The Internet of Things can assist the insurance industry significantly because this industry thrives on data, and the IoT offers brand new, high volumes of data to work with. For example, Liberty Mutual is now offering connected smoke alarms to home insurance policyholders. Because these devices are connected to the internet, they can send alerts to policyholder cell phones if carbon monoxide or smoke is detected. These smoke alarms cost $99, but Liberty Mutual gives them to home insurance customers for free. If customers install them, they can save as much as 5% on their insurance premiums. This is because early notice about fires or carbon monoxide can significantly reduce the risk of losses. Connected smoke alarms are just one example of how home insurance is likely to change due to the IoT. In the future, more IoT devices in the house could lead to increased safety in the home and further reductions in insurance premiums. Other Uses for the IoT Connected IoT devices could also heavily affect auto insurance. In fact, they have already begun to do so. For example, Progressive Insurance has already started using something called “Progressive Snapshot.” Progressive Snapshot is a connected device that plugs into your OBD II port in your car. Once it is installed, it can monitor and record information about your driving habits. It then sends them to Progressive through wireless technology. If the Snapshot data shows that you are a good and a safe driver, then you can be rewarded with a lower premium. However, if the data reveals that you are a risky and an irresponsible driver, then your premium could go up. Progressive has already made more than 1.7 trillion driver observations with Snapshot. These observations are helping the insurer to find better and more customized insurance rates. Many auto insurers could soon follow Progressive’s lead. See also: 5 Predictions for the IoT in 2017   It is also possible that many more people could become safe drivers if they know that their driving behavior is being monitored by an IoT device. So, this could cause a reduction in accidents and traffic violations as well. IoT Outlook In addition to home and auto insurance, many other insurance niches will likely take advantage of the IoT. This is because the more accurate that an insurance company’s data is, the better it can price its products to both generate more customers, and reduce its risks. Health insurance, for example, could benefit strongly from the IoT. This is because wearable devices could help to monitor a person’s health. In fact, devices such as Fitbits and smart watches have already begun providing such data. See also: How to Reimagine Insurance With IoT   One source even claims that IoT devices could one day predict heart attacks or problems related to substance abuse. IoT devices could be used to send alerts in such circumstances. This could help to both save lives and reduce health insurance premiums. Essentially, the IoT is likely to become a huge asset to the insurance industry. It has the potential to make insurance better for both insurers, and customers, and it may also help to reduce injuries, property damage and other types of loss.

Technology in workers’ comp is hardly new, but new ways to infuse technology and predictive analytics into the claims and medical management processes can significantly improve accuracy, efficiency, outcomes and, importantly, profitability. Well-designed technology that streamlines operational flow, provides key knowledge to the right stakeholders at the right time, promotes efficiency and generates measurable savings is formidable. The system is intelligent and includes these key components:

1. Predictive analytics
2. Data monitoring
3. Knowledge for decision support

Predictive analytics Predictive analytics is the foundation for creating an intelligent medical management process. Analysis of historic data to understand the risks and cost drivers is the basis for an intelligent medical management system. For the risks identified, the organization sets its standards and priorities for which stakeholders are automatically alerted to those specific conditions in claims as they occur. The stakeholders are usually claims reps and nurse case managers, but others inside or outside the organization can be alerted, such as upper management or clients, depending on the situation and the organization’s goals. Upper management establishes specific action procedures for specified conditions or situations, thereby creating consistent procedures that can be measured against outcomes. See also: 25 Axioms Of Medical Care In The Workers Compensation System   Data monitoring Incoming data must be updated and monitored continuously. Random or interval monitoring leaves gaps in important claim knowledge that is overlooked until the next monitoring session. The damage may have escalated by then. With continuous data monitoring, everything is reviewed continually so nothing is missed. When the data in a claim matches the conditions outlined by the predictive modeling, an alert is sent to the stakeholder so action or intervention is initiated. Some say the stakeholders will not comply with such a structured program because they resist being directed. To solve that problem, accountability procedures in the form of audit trails in the system act as overseer. At any point, management can view what alerts have been sent, to whom they were sent, for what claim and for what reason, thereby observing participation and supporting accountability. Knowledge for decision support The alerts sent offer collected knowledge about the claim needing attention so the stakeholder is not forced to search for information before deciding upon an action. The reason the alert was triggered, detailed claim history including medical costs paid to date is displayed for alert recipients. Importantly, the projected costs for a claim with similar characteristics are portrayed, making reserving adjustments easy and accurate. The projected ultimate medical costs for the identified claim is portrayed for the claims rep based on the analytics, thereby providing decision support for adjusting reserves. Data entry into the system is never needed, therefore, accuracy and efficiency is optimized. At the same time, a nurse case manager is automatically notified of the situation if indicated by the organization’s rules in the system and is informed with the same claim detail. Now the case manager and claims rep are collaborating to mitigate the costs for this claim. They know the projected ultimate medical cost for the claim and the projected duration of the claim, so they have a common and concrete target to challenge. Moreover, improvements on the projections offer objective and defensible cost savings analysis. See also: Even More Tips For Building A Workers Compensation Medical Provider "A" Team   Predictive analytics combined with properly designed technology to create an intelligent medical management process establishes a distinct advantage. Knowledge made available at the appropriate time for the right people leads to efficiency and accuracy. Early, intelligent intervention drives better results.  Stakeholders coordinate efforts to mitigate the claim, working toward a shared goal. Finally, knowledge provided for decision-support positions for measurable, objective, reportable savings at claim closure.

Modernization of insurance accounting is finally here. The FASB issued its final guidance on enhanced disclosures for short duration contracts in May 2015 and published an exposure draft in September 2016 on targeted improvements to the accounting for long-duration contracts. After literally decades of deliberations, the IASB has completed its most recent exposure draft and plans to issue a final comprehensive accounting standard in the first half of 2017. Moreover, additional changes in the statutory accounting for most life insurance contracts are coming into effect; a company can elect to have Principles Based Reserving (PBR) effective on new business as early as Jan. 1, 2017. Companies have three years to prepare for PBR, with all new business issued in 2020 required to be valued using PBR. The impact of these regulatory changes is likely to be significant to financial reporting, operations and the business overall. Instead of approaching accounting modernization as a compliance exercise, companies instead should view the changes holistically, with an understanding that there will be impacts to systems, processes, profit profiles, capital, pricing and risk. Planning effectively and building a case for change can create efficiencies and enhanced capabilities that benefit the business more broadly. Financial reporting modernization will affect the entire organization, not just the finance and actuarial functions. Operations and systems; risk management; product development, marketing and distribution; and even HR will need to change. FASB’s Targeted Changes In May 2015, the FASB issued Accounting Standards Update (ASU) 2015-09, Disclosures about Short-Duration Contracts. Rather than changing the existing recognition and measurement guidance in U.S. GAAP for short-duration contracts, the FASB responded to views from financial statement users by requiring enhanced disclosures for the liability for unpaid claims and claims adjustment expenses. The disclosures include annual disaggregated incurred and paid claims development tables that need not exceed ten years, claims counts and incurred but not reported claim liabilities for each accident year included within the incurred claim development tables, and interim (as well as year-end) roll forwards of claim liabilities. The enhanced disclosures will be effective for public business entities for annual reporting periods beginning after Dec. 15, 2015 (i.e., 2016 for calendar year end entities) and interim reporting periods thereafter. The new disclosures may require the accumulation and reporting of new and different groupings of claims data by insurers from what is currently captured for U.S. statutory and other reporting purposes. Public companies are currently preparing now by making changes to existing processes and systems and performing dry runs of their processes to produce these disclosures. Non-public business entities will have a one-year deferral to allow additional time for preparation. See also: Who Is Innovating in Financial Services?   In September 2016, the FASB issued a proposed ASU on targeted improvements to the accounting for long-duration contracts. Proposed revisions include requiring the updating of cash flow assumptions and use of a high-quality fixed-income discount rate that maximizes the use of market observable inputs in calculating various insurance liabilities, simplifying the deferred acquisition costs amortization model and requiring certain insurance guarantees with capital market risk to be reported at fair value. The FASB also proposed enhanced disclosures, which include disaggregated roll forwards of certain asset and liability balances, additional information about risk management and significant estimates, input, judgments and assumptions used to measure various liabilities and to amortize deferred acquisition costs (“DAC”). No effective date was proposed, and transition approaches were provided with the recognition that full retrospective application may be impracticable. IASB to issue a new comprehensive standard The IASB’s journey to a final, comprehensive insurance contracts standard is nearly complete. After reviewing feedback from field testing by selected companies in targeted areas, the IASB completed its deliberations in November 2016. The IASB staff is proceeding with drafting IFRS 17 (previously referred to as IFRS 4 Phase II) with a proposed effective date of Jan. 1, 2021. Three measurement models are provided for in the standard: 1) Building Block Approach (“BBA”); 2) Premium Allocation Approach (“PAA”); and 3) the Variable Fee Approach (“VFA”). The default model for all insurance contracts is the BBA and is based on a discounted cash flow model with a risk adjustment and deferral of up-front profits through the Contractual Service Margin (CSM). This is a current value model in which changes in the initial building blocks are treated in different ways in the P&L. Changes in the cash flows and risk adjustment related to future services are recognized by adjusting the CSM, whereas those related to past and current services flow to the P&L. The CSM amortization pattern is based on the passage of time and drives the profit recognition profile. The effect of changes in discount rates can either be recognized in other comprehensive income (OCI) or P&L. The IASB has also allowed for the use of the PAA for qualifying short-term contracts, or those typically written by property and casualty insurers. This approach is similar to an unearned premium accounting for unexpired risks with certain differences such as deferred acquisition costs offsetting the liability for remaining coverage rather than being reflected as an asset. The claims liability, or liability for incurred claims, is measured using the BBA without a CSM. Discounting of this liability for incurred claims would be required, except where a practical expedient applies for contracts in which claims are settled in one year or less from the incurred date. Similar to the BBA model, the effect of changes in discount rates can either be recognized in other comprehensive income (“OCI”) or the P&L. The VFA is intended to be applied to qualifying participating contracts. This model was subject to extensive deliberations, considering the prevalence of such features in business issued by European insurers. This model recognizes a linkage of the insurer’s liability to underlying items where the policyholders are paid a substantial share of the returns, and a substantial proportion of the cash flows vary with underlying items. The VFA is the BBA model but with notable differences in treatment including the changes in the insurer’s share of assets being recognized in the CSM, accretion of interest on CSM at current rates, and P&L movements in liabilities mirroring the treatment on underlying assets with differences in OCI, if such an option is elected. The income statement will be transformed significantly. Rather than being based on premium due or received, insurance contract revenue will be derived based on expected benefits and expenses, allocation of DAC and release of the CSM and risk adjustment. The insurance contracts standard also requires substantial disclosures, including disaggregated roll forwards of certain insurance contract assets and liability balances. Forming a holistic strategy and plan to address accounting changes will promote effective compliance, reduce cost and disruption, and increase operational efficiency, as well as help insurers create more timely, relevant, and reliable management information. Statutory accounting: The move to principles-based reserving The recently adopted Principles-Based Reserving (“PBR”) is a major shift in the calculation of statutory life insurance policy reserves and will have far-reaching business implications. The former formulaic approach to determining policy reserves is being replaced by an approach that more closely reflects the risks of products. Adoption is permitted as early as 2017 with a three-year transition window. Management must indicate to their regulator if they plan on adopting PBR before 2020. PBR’s primary objective is to have reserves that properly reflect the financial risks, benefits and guarantees associated with policies and also reflect a company’s own experience for assumptions such as mortality, lapses and expenses. The reserves would also be determined assessing the impact under a variety of future economic scenarios. PBR reserves can require as many as three different calculations based on the risk profile of the products and supporting assets. Companies will hold the highest of the reserve using a formula-based net premium reserve and two principle-based reserves – a Stochastic Reserve (SR) based on many scenarios and a Deterministic Reserve (DR) based on a single baseline scenario. The assumptions underlying principles-based reserves will be updated for changes in the economic environment, for changes in company experience and for changes in margins to reflect the changing nature of the risks. A provision called the “Exclusion Tests” allows companies the option of not calculating the stochastic or deterministic reserves if the appropriate exclusion test is passed. Reserves under PBR may increase or decrease depending on the risks inherent in the products. PBR requirements call for explicit governance over the processes for experience studies, model inputs and outputs and model development, changes and validation. In addition, regulators will be looking to perform a more holistic review of the reserves. Therefore, and as we noted in the 2015 edition of this publication, it is critical that:

• The PBR reserve process is auditable, including the setting of margins and assumptions, performing exclusion tests, sensitivity testing, computation of the reserves and disclosures;
• Controls and governance are in place and documented, including assumption oversight, model validation and model risk controls; and
• Experience studies are conducted with appropriate frequency and a structure for sharing results with regulators is developed.

PBR will introduce volatility to life statutory reserving, causing additional volatility in statutory earnings. Planning functions will be stressed to be able to forecast the impact of PBR over their planning horizons because three different reserve calculations will need to be forecast. There is no “one size fits all” approach to addressing the FASB’s and IASB’s changes. Each company will likely be starting from a different place and may have different goals for a future state. Implications A company’s approach to addressing these changes can vary depending on a variety of factors, such as the current maturity level of its IT architecture and structure, potential impact of proposed changes on earnings emergence and regulatory capital and current and planned IT and actuarial modernization initiatives. In other words, there is no “one size fits all” approach to addressing these changes. Each company likely will be starting from a different place and may have different goals for a future state. A company should invest the time to develop a strategic plan to address these changes with a solid understanding of the relevant factors, including similarities and differences between the changes. In doing so, companies should keep in mind the following potential implications: Accounting & Financial Reporting

• Where accounting options or interpretations exist, companies should thoroughly evaluate the implications of such decisions from a financial, operational and business perspective. Modeling can be particularly useful in making informed decisions, identifying pros and cons and facilitating decisions.
• Financial statement presentation, particularly in IFRS 17, could change significantly. Proper planning and evaluation of requirements, presentation options, granularity of financial statement line items and industry views will be essential in building a new view of an insurer’s financial statements.
• Financial statement disclosures could increase significantly. Requirements such as disaggregated roll forwards could result in companies reflecting financial statement disclosures, investor supplements and other external communications at lower levels than previously provided.
• Change is not limited to insurance accounting. Other areas of accounting change include financial instruments, leasing and revenue recognition. For example, the impact of changes in financial instruments accounting will be important in evaluating decisions made for the liability side of the balance sheet.

See also: The Defining Issue for Financial Markets   Operational

• Inherent in each of these accounting changes is a company’s ability to produce cash flow models and use data that is well-controlled. Companies should consider performing a current state assessment of their capabilities and leverage, to the extent possible, infrastructure developed to comply with other regulatory changes such as Solvency II and ORSA and identify where enhancements or new technology is needed.
• Given the increased demands on technology, computing and data resources that will be required, legacy processes and systems will not likely be sufficient to address pending regulatory and reporting changes. However, this creates an opportunity for these accounting changes to possibly be a catalyst for finance and actuarial modernization initiatives that did not historically have sufficient business cases and appetite internally for support.
• As these accounting changes are generally based on the use of current assumptions, there will be an increased emphasis on the ability to efficiently and effectively evaluate historical experience on products by establishing new or enhancing existing processes. Strong governance over experience studies, inputs, models, outputs and processes will be essential.
• As complexity increases with the implementation of these accounting changes, the impact on human resources could be significant. Depending on how many bases of accounting a company is required to produce, separate teams with the requisite skill sets may be necessary to produce, analyze and report the results. Even where separate teams are not needed, the close process will place additional demands on existing staff given the complexity of the new requirements and impact to existing processes. Companies may want to consider a re-design of their close process, depending on the extent of the impacts.

Business

• Product pricing could be affected as companies consider the financial impacts of these accounting changes on profit emergence, capital and other internal pricing metrics. For instance, the disconnect of asset yields from discounting used in liabilities under U.S. GAAP and IFRS could result in a different profit emergence or potentially create scenarios where losses exist at issuance.
• Companies may make different decisions on asset and liability matching or choose to hedge risk on products differently. Analysis should be performed to understand changes in the measurement approach with respect to discount rates and financial impacts of guarantees such that an appropriate strategy can be developed.
• The move to accounting models where both policyholder behavior and market-based assumptions are updated more frequently will likely result in greater volatility in earnings. Management reporting, key performance indicators, non- GAAP measures, financial statement presentation and disclosure and investor materials will need to be revisited such that an appropriate management and financial statement user view can be developed.
• The impact from a human resources perspective should not be underestimated. Performance-based employee compensation plans that are tied to financial metrics will likely need to change. Employees will also need to receive effective training on the new accounting standards, processes and systems that will be put in place.

Forming a holistic strategy and plan to address these changes will promote effective compliance, reduce cost and disruption and increase operational efficiency, as well as help insurers create more timely, relevant and reliable management information. Given the pervasive impact of these changes, it is important that companies put in place an effective governance structure to help them manage change and set guiding principles for projects. For example, this involves the development of steering committees, work streams and a project management office at the corporate and business group level that can effectively communicate information, navigate difficult decisions, resolve issues and ensure progress is on track. Each company has a unique culture and structure, therefore governance will need to be developed with that in mind to ensure it works for your organization. Companies that do not plan effectively and establish effective governance structures are likely to struggle with subpar operating models, higher capital costs, compliance challenges and overall lack of competitiveness.

Your grandparents likely had a single insurance agent, someone they called with all of their needs and questions. Now, insurance customers are far more likely to consult Google with their questions and sometimes skip an agent altogether. The dynamic has changed. Consumers who once valued the agent relationship now prioritize instant changes and self-service. But agents still have an opportunity to capture customers with even the most modern preferences, preserving that mutually beneficial relationship between agent and customer. About half of insurance shoppers obtain a quote through an insurer website before purchasing a policy, according to J.D. Power’s 2016 U.S. Insurance Shopping Study. Despite this, only 25% actually buy their policy online, according to the report, and half complete the sale through direct contact with an agent. It’s easy to feel discouraged by the move to automation and online services. As an agent, your skills lie in matching customers with the right insurance policies. The fact that about half of all insurance customers buy through an agent means you shouldn’t lose hope. Although the industry is in flux and customer preferences are changing, it’s still possible for you to do what you do best. See also: How to Support the Agent of the Future Help customers navigate the insurance landscape We’ve all seen bad information and advice doled out online as expertise. You recognize it for what it is, but consumers might not. They don’t always know how to weigh the value or validity of what they find. This is where you can help. Be an online guide for people by:

• Sharing worthwhile articles and websites on social media and via email. Add value to what you share by offering your own short commentary.
• Pointing out examples of bad advice or inaccuracies and pairing these red flags with your accurate, expert information.
• Sending on-the-fence customers out with reliable resources. If you can’t close the deal today, know your lead will likely go online to do additional research. If you point them toward good information, they’ll be more likely to return to the source when they’re ready to buy.

Be available Modern customers don’t want to wait for a response, so don’t make them. According to a PricewaterhouseCoopers 2014 survey that asked customers why they purchased a policy online, 60% responded that the “24/7 availability” of online services was a contributing factor, second only to “ease of access.” No one is suggesting you make yourself available to clients all day and night, but agents who keep flexible hours and answer phone calls the first time may have an advantage. Let customers know you’re accessible by:

• Answering the phone, every time. Show your customers that even when you’re busy, you can make time for them. It’s better to say hello and ask if you can call a client back than to send them to voicemail.
• Following up when a customer is waiting to hear back from you. Even if it’s a call or text to say you need another hour to finalize their quote, they won’t have to wonder whether you’ve forgotten about them entirely.
• Responding to social media and email requests with the same urgency as phone calls. Customers go online for availability and ease of access, so deliver that to them. Demonstrate that these qualities can come from attentive agents, not just automated online services.

Don’t abandon old-school techniques Agents of days gone by knew the value of having ongoing relationships with their customers, and that value still exists. Sure, modern customers want quick, easy service, but there’s a reason half call an agent to close the deal. See also: How the Customer Experience Is Shifting   Create this mutually rewarding relationship by:

• Being proactive. It’s easy to fall into reactive mode with current consumer preferences, but use online contacts and a lead-generation service as jumping-off points. Each introduction should be seen as the beginning of something long-term, not just a single transaction.
• Striving to be that single source of information, like agents of past generations. Act as a risk advisor, identifying opportunities for clients to protect their assets throughout their life.
• Focusing on the customer, not the policies. Know your client base, their families and their lifestyle. This will come through in your communications, and you’ll be better prepared to offer your customers the best insurance for their needs.

The Telephone Consumer Protection Act (TCPA) requires prior written consent for calls and texts to consumers' mobile phones and for prerecorded telemarketing calls to residential landline numbers. TCPA lawsuits filed by consumers are on the rise -- growing by a factor of 12 from 2010 to last year -- and a number of large insurance brands have been part of multimillion-dollar TCPA settlements. To mitigate TCPA risk, Jornaya works with brands that are dialing out on third-party leads and leads generated from their own websites. The process begins with ensuring that the websites where consumers are interacting display TCPA-compliant consent language and that consent to be contacted was given by the consumer. After a consumer agrees, and when a brand leverages a call center to get consumers on the phone and deliver warm transfers, how does the brand know that the consumer gave consent to be called and that there is proof of it? How the Lead Form to Warm Transfer Practice Works Consumers fill out lead forms, and the publisher’s call center (or separate entity that acquired the lead in the ping/post ecosystem) dials the consumer to make contact, qualifies the consumer’s intent to get an insurance quote, receives the consumer’s agreement to speak with an insurance agent and warm transfers the call to the brand. Typically, when the live call is transferred, the consumer’s Caller ID is what the brand sees; therefore, it appears that the consumer is calling the brand directly. In actuality, the call was transferred via the third-party call center. If the publisher of the lead being called was not the same company that is placing the calls, then that publisher has sold the lead to another entity that is dialing/transferring the lead to your brand. See also: Why Buy Cyber and Privacy Liability. . .   This puts your brand two steps away from the lead form being filled out, making it difficult—if not impossible—to ensure that the consumer was exposed to TCPA-compliant language and gave the appropriate consent to be contacted. Without a way to ensure that consent was provided, and without persuasive proof of that consent,  the brand is taking on the risk of being sued for violating TCPA law simply by answering the inbound phone call. With an increase in these kinds of call marketing practices, we’ve seen a parallel increase in these lawsuits. An insurance carrier or agent has no idea whether there was consent because he doesn't know the origin of the phone call. If it’s an actual consumer calling directly, you’re fine. If it’s a warm transfer from a call center that dialed a consumer that filled out a lead form, it may not be possible to get that proof of consent. At a minimum, it will require a significant amount of effort to piece together all the steps the call went through. Some brands still aren’t concerned about the TCPA exposure with regard to warm transfers, because they assume the burden lies only with the company that is actually dialing the phone--in this case, the call center. But the fact that you’re not the one making the outbound call does not necessarily absolve you of the responsibility nor dissuade attorneys from dragging you into the lawsuit, costing time, money and damage to your brand. Recently, lawsuits have popped up from this practice, where all parties involved are named in the lawsuit, including the brand buying the warm transfers. See also: Ransomware Threat Growing for Phones   What You Can Do to Protect Your Brand

1. The first step is to work with your call sources/partners to understand how they are driving calls to you. Explicitly ask them if they are driving calls via warm transfers.
2. If they are, ask them if they are dialing out to consumers who have filled out an online or mobile lead form.
3. If they are, it is critical that you have a way to trace the call data to the original lead form.
4. You then need to know definitively that the consumer consented to be contacted on the lead form and have persuasive proof the appropriate consent took place.

The group benefits market (including true group, voluntary benefits, and worksite) has experienced a great deal of change in the past few years, thanks to a variety of factors:

• A shift of responsibilities to the consumer (Affordable Care Act); a shift from defined benefit to defined contribution plans; an increase in voluntary benefits versus true group; etc.
• Increased employment.
• A competitive market for talent that demands a broader portfolio of benefits options.
• Market competition with individual life insurers and health insurers entering group benefits, along with a renewed focus on group benefits by some multi-line insurers. Uncertainty around healthcare could extend the trend.
• And more recently, insurtech—and tech in general—is forcing carriers to update systems to keep up with the Joneses.

See also: Benefits: One Size No Longer Fits All   While these trends would be enough to keep any carrier on its toes, the combination of the changes happening now means we are trying to build a house in a hurricane! Our coming research, Strategic Priorities 2017: Knowing vs. Doing, explains how a range of external trends are influencing insurer strategies and pressuring them into action. The trends affecting group benefits insurers fall broadly into two key categories:

1. Speed to market for new products, and
2. Customer engagement with improved service for brokers, employers and their employees.

Let’s take a look at what is driving the winds of change. Market Trend: Speed to Market for New Products Cloud/SaaS: A rapidly growing number of carriers across L&A, group and P&C are opting to deploy new core systems leveraging the cloud. A cloud-based, SaaS subscription model allows for the flex that a rapidly changing environment needs and is arguably more secure than traditional systems. A cloud/SaaS approach substantially reduces upfront investment, dramatically improves the ability to avoid customization and enables a focus on integration and configuration. It is also driving a host of vital business impacts, such as….

• Speed to implementation and speed to value: The combination of leveraging cloud/SaaS, a highly configurable system, and focusing on new books of business before conversion can lead to quick implementation. Historically, implementation has been measured in years, and ROI has been difficult to achieve. However, starting with a system that is immediately available for configuration and integration on day one can dramatically change ROI timelines. Carriers are increasingly taking this path.
• New products/New business first: More carriers are choosing to go to market with new products first, followed by dealing with existing products and conversion. There are many ways to approach this: Write new business only on the system to start; convert policies on renewal; close off existing blocks of business and either leave them on legacy platforms, offload them to a BPO provider, sell them to another carrier, or have a reinsurer take over administration of the block of policies. Any approach that enables a carrier to start with a clean slate improves the likelihood of a quick ROI.
• Configurability of solutions leads to configurability and agility of your business: Though the value of configurability for achieving a quick go-live was outlined previously, it’s important to note that highly configurable systems (of which there are now a few) allow insurers to make the business highly configurable … and agile. This enables insurers to take new products to market faster, and also allows more unique or niche products, plus more flexible business processes, which taken together, improve the ability to compete!
• Product bundling, unbundling, single carrier marketplace: Perhaps the greatest gust of wind has come from the direction of a demanding marketplace. Employers and brokers are asking group carriers to do new and innovative things all the time. One example of this is product bundling/white labeling to provide a full suite of products (though they often do this via benefit admin brokers/portals) or, on the opposite end of the spectrum, providing a “single carrier marketplace” of products (cafeteria plans). Once again, the same expanded options for configurability will allow carriers to flex when packaging their products.

Market Trend: Improved Customer Service, Experience and Engagement The winds of change are driven by people. As their lives change, insurers adapt. When it comes to the customer experience, group carriers are pulled in multiple directions because they are concerned with so many layers of customers. Is it possible to meet everyone’s experience expectations — the partner, the brokers, the employer’s HR team and the thousands of employees? The answer is most certainly, “Yes.” There has never been a better time technologically to capture growth through experience management. Insurers can pay attention to these four customer trends in particular.

• Portals – Broker, Employer, Employee: Increasingly, paper enrollments are becoming less common, even at the worksite. As technology becomes more pervasive, with nearly every employee having at least a smartphone, activities ranging from enrollment to claims submission are increasingly happening electronically. However, carriers need to be capable of supporting this. Having the right portal, with a responsive, mobile first design, that is built around well-thought-out journey maps, is critical, supported by a modern back-end system that supports real-time processing.
• User Experience: Millennials are now employees, employers, and home office staff, and have much, much different expectations for user experience. They’ve grown up in a world where UX has been defined by Apple, Amazon, and Google and expect that our systems are built to those standards, not that our systems are merely an improvement over legacy systems.
• Customer Engagement via Wellness/Gamification: Getting customers engaged can help improve cross-selling. This can be achieved in part with gamification and wellness solutions. Examples of this include Life.io and Human API, both of which can provide access to data from wearables. Life.io can allow participants to earn rewards, achieve goals, etc., but tied back to employee benefits. This engages customers and helps to build the brand.
• Improved Underwriting Through Technology: Underwriting, either at a group level or at an individual level for small groups, can be significantly improved using technology. Technology to improve underwriting ranges from tools such as Force Diagnostics’ rapid health exams, to cognitive analysis of census data (e.g., Watson), to leveraging analytics to better evaluate experience rating.

See also: Gig Economy: 5 Benefits of Outsourcing   These market trends, as well as others, ensure that group benefits providers will stay busy for a long time to come. Equally important, they mean that the distance between carriers that have modernized and those that haven’t will grow rapidly, and that those that haven’t will be challenged to win new customers, and could be subject to adverse selection. Modernizing has never been more important, and it has never required doing more to get there! What is certain is that group benefits providers that haven’t started on a course of change need to hoist their sails and catch the wind while it’s blowing in opportunity’s direction.

A Google search on AI yields about 2.1 billion results. It is difficult to scan the news of any industry without tripping across articles on AI and machine learning.

Philosophers wonder about how AI will change the nature of human existence. Economists worry about job loss and propose schemes like a universal basic income to compensate. Business executives contemplate how to improve their operations and improve the customer experience. Others wonder about how human beings will change with the possibility of technology-based human enhancements, the prospect of cyborgs and the potential to extend lifespans.

These topics have been explored since the concepts of AI first began to emerge. But today there is more urgency and purpose to these discussions due to the rapid advances being made across a wide variety of AI-related fields. Much of the progress is due to the convergence of machine learning and the massive computing power now available. These are important questions for humanity, but it also turns out that there are significant implications for the insurance industry, even in the short to mid-term.

A new SMA research report, AI/Machine Learning in Insurance, investigates how AI applies to insurance, what insurers are doing to leverage AI today and what activities and investments are expected from the industry over the next three years. There is, indeed, a wide variety of opportunities for insurers to leverage AI across every part of the value chain and for every line of business.

Insurers are moving forward with strategies, projects and investments, although perhaps not at the rate that is warranted by the potential benefits. Slightly more than a third of P&C and a third of L&A companies plan investments in AI-related projects over the next three years. Insurers across all lines cite underwriting as the business area with the most opportunity, while claims is also an area with great opportunities and many use cases.

See also: 3 Keys to Success for Automation  

An important development is the new wave of insurtech startups that are based on or leverage AI technologies to create capabilities for insurers. In addition, "MatureTech" players and services firms are all rushing in to participate in the AI advancements. AI is not going to change the insurance industry overnight, but it will have a steadily increasing impact on the industry in several ways. There will be more and more opportunities to improve operations by automating tasks and decision making.

AI will also play a central role in enabling connected devices to support risk mitigation schemes. In addition, AI is expected to be part of the transformation in every industry that insurance serves.

Finally, and vitally important, is that AI will reshape the customer experience, whether via chatbots that enable more self-service or recommendation engines that enhance the capabilities of insurance professionals as they interact with customers.

The word of the day is "re-accommodate." As most of us have seen by now, that's the ham-handed word that the CEO of United Airlines used to describe what employees had to do for passengers on a flight Sunday after forcibly removing a 69-year-old who refused to give up his seat at O'Hare. According to relentless social media posts and urban dictionaries, the meaning of "re-accommodate" is something like: "to knock an elderly customer unconscious and drag his bloodied body away." 

That's not a good look for United, which, as I write this, has seen its market value drop $675 million—one wag noted on Twitter that United could have paid a passenger half a billion dollars to give up a seat on the flight and still come out ahead. But I don't think we can dismiss this PR nightmare as just a United problem. I've seen lots of companies make similar mistakes over the years, and I believe insurers large and small can fall into the United trap, at a time when problems can crop up far more suddenly than ever and can be far more damaging.

If you read the two communications from United CEO Oscar Munoz, a short one to the public and a longer one to employees, you can see how he got into this mess. Basically, he's saying that United has procedures, and employees followed those procedures, so, nothing to see here. Move along.

In a classic example of management myopia, Munoz thinks the problem is that the passenger didn't go along with those procedures. The passenger just didn't understand the importance of getting a United crew seated on that flight so it could get to Louisville and operate another flight. That later flight's many passengers should take precedence over any inconvenience to a single passenger, even one who said he was a doctor with patients he wouldn't be able to see if his return trip was delayed until the following afternoon.

Yeah, sure, the passenger had paid for the flight and was sitting on the plane. Yeah, sure, United had overbooked the flight to maximize revenue. But overbooking is standard procedure, and the fine print on the ticket said United had the right to remove passengers. While Munoz acknowledged that the situation was a mess, he deflected blame to the "defiant" passenger and perhaps to the Chicago police who actually removed the passenger after being summoned by United. 

Lest you think this is just a Munoz view of the world: Former Continental Airlines CEO Gordon Bethune was interviewed shortly after video from the plane surfaced and blamed the passenger for his "immature reaction" to being ordered off the plane.

But the public ultimately decides who's right and who's wrong, and United/Munoz/Bethune will, I'm confident, find out that the public doesn't care about fine print or procedure. Individuals view situations from their individual points of view, and they are horrified at the idea that someone could be dragged off a plane after paying for a ticket and settling in to his seat. Individuals get to vote with their wallets, and social media will keep this issue in front of people for a long time. It is already having a field day with tweets such as this:

Now, I'm not suggesting that insurers will ever beat up a customer and drag him away. In any case, dealings with insurance customers just about always happen in private, so they are unlikely to produce viral videos. But, let's be honest: Insurers look at the world through their procedure manuals and are known to invoke the fine print. And every customer owns a megaphone these days, if not a printing press, so just assuring yourself that you've satisfied the letter of the law won't stop a customer from trying to raise a ruckus and won't keep others from resonating with that complaint. 

Some sort of "re-accommodation" is coming for an insurer. These days of wide open communication make it inevitable that a disagreement with a customer will eventually draw a large audience. But we can make problems far less likely if we give employees some flexibility and encourage them to use common sense—in United's case, someone just had to think, "let's not beat up a passenger in front of a bunch of cameras." When the inevitable problem comes, we can quickly minimize the impact if we just look at it through the customer's eyes and not through the lens of a procedure manual. 

Cheers,

Paul Carroll,
Editor-in-Chief 

I’ve been quite vocal about supporting only wellness done for employees and not to them…but what if there could be a “conventional” wellness program – even including screening, HRAs etc. – that both you and I could love? People manage what’s measured and what’s paid for. If employers want people to stay healthy in the long run, why not measure and pay for health in the long run? Why not give people the incentive to stay healthy during their working years, instead of giving them the incentive to pretend to participate in programs of no interest, just to make a few bucks? Or, worse, give employees the incentive to learn how to cheat on biometrics, and how to lie on health risk assessments. Attempts to create a culture of health often create a culture of resentment and deceit. Short-term incentives haven’t changed weight, as noted behavioral economist Kevin Volpp has shown. Nor have they changed true health outcomes – it is easily provable that wellness has almost literally never avoided a single risk-sensitive medical event. So-called outcomes-based programs, ironically, are more about distorting short-term outcomes than achieving long-term outcomes. They have more in common with training circus animals to do tricks in exchange for treats than they do with helping employees improve long-term health. The only thing that’s proven? Some vendors and some programs harm employees. Nor is wellness popular -- look at almost any article in almost any major lay or academic publication in the last four years. Then read almost any comment to those articles. Wellness industry leaders know that wellness has failed, and that’s why my proffered $2-million reward for demonstrating success remains unclaimed. The 401W Wellness Savings Account Why not discard all this year-to-year micromanagement? The goal of wellness isn’t to interfere in employees’ personal lives. It’s for employees to be healthy enough in the long run to avoid expensive events. So you are rewarding/penalizing them annually…but the benefit to you as the employer is way down the road -- if indeed someone who would have infarcted in the next 20 years, doesn’t. Future event avoidance is the only healthcare outcome that matters. So let’s align incentives so that everyone is focused on long term health. Instead of doling out money and otherwise micromanaging programs and micromanaging incentives, why not create a 401W Wellness Savings Account, the equivalent of a 401K for wellness? People who reach retirement without a major avoidable health event can collect their entire accumulated amount. Along the way, they can choose to participate or not in the programs your company offers. There is no money at stake for those offers, so no financial coercion. With or without your help -- totally their option -- employees need to reach the goal: no lifestyle-related events through retirement. There are a few asterisks that go with this, including but not limited to:

• The ultimate reward would be based on years of service and retirement age – each employer would have its own formula;
• Because some people are unlucky and get events despite their best efforts, participation itself would earn the reward even if someone had a heart attack or other event. Put another way, by participating, employees are insuring themselves against their own possible bad luck.
• In order to avoid the optics of only caring about employees until they retire, the reward could be partially or totally swapped for an even larger payout after retirement that would take the form of subsidies and special deals on health-related endeavors.
• It wouldn’t just be heart attacks, but it would have to be discrete avoidable events. Bypasses, spinal fusions, and COPD come to mind– would also be included. Anything that is discrete, avoidable, common and expensive could be included, but there are some complexities as you move beyond those events.

See also: There May Be a Cure for Wellness   The Wellness 401W Plan offers many advantages over traditional wellness, for both employers and employees:

• Employees can’t hate it because there’s nothing to hate. It’s truly opt-in. No annual money is at stake. They don’t lose money by not participating -- as long as they patrol their own health. And whether they succeed in patrolling their own health is determined objectively.
• Employees no longer need to share PHI, except at the end if they want to collect. At that point presumably most employees wouldn’t care, because they are no longer insured by their employer. (In any event, it would be a third party looking at the claims and reporting thumbs up to the employer.)
• No cheating. These events/procedures are very discrete. And they won’t cheat on HRAs and biometrics because there is no reason to cheat – they are only cheating themselves. If they intended to cheat, they wouldn’t participate. They would patrol their own health.
• No need to make employees get screened or get checkups every year -- or to pay for it. Rather, screening according to guidelines is fine. Screening would be available but not required and employees would be educated (most like using Quizzify) about optimal screening and checkup intervals.
• Incentives are completely aligned.
• Because a certain number of years of service would be required according to any given formula, retention is likely to increase. On balance, a company could retain and attract healthier people, since by definition they can make more money.
• Great PR is possible as well. “Wellness” and “great PR” are rarely found in the same sentence but this would be an exception.

This doesn’t even include the biggest advantages to employers. Finally, after thirty years of provably making zero impact on medical events nationwide, employer wellness programs will have a strong likelihood of being able to do just that. Employers don’t have wait to see savings, either. Savings will be close to immediate. There is no need to pay vendors to screen the stuffing out of employees. Employees can be screened –and participate in other programs – but only if they want to. You can offer guidance on USPSTF or Choosing Wisely guidelines, but you don’t have to push people into overscreening. Also whenever someone quits before their 401W vests, their 401W becomes employer savings. (There are probably no specific regulations around the finances here, like there are for pensions. The 401W is like a deferred commission for a salesperson who keeps an account – only in this case the “account” is his or her own health.) And what would a great idea be if it didn’t involve Quizzify? The explanation of this novel program to employees would benefit from a Q&A vehicle already in place. It would also educate them along the way in how to stay healthy, what they need to do to access their account, how their account would grow over time etc. Participating in Quizzify a certain number of times a year would “count” as participation in wellness, for the purposes of claiming the 401W. Further, the option of Quizzify allows employees to participate regardless of health status, with no disclosure of PHI. Sure, there are loose ends. What if someone participates some years and not others? Would 401Ws be portable? Would portability depend on whether someone quits or was fired? (Remember, there are no regulations around 401Ws now. You can make your own rules.) Would you need an exam at the end of program or is claims data enough? To start this program, a phase-in is recommended. It’s tough to take away people’s incentives, which many have come to view as part of their compensation. But as employees see their accounts growing, their excitement will grow, too – not just about the state of their 401Ws, which could reach well into the five figures by retirement, but also about the state of their own health. Of course, some employees want their money now…and as you read the FAQs, you’ll see that issue, along with many others, can be elegantly addressed. FAQs: How is this different from a health savings account? (HSA) You need to have an “official” high-deductible plan to have an HSA. HSAs can’t be tied to true health outcomes. Further, they can’t just be paid out. They are regulated in many other ways too, and consequently they don’t address the problem at hand. Even so, whatever fiduciary administers your HSA could also administer your 401W. Is this taxable to the employee when earned, like a participation incentive? No. It is contingent and deferred. It is taxed when paid out, meaning it can compound pretax. You are not constrained in how you invest it, as in a pension fund, so it can presumably compound faster. We think our millennials want their money now. Can we do that? Yes. You could let people take a haircut and get their incentive right away. This creates immediate savings for you, as the amount you would have to give right away is likely to be less than what you would be budgeting. Example: if your incentive is $400 today, your incentive in the 401W could still be $400, but if someone wants it now, they could participate, and get (for example) $200. How does this address privacy concerns? Employees are free to give up zero PHI with no penalty. They can do this either by picking the self-patrolling, self-underwriting option and do whatever they want to do on their own. Or they could “participate” by selecting Quizzify-type options requiring no disclosures. Only at the end, when they want their money, does the employer have to know (presumably through a third party). Wellness is also criticized for ageism. How does this get addressed? Depending on how the program is set up, it is likely that older employees will have more money in their kitties sooner, because they reach retirement sooner. So it’s quite the opposite: employers can design programs that are more appealing to older workers, since they are the ones who suffer by far the majority of the wellness-sensitive medical events. By contrast, under the current systems, older employees typically get charged for higher weights and blood pressure that are likely age-related rather than lifestyle-related. Is this consistent with the Employee Health and Wellness Program Code of Conduct? Yes. It is totally voluntary. Any employee can qualify without even letting the employer know what they are doing for their health, let alone divulging information. So employee dignity is totally respected. Employees are free to adhere to USPSTF guidelines and still collect. And there can’t be any lying about outcomes. While crash-dieting contests are still legal in a 401W plan, there is no reason for an employer to offer them, since they harm employees. Is the 401W consistent with clinical guidelines? There is the assumption that much or all of what an employee can “opt in” for is clinically sound. That means HRA advice and the selection and recommended frequency of screening tests must conform to guidelines. The 401W could theoretically be done without adhering to guidelines, but that just means employers will pay more, both to the vendors and then in medical claims. One reason to include Quizzify in the selection of options for a 401W is that employees are assured of at least one option conforming to the Code, to clinical guidelines, and to the standards of the Validation Institute. Is this consistent with creating a healthy environment? It is quite consistent. Employees would likely support it and take advantage of it, since they are being paid to stay healthy. Further, you will have extra money in the pot to provide it, both from spending less on screenings and the incentives that get earned but didn’t vest. You are giving the employees a stake in their own long-term health, self-underwriting as oppose to community rating, so to speak. Giving people financial responsibility for their own health creates a natural constituency to want employers to do something about it. See also: Shattering the Wellness ROI Myth   You say event avoidance is the only healthcare outcome that matters. What about non-healthcare outcomes, people feeling their best and giving their best work? There is no reason at all to assume conventional “voluntary” participation programs or outcomes-based jump-through-hoops programs will help people feel their best. By contrast, giving people a menu of offerings and the chance to opt into their own offering would certainly make people feel better than charging insurance by the pound, reporting employee weight to shareholders, collecting employee DNA, and other ideas that have been seriously proposed by the wellness industry. There is no scenario under which people would feel better being economically coerced into wellness (and we all know how employees feel about that) than being able to chart their own path to health, with or without employer guidance. What if spinal fusions and bypasses/transplants are part of the no-fly zone of invalidating events, but the person really needs one? First, remember that an employee participating in the program doesn’t lose the kitty under any circumstances other than not satisfying vesting requirements. You could also define “participating” as “using a Center of Excellence hospital” (the model pioneered by Walmart and described in Chapter 5 of Cracking Health Costs) and have that be part of the program as well. In the case of those hospitals – at least the ones in Walmart’s model – they often find the admitting diagnosis and/or the recommended operation to be respectively incorrect and unneeded/likely harmful. There could also be an appeals process for people who genuinely need one, whereby they don't lose their kitty. What if (for example) getting diabetes voids your 401W, but you got diabetes because you were on statins? As long as an employee is participating in the program, he or she is still eligible. Remember, the event disqualifier only kicks in for non-participants. And one thing employees would learn in Quizzify is that, for people who aren’t at high risk of heart attack, statins increase the chances of diabetes more than they reduce the chances of a heart attack. So presumably inappropriate statin use would decline.

The insurance industry is not the only business to struggle with understanding its data. But the sheer volume of information hitting insurers’ desktops on a daily basis means it cannot ignore the importance of acting now to embrace the latest technology to get to grips with the issue. Disruption and innovation will alter established business models indelibly. We understand this because reinsurance was itself born out of innovation. As specialist product providers and managers of biometric risk, Gen Re makes a significant contribution to the structure of today’s global reinsurance markets. We recognize that the way we go about things must fit the times. Life insurers will soon find themselves in a technologically shaped future that is customer-centric. Life insurance is not a simple transaction, which perhaps explains why so many don’t bother with it. However, if the industry makes better use of technology, it will make life insurance accessible for large numbers of people who have none or too little. The life insurance industry is generally seen as slow to initiate change or even resistant to it. More likely its well-established and successful working practices make life insurers hesitant to commit to new ways without knowing whether the new ones will be adequate and stand the test of time. Contrary to opinion, life insurers are just like any retailer, and keen for greater engagement and sustained direct relationships with their customers. It is important that insurers do adapt to changes in technology merely to avoid being left behind and to stay relevant. How we behave and interact with people must give customers easier access, greater transparency, and more integrated and flexible solutions. Customer experience and behavioral economics play a role. Among other things, this means working with modern customers’ demands for products that are geared around their preferences and how they live their lives. For example, we recognize that fitness wearables have a part to play in maintaining good health. It’s why reward-for-fitness life insurance franchises have become popular in several markets. This is a clear sign of changing times; it shows people will share with their insurer some personal data when it provides them an advantage, such as a lowered insurance premium. Personalized medical care increasingly involves self-monitoring with mobile apps in “mecosystems” that give individual patients a hand in maintaining or recovering their health. People are also encouraged to augment their electronic health records by filling the blanks between episodic doctor’s visits with digital lifestyle data from wearables and phones. See also: Wave of Change About to Hit Life Insurers   Individuals will begin to develop rich intelligence about their everyday health from data on exercise, sleep, mood, diet, heart function and more. Personal information like this is likely to prove as predictively powerful as the medical data traditionally used by insurers. The development of a parallel source of medical information means insurance companies need to change the questions they ask and where they obtain further evidence. People will begin to expect an insurer to access their data and to do something tailored specifically for them with it. Social networks will help people with mutually aligned interests and common risk factors to form peer-to-peer insurance pools. Knowledge gained from consumer genetics tests or much wider use of genomics in medicine could mean people are much better equipped to make personal decisions about their insurability. Disruption, though, won’t all happen at consumer level. To meet evolving customer demands, life insurance companies also must undertake some internal disruption. There are behind-the-scenes opportunities to harness technology in risk selection, administration and claims processes to the benefit of customers. Companies are automating repetitive administrative tasks as quickly as possible. Blockchain technology will help insurers replace processes that need repeated paper transactions. Blockchain implements trusted and secure transactions with less bureaucracy, and since it works to decentralise administration, it is likely to be integral to the business models of new entrants to the life insurance market. Life insurance is sold predominantly via an advised sale through some kind of human intermediary whereas the future may see direct-to-customer, affiliate or social media advice being driven by some kind of robotic algorithm. The adviser of the future will bring technology into their businesses and propositions. If life insurers don’t make changes that provide an enriched digital experience for people, then someone else will. Technology will simplify our transactions allowing us to embed ourselves into the lives of customers as never before to support their financial and medical health. We can predict a very different future for life insurers. It’s a future with the customer at the center, and will be shaped by behavioral science and gamification, with social and peer-to-peer networking and smart devices all playing a part. While the basics underpinning life insurance will remain in place for many years to come, how people access it, the incentives it provides and its cost will all be shaped by technology. It’s not a one-off process; waves of disruption and continuous change should be expected. See also: Do We Even Need Insurers Any Longer?   It’s a fairly obvious point to make, but there isn’t one right answer. The future is about offering choice, and multiple pathways to it exist. As originally seen in “The Future of Insurance” published by Raconteur Media on Oct. 12, 2016, in The Times. You can download the full report here.