the full Trend Map here. Additional Insurer Priorities Survey respondents had the opportunity to provide any additional priorities they felt we had missed. Stand-out entries included:

• Upgrading legacy systems
• Business transformation
• Robotics
• Marketing strategy
• Blockchain

See also: Why Insurers Need to Transform   Certainly the top three of these we could categorize as staples of any digital transformation initiative. In our next post, Insurance Nexus Global Trend Map #4: Services, Investments & Job Roles, we take our exploration of insurer priorities one step further. And if you'd like to skip further ahead, you can download the full Trend Map free of charge whenever you like... Download your complimentary copy of the full Trend Map here.

One of Bitcoin’s greatest successes has been to show how a network of individuals can exchange value without the need for a central authority. When you consider the implications of projecting the same underlying technology, blockchain, onto the complex web of underwriters, insurers, MGAs, affiliates and brokers that make up the insurance industry, you start to see how disruptive it might be. As anyone who works in insurance knows, the industry is still awash with old technology and administrative tasks that weigh heavily on operational costs and ultimately lead to higher prices for consumers. This is what occurs across established, profitable markets, while the uptake of insurance in potentially massive emerging markets remains stubbornly low. My own experience of the insurance industry tells me that blockchain could be truly transformational in reducing the costs associated with issuing policies and managing claims. However, to truly take advantage of this innovation, insurance companies need to stop standing around the sides, thinking about dipping their toes in the blockchain water. They need to jump in before they’re crowded out. The fundamentals of blockchain To really understand how blockchain might transform insurance, it’s worth briefly summarizing some of the key characteristics of the technology. Blockchain technology is more correctly referred to as distributed ledger technology and can include a number of blockchain protocols, with some of the best-known being Bitcoin, Ethereum and Ripple. At its heart, blockchain removes the need for a centralized authority that controls information and validates exchanges of value between different parties. In the decentralized model of the blockchain, the entire ledger of records and transactions is stored on each of the nodes in the network for every participant to see. See also: Blockchain: What’s the Real Story?   Crucially for the world of insurance, blockchain technology could allow any type of asset to be tracked and traded digitally, with information about the provenance, identification, credentials and rights all stored securely and transparently. Some well known examples of the blockchain being used to track assets in complex supply chains are logistics giant Maersk’s tracking of global shipping cargo and EverLedger’s tracking of diamonds. While these aren’t insurance products, these blockchain powered solutions will clearly have a significant effect on the industry. The claims opportunity When you consider the characteristics of the blockchain in the area of claims, the far reaching effect of this innovation start to become clear. An important element of blockchain technology that is worth mentioning here is smart contracts. These are lines of code that contain rules and regulations for actions that need to be taken in the event of certain things occurring, as well as the mechanism for executing these actions. In essence, they are digital contracts that are unambiguous in their design and don’t need any human administrator to action. Therefore, instead of waiting days or weeks to settle a claim, the introduction of smart contracts could mean that claims are settled instantaneously and without the need for transmitting paper documents. Our own work with a major global insurer showed what improvements can be made. The personal injury insurance app we collaborated on allowed someone to buy an insurance policy and have it issued on the blockchain. If the person was injured, they could go to a validated doctor, be treated and have the claim managed in real time, rather than sending photocopied documents and waiting 12 weeks for an answer. We’re seeing smart contracts pop up in other areas of insurance too, including the decentralized applications built by Etherisc. These smart contracts execute payouts when certain parameters are hit, such as when a flight is delayed. The idea of tracking systems and sensors brings us onto a parallel technology that is linked to blockchain disruption in insurance, the Internet of Things (IoT). IoT plus Blockchain will change insurance IoT will play an important role in the future of insurance because of the important role that ‘things’ play in insurance. When you think how many insurance products can be categorised under the headings of protection for ‘things’ and protection for ‘people’, the significance of IoT becomes clear. As more and more consumer products become connected products, the potential repercussions for insurance are huge and probably go some way towards explaining why Amazon is starting to push into the European insurance markets. Looking forward just a few years, a world where the vast majority of consumer devices are connected to the internet and capable of sending data to providers that offer a sufficiently tempting service is a recipe for disruption in the insurance market. However, as well as providing a sufficiently desirable service to convince users to hand over their data, providers will need to consider the implications of how this data is used to make better decisions. This is where blockchain becomes such a fundamental foundation technology. The blockchain protocol is already proving how, through a range of cryptocurrency and early smart contract applications, it is capable of handling the complex interplay of multiple data sources to automate decision making. If you compare this imagined future of real time data from a range of devices feeding into complex smart contracts that action instantaneous decisions based on this information and compare it to the slow, paper-based process of human interactions that exist in most insurance businesses now, the opportunity for disruption is brought into sharp relief. This is why it’s so important for insurance businesses to start experimenting with the blockchain as soon as possible, so they can see how it could impact their business. If they don’t, they risk extinction. If they do, they will quickly see operational efficiencies as well as long term opportunities to develop new innovative products. Blockchain-powered onboarding It is worth remembering that, in itself, the blockchain is not a particularly tempting consumer proposition. The lack of a shiney consumer blockchain brand is often one of the reasons sceptics point to in dismissing the suggestion that it will transform all industries. However, much like cloud computing before it, this foundation technology will open up huge cost efficiencies in existing business models as well as entirely new business models. It is the organisations that can understand and utilise it properly in order to overlay customer-centric services on top that will win. After all, consumers aren’t generally interested in the tech stack behind the product they buy. They are interested if that tech stacks makes a product cheaper or more personalised to their needs. Microinsurance that is highly personalised to the needs of individuals but still cheap to administer is entirely possible in a world of IoT devices and smart contracts. Personalisation within insurance is sometimes seen as a bad thing, with the secure, healthy or young getting the best deals and the vulnerable, unhealthy and old missing out. Certainly the question of societal good will not go away in insurance but blockchain provides a potential solution here too because of its transparent features. The shared ledger means that individuals can securely store their data on the blockchain and control who can access it and for what purpose. Our own experience in this area came in the related field of finance, with a Know Your Customer (KYC) process we developed for a consortium of major financial institutions including HSBC, MUFG and OCBC. See also: Blockchain: Basis for Tomorrow   The shared ledger application that was developed leveraged the Ethereum blockchain to help banks reduce the time and cost of onboarding customers, share customer data in a secure manner and facilitate ease of customer data management. Once onboarded, an individual’s customer profile was encrypted and stored on the blockchain. Then, because of the proprietary multi-party key encryption protocol that was used, the data could also be shared with other banks if the customer chose to do so. As a result, the solution not only eliminated the duplication of work that came from each bank having its own KYC process but also reduced the human error that was inherent in all these processes. Test your hypothesis now In my opinion, there’s little doubt that the blockchain will disrupt the insurance industry. The fact that data, contracts and ‘things’ (which will become ever more connected) play such an important part in insurance products means there’s almost no chance that it won’t. The reliance on legacy technology and administrative tasks completed by humans only increase this likelihood. With this in mind, my advice to businesses is to stop prevaricating when it comes to blockchain. The exact future of a blockchain powered insurance industry may not be crystal clear yet but the wide brushstrokes that define this future state are being made. Businesses that do not make their own mark soon could find themselves squeezed into a corner or excluded from the picture entirely. Insurance companies should be getting their hands dirty with blockchain as soon as possible. Test a hypothesis that connects your business objectives to the benefits of blockchain. In the first place, this doesn’t have to be (and probably shouldn’t be) a grand scheme based on an imagined future of personalised microinsurance built on smart contracts making automated decisions using multiple feeds from a series of connected devices. Think of a quick win related to a key business goal that blockchain could potentially solve and which could provide measurable benefits that your colleagues understand. I imagine smart contracts might be a good place to start. By testing and learning you’ll start to build a familiarity with the technology that will bring about a clearer understanding of how it might be used to solve more operational issues, create innovative new products and protect your business from industry disruption.

Last week, I included my summary of what we do in Insurance:

Insurance is a business where we provide people with peace of mind, allowing them to know that there will be a monetary solution provided when they suffer a major loss/accident (or minor, depending on coverage purchased). This loss/accident can either in the form of health, death or to some sort of property, and the solution is at a time when a person typically needs it most. That is the core of our business. 

This summary also relates to the three pillars of Insurance, which I mentioned a few weeks ago:

1. Pricing –  Was the policy I purchased priced properly to take care of the costs of the insurance company running its business, and will it have enough?
2. Reserves – to pay my
3. Claims – in a timely manner.

As with many of us, I read and follow a lot of news on insurance and insurtech. Every day, my LinkedIn feed and email inbox is flooded with insurtech news, including new investments in startups, new insurtech partnerships formed, expansion of startups into new markets/states, etc. I love reading all of this – as it shows the growing level of awareness of how new technology solutions can enhance the customer experience and also help companies with operational efficiency.  I am a huge fan of what the future entails. However, I am also cautious of the risks currently present in the world of Insurance (and the world in general!). See also: Insurtech Innovator – CyberWrite   Currently, the pace of change and adoption of insurtech solutions is faster than ever before. It seems there are no signs of slowing down. However, as with any good plan, it is important to have risk mitigation and contingency plans. The new technology solutions that we are building for the insurance industry (i.e., insurtech), are just an enabler. It’s not that these solutions don’t matter…. But, if the risks are not managed properly and plans are not in place for these solutions, then the progress of the many insurtech initiatives may slow down, or in some cases, not be around to matter. What are some risks as it relates to insurtech? I will focus on three, which have been themes in the news for the past couple of months. In fact, these are risks that exist in our industry regardless of insurtech. By no means are these the only risks that need to be mitigated, yet I do see these as some of the big ones:

1. Macroeconomics
2. Weather/Natural Disasters
3. Regulation

Macroeconomics Since 2008, global stock markets have been on a tear. It’s no wonder that there is so much money pouring into insurtech investments. What happens if there is a market correction and we go into another global recession? Will we see the same sort of investment in insurtech solutions as we have been seeing? And that’s just the equities market. What about fixed income? In this FT article from August, Chubb’s CEO Evan Greenberg warns about the low interest rate environment and its effect on insurers. He says, "Many companies are not earning their cost of capital — and many are losing money, or will lose money in the future." This is a big deal. This may have an impact on an insurer's ability to pay claims in the future. Obviously, insurers will have to keep their solvency requirements due to regulation, but if this continues, we could see massive premium increases for customers and withdrawal from certain product lines. Stock markets and fixed income aside, the next big risk that could affect the progress in insurance and insurtech has to do with climate change. Weather/Natural Disasters Over the past few months, we have seen Hurricanes Irma, Maria and Harvey ravage much of the Southeastern U.S. and islands nearby. California has been blazing in fire. In other parts of the world, there have been many natural disasters, too. I’ve seen a number of articles on this subject. They range from "how to claim from your insurance company in wake of natural disaster" to "how much insurers will be out of pocket for weather-related claims." With climate change increasing, the unknowns also grow. I’ll admit, I’m not an expert in catastrophe pricing, but I would suspect that this increasing factor will make it much more difficult to price products. So, equities may fall. Interest rates may not come up. And natural disasters could be on the rise. These risks are big, but the last one could take the cake: regulation. Regulation President Trump has signed two executive orders – one that will allow customers to purchase cross state border and one that limits funding for Obamacare (though that has seemed to change course). The impact that these have on the U.S. healthcare and insurance market is unknown for now. This is a topic that deserves its own write-up, and I plan to cover this sometime in the near future. Regulation can really screw things up; if not looked at properly. I wrote about government collaboration a few weeks ago. Some governments are more open to collaborating with incumbents to better understand fintech and insurtech. However, for those of us who have worked with regulators, we know that their minds can change quickly, and knee-jerk reactions can be made, forcing our plans to change. Different product lines have different opportunities and different risks For some lines of insurance, mainly P&C, insurtech has a huge play, and there are many opportunities to disrupt and change the current Insurance value chain. If autonomous cars come into existence, the whole auto Insurance industry will change. For property insurance, smart homes and devices to monitor buildings will help to better optimize pricing and policies for consumers. For travel Insurance, insurance to protect material objects (mobile phones, electronics, etc), UBI and insurance for the sharing economy, there will be opportunities to disrupt and enhance the customer proposition, too. For life, health and catastrophe, it becomes a different story.  We see a lot of term life online, but what about whole life, universal life, annuities, etc? What about other, more complex products for individuals/businesses (disability, long-term care, commercial)? See also: Innovation — or Just Innovative Thinking?   My biggest worry comes from within these types of products. My years in insurance have primarily been on the life, health and annuities side. The pricing structures of these types of products have a longer tail than P&C. Health is annually renewable, but the cost of healthcare and frequency of visits to doctors have been increasing, which will make pricing more difficult. So what can we do about this? First and foremost, every startup and incumbent needs to have a risk mitigation strategy and contingency plan as it relates to their insurtech initiatives. It is easy to get caught up in the excitement of what we are doing, and talking about risk is not always the most fun. The risks above are just a few macro ones. Each company and each initiative will carry its own set of risks, which need to be assessed accordingly. Second, collaboration continues to be key. Especially cross-border collaboration. We need to share best practices globally. Regulators will also need to continue to work with incumbents and startups to understand the solutions being put in place and risks to customers. Third, actuaries need to get with it – quick. They need to use their skills of actuarial modeling and work with the data scientists out there to better understand all the data points available to them and how this can be incorporated into pricing models. The marrying of actuarial pricing principles and data science will be one of the most powerful forces of change in our industry. Incumbents have been managing risk for hundreds of years. The nature of managing risk has changed with the explosion of data. It’s no longer about just looking at what has happened in the past and predicting what will happen. Let’s also get underwriters in this conversation. We need to find opportunities to know what is working where, and what is also not working, so we can plan accordingly. We are all in this together, and we need to help enhance our industry together. We all have a collective responsibility, ultimately, for our customers. This is a repost of my article on Daily Fintech. I look forward to reading your comments on this article and engaging in some discussion.

Wisconsin Insurance Commissioner Ted Nickel, president of the National Assn. of Insurance Commissioners, talks with Innovator's Edge CEO Wayne Allen about insurance innovation, the pace of change and the opportunity for regulators to be more engaged in these efforts.

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Adrian Jones, head of strategy and development for SCOR, a global reinsurer, talks with Innovator's Edge CEO Wayne Allen about its approach and how the company coordinates innovation across the world.

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Peter Miller, president and CEO of The Institutes, discusses with Innovator's Edge CEO Wayne Allen how the organization is innovating in how it delivers knowledge to solve insurance challenges, including the industry's own innovation efforts.

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Donna Peeples, Chief Customer Officer of Pypestream, talks with Innovator's Edge CEO Wayne Allen about how the company is using innovative technology to change customer engagement and transform insurance.

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Andrew Robinson, executive in residence at Oak HC/FT, talks with Innovator's Edge CEO Wayne Allen about his path on insurance innovation and what shapes his viewpoint.

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Leaders in telematics innovation—John Heffernan, Senior Sales Director-Claims for Octo Telematics; Matteo Carbone, Founder and Director of the Connected Insurance Observatory; and Josh Thompson, Vp of Claims and Risk Engineering for State Auto Insurance—join Wayne Allen, CEO of Innovator's Edge, to discuss innovation and telematics, and where opportunities lie in the future.

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Robin Smith, CEO and co-founder of WeGoLook, talks with Innovator's Edge CEO Wayne Allen about how the company has evolved, grown and found success as an innovator within the insurance industry.

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