Silicon Valley fancies itself the global leader in innovation. Its leaders hype technologies such as bitcoin and blockchain, which some claim are the greatest inventions since the internet. They are so complex that only a few mathematicians can understand them, and they require massive computing resources to operate — yet billions of dollars are invested in them. India may have leapfrogged the U.S. technology industry with simple and practical innovations and massive grunt work. It has built a digital infrastructure that will soon process billions more transactions than bitcoin ever has. With this, India will skip two generations of financial technologies and build something as monumental as China’s Great Wall and America’s interstate highways. A decade ago, India had a massive problem: Nearly half its people did not have any form of identification. When you are born in a village without hospitals or government services, you don’t get a birth certificate. If you can’t prove who you are, you can’t open a bank account or get a loan or insurance; you are doomed to be part of the informal economy — whose members live in the shadows and don’t pay taxes. See also: Why to Boost Visas for Foreign Entrepreneurs   In 2009, the government launched a massive project, called Aadhar, to solve this problem by providing a digital identity to everyone based on an individual’s fingerprints and retina scans. As of 2016, the program had issued 12-digit identification numbers to 1.1 billion people. This was the largest and most successful IT project in the world and created the foundation for a digital economy. India’s next challenge was to provide everyone with a bank account. Its government sanctioned the opening of 11 institutions called payment banks, which can hold money but don’t do lending.  To motivate people to open accounts, it offered free life insurance with them and made them a channel for social-welfare benefits. Within three years, more than 270 million bank accounts were opened, with $10 billion in deposits. And then India launched its Unified Payment Interface (UPI), a way for banks to transfer money directly to one another based on a single identifier, such as the Aadhar number. Take the way that credit-card payments are processed: When you present your card to a store, the cashier verifies your signature and transmits your credit-card information to a billing processor such as Visa, American Express or MasterCard — which works with the sending and receiving banks. The billing processors act as a custodian and clearing house. In return for this service, they charge the merchants a fee of 2% to 3% of the transaction. This is a tax that is indirectly passed on to the customer. With a system such as UPI, the billing processor is eliminated, and transaction costs are close to zero. The mobile phone and a personal identification number take the place of the credit card as the authentication factor. All you do is to download a free app and enter your identification number and bank PIN, and you can instantly transfer money to anyone — regardless of which bank he or she uses. There is no technology barrier to prevent a UPI from working in the U.S. Transfers would happen within seconds, even faster than the 10 minutes that a bitcoin transaction takes. India has just introduced another innovation called India Stack. This is a series of secured and connected systems that allow people to store and share personal data such as addresses, bank statements, medical records, employment records and tax filings, and it enables the digital signing of documents. The user controls what information is shared and with whom, and electronic signature occurs through biometric authentication. Take the example of opening a mobile-phone account. It is cumbersome everywhere, because the telecom carriers need to verify the user’s identity and credit history. In India, it often took days to produce all the documents that the government required. With the new “know-your-customer” procedures that are part of India Stack, all that is needed is a thumb print or retina scan, and an account can be opened within minutes. The same can be done for medical records. Imagine being able to share these with doctors and clinics as necessary. This is surely possible for us in the U.S., but we aren’t doing it because no trusted central authority has stepped up to the task. India Stack will also transform how lending is done. The typical villager currently has no chance of getting a small-business loan, because he or she lacks a credit history and verifiable credentials. Now people can share information from their digital lockers, such as bank statements, utility bill payments and life insurance policies, and loans can be approved almost instantaneously on the basis of verified data. This is a more open system than the credit-scoring services that U.S. businesses use. See also: How to Make Smart Devices More Secure   In November, in a move to curb corruption and eliminate counterfeit bills, Indian Prime Minister Narendra Modi shocked the country by announcing the discontinuation of all 500- and 1,000-rupee notes (about $7 and $14) — which account for roughly 86% of all money in circulation. The move disrupted the entire economy, caused pain and suffering, and was widely criticized. Yet it was a bold move that will surely produce long-term benefit, because it will accelerate the push to digital currency and the modernization of the Indian economy. Nobel Prize-winning economist Joseph Stiglitz said at the World Economic Forum meeting in Davos, Switzerland, that the U.S. should follow Modi’s lead in phasing out currency and moving toward a digital economy, because it would have “benefits that outweigh the cost.” Speaking of the inequity and corruption that is becoming an issue in the U.S. and all over the world, he said: “I believe very strongly that countries like the United States could and should move to a digital currency so that you would have the ability to trace this kind of corruption. There are important issues of privacy, cybersecurity, but it would certainly have big advantages.” We are not ready to become a cashless society, but there are many lessons that Silicon Valley and the U.S. can learn from the developing world.

March Madness may be the ideal time to remember workers' compensation crossover issues. Crossover issues are not strictly workers' compensation issues -- which is why they are sometimes overlooked. That omission can cost a party money or even lead to a professional malpractice suit. Third-Party Claims Product liability, medical malpractice and negligent roadway design are examples of third-party claims usually unaffected by the exclusive remedy rule. Collisions may give rise to the most common third-party claim. See also: How Should Workers’ Compensation Evolve?   SSDI Whether and when to apply for Social Security Disability Income (SSDI) are not simple decisions. Federal law is written to make sure a disabled person does not earn more when not working than the person did on the job. The “80% rule” limits the combined total of SSDI and indemnity payments to an injured worker. This rule principally affects lower-wage earners. Medicare/Medi-Cal Virtually all workers' compensation professionals recognize the need for a Medicare Set-Aside in appropriate cases. Correct self-administration remains a challenge. Additionally, practitioners should be aware that two forms of Medi-Cal currently exist: traditional and expanded. Savvy negotiators can often use these programs to create a safety net to cover the injured worker’s medical expenses as part of a Compromise & Release completely closing the claim. C&Rs drafted without considering Medi-Cal issues could imperil medical care for the injured worker and the injured worker’s entire family. Immigration Undocumented injured workers are eligible for workers' compensation benefits in California. Some undocumented workers have been in their jobs for decades. They remain under the legal radar until a workplace injury occurs. At that point, a false or stolen identity may come to light, creating issues for the injured worker and the employer. The Patriot Act’s provisions about identification required to open a bank account or to send money out of the country can interfere with an injured worker’s decision to choose a Compromise & Release. Tax The tax code provides that money received on account of a physical injury is not taxable. Usually all payments made on a workers' compensation claim arise from a physical injury. However, a number of circumstances could trigger taxation. Also, once an injured worker receives a buy-out, earnings on invested or banked sums are taxable. See also: Five Workers’ Compensation Myths   Get Help Workers' compensation professionals should recognize crossover issues, and counsel should alert clients when these issues appear. The next step could be to bring in an expert in that area, provide one or more referrals or advise clients to seek professional advice on their own.

During this past year, I built a home in the White Mountains of New Hampshire and determined early on that it would be a “smart home.” Now, I speak about insurtech trends often, so you would think building a smart home would not be difficult. You would be wrong. To truly test the possibilities, I took on the task of configuring and connecting my home myself. And I wanted as much remote detection and control as you could possibly get in a home, such as:

• Temperature control
• Moisture/humidity detection
• Motion detection
• Smoke and carbon monoxide detection
• Lighting controls
• Door locking controls
• Remote answering doorbell

I was already familiar with a number of great technologies in the market, but I found interoperability to be low. Some work with hub-type connections, where multiple devices are all controlled through a single source; others are elegant at the service they perform but are closed technologies that could not interoperate with other technologies, leaving me to manage the home using multiple apps. Add the fact that each technology is changing rapidly. No matter which path you take, you will have to stay on top of the changes. That is the challenging world of IoT. It's a work in progress. See also: Home Is Where the (Smart) Hub Is   My experience shows that the insurance industry can be doing so much more. At a minimum, there is a great opportunity to educate the policyholder. Very few insurer websites deal with connected homes. Policyholders are hearing and seeing more about these devices – and it is all about the technology. Many people are really pursuing the capabilities that a connected home device can provide. They are installing remote locks to make it easier to get into the home while balancing two kids and groceries. They are coming home from work and want the lights on before they arrive. To be sure, this desire-to-be-connected revolution is more focused on the convenience aspects and what it can do for the policyholder than all of the safety aspects combined. But therein lies the benefit for insurers! The greater the adoption of these platforms and technologies, the greater the opportunity to truly prevent and mitigate risks in each connected home.

How fast is too fast in insurance? Most insurers would probably say that the recognizable point of an insurance process being “too fast” is the point at which poor decisions are made regarding risk. If the risk is the same either way, then there is no “too fast.” In my last blog in this series on how buying decisions are changing, we discussed some of our findings from the Majesco Future Trends 2017 report and talked about how a generational shift of market boundaries and technology was creating a culture of impatience. See also: How Basis for Buying Decisions Is Changing   In today’s blog, we’ll explore how insurers are coping with the need for speed, without compromising on risk. We’ll look at how product adaptation and a transformed framework will benefit insurers by positioning them to meet needs with immediacy. Because human decisions are being made faster than usual, it places the onus on insurers to create products that can be quickly and easily understood. It also means building a framework that supports quick evidence gathering, rapid data transmission, instant analysis and immediate transactions. Why is speed filled with potential risk? There are essentially two reasons why quick decisions can be bad.

1. If an insurer takes a shortcut to provide quick coverage, it may be missing key information regarding risk. Is the insurer getting the data and information it needs in a timely manner, or is it more concerned with providing a decision in a timely manner?
2. If the customer is making a poor decision to gain quick coverage or if the customer quickly decides against coverage, the customer could be at greater risk. Does the customer understand the choices, both in terms of insurers and products? Will the choice just cover risk or help the customer monitor and reduce risk?

Behavioral science and rapid decisions In our last blog, we mentioned Daniel Kahneman’s book, Thinking, Fast and Slow. Kahneman describes human decision making and thinking as a two-part system. System 1 thinking produces reflexive, automatic decisions based on instinct and experiences. These are “gut” reactions. System 2 thinking is slow, deliberate and based on reason and requires cognitive effort. In an ideal world, insurers would be able to help customers to slow down and make better decisions. That world, however, has rapidly disappeared because of new expectations set based on experience in other markets or industries.  Just consider Amazon continually resetting the bar. So, it is incumbent upon insurers to rise to the new “speed” bar and create a new model for rapid, yet limited risk insurance decisions. This is a large part of what insurtech has been trying to disrupt. Insurtechs have been borrowing principles of speed, psychology and behavioral economics from other markets and industries to persuade customers to do business with them while they are making quick decisions. The highest-profile use in 2016 was Lemonade, a startup darling.  The company recently announced national expansion plans and has been widely cited for its disruption of the traditional insurance business model with a new one grounded in outside-in, innovative business processes, sophisticated technology and behavioral economics principles. Dan Ariely, well-known author of Predictably Irrational and other books, has helped the company create a truly different insurance experience through both process and perception. Lemonade changed the customer experience along the entire value chain, based on Ariely’s insights about people’s decision-making processes. The AI chat-driven application and claims processes use a few simple questions, pulling in data as needed from other sources behind the scenes.  Lemonade claims it takes 90 seconds to complete a purchase and three minutes to get a claim paid (though it has also extensively promoted a recent 3-second claim).  These simple, transparent and fast processes require less System 2 thinking by customers, creating a simplified and engaging experience while ensuring that the data used for underwriting is the most important, credible and accurate, rather than relying on human memory. Auto enrollment, social proof and honesty pressure At the macro level, government, academic and corporate efforts have focused on encouraging greater employee participation in saving for retirement by devices like automatic enrollment and default contribution rates for 401k plans, and improving individual health insurance plan decisions by reducing choice overload, among others. The UK government has a Behavioural Insights Team (BIT) nicknamed the “Nudge Unit” whose mission is to “use insights from behavioural science to encourage people to make better choices for themselves and society.” At the micro level, companies like Geico employ principles like social proof (i.e. “people like you choose…”) to increase shoppers’ confidence and nudge them toward selecting specific products and closing the sale immediately. This kind of evidence is designed to quickly move people off the fence of indecision and into the security of the social community insurance fold. Lemonade tackles the question of customer honesty by employing a social benefit component. The company takes a 20% flat fee off the premium paid, with the balance used only to pay claims, then gives any excess to a charity of the customers' choice. This sets up a quasi-“moral commitment” for the customer to act in the interests of that organization (by behaving responsibly and not filing a claim that will reduce the benefit to the charity). By explaining the model up front, Lemonade gains the mental assent to honesty during the crucial application phase. An applicant isn’t just buying insurance, she is “buying into” a bigger promise that includes risk protection when needed and support of a worthy cause for every dollar unused for claims. See also: How We’re Wired to Make Bad Decisions   All of these efforts help make both fast decisions and good decisions, significantly reducing or eliminating risk to gain speed in the process. Shifting up to the next gear Seeing how changes to customer-facing engagement can both improve and speed up decisions, we’re now faced with the impact of those decisions on technology throughout the business. Is it possible for insurers to innovate fast enough to make quick decisions pay off? Because the need for speed touches so many different areas of the business, insurers wanting to rewrite decision methodology may need to act more like startups — innovating from the outside in. In the Future Trends report, Majesco advocates that insurers re-imagine the insurance business by creating a new business model that embraces the demographic, market boundary and technology changes rather than restructuring the old model. The new ideal is a cycle of continuous insight and improvement that may bear unintentional yet valuable fruit. When an insurer transforms itself to meet the demand for quick decisions on its standard products, it will also be laying the groundwork for systems that will support new product development — products that currently lie outside its realm. Once an insurer is prepared to gather evidence quickly, quote quickly and engage with speed — then every insurable person, event or property becomes a new opportunity for business. It is within today’s fast-paced lifestyles where insurance is likely to find new lodes of business opportunity from unserved or underserved markets and customers. Insurers that understand the nature of good decisions in a time-crunched culture will meet new customer needs without compromising themselves. For a deeper look at how lifestyle trends are affecting insurance technology decisions, be sure to read Future Trends 2017: The Shift Gains Momentum.

As we still struggle to improve physical security in the brick and mortar world, we are also greatly challenged by security issues in the cyber world. The layers of cyber protections are melting away quickly (Figure 1) as evidenced by an exponential growth in cyber crime. We are all racing rapidly away from the shores of the brick and mortar world, chasing after irresistible and addictive internet-based technology. The Cyber War Statistics and Projections Figure 2 shows the Lloyd's of London estimated worldwide cyber damages in U.S. dollars for 2013 (100 Billion) and 2015 (400 Billion). The Jupiter Research projection for 2019 is $2 trillion. Cybersecurity Ventures projects $6 trillion of damage for 2021. If these projections become reality, that represents a 60-fold increase in cyber damages for the eight-year period between 2013 and 2021. An independent Ponemon Institute study sponsored by Hewlett Packard said that, in 2016, the average U.S. firm reported cybercrime damages of $17 million. The average cyber damages were much less in non-U.S. countries, but the growth in such crimes is also increasing exponentially. The U.S. National Small Business Association study said that, on average, small businesses that had their bank accounts hacked lost an average of $32,000. See also: 10 Cyber Security Predictions for 2017   The Cyber War Defender Sentiment Various IT expert surveys tell us that the majority of defenders feel that we are losing this cyber war. Here are some key disturbing sentiments:

• An iSense Solutions survey of 250 IT professionals was conducted for Bitdefender among companies that were breached. Those that suffered cyber breaches in the last year convey the disturbing news that 74% of those that were breached don’t know how the breach happened.
• A survey by the Ponemon Institute revealed that it took between 98 and 197 days to detect the fact that a security breach has happened.
• An AT&T (Cybersecurity Insights) report surveyed 5,000 companies worldwide that were launching Internet of Things (IoT) devices. Only 10% of IoT developers felt that they could secure those devices against hackers. It is estimated that 10 billion devices were connected to the internet in early 2016 and that the number will grow to 30 billion devices by 2020.
• Another Ponemon Institute survey in 2016 consisting of 643 IT experts revealed that only one-third of the IT experts surveyed consider the cloud safe from cyber attacks.
• Cyberventures estimates that $1 trillion will be spent on cyber security products and services between 2017 and 2021.
• Cyber experts tell us that just meeting compliance is the beginning of cyber security and not the end.
• The World Economic Forum (WEF) stated that a “significant” amount of cybercrime and espionage still goes undetected.
• Hacker tools are cheap, fast and becoming easier to use, providing disturbing attacker advantages.

The Cyber War Executive Summary Let’s summarize this gloomy situation. We are in an exponential growth period of cybercrime. Anywhere from 67% to 90% of experts surveyed can relate to these comments:

• They distrust the cloud.
• Most do not know how or when they were hacked, if they were hacked.
• Most do not know how to fully protect the old and new flood of internet connected devices from future hacks.
• Just meeting compliance is insufficient against hacks and cyber attacks.
• When hacks are noticed, they are noticed three to six months-plus after the fact.

This raises the question of how IT and security professionals will spend their security budget if they have been so unsuccessful in the past and present. This is clearly a high-risk environment and getting worse. See also: How to Stir Dialogue on Cyber Security   Can Cyber Strategies Rescue Us? Classic and logical-sounding cyber strategies have been and are being rendered useless by hackers and cyber-sharks. Figure 3 depicts the sad state of worldwide cyber security. Why are most cyber strategies not working? Maybe because they focus too much on the technical and do not engage all of the enterprise resources and its culture as an additional layer of defense. Figure 4 reminds us of the words of MIT Professor Bill Aulet, derived from the original quote by the famous management consultant Peter Drucker: “Culture eats strategy for breakfast, operational excellence for lunch and everything else for dinner.”  If our cyber strategy does not harness and engage the enterprise culture as a partner in this cyber war, we should expect only limited successes. Can Artificial Intelligence (AI) Rescue Us? Some are touting AI and machine learning as the “last hope” for cyber security, but some experts are also quick to confess that not all AI strategies are effective and that the cyber protection industry is only at the beginning of this journey to apply AI to cyber security. This confidence in AI also assumes that the “bad guys” will not use AI to become better hackers. Can High-Reliability Organizational (HRO) Techniques Rescue Us? Decades ago, high-risk organizations like nuclear submarines, aircraft carriers and nuclear power plants developed a highly successful culture-based management system that was later designated as high-reliability organizations (HRO). HROs have achieved zero-incident safety records even though they are considered high-risk. Now that every organization is thrust into the high-risk cyber world, it’s time to consider the HRO playbook and assess our cultures against custom HRO cyber criteria. Airlines, railroads, power plants, hospitals and other organizations are starting to customize HRO principles to meet their stretch goals for employee, customer and patient safety. See also: Paradigm Shift on Cyber Security   Figure 5 shows one of the first basic enterprise system and cultural assessments required to lay the foundation for HRO cyber thinking across all layers of the organization. Such assessments will require anonymous inputs from all stakeholders and levels to ensure that all skeletons in the closet and the taboo talk rules that limit cyber successes are exposed. The pursuit of becoming a high-reliability cyber organization is not for the faint of heart, and it is not a quick fix. It is a set of highly disciplined principles that affect the behaviors, attitudes, decision making and accountability for every level of the enterprise cascade as summarized in Figure 6. If any of the cyber security elements in the cascade has a weak link, cyber security will be at risk. The last line of defense against cyber attacks needs to be organizational and cultural and not just technical or centered on compliance. As the world moves toward the shocking new reality of annual multitrillion-dollar cyber damages, organizations will need to combine technical and non-technical best practices for reliability to counter cyber threats. Unfortunately, it might take one or more big business failures or a major worldwide cyber calamity before more organizations start to see the value of a combined high-performance culture and technical strategy. Great successes of HRO organizations should teach us that a combined culture and technical strategy is the best way to defend ourselves in this expanding cyber world war.

Aging is a key force shaping our societies and the economy. Too often, the current debate on aging and demographic change narrowly focuses on the direct implications for pensions system and healthcare and neglects the broader economic implications. An understanding of the wide ranging economic implications of demographic change, however, is fundamental for insurers and policymakers in order to make sound long-term decisions.

The world of shrinking workforces

The world is quickly entering a new phase of demographic development. The new world is characterized by a shrinking or – at best – stagnating workforce due to the continuous decline of birth rates since the “baby boomer generation.” While Germany’s working age population peaked about 15 years ago, according to UN figures, China is currently at a record. In the U.S., the working age population is expected to continue to grow due to immigration, albeit at a much slower pace than in the past.

But decreasing birth rates not only mean that that the workforce is shrinking (or at least not growing). It also means that the average age of the workforce is increasing, especially until the baby boomer generation will be retired within the next decade. We refer to this phenomenon as “silver workers.”

Furthermore, as people live longer, the proportion of retirees in the total population is going to increase. This increase will be far more pronounced in the future than it was in the past. In developing economies, this trend is starting at a much lower level, but the eventual change will be far more rapid and dramatic than in developed economies.

The economics of aging

These demographic developments – shrinking workforces, the rise of silver workers and increasing share of retirees – will have profound economic implications. In a world of shrinking workforces, we cannot expect the economy to expand rapidly, unless productivity can be increased far beyond long-term historical averages. In fact, past growth rates were driven considerably by an increasing labor force. This is especially true for some developing economies like Brazil and Mexico. But also in the U.S., more than 40% of economic growth over the past 25 years can be attributed to an increasing working age population. We will have to get used to low GDP growth rates.

See also: The Great AI Race in Insurance Innovation  

However, overall GDP growth says little about the development of individual living standards. To assess living standards, we need to consider the implications of demographic change on GDP per capita. Three forces are at play:

First, because fewer workers will have to provide for more retirees, demographic change depresses GDP per capita. In the U.S., the share of working age population to total population is expected to decline from 60% to 54% over the next 25 years. In China and Germany, the decline is more pronounced: from 67% to 57% in China and from 61% to 51% in Germany. This implies that, as long as the production of each person of working age does not change, per capita GDP would decrease by 9% in the U.S. and by 15% in China and Germany by 2040.

Second, future GDP per capita will depend on the development of investments and savings. As people will have to live longer on their savings in retirement, we expect saving rates to increase. As these savings are invested, there will be more machines per person (i.e. the capital stock will increase relative to the labor force). This will partly compensate for the negative impact of the labor force development on GDP per capita.

Finally, advances in productivity may entirely or partially offset the demographic pressure on GDP per capita. Projections of productivity growth are fraught with high uncertainty. However, based on historical productivity growth rates (about 1.5% per year in most developed countries), productivity growth will likely compensate for the negative demographic impact on GDP per capita in most countries (Italy being a potential exception).

Taking these three factors together, we conclude that GDP per capita will continue to grow in most countries, albeit at a slower pace than in the past. The next question is: How will this per capita income be distributed among workers and retirees? We expect that aging will depress real interest rates as the demand for capital is likely to shrink relative to savings. In fact, real interest rates have been steadily declining over the last three decades.

We will have to get used to a low-interest environment and, hence, low returns on retirement savings. At the same time, the relative scarceness of labor should bolster wages. Hence, the future workers will likely benefit relative to future retirees (who are today’s middle-aged savers).

A threefold challenge

This analysis suggests that there is a threefold funding challenge from aging. First, low interest rates make it difficult for individuals to accumulate sufficient savings to fund their retirement. Second, the increasing share of retirees in society exerts a rising funding pressure on public pay-as-you go pensions systems. While in the U.S. there are currently 25 people of retirement age per 100 of working age, it will be 40 people of retirement age in 25 years. Third, the increasing average age of the workforce raises the risk of disability. Inability to work due to critical illness or disability reduces the ability of individuals to accumulate sufficient savings to fund retirement.

Policymakers have to consider a number of policy measures to address this threefold funding challenge. Potential measures include increasing the retirement age, providing incentives for individual savings, enhancing productivity, increasing labor force participation and increasing pensions contribution or reduce benefits.

See also: Demographics and P&C Insurance  

In most countries, however, none of these measures seems desirable or politically feasible on its own. In the U.S., for example, pension contributions would have to be increased by 63% between 2015 and 2040 to compensate for the increasing share of retirees in the population. Alternatively, the retirement age would have to be increased by seven years. Policymakers therefore need to develop strategies that combine a broad range of different measures in varying degrees. There is a risk, though, that measures to enhance productivity, namely investments in education, will be de-prioritized as public finances come under increasing strain.

For insurers, this analysis suggests that they must adapt to a world of slow growth and low interest rates in the longer term. Furthermore, in a world of aging workforces, products designed to protect the income against disability and inability to work will become more important. Hence we expect to see a stronger shift from savings products to protection products.

The average age of an insurance professional in the U.S. is around 60 years old. Estimates place the giant wave of retirements coming our way at around 50% by 2020. The U.S. Department of Labor estimates that between retirements and growth we’ll need to hire 400,000 people in the next decade. That’s a lot of people! Risk Management and Insurance (RMI) programs at colleges and universities have become more popular over the last few years, but they still only exist at fewer than 100 out of the 3,000-plus institutions in the U.S. RMI programs produce amazing graduates, but they only feed 15% of our hiring needs each year! So 85% of our new hires come without any sort of insurance background or education. Each company has to take the full expense of training these new insurance pros, and retention is lower because those people haven't committed to a career in insurance; they might still be testing the waters. See also: A New Paradigm for Risk Management?   At the same time, college has gotten more expensive, and total student loan debt stands at around $1.3 trillion! That debt is very scary to potential college students, and many are choosing to forego going to college to avoid going into debt. This is bad for their future employment, but it’s also a waste for us; we could use their talents if we just played our cards right. This is where today’s crazy idea comes in. We should come together as an industry and ally ourselves with an online education provider such as Coursera. Coursera offers massive open online courses (MOOCs) from world class universities in video format, with intra-video quizzing, group projects, automated grading of multiple choice tests and student peer grading of papers. You can take almost any Coursera class for free, or you can pay a small fee to get a certificate proving you passed the class. Coursera even has cool technology to verify you’re doing your classwork yourself instead of paying someone else to take tests for you. Currently, there is not a single insurance and risk management class on Coursera. The only classes that come up in a search have to do with health insurance exchanges or with product and portfolio financial risks. See also: The Sad State of Continuing Education   We should come together as an industry and sponsor a free (or almost free) risk management and insurance program on Coursera, available to ANY student who is interested. We would work with the school to make sure the curriculum teaches them the things employers in the industry need them to know, and we could even split it into an “associate” type program meant to train customer service rpepresentatives (CSRs) for agencies and a more in-depth “bachelor” type program meant to train future underwriters, agents and claims and other industry professionals. This could be a cost-effective way to make big strides toward solving our talent crisis, and it would help us improve our image overall. Who's in? This article originally appeared on InsNerds.com.

Drumroll, please.

I'm delighted to share the inaugural edition of our "Six Startups to Watch" list, drawn from the 929 insurtechs we now track at our Innovator's Edge site. These six have the potential to change the game. Even though I have followed innovation long enough to know very well that most startups fail, all six are attacking major problems in smart ways, so, even if they stumble, they should teach us something important.

Without further ado, the six are:

RiskMatch. It provides an online platform to help intermediaries match a customer's risk with the most appropriate carrier. This approach can lead to important efficiencies, at a time when it's clear that insurers need to take a whack at costs. Potentially even more interesting: Once RiskMatch optimizes its ability to size up risks, does it have to send all the business to carriers, or might there be alternative capital sources that could carry the risk, as is happening in reinsurance?

RemedyAnalytics. At a time when health insurance is so much in the news in the U.S., it's worth watching to see if companies such as Remedy can attack the underlying issue: that care costs far too much. Remedy uses technology to sort through the maze of prescription costs and benefits for employers and find the right medication at the right cost for employees. 

GAPro. One of the things that puzzles me about insurance is that, in its native form, it's as digital an industry as there is, yet companies insist on taking all the data from its natural habitat in computer storage and in the cloud and turning it into paper (or, at best, PDFs). Companies then spend an inordinate amount of time and money exchanging those pieces of paper (or PDFs), even as the information in them becomes more and more outdated. Why not just leave the data in its native form and provide access to up-to-date information the instant it's needed?

That's the approach GAPro takes. It is initially focusing on doing away with certificates of insurance in favor of what it calls "verification as a service," but it has broad plans to provide pipes that will let the insurance ecosystem share data, not pieces of paper. This will be a hard slog. There are lots of pipes to be created to loads of sources of data. But I have to believe that GAPro's answer is the right one, and it seems to be furthest along the "verification as a service" path.

RightIndem. This U.K.-based startup is a sharp example of what's being done in claims to both reduce costs and to speed the process for customers, while reducing the hassle. RightIndem provides self-serve claims tools to policyholders and gives them a simple, digital way to track the progress of their claims. Artificial intelligence can make automated decisions and set claims costs, while spotting fraud and giving a robust reporting and analysis tool to claims managers. (You might also look at MotionsCloud, a German startup with a similar approach.)

Driveway Software. It claims to "cure car accidents" by using drivers' smartphones to monitor their behavior and to coach them toward safer habits. Given that the recent trend toward increased road fatalities (after decades of declines) stems largely from distracted driving, often because drivers are talking on their phones or are texting, it seems only appropriate to try to use the phones to improve driving. I also believe that insurers will increasingly need to focus on using their knowledge to prevent accidents, rather than just to price risk as intelligently as possible, and Driveway taps into that trend. (You might also keep an eye on Smart Drivinc, an early-stage startup that uses sophisticated technology to tell who's driving and to shut off that person's smartphone—and only that person's smartphone—while the car is in use.)

Coastal Risk Consulting. It takes the most sophisticated approach to flood risk that I've seen. The company uses LIDAR to map precise elevations within neighborhoods, for instance, so it can tell which homes in a danger area are especially vulnerable and which might be far safer than traditional analysis suggests. The company also helps insureds understand how they can mitigate their risks—perhaps by putting electrical equipment on a raised platform—and how the dangers will likely increase as climate change raises the level of the oceans in coming decades. Given that the National Flood Insurance Program is up for renewal this year by the U.S. Congress, Coastal Risk's thinking may find its way into the public debate. I hope it does.

We will publish a list of "Six Startups to Watch" each month. Please send along any thoughts about those on this list, about others we should keep an eye on and about ways we can make this list more useful. 

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Astounding leaps forward have been made in two key technologies in the last couple years: voice recognition and artificial intelligence. Virtually everyone is becoming used to conversing with Siri, Alexa and others, backed by powerful voice recognition engines to convert speech to text. At the same time, AI is at the heart of breakthroughs in driverless vehicles, robotics, IoT devices and other emerging technologies. The promise of these technologies to make our world safer, improve our lives and address chronic societal problems is no longer the province of science fiction writers. But a dichotomy must be resolved: the gap between the current performance of voice and AI technologies and the levels required to achieve the benefits of driverless vehicles and other technologies.

Practically everyone can relate to frustrating incidents in using voice- and AI-based systems for rudimentary tasks. My personal experience with these systems often produces results that are comical, sometimes offensive, and many times just downright misleading. The Bluetooth in my car cannot even correctly interpret names when I want it to dial individuals with simple, single-syllable first and last names. And we have all seen crazy text conversations posted on Facebook.

See also: Don’t Be Distracted by Driverless Cars

On the AI front, the use of virtual assistants is becoming more common. My recent experience with one was a trigger for writing this blog. Communicating with a virtual assistant to address a technical email issue, I was sent into endless loops and misunderstandings, always to be followed with, “Did I answer your question?” My pleas to PLEASE LET ME TALK TO A LIVE HUMAN were answered with nonsense responses, or “Please rate your satisfaction with the answer.” You can guess my response. Similarly, if you have ever used a virtual assistant to try to schedule meetings, you have most likely come away completely flummoxed and ended up emailing or calling your colleague directly to schedule it. These types of interactions begin to give you a deeper appreciation for the nuances of human communication.

My point in describing the tech shortcomings is that we are headed into a future where we will rely extensively on them. The AI behind decisions that affect your life will not all occur when you are barreling down the highway at 65 mph. But much of our transportation, healthcare, entertainment and education and many aspects of our daily lives will rely on the recommendations and decisions made by AI-based systems. And we will control the world around us largely via voice commands.

Both voice and AI technologies are improving rapidly, but the question becomes – how can we be confident that the AI in a driverless vehicle will make the right life and death decisions in milliseconds when the relatively simple interactions we experience today are botched so badly?

Will the robot companion of my elderly father make a fatal mistake on medicine dosage? The accuracy and success of these technologies when used in the future for driverless vehicles, smart homes and the world at large is essential.

The implications for the insurance industry are significant. The progress of these technologies bears close monitoring so that the regulatory environment for, availability of and usage of new capabilities in the connected world do not actually make the world riskier and less safe.

See also: Who Is Leading in Driverless Cars?  

For now, we must live with (or suffer through) the current state of the tech. Just for fun, I asked Siri, "What's your opinion of driverless vehicles?" My question was interpreted as “What’s your opinion of dry rose vehicles?” Need I say more?

The House Leadership’s plan for repealing and replacing the Affordable Care Act is now public for all the world to describe, dissect and debate. For articles on what it does, please check out my Flipboard magazine. To call the legislation dead on arrival is unfair. However, the proposal is looking under the weather. See also: What Trump Wants to Do on ACA   As I’ve posted previously, what Speaker Paul Ryan and the Republican leadership put forward is highly unlikely to be what emerges from Congress … assuming healthcare reform does emerge from Congress. Which may be a good thing. Because the American Health Care Act fails to address in any meaningful way what should be a critical goal of any healthcare reform proposal: making health care affordable. Washington is fixated on how Americans get health care coverage. Should there be government exchanges? Should premiums be subsidized? Should there be restrictions on how insurers set premiums for coverage? And so on. All of these are vital issues. But they’re playing around the edges of public policy when the real solution is at the core. This isn’t just opinion. It’s math. Consider: The Affordable Care Act requires carriers to spend the vast majority of every premium dollar they collect for medical care. In the individual and small group markets, 80% of premiums must go to cover medical care, or carriers must refund enough premium to reach that level. For larger employers, the medical expense target is 85% of premium. The remaining premium dollars are what carriers can use for paying claims, customer service, negotiating discounts with medical providers, advertising, legal expenses, staffing, HR departments, distribution costs, profit (or retained earnings for non-profits) and any other administrative costs. (Incidentally, I don’t see any reference in the new proposal to these provisions of the ACA, which, I assume, means they stay in place. If I’m wrong, please let me know in the comments section.) If lawmakers want to make health insurance coverage affordable, they’re going to have to make medical care affordable, because that’s where the money is. Zero out insurers' operational expense, and overall premiums would go down less than 20%. That’s a sizable amount. However, in three or four years we’re back where we are today thanks to medical inflation. And there’s no way to eliminate all administrative costs. Someone has to process the claims or answer consumers' questions. And those people expect to get paid. And someone has to pay for their phone, desk and computers. And someone has to support their equipment. And so on. Medical care represents 80% to 85% of health insurance premiums. Reduce this side of the ledger by 20%, and premiums fall 17% — roughly the same as eliminating 100% of insurers' operational costs. See also: Letter to Congress on Replacing ACA   If President Trump and Congress are serious about reducing the cost of health insurance, they need to figure out how to reduce the cost of medical care. There’s plenty of ideas out there (a topic for a future post). And, to be fair, they’ve mentioned a few. But there’s a political reality that explains why most of the rhetoric around Pennsylvania Avenue concerns the cost of coverage: No one has lost an election by attacking health insurance companies. They’re one of the safest pinatas in American politics. On the other hand, doctors and hospitals are politically dangerous to take on. Voters actually like them. Regulating health insurance so consumers get a fair deal is important. Lowering the cost of medical care is critical. It will also reduce insurance premiums. It’s just harder. Perhaps that’s why the Republican proposal is called the American Health Care Act. It would be wrong to use the word “affordable.” This article first appeared at the Alan Katz blog.